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

Last year,Keith purchased 20 pounds of beef when his income was $30,000.This year his income is $40,000 and he purchased 40 pounds of beef.Which of the following statements is true?

If the consumption of alcoholic beverages is higher for lower-income people than for higher-income people,then the income elasticity of demand for alcoholic beverages is positive.

Which of the following formulas is a correct expression of the price elasticity of demand?

Supply may be elastic,unit elastic,or inelastic.

In the case of a price floor,price is not allowed to increase above a certain level.

For a given shift in demand,the more elastic is supply,the

If demand is perfectly inelastic,then the

Calculate the cross-price elasticity for the following goods.Are they substitutes or complements? (A)The price of airline tickets goes up by 20 percent,causing the quantity demanded for gasoline to go up by 5 percent. (B)The price of pancake flour goes up by 10 percent,causing the quantity demanded for pancake syrup to drop by 20 percent. (C)The price of coffee goes up by 5 percent,causing the quantity demanded for tea to go up by 5 percent. (D)The price of computers goes up by 5 percent,causing the quantity demanded for computer disks to drop by 2 percent.

A price elasticity of supply of 1.5 implies that

If 12 candy bars are demanded at $.30 each and 4 candy bars are demanded at $.50 each,what is the price elasticity of demand using the midpoint formula?

The price elasticity of demand measures how much price changes given a change in demand.

Does a price floor result in a shortage or a surplus? Why?

For demand to be inelastic,

Normal goods have positive income elasticities of demand,and inferior goods have negative income elasticities of demand.

Explain why a 10 percent tax would be more destructive in an industry where the demand for the product is highly price elastic as opposed to another industry where product demand is price inelastic.

If a 3 percent change in price results in a 1.5 percent change in quantity demanded,then the price elasticity of demand is ____ and demand is ____.

If the quantity supplied of a good is fixed at 100 units at all price levels,then its price elasticity of supply is

Use the following data for a demand curve. (A)Use the midpoint formula to calculate the elasticity between a price of $14 and $15. (B)Use the midpoint formula to calculate the elasticity between $7 and $8. (C)Because this is a linear demand curve,why does the elasticity change? (D)At what point is price $\times$ quantity maximized? What is the elasticity at that point?

A price ceiling is typically set below the equilibrium price.

A given change in oil supply will result in a smaller change in the equilibrium price of oil if the