Question 1

Exhibit 4-1 
-Carla buys one soft drink a day, regardless of the price. Which of the following statements is correct with respect to Carla?

Accepted Answer

A)  Price elasticity of demand for soft drinks is infinite.
B)  Price elasticity of demand for soft drinks is zero.
C)  Price elasticity of demand for soft drinks is 1.
D)  Cross-price elasticity of demand for soft drinks is 1.
E)  Price elasticity of demand cannot be calculated with the information given.F) None of the above
G) A) and C)

Question 2

Rent control for apartments in New York City is an example of a

Accepted Answer

A)  price floor.
B)  price ceiling.
C)  market equilibrium.
D)  restriction on quantity.
E)  freely determined price.F) All of the above
G) D) and E)

Question 3

Suppose the government sets beef prices, which in effect creates a price floor. Draw a supply and demand diagram for the beef market where the price is fixed greater than the market equilibrium price. Will there be a shortage or a surplus?

Accepted Answer

Setting a price floo...

Question 4

When price rises, total revenue

Accepted Answer

A)  always rises because the quantity purchased does not change.
B)  may rise or fall, depending on whether the quantity purchased rises or falls.
C)  always falls because the quantity purchased always falls.
D)  may rise or fall, depending on how much the quantity purchased falls.
E)  may rise or fall, depending on whether the quantity purchased changes.F) A) and B)
G) B) and E)

Question 5

Which of the following is not a likely result of a price floor?

Accepted Answer

A)  Excess supply of a good
B)  A persistent shortage
C)  A market price higher than equilibrium
D)  The quantity supplied exceeds the quantity demanded.
E)  Resources are diverted away from other activities to deal with the extra output.F) C) and E)
G) C) and D)

Question 6

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

Accepted Answer

A price floor results in a sur...

Question 7

The price elasticity of supply is a measure of how

Accepted Answer

A)  long it takes for producers to change technology.
B)  sensitive producers are to a change in technology.
C)  long it takes for producers to change their prices.
D)  sensitive producers are to a change in input prices.
E)  sensitive producers are to a change in output price.F) A) and B)
G) A) and C)

Question 8

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

Accepted Answer

A)  equal to infinity.
B)  less than 1.
C)  greater than 1.
D)  equal to 1.
E)  There is not enough information provided to answer this question.F) A) and D)
G) All of the above

Question 9

A price floor is

Accepted Answer

A)  a minimum allowable price set by government, and it causes a surplus if effective.
B)  the equilibrium price.
C)  a minimum allowable price set by government, and it causes a shortage if effective.
D)  a maximum allowable price set by government, and it causes a shortage if effective.
E)  a maximum allowable price set by government, and it causes a surplus if effective.F) A) and B)
G) A) and C)

Question 10

A horizontal demand curve is

Accepted Answer

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

Question 11

Use the following data for a supply curve to calculate the elasticity of supply.

Accepted Answer

The answer of Use the following data for a supply...

Question 12

Indicate whether the percentage change in quantity demanded or percentage change in price is greater and whether demand is considered sensitive or insensitive for each of the following categories: elastic, inelastic, unit elastic.

Accepted Answer

The percentage change in quantity demand...

Question 13

Exhibit 4-2 1 results in the most decrease in the equilibrium price. B) D1 results in the most increase in the equilibrium price. C) D2 results in the most decrease in the equilibrium price. D) D2 results in the most increase in the equilibrium price. E) The change in the equilibrium price is the same for D1 and D2." class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 4-2. If the supply curve shifts to the right, then which of the following is true?

Accepted Answer

A)  D1 results in the most decrease in the equilibrium price.
B)  D1 results in the most increase in the equilibrium price.
C)  D2 results in the most decrease in the equilibrium price.
D)  D2 results in the most increase in the equilibrium price.
E)  The change in the equilibrium price is the same for D1 and D2.F) B) and C)
G) A) and E)

Question 14

Because people can adapt to paying higher prices over time, the price elasticity of demand is lower in the long run than in the short run.

Accepted Answer

A) True 
 B)False

Question 15

If demand for a product is unit elastic, then increasing the price of the product leaves total revenue unchanged.

Accepted Answer

A) True 
 B)False

Question 16

For demand to be inelastic,

Accepted Answer

A)  the percentage change in quantity demanded must be equal to the associated percentage change in price.
B)  demand must change with a change in price.
C)  the percentage change in quantity demanded must be less than the associated percentage change in price.
D)  quantity demanded must change with a change in price.
E)  the percentage change in quantity demanded must be greater than the associated percentage change in price.F) B) and E)
G) B) and D)

Question 17

Suppose the price of a good rises from $2.25 to $3.15, and the quantity demanded changes from 2,360 units to 1,250 units. Calculate the price elasticity of demand using the midpoint formula, and indicate whether demand is elastic, inelastic, or unit elastic.

Accepted Answer

The answer of Suppose the price of a good rises...

Question 18

If a good has negative income elasticity, then it is an inferior good.

Accepted Answer

A) True 
 B)False

Question 19

Explain how price elasticity of demand indicates how total revenue changes when there is a change in price.

Accepted Answer

Total revenue equals P * Q_d. ...

Question 20

The elasticity of demand changes

Accepted Answer

A)  along a vertical demand curve.
B)  along a horizontal demand curve.
C)  along a linear, downward-sloping demand curve.
D)  along a supply curve.
E)  only when the demand curve shifts.F) D) and E)
G) A) and B)

Exam 4: Subtleties of the Supply and Demand Model

Which of the following is not a likely result of a price floor?

Correct AnswerverifiedShow Answer

If demand for a product is unit elastic, then increasing the price of the product leaves total revenue unchanged.

Correct AnswerverifiedShow Answer

When price rises, total revenue

Correct AnswerverifiedShow Answer

Explain how price elasticity of demand indicates how total revenue changes when there is a change in price.

Correct AnswerverifiedTotal revenue equals P * Qd. ...View AnswerShow Answer

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

Correct AnswerverifiedA price floor results in a sur...View AnswerShow Answer

Exhibit 4-2 -Refer to Exhibit 4-2. If the supply curve shifts to the right, then which of the following is true?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose the government sets beef prices, which in effect creates a price floor. Draw a supply and demand diagram for the beef market where the price is fixed greater than the market equilibrium price. Will there be a shortage or a surplus?

Correct AnswerverifiedSetting a price floo...View AnswerShow Answer

A horizontal demand curve is

Correct AnswerverifiedShow Answer

A price floor is

Correct AnswerverifiedShow Answer

Because people can adapt to paying higher prices over time, the price elasticity of demand is lower in the long run than in the short run.

Correct AnswerverifiedShow Answer

The elasticity of demand changes

Correct AnswerverifiedShow Answer

The price elasticity of supply is a measure of how

Correct AnswerverifiedShow Answer

Rent control for apartments in New York City is an example of a

Correct AnswerverifiedShow Answer

Exhibit 4-1 -Carla buys one soft drink a day, regardless of the price. Which of the following statements is correct with respect to Carla?

Correct AnswerverifiedShow Answer

If a good has negative income elasticity, then it is an inferior good.

Correct AnswerverifiedShow Answer

Use the following data for a supply curve to calculate the elasticity of supply.

Correct AnswerverifiedShow Answer

Suppose the price of a good rises from $2.25 to $3.15, and the quantity demanded changes from 2,360 units to 1,250 units. Calculate the price elasticity of demand using the midpoint formula, and indicate whether demand is elastic, inelastic, or unit elastic.

Correct AnswerverifiedShow Answer

Indicate whether the percentage change in quantity demanded or percentage change in price is greater and whether demand is considered sensitive or insensitive for each of the following categories: elastic, inelastic, unit elastic.

Correct AnswerverifiedThe percentage change in quantity demand...View AnswerShow Answer

For demand to be inelastic,

Correct AnswerverifiedShow Answer

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Total revenue equals P * Q_d. ...
View Answer

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A price floor results in a sur...
View Answer

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Setting a price floo...
View Answer

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Correct Answer
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Correct Answer
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The percentage change in quantity demand...
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Correct Answer
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