ECON 001: Midterm 1
Refer to Figure 6-9. A price ceiling set at
$4 will be binding and will result in a shortage of 6 units
A binding price ceiling (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price.
(ii) and (iv) only
A nonbinding price floor (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price.
(iv) only
If the price elasticity of demand for a good is 4, then a 12 percent decrease in price results in a
48 percent increase in the quantity demanded.
Refer to Figure 5-3. Which demand curve is perfectly inelastic?
A
Suppose the government has imposed a price ceiling on cellular phones. Which of the following events could transform the price ceiling from one that is binding to one that is not binding?
A technological advance makes cellular phone production less expensive.
Refer to Figure 6-2. The price ceiling
All of the above are correct.
Refer to Figure 6-8. The price of the good would continue to serve as the rationing mechanism if
All of the above are correct.
What will happen in the artichoke market now if buyers expect higher artichoke prices in the near future?
The demand for artichokes will increase
For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
The good is a necessity.
A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct?
The mayor would be correct if demand were price inelastic; the city manager would be correct if demand were price elastic.
Which of these statements best represents the law of demand?
When the price of a good decreases, buyers purchase more of the good.
When demand is elastic, an increase in price will cause
a decrease in total revenue.
In the United States, before OPEC increased the price of crude oil in 1973, there was
a nonbinding price ceiling on gasoline.
Refer to Figure 6-7. Which of the following price controls would cause a shortage of 20 units of the good?
a price ceiling set at $5
Refer to Figure 4-4. Which of the following would cause the demand curve to shift from Demand A to Demand B in the market for golf balls in the United States?
an expectation by buyers that their incomes will increase in the very near future
Refer to Figure 4-1. The movement from point A to point B on the graph shows
an increase in quantity demanded.
If American cheese and cheddar cheese are substitutes, then which of the following would increase the demand for cheddar cheese?
an increase in the price of American cheese
Refer to Figure 6-13. In this market, a minimum wage of $7.25 is
binding and creates unemployment.
A surplus results when a
binding price floor is imposed on a market.
Under rent control, bribery is a mechanism to
bring the total price of an apartment (including the bribe) closer to the equilibrium price.
Which of the following is likely to have the most price inelastic demand?
chocolate
Holding all other things constant, a higher price for ski lift tickets would
decrease the number of skis sold.
Two goods are substitutes when a decrease in the price of one good
decreases the demand for the other good.
Refer to Figure 5-7. For prices above $8, demand is price
elastic, and total revenue will fall as price rises.
Pizza is a normal good if the demand
for pizza rises when income rises.
The flatter the demand curve through a given point, the
greater the price elasticity of demand at that point.
Over time, housing shortages caused by rent control
increase, because the demand for and supply of housing are more elastic in the long run.
Holding all other forces constant, if decreasing the price of a good leads to a decrease in total revenue, then the demand for the good must be
inelastic.
Demand is inelastic if the price elasticity of demand is
less than 1.
Total revenue will be at its largest value on a linear demand curve at the
midpoint of the curve.
The belief that tobacco is a "gateway drug" is consistent with
most of the available evidence.
When policymakers set prices by legal decree, they
obscure the signals that normally guide the allocation of society's resources
The demand for Godiva pumpkin truffles is likely quite elastic because
other types of chocolate are good substitutes for this particular flavor.
The minimum wage is an example of a
price floor.
Each of the following is a determinant of demand except
production technology.
Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the
quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases.
Which of the following is likely to have the most price inelastic demand?
salt
You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center in order to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that
the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.
Demand is said to be inelastic if
the quantity demanded changes only slightly when the price of the good changes.
