Question 1

A horizontal demand curve for a good could arise because consumers

Accepted Answer

A) are irrational. 
B) are not sensitive to price changes. 
C) view this good as identical to another good. 
D) have no equivalent substitutes for this good.

Question 2

Suppose the demand curve is perfectly inelastic and the supply curve is upward sloping. The price sellers receive after a specific tax is imposed on sellers

Accepted Answer

A) is less than before the tax. 
B) is higher than before the tax. 
C) is unchanged. 
D) depends on the supply elasticity.

Question 3

-The above figure shows the supply and demand curves for rice in the U.S. and in Japan. Assume there is no trade between the two countries. If bad weather causes the supply curves in each country to shift leftward by the same amount, then

Accepted Answer

A) the price will increase the same amount in both countries. 
B) the price will decrease the same amount in both countries. 
C) the price will increase more in Japan than in the U.S. 
D) the price will decrease more in Japan than in the U.S.

Question 4

If the supply curve for orange juice is estimated to be Q = 40 + 2p, then, at a price of $2, the price elasticity of supply is

Accepted Answer

A) .01. 
B) .09. 
C) 1. 
D) 11.

Question 5

If a good has an income elasticity of demand greater than 1, one might classify that good as

Accepted Answer

A) a necessity. 
B) a luxury. 
C) unusual. 
D) inelastic.

Question 6

If the demand curve for a good is horizontal and the price is positive, then a leftward shift of the supply curve results in

Accepted Answer

A) a price of zero. 
B) an increase in price. 
C) a decrease in price. 
D) no change in price.

Question 7

A vertical demand curve for a particular good implies that consumers are

Accepted Answer

A) sensitive to changes in the price of that good. 
B) not sensitive to changes in the price of that good. 
C) irrational. 
D) not interested in that good.

Question 8

If the supply curve of cigarettes shifts to the left, quantity demanded for cigarettes

Accepted Answer

A) will decrease substantially. 
B) will increase substantially. 
C) will slightly increase. 
D) will slightly decrease.

Question 9

In the case of a specific tax, tax incidence is independent of who pays

Accepted Answer

A) only when supply and demand elasticities are not constant. 
B) only when the tax is collected from consumers. 
C) in most but not all cases. 
D) in all cases.

Question 10

To prevent obesity, the government may establish a tax on high caloric foods, such as twinkies. A twinkie tax will have the smallest impact on quantity demanded when the demand curve for twinkies is

Accepted Answer

A) perfectly elastic. 
B) perfectly inelastic. 
C) more elastic than the supply curve. 
D) both A and B.

Question 11

In the elastic portion of the supply, small changes in prices lead to ________ changes in quantity, while in the inelastic portion of the supply curve, small changes in prices lead to ________ changes in quantity.

Accepted Answer

A) small; small 
B) large; large 
C) small; large 
D) large; small

Question 12

-The above figure shows the demand curve for crude oil. Suppose the price is currently $15. A supply shock suddenly raises the price to $17. What happens with the crude oil sales revenue?

Accepted Answer

A) Crude oil sales revenue stays the same. 
B) Crude oil sales revenue slightly declines. 
C) Crude oil sales revenue increases. 
D) Crude oil sales revenue exhibits a steep decline.

Question 13

Suppose the demand function for a good is expressed as Q = 100 - 4p. If the good currently sells for $10, then the price elasticity of demand equals

Accepted Answer

A) -1.5. 
B) -0.67. 
C) -4. 
D) -2.5.

Question 14

The change in price that results from a rightward shift in demand will be greater if

Accepted Answer

A) the supply curve is horizontal than if the supply curve is upward sloping. 
B) the supply curve is relatively steep than if the supply curve is relatively flat. 
C) the supply curve is upward sloping than if the supply curve is vertical. 
D) the supply curve is horizontal than if the supply curve is vertical.

Question 15

In the case of a linear demand curve, demand becomes more price elastic as price increases.

Accepted Answer

A) True 
 B)False

Question 16

If the demand curve for a good always has unitary price elasticity, what does this imply about consumer behavior?

Accepted Answer

A) Consumers do not react to a price change. 
B) Consumers will spend a constant total amount on the good. 
C) Consumers are irrational. 
D) Consumers do not obey the Law of Demand.

Question 17

A vertical demand curve results in

Accepted Answer

A) no change in quantity when the supply curve shifts. 
B) no change in price when the supply curve shifts. 
C) no change in the supply curve being possible. 
D) no change in quantity when the demand curve shifts.

Question 18

Suppose the supply curve and the demand curve both have unitary elasticity at all prices. The price increase to consumers resulting from a specific tax of $1 imposed on sellers will be

Accepted Answer

A) $1. 
B) 50 cents. 
C) zero. 
D) impossible to calculate without knowing the slope of the supply curve.

Question 19

One reason the U.S. government might subsidize research of an alternative to crude-oil based gasoline is that

Accepted Answer

A) more substitutes will reduce the price of crude-oil based gasoline. 
B) more substitutes will increase the elasticity of crude-oil based gasoline. 
C) more substitutes will reduce the impact of supply shocks on the price of crude-oil based gasoline. 
D) Any or all of the above.

Question 20

As the supply curve shifts to the right, the increase in quantity demanded will not depend on the shape of the demand curve.

Accepted Answer