Question 1

If a consumer's demand curve as constant own-price elasticity of -2, the consumer's spending will fall as price increases.

Accepted Answer

A) True 
 B)False  True

Question 2

Suppose the demand function for a consumer is given by   
a.What is the own-price elasticity of demand for x?
b What is the cross-price elasticity of demand for x?
c.What happens to spending on x as the price of x increases?
d.What is the income elasticity of demand for x? What does this tell you about what kind of good x must be?

Accepted Answer

a.   b.   c. Since the price elasticity is -2 -- i.e. since demand is relatively price elastic, spending will fall as price increases.
d. Since income does not appear in the demand function, the income elasticity of demand is zero. This implies that the good x is quasilinear.

Question 3

Suppose that you know a good is a normal good for a consumer.Which of the following can you then conclude to be true:

Accepted Answer

A) The own-price elasticity of demand is less than -1. 
B) The income elasticity of demand is greater than 0. 
C) The own-price elasticity of demand is greater than -1. 
D) The income elasticity of demand is less than 0. 
E) Both (a) and (b).
F)Both (a) and (d).
G)Both (b) and (c).
H)None of the above. 
A) The own-price elasticity of demand is less than -1. 
B) The income elasticity of demand is greater than 0. 
C) The own-price elasticity of demand is greater than -1. 
D) The income elasticity of demand is less than 0. 
E) Both (a) and (b).
F)Both (a) and (d).
G)Both (b) and (c).
H)None of the above. B

Question 4

Suppose a price ceiling is imposed below the undistorted market equilibrium price.Which of the following is true?

Accepted Answer

A) The increase in the real price paid by consumers is larger the more price inelastic consumer demand is. 
B) The increase in the real price paid by consumers is larger the more price inelastic the supply curve is. 
C) The size of the reduction in market output depends only on the price elasticity of supply and not the price elasticity of demand. 
D) Both (a) and (b). 
E) Both (a) and (c).
F)Both (b) and (c).
G)All of the above.
H)None of the above. 
A) The increase in the real price paid by consumers is larger the more price inelastic consumer demand is. 
B) The increase in the real price paid by consumers is larger the more price inelastic the supply curve is. 
C) The size of the reduction in market output depends only on the price elasticity of supply and not the price elasticity of demand. 
D) Both (a) and (b). 
E) Both (a) and (c).
F)Both (b) and (c).
G)All of the above.
H)None of the above.

Question 5

When leisure is a normal good, the wage elasticity of labor supply is always positive.

Accepted Answer

A) True 
 B)False

Question 6

When tastes over current and future consumption are homothetic, the interest rate elasticity of savings supply is positive.

Accepted Answer

A) True 
 B)False

Question 7

The price elasticity of output supply is greater in the long run than in the short run.

Accepted Answer

A) True 
 B)False

Question 8

Price ceilings have to be set above the undistorted market equilibrium price in order to have any impact.

Accepted Answer

A) True 
 B)False

Question 9

In a perfectly competitive market with identical firms, all surplus will be consumer surplus in long run equilibrium.

Accepted Answer

A) True 
 B)False

Question 10

When own-price elasticity lies between 0 and -1, consumer spending decreases when price increases.

Accepted Answer

A) True 
 B)False

Question 11

Suppose a consumer has the following rule of thumb: Regardless of how gasoline prices fluctuate, she will always buy $20 of gasoline per week and then adjust her driving patterns accordingly.We can then conclude the following:

Accepted Answer

A) Her own-price elasticity of demand is equal to -1. 
B) Her income-elasticity of demand is 0. 
C) Her own-price elasticity is 0. 
D) Her income elasticity of demand is -1. 
E) Both (a) and (b).
F)Both (a) and (d).
G)Both (c) and (d) 
H)None of the above. 
A) Her own-price elasticity of demand is equal to -1. 
B) Her income-elasticity of demand is 0. 
C) Her own-price elasticity is 0. 
D) Her income elasticity of demand is -1. 
E) Both (a) and (b).
F)Both (a) and (d).
G)Both (c) and (d) 
H)None of the above.

Question 12

When tastes are quasilinear in leisure, which of the following is true:

Accepted Answer

A) The wage elasticity of labor supply is zero. 
B) The wage elasticity of labor supply is positive. 
C) The wage elasticity of labor supply is negative. 
D) The wage elasticity of demand is negative. 
E) Both (a) and (d).
F)Both (b) and (d).
G)Both (c) and (d). 
A) The wage elasticity of labor supply is zero. 
B) The wage elasticity of labor supply is positive. 
C) The wage elasticity of labor supply is negative. 
D) The wage elasticity of demand is negative. 
E) Both (a) and (d).
F)Both (b) and (d).
G)Both (c) and (d).

Question 13

The reduction in the market output resulting from the imposition of a price floor depends on both the price elasticity of demand and the price elasticity of supply.

Accepted Answer

A) True 
 B)False

Question 14

The equilibrium increase in marginal costs for firms resulting from the imposition of a price floor will be larger the more inelastic the price elasticity of demand is.

Accepted Answer

A) True 
 B)False

Question 15

Suppose that the market demand curve is   and the market supply curve is   . 
a.Calculate the equilibrium price and output level.
b.Suppose a price ceiling of 6 is imposed.What is the new equilibrium quantity transacted in the market?
c.How does the price consumers pay (including any marginal effort costs) compare to the price firms receive?
d.What is the total cost of the additional effort exerted by consumers?

Accepted Answer

a. Setting demand equal to supply, we ge

Question 16

When price elasticity is less than -1, consumer spending increases as price falls.

Accepted Answer

A) True 
 B)False

Question 17

Unless goods are Giffen goods, own-price elasticities of demand are always negative.

Accepted Answer

A) True 
 B)False

Question 18

An equilibrium in the presence of price floors can be restored by increased consumer effort to obtain scarce goods.

Accepted Answer

A) True 
 B)False

Question 19

Suppose a consumer's demand function is   . 
a.What's the general equation for the own-price elasticity of demand for this consumer?
b.What's the price elasticity of demand when p=25?
c.Suppose instead that the demand function is   .How does the equation for own-price elasticity change? 
d.Continue with the demand equation in (c).Suppose p=25.What's the cross-price elasticity for x?
e.Continuing with part (d), what's the cross-price elasticity when the price of y is equal to 50?

Accepted Answer

a. The general equation is @#IMG-DLM& .

Question 20

Suppose that the market demand curve is   and the market supply curve is   . 
a.Calculate the equilibrium price and output level.
b.Suppose a price floor of 16 is imposed in this market.What is the new equilibrium quantity transacted in the market?
c.How does the price that firms receive -- net any additional marginal effort costs they incur -- compare to the price consumers pay?
d.What is the total cost of the additional effort firms have to exert in equilibrium?

Accepted Answer

a. Setting demand equal to supply, we ge

Exam 18: Elasticities, Price-Distorting Policies, and Non-Price Rationing

If a consumer's demand curve as constant own-price elasticity of -2, the consumer's spending will fall as price increases.

Suppose that you know a good is a normal good for a consumer.Which of the following can you then conclude to be true:

Suppose a price ceiling is imposed below the undistorted market equilibrium price.Which of the following is true?

When leisure is a normal good, the wage elasticity of labor supply is always positive.

When tastes over current and future consumption are homothetic, the interest rate elasticity of savings supply is positive.

The price elasticity of output supply is greater in the long run than in the short run.

Price ceilings have to be set above the undistorted market equilibrium price in order to have any impact.

In a perfectly competitive market with identical firms, all surplus will be consumer surplus in long run equilibrium.

When own-price elasticity lies between 0 and -1, consumer spending decreases when price increases.

Suppose a consumer has the following rule of thumb: Regardless of how gasoline prices fluctuate, she will always buy $20 of gasoline per week and then adjust her driving patterns accordingly.We can then conclude the following:

When tastes are quasilinear in leisure, which of the following is true:

The reduction in the market output resulting from the imposition of a price floor depends on both the price elasticity of demand and the price elasticity of supply.

The equilibrium increase in marginal costs for firms resulting from the imposition of a price floor will be larger the more inelastic the price elasticity of demand is.

When price elasticity is less than -1, consumer spending increases as price falls.

Unless goods are Giffen goods, own-price elasticities of demand are always negative.

An equilibrium in the presence of price floors can be restored by increased consumer effort to obtain scarce goods.

Introduction

A Consumers Economic Circumstances

Economic Circumstances in Labor and Financial Markets

Tastes and Indifference Curves

Different Types of Tastes

Doing the Best We Can

Income and Substitution Effects in Consumer Goods Markets

Wealth and Substitution Effects in Labor and Capital Markets

Demand for Goods and Supply of Labor and Capital

Consumer Surplus and Deadweight Loss

One Input and One Output: a Short-Run Producer Model

Production With Multiple Inputs

Production Decisions in the Short and Long Run

Competitive Market Equilibrium

The Invisible Hand and the First Welfare Theorem

General Equilibrium

Choice and Markets in the Presence of Risk

Distortionary Taxes and Subsidies

Prices and Distortions Across Markets

Externalities in Competitive Markets

Asymmetric Information in Competitive Markets

Monopoly

Strategic Thinking and Game Theory

Oligopoly

Product Differentiation and Innovation in Markets

Public Goods

Governments and Politics

What Is Good Challenges From Psychology and Philosophy

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