Question 1

Rent control for apartments in New York City is an example of a

Accepted Answer

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

Question 2

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 3

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 4

Exhibit 4-1  
-Carla buys one soft drink a day, regardless of the price. Which of the following statements is correct with respect to Carla?

Accepted Answer

A) Price elasticity of demand for soft drinks is infinite. 
B) Price elasticity of demand for soft drinks is zero. 
C) Price elasticity of demand for soft drinks is 1. 
D) Cross-price elasticity of demand for soft drinks is 1. 
E) Price elasticity of demand cannot be calculated with the information given. 
A) Price elasticity of demand for soft drinks is infinite. 
B) Price elasticity of demand for soft drinks is zero. 
C) Price elasticity of demand for soft drinks is 1. 
D) Cross-price elasticity of demand for soft drinks is 1. 
E) Price elasticity of demand cannot be calculated with the information given.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

For demand to be inelastic,

Accepted Answer

A) the percentage change in quantity demanded must be equal to 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) quantity demanded 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) 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) quantity demanded 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 7

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 8

A horizontal demand curve is

Accepted Answer

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

Question 9

Use the following data for a supply curve to calculate the elasticity of supply.

Accepted Answer

The answer of Use the following data for a supply...

Question 10

Explain how price elasticity of demand indicates how total revenue changes when there is a change in price.

Accepted Answer

Total revenue equals P * Q_d.

Question 11

The elasticity of demand changes

Accepted Answer

A) along a vertical demand curve. 
B) along a horizontal demand curve. 
C) along a linear, downward-sloping demand curve. 
D) along a supply curve. 
E) only when the demand curve shifts. 
A) along a vertical demand curve. 
B) along a horizontal demand curve. 
C) along a linear, downward-sloping demand curve. 
D) along a supply curve. 
E) only when the demand curve shifts.

Question 12

Indicate whether the percentage change in quantity demanded or percentage change in price is greater and whether demand is considered sensitive or insensitive for each of the following categories: elastic, inelastic, unit elastic.

Accepted Answer

The percentage change in quantity demand

Question 13

Because people can adapt to paying higher prices over time, the price elasticity of demand is lower in the long run than in the short run.

Accepted Answer

A) True 
 B)False

Question 14

If demand for a product is unit elastic, then increasing the price of the product leaves total revenue unchanged.

Accepted Answer

A) True 
 B)False

Question 15

If a consultant to a football team owner suggests that ticket prices be raised in order to increase revenue, the consultant must believe that the price elasticity of demand for football tickets is

Accepted Answer

A) equal to infinity. 
B) less than 1. 
C) greater than 1. 
D) equal to 1. 
E) There is not enough information provided to answer this question. 
A) equal to infinity. 
B) less than 1. 
C) greater than 1. 
D) equal to 1. 
E) There is not enough information provided to answer this question.

Question 16

Which of the following is not a likely result of a price floor?

Accepted Answer

A) Excess supply of a good 
B) A persistent shortage 
C) A market price higher than equilibrium 
D) The quantity supplied exceeds the quantity demanded. 
E) Resources are diverted away from other activities to deal with the extra output. 
A) Excess supply of a good 
B) A persistent shortage 
C) A market price higher than equilibrium 
D) The quantity supplied exceeds the quantity demanded. 
E) Resources are diverted away from other activities to deal with the extra output.

Question 17

A price floor is

Accepted Answer

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

Question 18

Suppose the price of a good rises from $2.25 to $3.15, and the quantity demanded changes from 2,360 units to 1,250 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 rises...

Question 19

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

Accepted Answer

A price floor results in a sur

Question 20

Exhibit 4-2  
-Refer to Exhibit 4-2. If the supply curve shifts to the right, then which of the following is true?

Accepted Answer

A) D1 results in the most decrease in the equilibrium price. 
B) D1 results in the most increase in the equilibrium price. 
C) D2 results in the most decrease in the equilibrium price. 
D) D2 results in the most increase in the equilibrium price. 
E) The change in the equilibrium price is the same for D1 and D2. 
A) D1 results in the most decrease in the equilibrium price. 
B) D1 results in the most increase in the equilibrium price. 
C) D2 results in the most decrease in the equilibrium price. 
D) D2 results in the most increase in the equilibrium price. 
E) The change in the equilibrium price is the same for D1 and D2.

Exam 4: Subtleties of the Supply and Demand Model

Rent control for apartments in New York City is an example of a

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 price elasticity of supply is a measure of how

Exhibit 4-1 -Carla buys one soft drink a day, regardless of the price. Which of the following statements is correct with respect to Carla?

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

For demand to be inelastic,

When price rises, total revenue

A horizontal demand curve is

Use the following data for a supply curve to calculate the elasticity of supply.

Explain how price elasticity of demand indicates how total revenue changes when there is a change in price.

The elasticity of demand changes

Indicate whether the percentage change in quantity demanded or percentage change in price is greater and whether demand is considered sensitive or insensitive for each of the following categories: elastic, inelastic, unit elastic.

Because people can adapt to paying higher prices over time, the price elasticity of demand is lower in the long run than in the short run.

If demand for a product is unit elastic, then increasing the price of the product leaves total revenue unchanged.

If a consultant to a football team owner suggests that ticket prices be raised in order to increase revenue, the consultant must believe that the price elasticity of demand for football tickets is

Which of the following is not a likely result of a price floor?

A price floor is

Suppose the price of a good rises from $2.25 to $3.15, and the quantity demanded changes from 2,360 units to 1,250 units. Calculate the price elasticity of demand using the midpoint formula, and indicate whether demand is elastic, inelastic, or unit elastic.

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

Exhibit 4-2 -Refer to Exhibit 4-2. If the supply curve shifts to the right, then which of the following is true?

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