Deck 4: Using Supply and Demand

Question 1

A price floor set above the equilibrium price is not binding.

Answer 1

False

Question 2

The demand curve of a good or service represents a collection of minimum prices that consumers are willing and able to pay for additional quantities of a good or service.

Answer 2

False

Question 3

Consumer surplus increases whenever the price of a good decreases due to a rightward shift of the supply curve.

Answer 3

True

Question 4

If a price ceiling is set above the equilibrium price, it is not binding.

Question 5

If James is willing to sell an extra concert ticket for $40 but actually sells it for $100, his consumer surplus is $60.

Question 6

If Ming is willing to pay $75 to attend the Broadway production of The Lion King but actually pays $40, she receives a consumer surplus of $35.

Question 7

A rent ceiling set below the equilibrium price results in a surplus.

Question 8

If the demand for a good is price inelastic, a decrease in the price of the good will result in a decrease in the total revenue of a firm producing the good.

Question 9

The main purpose of government price controls is to keep prices from rising above their equilibrium levels.

Question 10

A perfectly elastic demand curve is vertical.

Question 11

When a 5 percent increase in price leads to an 8 percent increase in quantity supplied, the supply is said to be relatively inelastic.

Question 12

Given an upward-sloping supply curve, the more inelastic the demand, the greater the fraction of the burden of taxation borne by the consumer.

Question 13

If a consumer's total expenditure on a good does not vary with its price, then that consumer's demand curve is unit elastic over that range of prices.

Question 14

Market efficiency occurs when the margin of benefits of the last unit consumed is equal to the marginal cost of productivity.

Question 15

Suppose a 25 percent decrease in the price of a large pizza increases its sales by 75 percent. We can conclude that the demand is relatively elastic with respect to price.

Question 16

Moving down the linear demand curve for a good, the demand becomes increasingly price elastic.

Question 17

If a price floor is not binding, then it will have no effect on the market.

Question 18

When a 9 percent increase in price leads to a 6 percent increase in quantity supplied, the supply is relatively inelastic.

Question 19

The supply curve of a good or service represents a collection of maximum prices that suppliers require to be willing and able to supply each additional unit of a good or service.

Question 20

Moving along the inelastic portion of a demand curve, the change in quantity demanded will always be proportionally less than the change in price.

Question 21

When the Blue Ocean Surfboard Company lowered the price of surfboards by 20 percent, it sold 10 percent more surfboards. The price elasticity coefficient for surfboards is _____.

A)2
B)0.5​
C)1
D)20
E)10

Question 22

The demand for a good is said to be _____ when the percentage change in quantity demanded is greater than the percentage change in price.

A)perfectly elastic
B)inelastic
C)unit elastic
D)elastic
E)perfectly inelastic

Question 23

For nondurable goods, _____.

A)the short-run demand curve is less elastic than the long-run demand curve
B)the short-run demand curve is more elastic than the long-run demand curve
C)the short-run demand curve is unit elastic
D)the short-run demand curve is perfectly elastic
E)the short-run demand curve is perfectly inelastic

Question 24

Price elasticity of demand is defined as the:

A)ratio of the percentage change in quantity demanded to the percentage change in price.
B)sum of the percentage change in quantity demanded and the percentage change in income.
C)difference between the percentage change in price and the percentage change in quantity demanded.
D)difference between the percentage change in quantity demanded and the percentage change in price, multiplied by 100.
E)ratio of the percentage change in price to the percentage change in quantity demanded.

Question 25

The price elasticity of demand for a good will _____ as the availability of substitutes _____.

A)remain unchanged; increases
B)decrease; increases
C)increase; increases
D)decrease; decreases
E)increase; decrease

Question 26

Which of the following is likely to have a more elastic short-run demand curve?

A)Automobiles
B)Air travel
C)Medical care
D)Alcohol
E)Gasoline

Question 27

The price elasticity of demand for gourmet coffee is estimated to be equal to 1.6. It is expected, therefore, that a 5 percent increase in price would lead to a:

A)16 percent decrease in the quantity of gourmet coffee demanded.
B)16 percent increase in the quantity of gourmet coffee demanded.
C)8 percent decrease in the quantity of gourmet coffee demanded.
D)8 percent increase in the quantity of gourmet coffee demanded.
E)10 percent increase in the quantity of gourmet coffee demanded.

Question 28

If the demand for a good is perfectly elastic, the price elasticity of demand is equal to _____ and the demand curve is _____.

A)zero; downward sloping
B)infinity; horizontal
C)three; upward sloping
D)two; kinked
E)one; vertical

Question 29

For a given increase in price, _____.

A)a greater elasticity of demand will result in a greater decrease in quantity demanded
B)a greater elasticity of demand will result in a greater decrease in demand
C)a smaller elasticity of demand will result in a greater decrease in quantity demanded
D)a smaller elasticity of demand will result in a smaller decrease in demand
E)a greater elasticity of demand will result in a smaller increase in quantity demanded

Question 30

The demand for a good is said to be _____ when quantity demanded changes proportionately to price changes.

A)perfectly elastic
B)inelastic
C)unit elastic
D)elastic
E)perfectly inelastic

Question 31

Other things being equal, the greater the price elasticity of demand for a good, the _____.

A)shorter the period of time consumers have to adjust to price changes
B)larger the proportion of income spent on the good
C)fewer the available substitutes of the good
D)smaller the proportion of income spent on the good
E)fewer the available complements of the good

Question 32

Erin runs a cookie store in Rhode Island. After raising the price from $1 to $2 per cookie, her total revenue from selling cookies per week decreased from $200 to $150. Thus, it can be said that the demand for Erin's cookies is:

A)perfectly inelastic with a price elasticity of demand equal to zero.
B)elastic with a price elasticity of demand greater than one.
C)unit elastic with a price elasticity of demand equal to one.
D)inelastic with a price elasticity of demand less than one.
E)perfectly elastic with a price elasticity of demand equal to infinity.

Question 33

The long-run demand curve for air travel is likely to be:

A)more elastic than the short-run demand curve for air travel.
B)more inelastic than the short-run demand curve for air travel.
C)the same as the short-run demand curve for air travel.
D)more inelastic than the short-run supply curve of air travel.
E)perfectly elastic.

Question 34

Which of the following is not a determinant factor of the price elasticity of demand for a good?

A)The availability of complementary goods
B)The proportion of income spent on the good
C)The availability of close substitute goods
D)The amount of time that has elapsed since the price change
E)The taste and preferences of consumers

Question 35

Which of the following is true of a good for which the demand is elastic?

A)The price change of the good persists over a longer time period.
B)The price change of the good does not persist over a longer time period.
C)The amount of income spent on the good is a small proportion of a consumer's budget.
D)The good does not have close substitutes in the market.
E)The good does not have complements in the market.

Question 36

A steel mill raises the price of steel by 20 percent, which results in a 7 percent reduction in the quantity of steel demanded. The price elasticity of demand is _____.

A)1.5
B)0.35
C)3.5
D)5.5
E)7.5

Question 37

Which of the following goods is likely to have a more elastic demand curve?

A)A good without close substitutes
B)A nondurable good
C)A necessary good
D)A good with complements
E)A luxury good

Question 38

At Bailey's Barber Shop, a 5 percent increase in the price of haircuts results in a 15 percent decrease in the number of haircuts per day. Which of the following is the price elasticity of demand of haircuts?

A)0.05
B)0.10
C)0.33
D)3.0
E)5.5

Question 39

If recent sharp increases in the price of a life-saving drug have had only a small effect on the amount of the drug purchased, then the demand for the drug is said to be:

A)relatively elastic.
B)relatively inelastic.
C)unit elastic.
D)perfectly inelastic.
E)perfectly inelastic

Question 40

A steel mill raises the price of steel by 7 percent, which results in a 20 percent reduction in the quantity of steel demanded. The price elasticity of demand is _____.

A)2.9
B)5.5
C)6.5
D)10.5
E)15.5

Question 41

If the demand for a good is _____, an increase in the price of the good will decrease the total revenue of the firm producing the good.

A)elastic
B)inelastic
C)unit elastic
D)unit inelastic
E)perfectly inelastic

Question 42

Graph A below shows an elastic demand curve, and Graph B shows an inelastic demand curve. With reference to Graph B, at a price of $20, total revenue equals _____.Figure 4.1:

A)$200
B)$300
C)$250
D)$150
E)$100

Question 43

Graph A below shows an elastic demand curve, and Graph B shows an inelastic demand curve. With reference to Graph A, at a price of $20, total revenue equals _____.Figure 4.1:

A)$400
B)$200
C)$500
D)$1,000
E)$100

Question 44

When the local symphony recently raised the ticket price for its summer concerts, the symphony was surprised to see that its total revenue had actually decreased. The reason for the decline in total revenue was that the demand for tickets was:

A)unit elastic.
B)perfectly inelastic.
C)relatively inelastic.
D)relatively elastic.
E)perfectly elastic.

Question 45

The following table shows Kate's demand for sub sandwiches. Along Kate's demand curve for sub sandwiches, the price elasticity of demand is:.Table 4.1:

A)equal to zero.
B)less than one.
C)equal to one.
D)greater than one.
E)equal to infinity.

Question 46

A jeweler cut prices in his store by 20 percent, and the dollar value of his sales fell by 20 percent. This indicates a(n) _____ demand for the jewelry at the store.

A)elastic
B)inelastic
C)perfectly elastic
D)perfectly inelastic
E)unit elastic

Question 47

If the short-run elasticity of demand for bus travel is 1.01, its long run elasticity of demand is likely to be _____.

A)unit elastic
B)greater than 1.01
C)equal to 1.01
D)less than 1.01
E)perfectly inelastic

Question 48

When the price of ulcer medication increased by $20, the revenue of a drug company selling the medication increased by $10 million. Thus, it can be said that the company's elasticity of demand is:

A)equal to zero.
B)greater than one.
C)less than one.
D)infinitely large.
E)equal to one.

Question 49

If the demand for a good is unit elastic, then _____.

A)the percentage increase in revenue is greater than the percentage decrease in price
B)the percentage increase in revenue is equal to the percentage decrease in price
C)the percentage change in the quantity demanded is equal to zero
D)the percentage change in revenue is equal to zero
E)the percentage increase in revenue is lesser than the percentage decrease in price

Question 50

Identify the correct statement about the price elasticity of demand and the demand curve for a good.

A)The slope of the demand curve is always equal to the elasticity of demand.
B)Moving down along a downward-sloping, linear demand curve, the elasticity of demand increases.
C)The flatter the demand curve passing through a given point, the more elastic the demand.
D)The steeper the demand curve passing through a given point, the more elastic the demand.
E)The price elasticity of demand is, in theory, always positive.

Question 51

Graph A below shows an elastic demand curve, and Graph B shows an inelastic demand curve. Graph A shows that as the price decreases from $20 to $10, total revenue _____ and quantity demanded _____.Figure 4.1:

A)decreases; increases
B)decreases; decreases
C)increases; increases
D)increases; decreases
E)remains unchanged; remains unchanged

Question 52

A subsidy to wheat farmers decreases the price of a bushel of wheat from $2.50 to $2 per bushel. Prior to the subsidy, the equilibrium quantity of wheat sold was equal to 200,000 bushels. If the demand for wheat is known to be unit elastic, then after the imposition of the subsidy, _____ bushels of wheat would be sold in the market.

A)100,000
B)200,000
C)240,000
D)400,000
E)300,000

Question 53

If the demand for a good is _____, a decrease in the price of the good will decrease the total revenue of the firm producing the good.

A)elastic
B)inelastic
C)unit elastic
D)perfectly inelastic
E)perfectly elastic

Question 54

Graph A below shows an elastic demand curve, and Graph B shows an inelastic demand curve. With reference to Graph A, at a price of $10, total revenue equals _____.Figure 4.1:

A)$250
B)$400
C)$500
D)$1,000
E)$150

Question 55

The table below shows the price elasticity of demand for a good in the vicinity of seven different points along the demand curve for the good. In the vicinity of which of these points would a price decrease be accompanied by an increase in total revenue?Table 4.4:

A)A and E
B)B and D
C)C
D)F
E)G

Question 56

The long-run demand curve for wheat is likely to be:

A)more elastic than the short-run demand curve for wheat.
B)more inelastic than the short-run demand curve for wheat.
C)the same as the short-run demand curve for wheat.
D)more inelastic than the short-run supply of wheat.
E)perfectly inelastic.

Question 57

The following table shows Tim's demand for video rentals each month. Along Tim's demand curve for video rentals, the price elasticity of demand is:Table 4.2:

A)equal to zero.
B)less than one.
C)equal to one.
D)greater than one.
E)equal to infinity.

Question 58

The table below shows the price elasticity of demand for a good in the vicinity of eight different points along the demand curve for the good. At which of the following points would a price increase be accompanied by an increase in total revenue?Table 4.3:

A)B, D, and F
B)A, C, and E
C)H
D)F
E)G

Question 59

A linear demand curve for a good is:

A)more price elastic at lower price ranges.
B)more price elastic at higher price ranges.
C)more price inelastic at higher price ranges.
D)always equal to one.
E)always equal to zero.

Question 60

If the elasticity of demand for mothballs is 0.50, then which of the following is true along the demand curve for mothballs?

A)A 20 percent increase in the price of mothballs will lead to a 10 percent decrease in the quantity of mothballs demanded.
B)A 10 percent increase in the price of mothballs will lead to a 20 percent decrease in the quantity of mothballs demanded.
C)A 20 percent increase in the price of mothballs will lead to a 10 percent increase in the quantity of mothballs demanded.
D)A 10 percent increase in the price of mothballs will lead to a 20 percent increase in the quantity of mothballs demanded.
E)A 20 percent increase in the price of mothballs will lead to a 5 percent decrease in the quantity of mothballs demanded.

Question 61

Which of the following is the most important determinant of the elasticity of supply of a good?

A)The number of uses of the good
B)The availability of close substitutes of the good
C)The amount of time producers have to adjust their behavior in response to a price change
D)The percentage of income spent on the good by consumers
E)The availability of complementary goods

Question 62

The tax burden for a good falls largely on _____.

A)the producers who have a more elastic supply of the good
B)the consumers who have a less elastic demand for the good
C)the consumers who have unit elastic demand for the good
D)the producers who have unit elastic supply of the good
E)the producers who have perfectly elastic supply of the good

Question 63

The following table shows Miles's demand for jazz CDs. If the price of a jazz CD equals $15, the total consumer surplus Miles receives from purchasing jazz CDs is equal to _____.Table 4.5:

A)$15
B)$25
C)$30
D)$35
E)$40

Question 64

The supply of a good is said to be _____ when a small percentage increase in the price of the good leads to a proportionally larger change in the quantity supplied.

A)inelastic
B)elastic
C)unit elastic
D)perfectly inelastic
E)perfectly elastic

Question 65

If the demand for apples is highly elastic and the supply is highly inelastic, then a tax imposed on apples will be paid:

A)largely by the sellers of apples with more elastic supply.
B)largely by the buyers of apples with more elastic demand.
C)equally by the sellers and buyers of apples.
D)largely by the sellers of apples with less elastic supply.
E)largely by the buyers of apples with unit elastic demand.

Question 66

Which of the following is an example of an unintended consequence of price controls?

A)First time tax credits that cause more home sales
B)A price ceiling on gasoline that causes a gas shortage
C)Increased parking fines that lead to fewer violators
D)Higher minimum wages resulting in an increase in employment among teenagers
E)Subsidies resulting in a decrease in the cost of taxpayers

Question 67

The government proposes a tax on flowers in order to boost its tax revenue. Consumers will bear no part of the tax burden if the:

A)demand for flowers is perfectly inelastic.
B)supply of flowers is perfectly elastic.
C)demand for flowers is perfectly elastic.
D)demand for flowers is unit elastic.
E)supply of flowers is unit elastic.

Question 68

If most passenger trains operate far below full capacity and demand is _____, a decrease in travel fares would likely increase total revenue.

A)inelastic
B)unit elastic
C)perfectly elastic
D)elastic
E)perfectly inelastic

Question 69

When the demand for a good is relatively more elastic than its supply, _____.

A)the proportion of the tax on the good paid by the consumers is greater than that paid by the producers
B)the proportion of the tax on the good paid by the producers is greater than that paid by the consumers
C)government will impose a binding price ceiling
D)government will impose a binding price floor
E)government will impose a price ceiling that is not binding

Question 70

The Book Nook reduces prices by 20 percent. If the dollar value of The Book Nook's sales remains constant, it indicates that:

A)the quantity of books sold remains constant.
B)the demand for the books is perfectly elastic.
C)the demand for the books is inelastic.
D)the quantity of books sold increases by 20 percent.
E)the quantity of books sold decreases by 20 percent.

Question 71

When a binding price floor is imposed on a market, _____.

A)price serves more effectively as a rationing device
B)the quantity demanded at the price floor exceeds the quantity that would have been demanded without the price floor
C)every producer and every consumer gain from it
D)the quantity demanded at the price floor exceeds the quantity supplied
E)the unemployment level in the economy increases

Question 72

If a price floor imposes a binding constraint on a market, then _____.

A)the equilibrium price should be above the price floor
B)the quantity demanded should exceed the quantity supplied
C)sellers cannot sell all they want to sell at the price floor
D)buyers cannot buy all they want to buy at the price floor
E)the equilibrium price should be equal to the price floor

Question 73

If the supply curve of a good is horizontal, then the elasticity of supply is:

A)equal to zero.
B)equal to one.
C)greater than one but less than infinity.
D)equal to infinity.
E)less than one.

Question 74

Graph A below shows an elastic demand curve, and Graph B shows an inelastic demand curve. Graph B shows that as the price decreases from $20 to $10, total revenue _____ and quantity demanded _____.Figure 4.1:

A)decreases; increases
B)decreases; decreases
C)increases; increases
D)increases; decreases
E)remains unchanged; remains unchanged

Question 75

A "war on drugs" is waged, and, as a result, a large quantity of drugs flowing into the United States is seized and the drug traffickers are arrested. If the demand for drugs is inelastic, which of the following is true?

A)The total expenditure on drugs will decrease in the Unites States.
B)The total expenditure on drugs will increase in the Unites States.
C)The total expenditure on drugs will remain constant in the Unites States.
D)The quantity of drugs demanded in the Unites States changes proportionately to price changes.
E)The quantity of drugs demanded in the Unites States changes proportionally more than the price changes.

Question 76

Lydia enjoys going to the theater to watch Broadway musicals. The following table shows Lydia's willingness to pay for theater tickets in a year. If the price of tickets to Broadway musicals equals $50, Lydia's consumer surplus will be _____.Table 4.6:

A)$350
B)$300
C)$250
D)$100
E)$200

Question 77

Suppose a government imposes a binding price ceiling on a good. Which of the following groups is most likely to favor the price ceiling?

A)People having a low opportunity cost of time
B)People having high hourly wages and salaries
C)People having a low propensity to consume
D)People having a high propensity to invest
E)People supplying the good in the market

Question 78

If the elasticity of supply coefficient equals 0.6, then the supply of the good is said to be:

A)perfectly elastic.
B)elastic.
C)unit elastic.
D)inelastic.
E)perfectly inelastic.

Question 79

In a graph showing the demand and supply curves of a good, the triangular area under the demand curve for the good and above the market price of the good is:

A)consumer surplus.
B)producer surplus.
C)marginal cost.
D)deadweight loss.
E)marginal utility.

Question 80

If the supply curve of a good is vertical, then the elasticity of supply is:

A)equal to zero.
B)equal to one.
C)greater than one but less than infinity.
D)equal to infinity.
E)less than one.