Question 1

A price ceiling is typically set below the equilibrium price.

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 4-1  
-Refer to Exhibit 4-1. The price elasticity of demand is most likely to be elastic

Accepted Answer

A) at point A. 
B) at point B. 
C) at point C. 
D) anywhere along the demand curve. 
E) nowhere along the demand curve. 
A) at point A. 
B) at point B. 
C) at point C. 
D) anywhere along the demand curve. 
E) nowhere along the demand curve.

Question 3

If price falls by 10 percent, total revenue

Accepted Answer

A) rises if quantity demanded changes by 10 percent. 
B) rises if quantity demanded does not change. 
C) rises if quantity demanded changes by less than 10 percent. 
D) falls if quantity demanded changes by 10 percent. 
E) falls if quantity demanded changes by less than 10 percent. 
A) rises if quantity demanded changes by 10 percent. 
B) rises if quantity demanded does not change. 
C) rises if quantity demanded changes by less than 10 percent. 
D) falls if quantity demanded changes by 10 percent. 
E) falls if quantity demanded changes by less than 10 percent.

Question 4

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 5

Suppose that the government imposes a sales tax on the consumption of soda drinks, which of the following would have the least impact on the producers of soda drinks?

Accepted Answer

A) Perfectly elastic demand 
B) Perfectly inelastic demand 
C) Unitary elastic demand 
D) Zero demand 
E) Plastic is an inferior good. 
A) Perfectly elastic demand 
B) Perfectly inelastic demand 
C) Unitary elastic demand 
D) Zero demand 
E) Plastic is an inferior good.

Question 6

A perfectly elastic demand curve has a price elasticity

Accepted Answer

A) equal to zero. 
B) that varies. 
C) equal to 1. 
D) less than 1. 
E) of infinity. 
A) equal to zero. 
B) that varies. 
C) equal to 1. 
D) less than 1. 
E) of infinity.

Question 7

If the percentage change in quantity demanded is greater than the percentage change in the price for a good, then the demand for the good is elastic.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Supply may be elastic, unit elastic, or inelastic.

Accepted Answer

A) True 
 B)False

Question 10

If the price elasticity of demand for apples is higher than the price elasticity of demand for oranges, then a given percentage increase in the price of apples and oranges will result in more percentage decrease in the quantity demanded for apples than for oranges.

Accepted Answer

A) True 
 B)False

Question 11

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 12

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 13

Give four instances that cause price elasticity to vary. Explain.

Accepted Answer

Substitutability. The easier it is to fi

Question 14

The size of the price elasticity of demand is important to determine how much market price will change in response to a shift in the supply.

Accepted Answer

A) True 
 B)False

Question 15

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 16

If the quantity supplied of a good is fixed at 100 units at all price levels, then its price elasticity of supply is

Accepted Answer

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

Question 17

Minimum wage is a price floor because employers are prohibited from paying workers at a wage rate lower than a certain level. Some occupations, such as wait staff in restaurants, are exempt from the minimum-wage law. What is the argument against a price floor for these occupations?

Accepted Answer

Wait staff earn tips in addition to the

Question 18

If the demand for bananas has a high price elasticity, then a 5 percent decrease in the price of bananas will result in

Accepted Answer

A) a more than 5 percent increase in the quantity demanded. 
B) a less than 5 percent increase in the quantity demanded. 
C) no change in the quantity demanded. 
D) a more than 5 percent decrease in the quantity demanded. 
E) a less than 5 percent decrease in the quantity demanded. 
A) a more than 5 percent increase in the quantity demanded. 
B) a less than 5 percent increase in the quantity demanded. 
C) no change in the quantity demanded. 
D) a more than 5 percent decrease in the quantity demanded. 
E) a less than 5 percent decrease in the quantity demanded.

Question 19

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 20

When price elasticity of demand for a good equals 0, it is said to be perfectly inelastic.

Accepted Answer

A) True 
 B)False

Exam 4: Subtleties of the Supply and Demand Model

A price ceiling is typically set below the equilibrium price.

Exhibit 4-1 -Refer to Exhibit 4-1. The price elasticity of demand is most likely to be elastic

If price falls by 10 percent, total revenue

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

Suppose that the government imposes a sales tax on the consumption of soda drinks, which of the following would have the least impact on the producers of soda drinks?

A perfectly elastic demand curve has a price elasticity

If the percentage change in quantity demanded is greater than the percentage change in the price for a good, then the demand for the good is elastic.

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

Supply may be elastic, unit elastic, or inelastic.

If the price elasticity of demand for apples is higher than the price elasticity of demand for oranges, then a given percentage increase in the price of apples and oranges will result in more percentage decrease in the quantity demanded for apples than for oranges.

Which of the following statements about price ceilings is false?

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

Give four instances that cause price elasticity to vary. Explain.

The size of the price elasticity of demand is important to determine how much market price will change in response to a shift in the supply.

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

If the quantity supplied of a good is fixed at 100 units at all price levels, then its price elasticity of supply is

Minimum wage is a price floor because employers are prohibited from paying workers at a wage rate lower than a certain level. Some occupations, such as wait staff in restaurants, are exempt from the minimum-wage law. What is the argument against a price floor for these occupations?

If the demand for bananas has a high price elasticity, then a 5 percent decrease in the price of bananas will result in

Elasticity of supply is

When price elasticity of demand for a good equals 0, it is said to be perfectly inelastic.

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

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