Economics Quiz 2

Part One: Multiple Choice

Choose the BEST answer from the options provided.

1. Suppose that the Board of Directors of the local symphony proposes that the admission price to
hear the orchestra be raised as a means of raising additional funds to support music programs.
Its members hoping that the demand for tickets is:
a . elastic
b. inelastic
c. unit elastic
d. it really says nothing about elasticity

2. Perfectly inelastic items are:

a. Goods or services that people will not pay for, no matter what the price is.
b. Goods or services people will pay any price for.
c. Goods or services that have a flexible price point.
d. Frozen Rubber bands

3. The demand of any good or service is dependent on all the following factors EXCEPT:
a. Preference
b. Price
c. Income
d. Marginal Utility

4. When the price of a good or service goes up, demand for it:
a. Goes up
b. Goes down
c. Can go up or down depending on the profit share of the item
d. Goes up or down depending on the Marginal Utility of the item

5. People believing that a house in an investment is based on:

a. Stupidity
b. Lies from banks or lending firms
c. Facts and research
d. Asymmetric Information

6. The Prisoner’s Dilemma is a short-hand name for:

a. When a person makes inefficient choices due to asymmetrical information
b. When a person makes inefficient choices due to greed or selfishness
c. When a person makes inefficient decisions that result in them being arrested
d. When a person makes inefficient decisions based on poor resource management.

7. Asymmetric Information is:

a. When both sides have the same amount of information
b. When one side has more information than the other
c. When neither side has enough information to make rational choices
 8. An example of a Perfectly Inelastic good would be:
a. Narcotics
b. Sneakers
c. Hamburgers
d. Cigarettes

Part Two: Short Answer

Answer the following questions in the space provided.

9. Would medication for a severe medical condition be an inelastic good?

10. Why do businesses care about the elasticity of their products?

11. Explain what a cost-benefit analysis is.

12. Explain why a house is not an investment.

13. How do banks remain profitable?

14. Credit Card companies often try to convince college students to apply for credit cards. Explain
why these people are targeted in this way.

15. Explain how Best Buy uses asymmetric information when offering you a warranty on purchased
items at the checkout counter.
Part Three: Calculations

Use the chart below to answer the following questions.

Price Quantity Demanded

$10.00 5
$8.00 6
$5.00 7
$4.50 10
$3.00 12
$1.50 18
$1.00 20

Calculate the elasticity of the following price points:

16. $10.00 and $8.00

17. $10.00 and $5.00

18. $4.50 and $3.00

19. $1.50 and $1.00

20. $10.00 and $4.50

21. $5.00 and $4.50