QUESTION 1

Your elasticity of demand for tea is -0.25.  If the price of tea drops by 10% due to recent production increases, what is the expected impact on your tea consumption?

A.Quantity demanded declines by 2.5%

B.Quantity demanded increases by 2.5%

C.Quantity demanded increases by 25%

D.Quantity demanded declines by 25%

QUESTION 2

Your elasticity of demand for gasoline is -0.25.  If the price of gasoline rises by 5% due to storms in the Gulf of Mexico, what is the expected impact on your gasoline consumption?

A.Quantity demanded decreases by 1.25%

B.Quantity demanded increases by 5%

C.Quantity demanded increaes by 12.5%

D.Quantity demanded declines by 12.5%

QUESTION 3

Jim recently graduated from college, and his annual income increased from $8,000 to $35,000.  Shortly after starting the new job, he dropped his Netflix account and paid for Amazon Prime so he could view Prime Videos in his leisure time.  What does this decision imply about his demand for online video services?

 A.Netflix is an inferior good for Jim

B.Amazon Prime is an inferior good for Jim

C.Netflix is a normal good for Jim

D.None of the above

QUESTION 4

For most consumers, an increase in the price of orange juice would lead to an increase in the consumption of grapefruit juice.  How are these two goods related in consumption?

A.The two goods have a cross-price elasticity equal to zero (i.e., independent in consumption)

B.The juices are complements in consumption

C.We do not have enough information to answer this question

D.The juices are substitutes in consumption

QUESTION 5

You have a downward sloping demand curve for pizza, and you eat two slices of pizza for lunch.  Are you willing to pay more for the first slice or the second slice?

A.First slice of pizza

B.Second slice of pizza

C.Equal willingness to pay for both slices of pizza

D.We do not have enough information to answer this question