Question 1

The price elasticity of demand

Accepted Answer

A) depends on the units in which quantity is measured. 
B) depends on the units in which price is measured. 
C) depends on the units in which money is measured. 
D) is independent of the units in which quantity and price are measured. 
A) depends on the units in which quantity is measured. 
B) depends on the units in which price is measured. 
C) depends on the units in which money is measured. 
D) is independent of the units in which quantity and price are measured. D

Question 2

Suppose that an ad valorem tax of 10% is imposed on producers of butter. The bread market supply is Qs = 10 + P and the bread market demand is Qd = 220-P. What is the producers' tax burden?

Accepted Answer

A) Producers' tax burden is $8. 
B) Producers' tax burden is $10 
C) Producers' tax burden is $4. 
D) Producers' tax burden is $5. 
A) Producers' tax burden is $8. 
B) Producers' tax burden is $10 
C) Producers' tax burden is $4. 
D) Producers' tax burden is $5. D

Question 3

-The above figure shows three demand curves labeled D1, D2, and D3. Rank these three demand curves in terms of elasticity at a price of c.

Accepted Answer

First, compare D₁ to D₂.
Moving from price a to price c, dQ/dp = Q/(c - a).
Elasticity equals Q/(c - a)∗ (c/Q)= c/(c - a)for both D₁ and D₂.
To compare D₂ with D₃, consider that they have the same slope; call it b.
Then E₁ = bc/Q₁ and E₃ = bc/Q₃. Since Q₃ > Q₁, D₁ is more elastic.
Thus, E₁ = E₂ > E₃ (in absolute terms).

Question 4

When comparing elasticities between two different linear demand curves, the curve that is flatter has greater price elasticity at every given price.

Accepted Answer

A) True 
 B)False

Question 5

Explain why when the demand curve for a good is elastic, a one percent reduction in the price of the good will increase a consumer's expenditure on the good.

Accepted Answer

When a good has an elastic demand, a one

Question 6

In the late 1980s, the health benefits of oat bran were widely advertised. If the price of oats increased 50%, causing the quantity of oats supplied to increase by 40%, then the price elasticity of supply was

Accepted Answer

A) 1.25. 
B) -1.25. 
C) -0.80. 
D) 0.80. 
A) 1.25. 
B) -1.25. 
C) -0.80. 
D) 0.80.

Question 7

The current price floor in the agricultural lettuce market makes it such that price of lettuce is 25% higher than equilibrium price and 100 heads of lettuce are demanded. Assuming that the elasticity of demand for lettuce is -0.50, what would be the equilibrium quantity of lettuce if the government removed the current price floor?

Accepted Answer

A) Quantity = 125 
B) Quantity = 121.5 
C) Quantity = 112.5 
D) Quantity = 75 
A) Quantity = 125 
B) Quantity = 121.5 
C) Quantity = 112.5 
D) Quantity = 75

Question 8

How will a decrease in price affect a firm's revenues?

Accepted Answer

A) It depends on the price elasticity of demand. 
B) Revenues will stay the same. 
C) Revenues will decrease. 
D) Revenues will increase. 
A) It depends on the price elasticity of demand. 
B) Revenues will stay the same. 
C) Revenues will decrease. 
D) Revenues will increase.

Question 9

For all goods, the long run demand curve is always more elastic than the short run demand curve.

Accepted Answer

A) True 
 B)False

Question 10

If an increase in income results in a rightward parallel shift of the demand curve, then at any given price, the price elasticity of demand will have

Accepted Answer

A) increased in absolute terms. 
B) decreased in absolute terms. 
C) remained unchanged. 
D) increased, decreased or stayed the same. It cannot be determined. 
A) increased in absolute terms. 
B) decreased in absolute terms. 
C) remained unchanged. 
D) increased, decreased or stayed the same. It cannot be determined.

Question 11

The market demand for wheat is Q = 100 - 2p + 1pb, where pb is the price of barley. If the price of wheat is $2 and the price of barley is $4, the cross-price elasticity of demand

Accepted Answer

A) equals (4/100). 
B) equals (-2/100). 
C) equals (-4/25). 
D) cannot be calculated without more information. 
A) equals (4/100). 
B) equals (-2/100). 
C) equals (-4/25). 
D) cannot be calculated without more information.

Question 12

For a given positively sloped supply curve, the price increase to consumers resulting from a specific tax imposed on sellers will be

Accepted Answer

A) greater the more price elastic demand is. 
B) greater the less price elastic demand is. 
C) equal to the entire tax when demand is perfectly elastic. 
D) equal to half of the tax whenever demand is unit elastic. 
A) greater the more price elastic demand is. 
B) greater the less price elastic demand is. 
C) equal to the entire tax when demand is perfectly elastic. 
D) equal to half of the tax whenever demand is unit elastic.

Question 13

As more people quit smoking in the United States, what is expected to happen to the price elasticity of supply of cigarettes?

Accepted Answer

A) It will decrease. 
B) It will increase. 
C) It can increase or decrease. 
D) It will not change. 
A) It will decrease. 
B) It will increase. 
C) It can increase or decrease. 
D) It will not change.

Question 14

Explain why short-run demand for frozen fish sticks may be more price elastic in the short run than in the long run.

Accepted Answer

Frozen fish sticks can be stor

Question 15

The market demand for wheat is Q = 100 - 2p + 1pb, where pb is the price of barley. If the price of wheat is $2, the price elasticity of demand

Accepted Answer

A) equals (-4/46). 
B) equals (-46). 
C) equals (-1). 
D) cannot be calculated without more information. 
A) equals (-4/46). 
B) equals (-46). 
C) equals (-1). 
D) cannot be calculated without more information.

Question 16

-The above figure shows the demand curve for crude oil. Suppose the price is currently $7. A supply shock suddenly raises the price to $9. What happens with the crude oil sales revenue?

Accepted Answer

A) Crude oil sales revenue stays the same. 
B) Crude oil sales revenue slightly increases. 
C) Crude oil sales revenue declines. 
D) Crude oil sales revenue significantly increases. 
A) Crude oil sales revenue stays the same. 
B) Crude oil sales revenue slightly increases. 
C) Crude oil sales revenue declines. 
D) Crude oil sales revenue significantly increases.

Question 17

On a linear demand curve, the lower the price,

Accepted Answer

A) the less elastic is demand. 
B) the more elastic is demand. 
C) the elasticity equals -1. 
D) the elasticity equals zero. 
A) the less elastic is demand. 
B) the more elastic is demand. 
C) the elasticity equals -1. 
D) the elasticity equals zero.

Question 18

Relative to the short-run demand for gasoline, the long-run demand for gasoline is

Accepted Answer

A) probably more elastic since people need time to change automobiles and driving habits. 
B) probably less elastic since people need time to change automobiles and driving habits. 
C) probably more elastic because people can hoard this good. 
D) probably less elastic because people cannot store this good. 
A) probably more elastic since people need time to change automobiles and driving habits. 
B) probably less elastic since people need time to change automobiles and driving habits. 
C) probably more elastic because people can hoard this good. 
D) probably less elastic because people cannot store this good.

Question 19

Government revenue from an excise tax of a given amount is greater when demand is relatively inelastic than when it is relatively elastic.

Accepted Answer

A) True 
 B)False

Question 20

Suppose the demand curve for a good is downward sloping and the supply curve is upward sloping. At the market equilibrium, if demand is more elastic than supply in absolute value, a $1 specific tax will

Accepted Answer

A) raise the price to consumers by 50 cents. 
B) raise the price to consumers by less than 50 cents. 
C) raise the price to consumers by more than 50 cents. 
D) raise the price to consumers by $1. 
A) raise the price to consumers by 50 cents. 
B) raise the price to consumers by less than 50 cents. 
C) raise the price to consumers by more than 50 cents. 
D) raise the price to consumers by $1.

The price elasticity of demand

Suppose that an ad valorem tax of 10% is imposed on producers of butter. The bread market supply is Qs = 10 + P and the bread market demand is Qd = 220-P. What is the producers' tax burden?

-The above figure shows three demand curves labeled D₁, D₂, and D₃. Rank these three demand curves in terms of elasticity at a price of c.

When comparing elasticities between two different linear demand curves, the curve that is flatter has greater price elasticity at every given price.

Explain why when the demand curve for a good is elastic, a one percent reduction in the price of the good will increase a consumer's expenditure on the good.

In the late 1980s, the health benefits of oat bran were widely advertised. If the price of oats increased 50%, causing the quantity of oats supplied to increase by 40%, then the price elasticity of supply was

How will a decrease in price affect a firm's revenues?

For all goods, the long run demand curve is always more elastic than the short run demand curve.

If an increase in income results in a rightward parallel shift of the demand curve, then at any given price, the price elasticity of demand will have

The market demand for wheat is Q = 100 - 2p + 1p_b, where p_b is the price of barley. If the price of wheat is $2 and the price of barley is $4, the cross-price elasticity of demand

For a given positively sloped supply curve, the price increase to consumers resulting from a specific tax imposed on sellers will be

As more people quit smoking in the United States, what is expected to happen to the price elasticity of supply of cigarettes?

Explain why short-run demand for frozen fish sticks may be more price elastic in the short run than in the long run.

The market demand for wheat is Q = 100 - 2p + 1p_b, where p_b is the price of barley. If the price of wheat is $2, the price elasticity of demand

-The above figure shows the demand curve for crude oil. Suppose the price is currently $7. A supply shock suddenly raises the price to $9. What happens with the crude oil sales revenue?

On a linear demand curve, the lower the price,

Relative to the short-run demand for gasoline, the long-run demand for gasoline is

Government revenue from an excise tax of a given amount is greater when demand is relatively inelastic than when it is relatively elastic.

Suppose the demand curve for a good is downward sloping and the supply curve is upward sloping. At the market equilibrium, if demand is more elastic than supply in absolute value, a $1 specific tax will

Introduction

Supply and Demand

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 3: Applying the Supply-And-Demand Model

The price elasticity of demand

Suppose that an ad valorem tax of 10% is imposed on producers of butter. The bread market supply is Qs = 10 + P and the bread market demand is Qd = 220-P. What is the producers' tax burden?

-The above figure shows three demand curves labeled D1, D2, and D3. Rank these three demand curves in terms of elasticity at a price of c.

When comparing elasticities between two different linear demand curves, the curve that is flatter has greater price elasticity at every given price.

Explain why when the demand curve for a good is elastic, a one percent reduction in the price of the good will increase a consumer's expenditure on the good.

In the late 1980s, the health benefits of oat bran were widely advertised. If the price of oats increased 50%, causing the quantity of oats supplied to increase by 40%, then the price elasticity of supply was

How will a decrease in price affect a firm's revenues?

For all goods, the long run demand curve is always more elastic than the short run demand curve.

If an increase in income results in a rightward parallel shift of the demand curve, then at any given price, the price elasticity of demand will have

The market demand for wheat is Q = 100 - 2p + 1pb, where pb is the price of barley. If the price of wheat is $2 and the price of barley is $4, the cross-price elasticity of demand

For a given positively sloped supply curve, the price increase to consumers resulting from a specific tax imposed on sellers will be

As more people quit smoking in the United States, what is expected to happen to the price elasticity of supply of cigarettes?

Explain why short-run demand for frozen fish sticks may be more price elastic in the short run than in the long run.

The market demand for wheat is Q = 100 - 2p + 1pb, where pb is the price of barley. If the price of wheat is $2, the price elasticity of demand

-The above figure shows the demand curve for crude oil. Suppose the price is currently $7. A supply shock suddenly raises the price to $9. What happens with the crude oil sales revenue?

On a linear demand curve, the lower the price,

Relative to the short-run demand for gasoline, the long-run demand for gasoline is

Government revenue from an excise tax of a given amount is greater when demand is relatively inelastic than when it is relatively elastic.

Suppose the demand curve for a good is downward sloping and the supply curve is upward sloping. At the market equilibrium, if demand is more elastic than supply in absolute value, a $1 specific tax will

Introduction

Supply and Demand

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters

-The above figure shows three demand curves labeled D₁, D₂, and D₃. Rank these three demand curves in terms of elasticity at a price of c.

The market demand for wheat is Q = 100 - 2p + 1p_b, where p_b is the price of barley. If the price of wheat is $2 and the price of barley is $4, the cross-price elasticity of demand

The market demand for wheat is Q = 100 - 2p + 1p_b, where p_b is the price of barley. If the price of wheat is $2, the price elasticity of demand