Question 1

The elasticity of supply coefficient for bicycles is estimated to be equal to 1.5.It is expected, therefore, that a 4% increase in price would lead to:

Accepted Answer

A) a 4% decrease in the quantity of bicycles supplied. 
B) a 4% increase in the quantity of bicycles supplied. 
C) a 6% decrease in the quantity of bicycles supplied. 
D) a 6% increase in the quantity of bicycles supplied. 
E) a 1.5% decrease in the quantity of bicycles supplied.

Question 2

Which of the following is true?

Accepted Answer

A) A lower price will increase your consumer surplus by the amount you were buying originally, times the reduction in the price. 
B) A lower price will leave unchanged your consumer surplus for each of the units you were already consuming, but will increase consumer surplus from increased purchases at the lower price. 
C) A lower price will decrease your producer surplus for each of the units you were producing, but will not change producer surplus by changing the quantity sold. 
D) A lower price will leave unchanged your producer surplus for each of the units you were producing, but will decrease producer surplus from decreased sales at the lower price. 
E) None of the above is true.

Question 3

Figure 4-E 
-Beach resorts raise their prices during the summer months and yet more people book rooms at those times.Is this a violation of the law of demand?

Accepted Answer

The answer of Figure 4-E 
-Beach resorts raise their prices...

Question 4

Figure 4-E 
-If consumers were originally willing to buy 500 units of a good at a price of $20 are now willing to buy 500 units of the same good at a price of $10, that change would be described as a decrease in demand.

Accepted Answer

A) True 
 B)False

Question 5

The major drawback of a price ceiling is:

Accepted Answer

A) it causes a surplus. 
B) government regulations of this kind are difficult to enforce. 
C) it causes a shortage. 
D) none of the above; there is no drawback.

Question 6

Assume a price floor is imposed in the wheat market at the equilibrium price and that a price ceiling is imposed in the gasoline market at the equilibrium price.An increase in supply in both the wheat and gasoline markets will create:

Accepted Answer

A) surpluses in both the wheat and gasoline markets. 
B) shortages in both the wheat and gasoline markets. 
C) a surplus in the wheat market and an increase the quantity of gasoline traded. 
D) a surplus in the wheat market and a shortage in the gasoline market. 
E) a shortage in the wheat market and a surplus in the gasoline market.

Question 7

Which of the following is most likely to feature inelastic demand with regard to price?

Accepted Answer

A) a Rooms To Go chair 
B) an inflatable chair with the logo of the local football team 
C) an old recliner 
D) an authentic Queen Anne chair

Question 8

If the supply of good A is perfectly elastic, a decrease in demand will:

Accepted Answer

A) reduce the equilibrium quantity traded, but leave the price unchanged. 
B) reduce the equilibrium quantity traded, and reduce the price. 
C) reduce the equilibrium price, but leave the quantity traded unchanged. 
D) reduce the equilibrium price traded, but increase the quantity traded.

Question 9

Figure 4-E 
-A technological advance that reduces the cost of producing computers will shift the supply curve of computers to the right.

Accepted Answer

A) True 
 B)False

Question 10

Table 4-E
The schedule below shows the prices that a consumer is willing to pay for pounds of shrimp:
 $\begin{array}{cc}
\text { Price Per Pound } & \text { Number of Pounds } \
&\text { Consumed Each Year }\
\$ 20 & 1 \
\$ 16 & 2 \
\$ 12 & 3 \
\$ 10 & 4 \
\$ 6 & 5 \
\$ 2 & 6
\end{array}$

-Refer to Table 4-E.If the price of shrimp is $12 per pound, according to the schedule consumer surplus equals:

Accepted Answer

A) $8. 
B) $12. 
C) $14. 
D) $36. 
E) $48.

Question 11

Based on the table below, what is the producer surplus of the 1st unit sold assuming this market reaches equilibrium? $\begin{array}{lcc}
\underline{\text { Price } }&\underline{ \text { Quantity Demanded }} & \underline{\text { Quantity Supplied }} \
\$ 1.00 & 7 & 1 \
\$ 2.00 & 6 & 2 \
\$ 3.00 & 5 & 3 \
\$ 4.00 & 4 & 4 \
\$ 5.00 & 3 & 5 \
\$6.00 & 2 & 6 \
\$ 7.00 & 1 & 7
\end{array}$

Accepted Answer

A) $1.00 
B) $2.00 
C) $3.00 
D) $7.00 
E) $10.00

Question 12

Figure 4-E 
-When the price of steak falls, we would expect the quantity demanded of steak to rise.

Accepted Answer

A) True 
 B)False

Question 13

Suppose the equilibrium price of bread is $2.00 per loaf.If the government sets a price ceiling of $1.50 per loaf:

Accepted Answer

A) the equilibrium price of wheat will fall and a shortage of wheat will be created. 
B) the quantity of wheat supplied will increase. 
C) the quantity of wheat demanded will decrease. 
D) there will be a shortage of bread. 
E) there will be a surplus of bread.

Question 14

Figure 4-E 
-According to the law of demand, other things equal, when the price of a good or service falls, demand increases.

Accepted Answer

A) True 
 B)False

Question 15

If most passenger trains operate far below full capacity and demand is ____, reducing travel fares would be likely to increase total revenue.

Accepted Answer

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

Question 16

Figure 4-E 
-An increase in the price of ice cream would cause a decrease in the demand for ice cream and an increase in the demand for frozen yogurt, a substitute.

Accepted Answer

A) True 
 B)False

Question 17

Assume that the elasticities of supply and demand in an industry are both equal to 2 and that it is currently untaxed.A new tax imposed on the industry will:

Accepted Answer

A) be borne more by suppliers than demanders. 
B) be borne more by demanders than suppliers. 
C) be borne equally by demanders and suppliers. 
D) not raise any added revenue for the government since demand is relatively elastic.

Question 18

Say that the equilibrium price of natural gas would be $5 per thousand cubic feet, but there is a price ceiling imposed at $3 per thousand cubic feet.That price ceiling is then lowered to $2 per thousand cubic feet.As a result,

Accepted Answer

A) the shortage of natural gas will get worse. 
B) the shortage of natural gas will get less severe. 
C) the surplus of natural gas will get worse. 
D) the surplus of natural gas will get less severe. 
E) the shortage of natural gas will be eliminated.

Question 19

The difference between the value of a good to consumers and its price is known as:

Accepted Answer

A) demand. 
B) marginal utility. 
C) total utility. 
D) opportunity cost 
E) consumer surplus.

Question 20

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

Accepted Answer

A) more elastic than the short-run demand curve for wheat. 
B) more inelastic 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.

Exam 4: Using Supply and Demand

The elasticity of supply coefficient for bicycles is estimated to be equal to 1.5.It is expected, therefore, that a 4% increase in price would lead to:

Which of the following is true?

Figure 4-E -Beach resorts raise their prices during the summer months and yet more people book rooms at those times.Is this a violation of the law of demand?

Figure 4-E -If consumers were originally willing to buy 500 units of a good at a price of $20 are now willing to buy 500 units of the same good at a price of $10, that change would be described as a decrease in demand.

The major drawback of a price ceiling is:

Assume a price floor is imposed in the wheat market at the equilibrium price and that a price ceiling is imposed in the gasoline market at the equilibrium price.An increase in supply in both the wheat and gasoline markets will create:

Which of the following is most likely to feature inelastic demand with regard to price?

If the supply of good A is perfectly elastic, a decrease in demand will:

Figure 4-E -A technological advance that reduces the cost of producing computers will shift the supply curve of computers to the right.

Figure 4-E -When the price of steak falls, we would expect the quantity demanded of steak to rise.

Suppose the equilibrium price of bread is $2.00 per loaf.If the government sets a price ceiling of $1.50 per loaf:

Figure 4-E -According to the law of demand, other things equal, when the price of a good or service falls, demand increases.

If most passenger trains operate far below full capacity and demand is ____, reducing travel fares would be likely to increase total revenue.

Figure 4-E -An increase in the price of ice cream would cause a decrease in the demand for ice cream and an increase in the demand for frozen yogurt, a substitute.

Assume that the elasticities of supply and demand in an industry are both equal to 2 and that it is currently untaxed.A new tax imposed on the industry will:

Say that the equilibrium price of natural gas would be $5 per thousand cubic feet, but there is a price ceiling imposed at $3 per thousand cubic feet.That price ceiling is then lowered to $2 per thousand cubic feet.As a result,

The difference between the value of a good to consumers and its price is known as:

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