Chapter 5: Supply & Demand

A business should ___________ (increase/decrease) the price of a good with an elastic demand if it wants to increase revenues. A Increase B Decrease

B

An example of price controls given in your text concerns minimum wage increases. On a supply and demand diagram (with wages on the vertical axis and number of workers on the horizontal), would minimum wage be considered a price ceiling or a price floor? A Price ceiling B Price floor C Neither D Cannot tell

B

Rank the following in order from the least elastic demand to most elastic: 1 B Allergy medicine that is prescribed by a physician 2A Sudafed Cold and Allergy Medicine 3C Any over-the-counter allergy medicine

b c a

Rank the following from the least elastic (inelastic) to most elastic. 1 C Demand for cookies 2 A Demand for Oreos 3 D Demand for dessert 4 B Demand for food

B D C A

A major city was thinking about increasing its bus fares and commissioned a study to estimate the price elasticity of demand. The study estimated that elasticity was 0.4. What action should the city have taken to increase revenue from bus fares? A Increase fares B Decrease fares C Do not change fares

A

An increase in an effective minimum legal price will do what to prices and quantities actually sold in a market? Prices will __________ and the quantities actually sold will ___________. A Increase; decrease B Increase; increase C Decrease; decrease D Decrease; increase

A

When price decreases, quantity increases. Price elasticity of demand measures how much ___________. A The price decreases B The price increases C The price decreases when quantity increases D The quantity increases when price decreases

D

If the government imposes an effective price ceiling in a market, what will be the result? A Equilibrium B A surplus C A shortage D Demand will shift left and supply will shift right

c

A business should ___________ (increase/decrease) the price of a good with an inelastic demand if it wants to increase revenues. A Increase B Decrease

increase

If the country enters a period of prosperity, resulting in consumer incomes increasing by 4% and the income elasticity of a good is 0.8, what will happen to the demand for that good as a result? A Demand will increase by 1.2% B Demand will increase by 3.2% C Demand will increase by 4.8%

B

Who is likely to be in favor of a price ceiling on a good? A All consumers of that good B The consumers of the good who can still purchase it after the ceiling is imposed C All producers of the good D The producers of the good who can still sell it after the ceiling is imposed

B

If you were selling a product with an elasticity of 1.6 and you wanted to increase your revenue, what should you do to the price? A Lower price B Increase price C Do not change price

B

The price elasticity of demand will be _________________ if demand is elastic. A Equal to one B Less than one C More than one

C

When the federal government subsidizes higher education in the form of Pell grants to students, it results in A An increase in the supply of higher education B A decrease in the supply of higher education C An increase in the demand for higher education D A decrease in the demand for higher education

C

Assume that as your income increases, your consumption of burgers decreases. We can assume that your income elasticity of demand for burgers is what? A Between 0 and 1 B Greater than 1 C Equal to 1 D Negative

D

An increase in an inelastic demand will cause (a greater or lesser or same) change in the equilibrium quantity than the same increase in an elastic demand. A A greater B A lesser C The same

A

If the government taxes car producers, that will happen in the market for cars? A The supply curve will shift to the left. B The demand curve will shift to the right. C There will be a movement along the supply curve to the left. D There will be a movement along the demand curve to the right.

A

In the question above, if the city examined the elasticity of bus fares again, what would they likely find? A Elasticity is now greater than 1 B Elasticity is now less than 1 C Elasticity is 0

A

Many major U.S. cities have adopted rent controls for some housing. An effective rent control is what kind of price control? A A price ceiling with a maximum price above equilibrium price B A price floor with a minimum price above equilibrium price C A price ceiling with a maximum price below equilibrium price D A price floor with a minimum price below equilibrium price

A

Sometimes consumers purchase goods because of "conspicuous consumption"; i.e., they want others to know that they can afford to buy the goods. There are many examples of these goods, such as Rolex watches, Coach purses, and flying first class. What would you expect the income elasticity of demand to be for these goods? A These are luxury goods, so income elasticity would be greater than 1. B These are normal goods, so income elasticity would be greater than 1. C These are inferior goods, so income elasticity would be greater than 1

A

When the federal government subsidizes higher education in the form of direct subsidies to universities, it results in: A An increase in the supply of higher education B A decrease in the supply of higher education C An increase in the demand for higher education D A decrease in the demand for higher education

A

If a man spends approximately 45% of his income on air travel and his sister only spends about 2% of her income on air travel (and that is the only difference), would the man's demand for air travel be less or more elastic than his sister's? A Less B More C Cannot tell

B

The suppliers of ____________are more likely to have a tax imposed on their production. A Jewelry B Gasoline

B

Which of the following goods would be the most likely to be subject to a government-imposed tax? A Cereal B Bottles of alcohol, such as whiskey and gin C Shoes

B

A firm has a choice of raising or lowering its price. If the firm wishes to increase its revenues (the price times the quantity sold), what should it do? A Raise price when demand is elastic, because the quantity demanded will increase. B Lower price when demand is elastic, because the quantity demanded will decrease. C Raise price when demand is inelastic, because the revenues gained from the price increase will be larger than the revenues lost from the smaller quantity sold. D Lower price when demand is inelastic, because the revenues lost from the lower price will be smaller than the revenues gained from the increase in quantity sold.

C

Suppose you know that the price elasticity of demand for your product is 0.5, and you are thinking about raising your price by 8%. How much can you expect quantity to decrease? A 8% B 5% C 4% D We can't tell how much quantity will decrease

C

If population increases in a city with effective rent controls (and nothing else changes), which of the following describes what will happen in the market for rental housing? A An increase in the number of rental housing units available, but no change in rent. B An increase in quantity supplied and quantity demanded. C An increase in supply, but no change in quantity demanded. D An increase in demand, but no change in quantity supplied.

D

Suppose that there is currently a $2.00 per bottle tax on vodka that is levied on consumers. Legislators have decided to give consumers some relief by eliminating the tax. In order to keep tax revenues at their previous level, they decide to impose a $2.00 tax on producers. What is the net impact of these two actions? A Consumers of vodka are made better off. B Producers of vodka are made better off. C The government is made better off. D There is no change in either consumers' or producers' well-being.

D

Is the demand for a container of salt likely to be inelastic or elastic? Why? Multiple answers: You can select more than one option A Inelastic because salt is a necessary dietary component B Elastic because there are lots of substitutes for salt C Inelastic because for most people salt is a very small part of their budget D Elastic because people only buy salt in the long-run

A and C

If the income elasticity of a good is 0.8, what do we know about the good? A It is a normal good. B It is an inelastic good. C It is an inferior good. D It is an elastic good.

B

Situation A: When a $10 per unit tax is imposed on the producer of Bippies (a candy), the equilibrium price increases by $4. Situation B: When a $10 per unit tax is imposed on the producer of Bippies, the equilibrium price increases by $2. Based on the two situations above, Bippies in Situation A has a _________ elastic supply OR has a _________ elastic demand than exists in Situation B. A More; more B More; less C Less; less D Less; more

B