Question 1

A vertical demand curve is perfectly elastic.

Accepted Answer

A) True 
 B)False  False

Question 2

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. D

Question 3

The price elasticity of demand is the same as the slope of the demand curve.

Accepted Answer

A) True 
 B)False  False

Question 4

Demand is inelastic if the price elasticity of demand is greater than 1.

Accepted Answer

A) True 
 B)False

Question 5

The price elasticity of supply is a measure of how

Accepted Answer

A)  long it takes for producers to change technology. 
B)  sensitive producers are to a change in technology. 
C)  long it takes for producers to change their prices. 
D)  sensitive producers are to a change in input prices. 
E)  sensitive producers are to a change in output price. 
A)  long it takes for producers to change technology. 
B)  sensitive producers are to a change in technology. 
C)  long it takes for producers to change their prices. 
D)  sensitive producers are to a change in input prices. 
E)  sensitive producers are to a change in output price.

Question 6

Normal goods have positive income elasticities of demand, and inferior goods have negative income elasticities of demand.

Accepted Answer

A) True 
 B)False

Question 7

Use the following data for a supply curve to calculate the elasticity of supply.   (A)Use the midpoint formula to calculate the elasticity of supply for the price between $6 and $7.
(B)Use the midpoint formula to calculate the elasticity of supply for the price between $1 and $2. Use the midpoint formula.

Accepted Answer

(A)Elasticity betwee

Question 8

A price ceiling would result in a(n)

Accepted Answer

A)  surplus. 
B)  shortage. 
C)  increase in equilibrium price. 
D)  decrease in equilibrium price. 
E)  increase in quantity supplied. 
A)  surplus. 
B)  shortage. 
C)  increase in equilibrium price. 
D)  decrease in equilibrium price. 
E)  increase in quantity supplied.

Question 9

A price elasticity of supply of 1.5 implies that

Accepted Answer

A)  a 20 percent increase in the quantity supplied increases the price by 30 percent. 
B)  total revenue is 1.5 times total cost. 
C)  a 20 percent increase in the price increases the quantity supplied by 30 percent. 
D)  a 20-unit increase in supply reduces the price by $30. 
E)  a $20 increase in the price increases the quantity supplied by 30 units. 
A)  a 20 percent increase in the quantity supplied increases the price by 30 percent. 
B)  total revenue is 1.5 times total cost. 
C)  a 20 percent increase in the price increases the quantity supplied by 30 percent. 
D)  a 20-unit increase in supply reduces the price by $30. 
E)  a $20 increase in the price increases the quantity supplied by 30 units.

Question 10

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 11

Which of the following formulas is a correct expression of the price elasticity of demand?

Accepted Answer

A)    
B)    
C)    
D)    
E)    
A)    
B)    
C)    
D)    
E)

Question 12

Does a price ceiling result in a shortage or a surplus? Why?

Accepted Answer

A price ceiling results in a s

Question 13

If a firm wishes to raise the revenue of a product with elastic demand, then it should reduce price.

Accepted Answer

A) True 
 B)False

Question 14

Explain why economists care about the price elasticity of supply. What does it tell us?

Accepted Answer

The price elasticity of supply tells us

Question 15

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 16

If price gouging is prohibited by the government so that sellers cannot suddenly raise prices, then a sudden drop in gasoline supply due to bad weather will most likely result in

Accepted Answer

A)  an equilibrium in the gasoline market. 
B)  a surplus in the gasoline market. 
C)  a shortage in the gasoline market. 
D)  high profits for sellers. 
E)  a sudden increase in the gasoline supply. 
A)  an equilibrium in the gasoline market. 
B)  a surplus in the gasoline market. 
C)  a shortage in the gasoline market. 
D)  high profits for sellers. 
E)  a sudden increase in the gasoline supply.

Question 17

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 18

The concept that explains to what degree price changes when there is a shift in demand, other things being equal, is

Accepted Answer

A)  income elasticity of demand. 
B)  price elasticity of demand. 
C)  price elasticity of supply. 
D)  cost elasticity of supply. 
E)  cross-price elasticity of demand. 
A)  income elasticity of demand. 
B)  price elasticity of demand. 
C)  price elasticity of supply. 
D)  cost elasticity of supply. 
E)  cross-price elasticity of demand.

Question 19

A price ceiling is typically set below the equilibrium price.

Accepted Answer

A) True 
 B)False

Question 20

The price elasticity of demand measures

Accepted Answer

A)  a buyer's responsiveness to a change in income. 
B)  a buyer's responsiveness to a change in price. 
C)  a seller's responsiveness to a change in demand. 
D)  how much price increases for a change in demand. 
E)  how much demand changes for a change in supply. 
A)  a buyer's responsiveness to a change in income. 
B)  a buyer's responsiveness to a change in price. 
C)  a seller's responsiveness to a change in demand. 
D)  how much price increases for a change in demand. 
E)  how much demand changes for a change in supply.

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

A vertical demand curve is perfectly elastic.

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

The price elasticity of demand is the same as the slope of the demand curve.

Demand is inelastic if the price elasticity of demand is greater than 1.

The price elasticity of supply is a measure of how

Normal goods have positive income elasticities of demand, and inferior goods have negative income elasticities of demand.

A price ceiling would result in a(n)

A price elasticity of supply of 1.5 implies that

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?

Which of the following formulas is a correct expression of the price elasticity of demand?

Does a price ceiling result in a shortage or a surplus? Why?

If a firm wishes to raise the revenue of a product with elastic demand, then it should reduce price.

Explain why economists care about the price elasticity of supply. What does it tell us?

If price gouging is prohibited by the government so that sellers cannot suddenly raise prices, then a sudden drop in gasoline supply due to bad weather will most likely result in

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?

The concept that explains to what degree price changes when there is a shift in demand, other things being equal, is

A price ceiling is typically set below the equilibrium price.

The price elasticity of demand measures

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

Deriving the Formula for the Keynesian Multiplier and the Forward-Looking Consumption Model

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Capital and Financial Markets

Economic Growth and Globalization

International Trade

International Finance

Reading, Understanding, and Creating Graphs

the Miracle of Compound Growth

Present Discounted Value

Deriving the Growth Accounting Formula

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