Question 1

Some environmental groups are on record suggesting that the price of gasoline should be much higher than it was in the early 1990s.Why might they say this?

Accepted Answer

A)  They own stock in oil companies. 
B)  They anticipate that the longer the price is high, the more elastic the response by consumers will be. 
C)  They anticipate that the longer the price is high, the less elastic the response by consumers will be. 
D)  They anticipate that higher prices will reduce the price elasticity of supply of oil. 
A)  They own stock in oil companies. 
B)  They anticipate that the longer the price is high, the more elastic the response by consumers will be. 
C)  They anticipate that the longer the price is high, the less elastic the response by consumers will be. 
D)  They anticipate that higher prices will reduce the price elasticity of supply of oil.

Question 2

If the price elasticity of demand for a good is less than one in absolute value,economists would characterize consumers of this good

Accepted Answer

A)  as not very sensitive to price. 
B)  as not very sensitive to the quantity they demand. 
C)  as very sensitive to price. 
D)  as elastic. 
A)  as not very sensitive to price. 
B)  as not very sensitive to the quantity they demand. 
C)  as very sensitive to price. 
D)  as elastic.

Question 3

-The above figure shows the supply and demand curves for rice in the U.S.and in Japan.Assume there is no trade between the two countries.If bad weather causes the supply curves in each country to shift leftward by the same amount,then

Accepted Answer

A)  the price will increase the same amount in both countries. 
B)  the price will decrease the same amount in both countries. 
C)  the price will increase more in Japan than in the U.S. 
D)  the price will decrease more in Japan than in the U.S. 
A)  the price will increase the same amount in both countries. 
B)  the price will decrease the same amount in both countries. 
C)  the price will increase more in Japan than in the U.S. 
D)  the price will decrease more in Japan than in the U.S.

Question 4

The government heavily subsidizes the production of ethanol to encourage the purchase of ethanol over oil,a less environmentally friendly form of energy.Given that the supply elasticity of ethanol,η,is estimated to be about 0.13,what would the elasticity of demand,ε,have to be for consumers to receive at least half of the subsidy,and therefore encourage ethanol consumption?

Accepted Answer

A)  ε must be less than   . 
B)  ε must be greater than   . 
C)  ε must be more inelastic than the elasticity of supply. 
D)  Both A and C. 
A)  ε must be less than   . 
B)  ε must be greater than   . 
C)  ε must be more inelastic than the elasticity of supply. 
D)  Both A and C.

Question 5

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 6

The change in price that results from a rightward shift in demand will be greater if

Accepted Answer

A)  the supply curve is horizontal than if the supply curve is upward sloping. 
B)  the supply curve is relatively steep than if the supply curve is relatively flat. 
C)  the supply curve is upward sloping than if the supply curve is vertical. 
D)  the supply curve is horizontal than if the supply curve is vertical. 
A)  the supply curve is horizontal than if the supply curve is upward sloping. 
B)  the supply curve is relatively steep than if the supply curve is relatively flat. 
C)  the supply curve is upward sloping than if the supply curve is vertical. 
D)  the supply curve is horizontal than if the supply curve is vertical.

Question 7

The market demand for wheat is Q = 100 - 2p + 1pb + 2Y.If the price of wheat,p,is $2,and the price of barley,pb,is $3,and income,Y,is $1000,the income elasticity of wheat

Accepted Answer

A)  is 2 ∗ (1000/2099). 
B)  is 2. 
C)  is 1/2 ∗ (1000/2099). 
D)  cannot be calculated from the information provided. 
A)  is 2 ∗ (1000/2099). 
B)  is 2. 
C)  is 1/2 ∗ (1000/2099). 
D)  cannot be calculated from the information provided.

Question 8

Suppose the market for grass seed can be expressed as
Demand: QD = 200 - 5p
Supply: QS = 40 + 5p
If the government collects a $5 specific tax from sellers,how much will the quantity demanded change from the amount demanded before the tax? What price will consumers pay after the tax? What price will sellers receive after the tax? What is the tax revenue?

Accepted Answer

The before-tax quantity is found by sett

Question 9

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 10

Which of the following is most likely to be TRUE?

Accepted Answer

A)  Income elasticity of demand for fur coats exceeds that of oatmeal. 
B)  Income elasticity of demand for oatmeal exceeds that of fur coats. 
C)  Income elasticity of demand for fur coats equals that of oatmeal. 
D)  It is not possible to make any prediction about relative income elasticities. 
A)  Income elasticity of demand for fur coats exceeds that of oatmeal. 
B)  Income elasticity of demand for oatmeal exceeds that of fur coats. 
C)  Income elasticity of demand for fur coats equals that of oatmeal. 
D)  It is not possible to make any prediction about relative income elasticities.

Question 11

The percentage change in the quantity demanded in response to a percentage change in the price is known as the

Accepted Answer

A)  slope of the demand curve. 
B)  excess demand. 
C)  price elasticity of demand. 
D)  All of the above. 
A)  slope of the demand curve. 
B)  excess demand. 
C)  price elasticity of demand. 
D)  All of the above.

Question 12

If a good has an income elasticity of demand greater than 1,one might classify that good as

Accepted Answer

A)  a necessity. 
B)  a luxury. 
C)  unusual. 
D)  inelastic. 
A)  a necessity. 
B)  a luxury. 
C)  unusual. 
D)  inelastic.

Question 13

Consumers will always pay the entire amount of a specific tax whenever

Accepted Answer

A)  demand is perfectly inelastic. 
B)  supply is perfectly elastic. 
C)  Both A and B above. 
D)  Either A or B above but not at the same time. 
A)  demand is perfectly inelastic. 
B)  supply is perfectly elastic. 
C)  Both A and B above. 
D)  Either A or B above but not at the same time.

Question 14

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

Accepted Answer

A)  Consumers' tax burden is $3. 
B)  Consumers' tax burden is $10 
C)  Consumers' tax burden is $5. 
D)  Consumers' tax burden is $2. 
A)  Consumers' tax burden is $3. 
B)  Consumers' tax burden is $10 
C)  Consumers' tax burden is $5. 
D)  Consumers' tax burden is $2.

Question 15

Who will bear the burden of a $0.50 tax placed on soda suppliers (consumer or seller)in a soda market where Qd = 225-10P and Qs = 50 + 15P?

Accepted Answer

A)  Consumers pay $0.30 of the tax, bearing the burden. 
B)  Consumers pay $0.25 of the tax, bearing the burden. 
C)  Sellers pay $0.25 of the tax and bear the burden. 
D)  Sellers pay all of the tax and bear the burden. 
A)  Consumers pay $0.30 of the tax, bearing the burden. 
B)  Consumers pay $0.25 of the tax, bearing the burden. 
C)  Sellers pay $0.25 of the tax and bear the burden. 
D)  Sellers pay all of the tax and bear the burden.

Question 16

Suppose the market for grass seed is expressed as
Demand: QD = 100 - 2p
Supply: QS = 3p
Price elasticity of supply is constant at 1.If the supply curve is changed to Q = 8p,price elasticity of supply is still constant at 1.Yet,with the new supply curve,consumers pay a larger share of a specific tax.Why?

Accepted Answer

Even though the elasticity of supply has

Question 17

Suppose the demand curve is perfectly inelastic and the supply curve is upward sloping.The price sellers receive after a specific tax is imposed on sellers

Accepted Answer

A)  is less than before the tax. 
B)  is higher than before the tax. 
C)  is unchanged. 
D)  depends on the supply elasticity. 
A)  is less than before the tax. 
B)  is higher than before the tax. 
C)  is unchanged. 
D)  depends on the supply elasticity.

Question 18

In the case of a specific tax the resulting price received by producers depends on

Accepted Answer

A)  who pays the tax. 
B)  the price elasticity of supply. 
C)  the price elasticity of demand. 
D)  All of the above. 
A)  who pays the tax. 
B)  the price elasticity of supply. 
C)  the price elasticity of demand. 
D)  All of the above.

Question 19

One reason the U.S.government might subsidize research of an alternative to crude-oil based gasoline is that

Accepted Answer

A)  more substitutes will reduce the price of crude-oil based gasoline. 
B)  more substitutes will increase the elasticity of crude-oil based gasoline. 
C)  more substitutes will reduce the impact of supply shocks on the price of crude-oil based gasoline. 
D)  Any or all of the above. 
A)  more substitutes will reduce the price of crude-oil based gasoline. 
B)  more substitutes will increase the elasticity of crude-oil based gasoline. 
C)  more substitutes will reduce the impact of supply shocks on the price of crude-oil based gasoline. 
D)  Any or all of the above.

Question 20

As prices change,the elasticity of supply describes the movement

Accepted Answer

A)  of a shift in the supply curve. 
B)  of the equilibrium price. 
C)  along the supply curve. 
D)  from a necessity to a luxury good. 
A)  of a shift in the supply curve. 
B)  of the equilibrium price. 
C)  along the supply curve. 
D)  from a necessity to a luxury good.

Some environmental groups are on record suggesting that the price of gasoline should be much higher than it was in the early 1990s.Why might they say this?

If the price elasticity of demand for a good is less than one in absolute value,economists would characterize consumers of this good

-The above figure shows the supply and demand curves for rice in the U.S.and in Japan.Assume there is no trade between the two countries.If bad weather causes the supply curves in each country to shift leftward by the same amount,then

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

The change in price that results from a rightward shift in demand will be greater if

The market demand for wheat is Q = 100 - 2p + 1p_b + 2Y.If the price of wheat,p,is $2,and the price of barley,p_b,is $3,and income,Y,is $1000,the income elasticity of wheat

On a linear demand curve,the lower the price,

Which of the following is most likely to be TRUE?

The percentage change in the quantity demanded in response to a percentage change in the price is known as the

If a good has an income elasticity of demand greater than 1,one might classify that good as

Consumers will always pay the entire amount of a specific tax whenever

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

Who will bear the burden of a $0.50 tax placed on soda suppliers (consumer or seller)in a soda market where Qd = 225-10P and Qs = 50 + 15P?

Suppose the demand curve is perfectly inelastic and the supply curve is upward sloping.The price sellers receive after a specific tax is imposed on sellers

In the case of a specific tax the resulting price received by producers depends on

One reason the U.S.government might subsidize research of an alternative to crude-oil based gasoline is that

As prices change,the elasticity of supply describes the movement

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

Some environmental groups are on record suggesting that the price of gasoline should be much higher than it was in the early 1990s.Why might they say this?

If the price elasticity of demand for a good is less than one in absolute value,economists would characterize consumers of this good

-The above figure shows the supply and demand curves for rice in the U.S.and in Japan.Assume there is no trade between the two countries.If bad weather causes the supply curves in each country to shift leftward by the same amount,then

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

The change in price that results from a rightward shift in demand will be greater if

The market demand for wheat is Q = 100 - 2p + 1pb + 2Y.If the price of wheat,p,is $2,and the price of barley,pb,is $3,and income,Y,is $1000,the income elasticity of wheat

On a linear demand curve,the lower the price,

Which of the following is most likely to be TRUE?

The percentage change in the quantity demanded in response to a percentage change in the price is known as the

If a good has an income elasticity of demand greater than 1,one might classify that good as

Consumers will always pay the entire amount of a specific tax whenever

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

Who will bear the burden of a $0.50 tax placed on soda suppliers (consumer or seller)in a soda market where Qd = 225-10P and Qs = 50 + 15P?

Suppose the demand curve is perfectly inelastic and the supply curve is upward sloping.The price sellers receive after a specific tax is imposed on sellers

In the case of a specific tax the resulting price received by producers depends on

One reason the U.S.government might subsidize research of an alternative to crude-oil based gasoline is that

As prices change,the elasticity of supply describes the movement

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 market demand for wheat is Q = 100 - 2p + 1p_b + 2Y.If the price of wheat,p,is $2,and the price of barley,p_b,is $3,and income,Y,is $1000,the income elasticity of wheat