Question 1

Total revenue decreases if price increases and demand is inelastic.

Accepted Answer

A) True 
 B)False

Question 2

Suppose the price of a good falls from $200 to $150, and the quantity demanded changes from 45,000 units to 50,500 units. Calculate the price elasticity of demand using the midpoint formula, and indicate whether demand is elastic, inelastic, or unit elastic.

Accepted Answer

The answer of Suppose the price of a good falls...

Question 3

If supply decreases and total revenue in an industry increases,

Accepted Answer

A)  demand elasticity must be equal to 1. 
B)  demand must be horizontal. 
C)  demand elasticity must be greater than 1. 
D)  we have a perfectly implausible situation. 
E)  demand elasticity must be less than 1. 
A)  demand elasticity must be equal to 1. 
B)  demand must be horizontal. 
C)  demand elasticity must be greater than 1. 
D)  we have a perfectly implausible situation. 
E)  demand elasticity must be less than 1.

Question 4

Compare a market where supply and demand are both very elastic to one where supply and demand are both very inelastic. Suppose the current equilibrium price and quantity are the same in both markets. Suppose further that the government imposes a price ceiling $.50 below the equilibrium price. Prepare a diagram comparing the shortages that result. Explain the difference in these two cases.

Accepted Answer

In the two diagrams below, the equilibri

Question 5

Supply may be elastic, unit elastic, or inelastic.

Accepted Answer

A) True 
 B)False

Question 6

Explain, in words, the difference between a low price elasticity of demand and a high price elasticity of demand for a 15 percent increase in price.

Accepted Answer

For a 15 percent increase in price, a hi

Question 7

Suppose that, as the price of wheat falls from $10 to $8, the quantity demanded of wheat increases from 100 bushels to 150 bushels. Using the midpoint formula, the price elasticity of demand for wheat is 1.8.

Accepted Answer

A) True 
 B)False

Question 8

If a good is considered to be an inferior good, its income elasticity of demand is

Accepted Answer

A)  greater than 1. 
B)  less than 0. 
C)  equal to 0. 
D)  between 0 and 1. 
E)  equal to 1. 
A)  greater than 1. 
B)  less than 0. 
C)  equal to 0. 
D)  between 0 and 1. 
E)  equal to 1.

Question 9

Suppose one market demand (D1) has a price elasticity of .65 and a second market demand (D2) has a price elasticity of .89. In comparing price elasticities of demand, it is proper to say that

Accepted Answer

A)  D2 is elastic compared to D1. 
B)  D2 is inelastic compared to D1. 
C)  D2 is more inelastic than D1. 
D)  D2 is more elastic than D1. 
E)  the elasticity of D1 and D2 is the same. 
A)  D2 is elastic compared to D1. 
B)  D2 is inelastic compared to D1. 
C)  D2 is more inelastic than D1. 
D)  D2 is more elastic than D1. 
E)  the elasticity of D1 and D2 is the same.

Question 10

By knowing how much quantity demanded changes for a given change in price, we can also know

Accepted Answer

A)  exactly which individuals will or will not continue to buy a good whose price has increased. 
B)  how much quantity supplied changes for a given change in price. 
C)  how much price changes when the amount of a good available for sale changes. 
D)  how much supply changes for a given change in price. 
E)  how much demand changes for a given change in price. 
A)  exactly which individuals will or will not continue to buy a good whose price has increased. 
B)  how much quantity supplied changes for a given change in price. 
C)  how much price changes when the amount of a good available for sale changes. 
D)  how much supply changes for a given change in price. 
E)  how much demand changes for a given change in price.

Question 11

For a given reduction in the supply of oil, the equilibrium price of oil will

Accepted Answer

A)  decrease by a larger amount for a higher price elasticity of demand. 
B)  decrease by a smaller amount for a higher price elasticity of demand. 
C)  increase by a larger amount for a higher price elasticity of demand. 
D)  increase by a smaller amount for a higher price elasticity of demand. 
E)  not change, regardless of the price elasticity of demand. 
A)  decrease by a larger amount for a higher price elasticity of demand. 
B)  decrease by a smaller amount for a higher price elasticity of demand. 
C)  increase by a larger amount for a higher price elasticity of demand. 
D)  increase by a smaller amount for a higher price elasticity of demand. 
E)  not change, regardless of the price elasticity of demand.

Question 12

Suppose that, as the price of product H falls from $5 to $4, the quantity of H demanded increases from 2,000 to 6,000 units. In this case, what is the elasticity of demand, using the midpoint formula?

Accepted Answer

A)  .9 
B)  .4 
C)  4.5 
D)  1.6 
E)  3.0 
A)  .9 
B)  .4 
C)  4.5 
D)  1.6 
E)  3.0

Question 13

Because there are few substitutes for insulin, we expect the price elasticity of demand for insulin to be fairly elastic.

Accepted Answer

A) True 
 B)False

Question 14

A price floor is

Accepted Answer

A)  a minimum price set by government. It causes a surplus if effective. 
B)  the equilibrium price. 
C)  a minimum price set by government. It causes a shortage if effective. 
D)  a maximum price set by government. It causes a shortage if effective. 
E)  a maximum price set by government. It causes a surplus if effective. 
A)  a minimum price set by government. It causes a surplus if effective. 
B)  the equilibrium price. 
C)  a minimum price set by government. It causes a shortage if effective. 
D)  a maximum price set by government. It causes a shortage if effective. 
E)  a maximum price set by government. It causes a surplus if effective.

Question 15

For a given shift in demand, the more elastic is supply, the

Accepted Answer

A)  smaller is the change in price. 
B)  smaller is the shift in demand. 
C)  smaller is the change in equilibrium quantity. 
D)  greater is the change in price. 
E)  greater is the shift in demand. 
A)  smaller is the change in price. 
B)  smaller is the shift in demand. 
C)  smaller is the change in equilibrium quantity. 
D)  greater is the change in price. 
E)  greater is the shift in demand.

Question 16

The price elasticity of demand is a more precise measure of the slope of a demand curve.

Accepted Answer

A) True 
 B)False

Question 17

If a consumer is spending a large portion of his or her income on a good, then the demand for the good is inelastic.

Accepted Answer

A) True 
 B)False

Question 18

The price elasticity of demand is expressed in dollar changes in price and quantity demanded.

Accepted Answer

A) True 
 B)False

Question 19

One reason the demand for electricity is probably more price elastic than the demand for table salt is that

Accepted Answer

A)  people react to a change in the price of electricity in the long run but react to a change in the price of salt in the short run. 
B)  there are more substitutes for electricity than for table salt. 
C)  people react to a change in the price of electricity in the short run but react to a change in the price of salt in the long run. 
D)  a change in the price of electricity is likely to be temporary compared to a change in the price of table salt. 
E)  electricity takes up a larger proportion of one's income than does table salt. 
A)  people react to a change in the price of electricity in the long run but react to a change in the price of salt in the short run. 
B)  there are more substitutes for electricity than for table salt. 
C)  people react to a change in the price of electricity in the short run but react to a change in the price of salt in the long run. 
D)  a change in the price of electricity is likely to be temporary compared to a change in the price of table salt. 
E)  electricity takes up a larger proportion of one's income than does table salt.

Question 20

For demand to be unit elastic,

Accepted Answer

A)  the percentage change in quantity demanded must be equal to the associated percentage change in price. 
B)  the percentage change in quantity demanded must be less than the associated percentage change in price. 
C)  quantity demanded must change with a change in price. 
D)  demand must change with a change in price. 
E)  the percentage change in quantity demanded must be greater than the associated percentage change in price. 
A)  the percentage change in quantity demanded must be equal to the associated percentage change in price. 
B)  the percentage change in quantity demanded must be less than the associated percentage change in price. 
C)  quantity demanded must change with a change in price. 
D)  demand must change with a change in price. 
E)  the percentage change in quantity demanded must be greater than the associated percentage change in price.

Total revenue decreases if price increases and demand is inelastic.

Suppose the price of a good falls from $200 to $150, and the quantity demanded changes from 45,000 units to 50,500 units. Calculate the price elasticity of demand using the midpoint formula, and indicate whether demand is elastic, inelastic, or unit elastic.

If supply decreases and total revenue in an industry increases,

Supply may be elastic, unit elastic, or inelastic.

Explain, in words, the difference between a low price elasticity of demand and a high price elasticity of demand for a 15 percent increase in price.

Suppose that, as the price of wheat falls from $10 to $8, the quantity demanded of wheat increases from 100 bushels to 150 bushels. Using the midpoint formula, the price elasticity of demand for wheat is 1.8.

If a good is considered to be an inferior good, its income elasticity of demand is

Suppose one market demand (D₁) has a price elasticity of .65 and a second market demand (D₂) has a price elasticity of .89. In comparing price elasticities of demand, it is proper to say that

By knowing how much quantity demanded changes for a given change in price, we can also know

For a given reduction in the supply of oil, the equilibrium price of oil will

Suppose that, as the price of product H falls from $5 to $4, the quantity of H demanded increases from 2,000 to 6,000 units. In this case, what is the elasticity of demand, using the midpoint formula?

Because there are few substitutes for insulin, we expect the price elasticity of demand for insulin to be fairly elastic.

A price floor is

For a given shift in demand, the more elastic is supply, the

The price elasticity of demand is a more precise measure of the slope of a demand curve.

If a consumer is spending a large portion of his or her income on a good, then the demand for the good is inelastic.

The price elasticity of demand is expressed in dollar changes in price and quantity demanded.

One reason the demand for electricity is probably more price elastic than the demand for table salt is that

For demand to be unit elastic,

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Interaction of People in Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Reading, Understanding, and Creating Graphs

Consumer Theory With Indifference Curves

Producer Theory With Isoquants

Filters

Exam 4: Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity

Total revenue decreases if price increases and demand is inelastic.

Suppose the price of a good falls from $200 to $150, and the quantity demanded changes from 45,000 units to 50,500 units. Calculate the price elasticity of demand using the midpoint formula, and indicate whether demand is elastic, inelastic, or unit elastic.

If supply decreases and total revenue in an industry increases,

Supply may be elastic, unit elastic, or inelastic.

Explain, in words, the difference between a low price elasticity of demand and a high price elasticity of demand for a 15 percent increase in price.

Suppose that, as the price of wheat falls from $10 to $8, the quantity demanded of wheat increases from 100 bushels to 150 bushels. Using the midpoint formula, the price elasticity of demand for wheat is 1.8.

If a good is considered to be an inferior good, its income elasticity of demand is

Suppose one market demand (D1) has a price elasticity of .65 and a second market demand (D2) has a price elasticity of .89. In comparing price elasticities of demand, it is proper to say that

By knowing how much quantity demanded changes for a given change in price, we can also know

For a given reduction in the supply of oil, the equilibrium price of oil will

Suppose that, as the price of product H falls from $5 to $4, the quantity of H demanded increases from 2,000 to 6,000 units. In this case, what is the elasticity of demand, using the midpoint formula?

Because there are few substitutes for insulin, we expect the price elasticity of demand for insulin to be fairly elastic.

A price floor is

For a given shift in demand, the more elastic is supply, the

The price elasticity of demand is a more precise measure of the slope of a demand curve.

If a consumer is spending a large portion of his or her income on a good, then the demand for the good is inelastic.

The price elasticity of demand is expressed in dollar changes in price and quantity demanded.

One reason the demand for electricity is probably more price elastic than the demand for table salt is that

For demand to be unit elastic,

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Interaction of People in Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Reading, Understanding, and Creating Graphs

Consumer Theory With Indifference Curves

Producer Theory With Isoquants

Filters

Suppose one market demand (D₁) has a price elasticity of .65 and a second market demand (D₂) has a price elasticity of .89. In comparing price elasticities of demand, it is proper to say that