Question 1

When a higher price cannot bring about any increase in the quantity supplied, the supply is

Accepted Answer

A)  perfectly elastic. 
B)  unit elastic. 
C)  zero. 
D)  perfectly inelastic. 
E)  infinity. 
A)  perfectly elastic. 
B)  unit elastic. 
C)  zero. 
D)  perfectly inelastic. 
E)  infinity.

Question 2

If the producers of a product do not respond to price changes at all, then an increase in demand results in

Accepted Answer

A)  no change in price but a large increase in equilibrium quantity. 
B)  an increase in price but no change in equilibrium quantity. 
C)  as much an increase in price as in equilibrium quantity. 
D)  no change in both price and equilibrium quantity. 
E)  a large increase in price and a large decrease in equilibrium quantity . 
A)  no change in price but a large increase in equilibrium quantity. 
B)  an increase in price but no change in equilibrium quantity. 
C)  as much an increase in price as in equilibrium quantity. 
D)  no change in both price and equilibrium quantity. 
E)  a large increase in price and a large decrease in equilibrium quantity .

Question 3

Along a downward-sloping, straight-line demand curve, total revenue is greatest where demand is

Accepted Answer

A)  inelastic. 
B)  perfectly inelastic. 
C)  perfectly elastic. 
D)  elastic. 
E)  unit elastic. 
A)  inelastic. 
B)  perfectly inelastic. 
C)  perfectly elastic. 
D)  elastic. 
E)  unit elastic.

Question 4

Which of the following statements about price ceilings is false?

Accepted Answer

A)  Quality often suffers when a price ceiling is imposed. 
B)  Rent control is an example of a price ceiling. 
C)  Poor people will always be able to buy more of the product than if the price ceiling did not exist. 
D)  Price ceilings result in shortages. 
E)  Just as a producer is not allowed to sell a good for more than the price ceiling, it is illegal for a consumer to pay more than the price ceiling. 
A)  Quality often suffers when a price ceiling is imposed. 
B)  Rent control is an example of a price ceiling. 
C)  Poor people will always be able to buy more of the product than if the price ceiling did not exist. 
D)  Price ceilings result in shortages. 
E)  Just as a producer is not allowed to sell a good for more than the price ceiling, it is illegal for a consumer to pay more than the price ceiling.

Question 5

A vertical demand curve is perfectly elastic.

Accepted Answer

A) True 
 B)False

Question 6

A manager wishes to increase revenues. One suggestion is to cut prices; another is to raise prices. What are the assumptions each suggestion is based on?

Accepted Answer

The first suggestion is based on the ass

Question 7

Suppose the government sets beef prices, which in effect creates a price floor. Draw a supply and demand diagram for the beef market where the price is fixed greater than the market equilibrium price. Will there be a shortage or a surplus?

Accepted Answer

Setting a price floo

Question 8

The government can issue ration coupons to deal with problems resulting from a price floor.

Accepted Answer

A) True 
 B)False

Question 9

The midpoint formula for calculating price elasticity of demand gives the same answer, regardless of the direction of the price change.

Accepted Answer

A) True 
 B)False

Question 10

Elasticity of supply is

Accepted Answer

A)  the responsiveness of supply to changes in costs. 
B)  the percentage change in quantity supplied due to a percentage change in price. 
C)  the responsiveness of the price to changes in supply. 
D)  1 minus the elasticity of demand. 
E)  the change in quantity supplied due to a change in quantity demanded. 
A)  the responsiveness of supply to changes in costs. 
B)  the percentage change in quantity supplied due to a percentage change in price. 
C)  the responsiveness of the price to changes in supply. 
D)  1 minus the elasticity of demand. 
E)  the change in quantity supplied due to a change in quantity demanded.

Question 11

The local public transportation system recently raised rates and was surprised to be faced with declining revenue. What can be accurately concluded?

Accepted Answer

A)  The cross-price elasticity of demand for public transportation is less than 1. 
B)  The demand for public transportation is inelastic. 
C)  The income elasticity of demand for public transportation is greater than 1. 
D)  The demand for public transportation is elastic. 
E)  The demand curve for public transportation has a positive slope. 
A)  The cross-price elasticity of demand for public transportation is less than 1. 
B)  The demand for public transportation is inelastic. 
C)  The income elasticity of demand for public transportation is greater than 1. 
D)  The demand for public transportation is elastic. 
E)  The demand curve for public transportation has a positive slope.

Question 12

If supply is perfectly inelastic, then the price elasticity of supply is infinity.

Accepted Answer

A) True 
 B)False

Question 13

The price elasticity of demand measures how much price changes given a change in demand.

Accepted Answer

A) True 
 B)False

Question 14

For one to accurately say that the demand for good X is more elastic than the demand for good Y, the price elasticity of demand for good X must be greater than the price elasticity of demand for good Y.

Accepted Answer

A) True 
 B)False

Question 15

If the price of a good decreases by 5 percent and total revenue does not change, then the price elasticity of demand is

Accepted Answer

A)  perfectly elastic. 
B)  unit elastic. 
C)  equal to .05. 
D)  equal to 1.05. 
E)  perfectly inelastic. 
A)  perfectly elastic. 
B)  unit elastic. 
C)  equal to .05. 
D)  equal to 1.05. 
E)  perfectly inelastic.

Question 16

If a good has negative income elasticity, then it is an inferior good.

Accepted Answer

A) True 
 B)False

Question 17

Supply is elastic if the quantity supplied responds substantially to a change in price, and supply is inelastic if the quantity supplied responds only slightly to a change in price.

Accepted Answer

A) True 
 B)False

Question 18

When price rises, total revenue

Accepted Answer

A)  always rises because the quantity purchased does not change. 
B)  may rise or fall, depending on whether the quantity purchased rises or falls. 
C)  always falls because the quantity purchased always falls. 
D)  may rise or fall, depending on how much the quantity purchased falls. 
E)  may rise or fall, depending on whether the quantity purchased changes. 
A)  always rises because the quantity purchased does not change. 
B)  may rise or fall, depending on whether the quantity purchased rises or falls. 
C)  always falls because the quantity purchased always falls. 
D)  may rise or fall, depending on how much the quantity purchased falls. 
E)  may rise or fall, depending on whether the quantity purchased changes.

Question 19

The price elasticity of demand is measured by the percentage change in quantity demanded divided by the percentage change in price.

Accepted Answer

A) True 
 B)False

Question 20

If the quantity supplied of a product stays the same no matter what its price, then the elasticity of supply of the product is

Accepted Answer

A)  perfectly elastic. 
B)  unit elastic. 
C)  zero. 
D)  perfectly inelastic. 
E)  infinity. 
A)  perfectly elastic. 
B)  unit elastic. 
C)  zero. 
D)  perfectly inelastic. 
E)  infinity.

When a higher price cannot bring about any increase in the quantity supplied, the supply is

If the producers of a product do not respond to price changes at all, then an increase in demand results in

Along a downward-sloping, straight-line demand curve, total revenue is greatest where demand is

Which of the following statements about price ceilings is false?

A vertical demand curve is perfectly elastic.

A manager wishes to increase revenues. One suggestion is to cut prices; another is to raise prices. What are the assumptions each suggestion is based on?

Suppose the government sets beef prices, which in effect creates a price floor. Draw a supply and demand diagram for the beef market where the price is fixed greater than the market equilibrium price. Will there be a shortage or a surplus?

The government can issue ration coupons to deal with problems resulting from a price floor.

The midpoint formula for calculating price elasticity of demand gives the same answer, regardless of the direction of the price change.

Elasticity of supply is

The local public transportation system recently raised rates and was surprised to be faced with declining revenue. What can be accurately concluded?

If supply is perfectly inelastic, then the price elasticity of supply is infinity.

The price elasticity of demand measures how much price changes given a change in demand.

For one to accurately say that the demand for good X is more elastic than the demand for good Y, the price elasticity of demand for good X must be greater than the price elasticity of demand for good Y.

If the price of a good decreases by 5 percent and total revenue does not change, then the price elasticity of demand is

If a good has negative income elasticity, then it is an inferior good.

Supply is elastic if the quantity supplied responds substantially to a change in price, and supply is inelastic if the quantity supplied responds only slightly to a change in price.

When price rises, total revenue

The price elasticity of demand is measured by the percentage change in quantity demanded divided by the percentage change in price.

If the quantity supplied of a product stays the same no matter what its price, then the elasticity of supply of the product is

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

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

When a higher price cannot bring about any increase in the quantity supplied, the supply is

If the producers of a product do not respond to price changes at all, then an increase in demand results in

Along a downward-sloping, straight-line demand curve, total revenue is greatest where demand is

Which of the following statements about price ceilings is false?

A vertical demand curve is perfectly elastic.

A manager wishes to increase revenues. One suggestion is to cut prices; another is to raise prices. What are the assumptions each suggestion is based on?

Suppose the government sets beef prices, which in effect creates a price floor. Draw a supply and demand diagram for the beef market where the price is fixed greater than the market equilibrium price. Will there be a shortage or a surplus?

The government can issue ration coupons to deal with problems resulting from a price floor.

The midpoint formula for calculating price elasticity of demand gives the same answer, regardless of the direction of the price change.

Elasticity of supply is

The local public transportation system recently raised rates and was surprised to be faced with declining revenue. What can be accurately concluded?

If supply is perfectly inelastic, then the price elasticity of supply is infinity.

The price elasticity of demand measures how much price changes given a change in demand.

For one to accurately say that the demand for good X is more elastic than the demand for good Y, the price elasticity of demand for good X must be greater than the price elasticity of demand for good Y.

If the price of a good decreases by 5 percent and total revenue does not change, then the price elasticity of demand is

If a good has negative income elasticity, then it is an inferior good.

Supply is elastic if the quantity supplied responds substantially to a change in price, and supply is inelastic if the quantity supplied responds only slightly to a change in price.

When price rises, total revenue

The price elasticity of demand is measured by the percentage change in quantity demanded divided by the percentage change in price.

If the quantity supplied of a product stays the same no matter what its price, then the elasticity of supply of the product is

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