Exam 4: Subtleties of the Supply and Demand Model: Price Floors,price Ceilings,and Elasticity

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?

A perfectly elastic supply curve is vertical,and a perfectly elastic demand curve is horizontal.

If a consultant to a major league baseball team owner suggests that ticket prices be raised in order to increase revenue,the consultant must believe that the price elasticity of demand for baseball tickets is

The price elasticity of supply is always negative.

Explain why economists care about the price elasticity of demand.What does it tell us?

A product has elastic demand if,when price rises,total revenue falls.

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.

A price ceiling is

Suppose that,as the price of product H falls from $5 to $4,the quantity of H demanded increases from 2,000 to 6,000 units.In this case,what is the elasticity of demand,using the midpoint formula?

By knowing the price elasticity of demand,economists can anticipate the size of shifts in the supply of a commodity,such as oil.

If there are very few substitutes for a product,then an increase in its price causes

Which of the following statements about price ceilings is false?

When price rises by 3 percent and quantity demanded changes by 6 percent,

Assume that the price elasticity of demand equals .2 (e_d = .2).Given a 10 percent increase in price,there will be a

If the price elasticity of demand is equal to 4,a 1 percent increase in the price will cause quantity demanded to increase from 100 to 104 units.

If a household's demand for bread decreases as its income increases,then its income elasticity of demand for bread is

The measurement for the price elasticity of demand is

For one to accurately say that the demand for good X is more elastic than the demand for good Y,the price elasticity of demand for good X must be greater than the price elasticity of demand for good Y.

If supply is perfectly inelastic,then the price elasticity of supply is infinity.

Compare a market where supply and demand are both very elastic to one where supply and demand are both very inelastic.Suppose the current equilibrium price and quantity are the same in both markets.Suppose further that the government imposes a price ceiling $.50 below the equilibrium price.Prepare a diagram comparing the shortages that result.Explain the difference in these two cases.