Question 1

The minimum wage is an example of a

Accepted Answer

A) price floor. 
B) price ceiling. 
C) market equilibrium. 
D) restriction on quantity. 
E) price elasticity. 
A) price floor. 
B) price ceiling. 
C) market equilibrium. 
D) restriction on quantity. 
E) price elasticity. A

Question 2

One of the results of a price ceiling is a decline in the quality of the good sold.

Accepted Answer

A) True 
 B)False  True

Question 3

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. C

Question 4

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 5

Suppose the price of a good falls from $4.95 to $3.85, and the quantity demanded changes from 77 units to 99 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 6

The income elasticity of demand

Accepted Answer

A) is usually zero because "you can only have so much." 
B) could be positive or negative or zero, depending on the nature of the good. 
C) can never be zero. 
D) must be positive because consumers tend to buy more at higher incomes. 
E) must be negative because of the law of increasing cost. 
A) is usually zero because "you can only have so much." 
B) could be positive or negative or zero, depending on the nature of the good. 
C) can never be zero. 
D) must be positive because consumers tend to buy more at higher incomes. 
E) must be negative because of the law of increasing cost.

Question 7

The price elasticity of supply is always negative.

Accepted Answer

A) True 
 B)False

Question 8

Other things being equal, the demand for a product is less elastic if

Accepted Answer

A) the product has a very small ticket price. 
B) the product has more substitutes. 
C) the product has more complements. 
D) consumers have more time to adjust for any price change. 
E) the product's cost of production is higher. 
A) the product has a very small ticket price. 
B) the product has more substitutes. 
C) the product has more complements. 
D) consumers have more time to adjust for any price change. 
E) the product's cost of production is higher.

Question 9

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 10

The demand for gasoline should be

Accepted Answer

A) less elastic in the long run than in the short run. 
B) more elastic in the long run than in the short run. 
C) equally elastic in the long run as in the short run. 
D) perfectly inelastic in the long run and perfectly elastic in the short run. 
E) unit elastic in both the long run and the short run. 
A) less elastic in the long run than in the short run. 
B) more elastic in the long run than in the short run. 
C) equally elastic in the long run as in the short run. 
D) perfectly inelastic in the long run and perfectly elastic in the short run. 
E) unit elastic in both the long run and the short run.

Question 11

If the price elasticity of demand is equal to 2, a 1 percent increase in price will cause the quantity demanded to ____ by ____ percent.

Accepted Answer

A) decrease; 5 
B) increase; 2 
C) decrease; 0.5 
D) decrease; 2 
E) increase; 0.5 
A) decrease; 5 
B) increase; 2 
C) decrease; 0.5 
D) decrease; 2 
E) increase; 0.5

Question 12

Because there are few substitutes for a new drug, we expect the price elasticity of demand for that drug to be fairly elastic.

Accepted Answer

A) True 
 B)False

Question 13

Why isn't the slope of a demand curve used to measure the sensitivity of demand to a price change?

Accepted Answer

Slope is dependent on absolute measures

Question 14

If demand is perfectly inelastic, then the

Accepted Answer

A) quantity demanded does not change when price changes. 
B) demand curve is nonexistent. 
C) elasticity of demand is -1. 
D) elasticity of demand is 1. 
E) demand curve is a horizontal line. 
A) quantity demanded does not change when price changes. 
B) demand curve is nonexistent. 
C) elasticity of demand is -1. 
D) elasticity of demand is 1. 
E) demand curve is a horizontal line.

Question 15

If the supply curve is perfectly elastic, then an increase in demand results in no change in the

Accepted Answer

A) equilibrium quantity but a large increase in the equilibrium price. 
B) equilibrium quantity but a large decrease in the equilibrium price. 
C) equilibrium price but a decrease in the equilibrium quantity equal to the change in demand. 
D) equilibrium price but an increase in the equilibrium quantity equal to the change in demand. 
E) equilibrium quantity or the equilibrium price. 
A) equilibrium quantity but a large increase in the equilibrium price. 
B) equilibrium quantity but a large decrease in the equilibrium price. 
C) equilibrium price but a decrease in the equilibrium quantity equal to the change in demand. 
D) equilibrium price but an increase in the equilibrium quantity equal to the change in demand. 
E) equilibrium quantity or the equilibrium price.

Question 16

Assume that a firm makes available 50 more units of a good at a price of $2 than it made available when the price was $1. What is the price elasticity of supply?

Accepted Answer

A) It cannot be determined from the information given. 
B) 0.25 
C) 25 
D) 50 
E) 0.04 
A) It cannot be determined from the information given. 
B) 0.25 
C) 25 
D) 50 
E) 0.04

Question 17

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 0.5. 
D) equal to 1.05. 
E) perfectly inelastic. 
A) perfectly elastic. 
B) unit elastic. 
C) equal to 0.5. 
D) equal to 1.05. 
E) perfectly inelastic.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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.

Question 20

For demand to be elastic,

Accepted Answer

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

Exam 4: Subtleties of the Supply and Demand Model

The minimum wage is an example of a

One of the results of a price ceiling is a decline in the quality of the good sold.

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

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

Suppose the price of a good falls from $4.95 to $3.85, and the quantity demanded changes from 77 units to 99 units. Calculate the price elasticity of demand using the midpoint formula, and indicate whether demand is elastic, inelastic, or unit-elastic.

The income elasticity of demand

The price elasticity of supply is always negative.

Other things being equal, the demand for a product is less elastic if

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

The demand for gasoline should be

If the price elasticity of demand is equal to 2, a 1 percent increase in price will cause the quantity demanded to ____ by ____ percent.

Because there are few substitutes for a new drug, we expect the price elasticity of demand for that drug to be fairly elastic.

Why isn't the slope of a demand curve used to measure the sensitivity of demand to a price change?

If demand is perfectly inelastic, then the

If the supply curve is perfectly elastic, then an increase in demand results in no change in the

Assume that a firm makes available 50 more units of a good at a price of $2 than it made available when the price was $1. What is the price elasticity of supply?

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

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

For demand to be unit elastic,

For demand to be 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 Efficiency of 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

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

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

Filters

If the price elasticity of demand is equal to 2, a 1 percent increase in price will cause the quantity demanded to by percent.