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

Suppose that the market demand curve is $p = 30 - 2 x$ and the market supply curve is $p = X$ . 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?

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Question 1

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a.Setting demand equal to supply,we get x*=10; plugging this back into either the demand or supply curve equations,we get p*=10.
b.Under a price floor,the new equilibrium quantity is determined by the demand curve.Solving the equation $16 = 30 - 2 x$
,we get the new equilibrium quantity of 7.
c.Consumers pay the price floor of 16.Firms pay the price that clears the market for the new equilibrium quantity of 7 -- i.e.we can calculate the firms' net-of-additional-MC price as 7 (since the supply curve is p=x.)
d.The marginal effort cost is the difference between the price floor of 16 and the net-of-effort price 7 that firms receive -- i.e.the marginal effort cost is 9.The total effort cost firms incur is then the quantity times the marginal effort cost -- i.e.7(9)=63.

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

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Question 2

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True

Deadweight loss from the imposition of a price floor increases as consumer demand becomes more price elastic.

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Question 3

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True

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

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Question 4

The concept of "non-price rationing" means that,in general,we can deal with scarcity just as well without prices as with prices.

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Question 5

Suppose that the market demand curve is $p = 30 - 2 x$ and the market supply curve is $p = X$ . 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?

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Question 6

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

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Question 7

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

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Question 8

Suppose the demand function for a consumer is given by $x \left( p _ { x } , p _ { y } \right) = \left( \frac { 4 p _ { y } } { p _ { x } } \right) ^ { 2 }$ 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?

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Question 9

When leisure is an inferior good,the wage elasticity of labor supply is always positive.

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Question 10

The wage elasticity of labor demand is always negative.

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Question 11

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

(True/False)

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Question 12

The greater the price elasticity of market demand,the less will be the reduction in market output from a price floor.

(True/False)

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Question 13

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

(True/False)

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Question 14

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.

(True/False)

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Question 15

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

(True/False)

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Question 16

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

(True/False)

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Question 17

Demand curves with constant slopes must have different own-price elasticities as one moves along the demand curve.

(True/False)

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Question 18

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.

(True/False)

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Question 19

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

(True/False)

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Question 20

Showing 1 - 20 of 21

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

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

Deadweight loss from the imposition of a price floor increases as consumer demand becomes more price elastic.

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

The concept of "non-price rationing" means that,in general,we can deal with scarcity just as well without prices as with prices.

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

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

When leisure is an inferior good,the wage elasticity of labor supply is always positive.

The wage elasticity of labor demand is always negative.

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

The greater the price elasticity of market demand,the less will be the reduction in market output from a price floor.

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

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

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

Demand curves with constant slopes must have different own-price elasticities as one moves along the demand curve.

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.

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

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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