Unit 2 of 5
Study guide for CLEP CLEP Principles of Microeconomics — Unit 2: Elasticity and Consumer Choice. Practice questions, key concepts, and exam tips.
67
Practice Questions
22
Flashcards
4
Key Topics
Try these 5 questions from this unit. Sign up for full access to all 67.
If a good has a price elasticity of supply of 0.5, a 10% increase in price will lead to a
5% increase in quantity supplied
10% increase in quantity supplied
20% increase in quantity supplied
50% increase in quantity supplied
0% increase in quantity supplied
Answer: A — 5% increase in quantity supplied is correct because Es = $\frac{%ΔQs}{%ΔP}$ = 0.5, so a 10% increase in price leads to a 5% increase in quantity supplied.
What elasticity measures how responsive quantity demanded is to a change in price?
Income elasticity of demand
Cross-price elasticity of demand
Price elasticity of demand
Price elasticity of supply
Income elasticity of supply
Answer: C — Price elasticity of demand is correct because it measures how responsive quantity demanded is to a change in price. Income elasticity of demand is incorrect as it measures responsiveness to changes in income.
What determines the tax incidence?
Tax rate
Elasticity of demand and supply
Market size
Government revenue
Consumer income
Answer: B — Elasticity of demand and supply is correct because elasticities determine the burden.
When the price of coffee increases by 10%, the quantity demanded of tea increases by 8%. Based on this information, what is the cross-price elasticity of demand, and what does this relationship suggest about these two goods?
0.8; coffee and tea are complementary goods
-0.8; coffee and tea are complementary goods
0.8; coffee and tea are substitute goods
1.25; coffee and tea are substitute goods
-1.25; coffee and tea are substitute goods
Answer: C — Cross-price elasticity is calculated as the percentage change in quantity demanded of one good divided by the percentage change in price of another good: (8% / 10%) = 0.8. A positive cross-price elasticity indicates substitute goods—when coffee becomes more expensive, consumers buy more tea instead. Option "0.8; coffee and tea are complementary goods" incorrectly uses the right magnitude but wrong sign and classification. Option "-0.8; coffee and tea are complementary goods" has the wrong sign (cross-price elasticity for substitutes is positive). Option "1.25; coffee and tea are substitute goods" miscalculates the elasticity. Option "-1.25; coffee and tea are substitute goods" has both an incorrect calculation and misidentifies the relationship as substitutes when the negative sign would suggest complements.
A perfectly inelastic good has a price elasticity of demand of
0.1
0.5
1.0
0
infinity
Answer: D — 0 is correct because Ed = 0 for a perfectly inelastic good.
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