ECON 300 Exam 1

Steel and aluminum are substitutes. If the price of steel​ increases, other things remaining the​ same, we would expect the price of aluminum to __________ and the equilibrium quantity of aluminum to _________. .

increase; increase

For most​ industries, supply is ________ in the short run than in the long run.

less elastic

Would you expect the price elasticity of demand for paper towels to be larger in the short run or in the long​ run? Why? The price elasticity of demand for paper towels should be larger...

*A) in the long run as new substitutes enter the market. B) in the short run because paper towels are​ non-durable C) in the long run because paper towels are made in a cyclical industry. D) in the long run because some firms may be constrained by production capacity. E) in the short run because it takes time for people to respond to price changes.

Which of the following will cause the demand for kerosene heaters to​ increase?

A) An increase in the price of kerosene. B) A decrease in the price of kerosene heaters. C) An increase in the price of kerosene heaters. *D) A decrease in the price of kerosene.

Why do​ long-run elasticities of demand differ from​ short-run elasticities?

A) It may take time for additional substitutes to become available B) It takes time for people to change their consumption habits C) Firms may be constrained in the short run by production capacity D) Both A and B are correct

Even though the annual consumption of copper is now about 100 times greater than it was in​ 1880, the real price of copper has remained relatively unchanged. Which of the following help account for this​ pattern?

A) New deposits that were cheaper to mine were discovered. B) More efficient technologies reduced production costs. C) Demand for copper grew dramatically. *D) All of the above.

Which one of the following would not cause the demand for​ Coca-Cola to​ shift?

A) The price of​ Pepsi-Cola increases. *B) The cost of producing​ Coca-Cola increases. C) Coca-Cola increases its advertising expenditures by 20 percent D) A new study finds that drinking​ Coca-Cola causes stomach cancer.

Which one of the following would not occur if the market price was above the​ market-clearing price?

A) There would be a surplus. B) Producers would begin to lower their prices to sell off excess inventory. C) Producers would want to produce and sell more than consumers would want to buy. *D) Consumers would bid up the price.

The price elasticity of demand for televisions should be larger

A) in the long run because televisions are not made in a cyclical industry. B) in the short run because it takes time for people to change their consumption habits. *C) in the short run because televisions are durable. D) in the short run as new substitutes enter the market. E) in the long run because some firms may be constrained by production capacity.

Suppose that unusually cold weather causes the demand curve for ice cream to shift to the left. Why will the price of ice cream fall to a new​ market-clearing level?

A) shift the demand curve to the left​, initially creating a surplus until the price rises to where quantity supplied again equals quantity demanded. B) shift the demand curve to the left​, initially creating a shortage until the price falls to where quantity supplied again equals quantity demanded. C) cause the supply curve to become​ fixed, initially creating a surplus until the price falls to where quantity supplied again equals quantity demanded. *D) shift the demand curve to the left​, initially creating a surplus until the price falls to where quantity supplied again equals quantity demanded. E) shift the supply curve to the left​, initially creating a surplus until the price falls to where quantity supplied again equals quantity demanded.

Farmers complain that they cannot make a living selling sugar at the current​ market-clearing price. They successfully lobby the government to initiate price controls on the sale of sugar. The government sets a price floor substantially above the equilibrium​ price, and no one is allowed to sell sugar for a price less than the price floor. As a​ result,

A) the demand curve for sugar will shift to the left because of the higher price. *B) there will be a surplus of sugar. C) the supply curve for sugar will shift to the right because of the higher price. D) All of the above are correct.

What factors will determine the sizes of the​ shortages? The extent of the excess demand implied by the shortages will depend on

A) the elasticity of​ supply, where the shortages will be larger if more close substitutes are available. B) the amount by which quantity supplied exceeds quantity​ demanded, where the shortages will be larger the greater this difference. C) the amount by which price is set above​ market-clearing levels, where the shortages will be larger the greater this difference. *D) the elasticities of supply and​ demand, where the shortages will be larger if both supply and demand are more elastic. E) the elasticity of​ demand, where the shortages will be larger if demand is more inelastic.

Consider the market in the figure to the right. What happens to the market demand curve if consumer income decreases​?

According to the​ graph, for a given​ price, consumers now demand a smaller quantity.

Consider the market in the figure to the right. What happens to the market supply curve if the costs of production decrease​?

According to the​ graph, for a given​ price, firms now supply a larger quantity.

What will happen to the price of​ pork if the price of beef and chicken are set below market-clearing levels ? Explain briefly.

If the prices of beef and chicken are set below​ market-clearing levels, then the price of pork will rise because pork is a substitute for beef and chicken.

Suppose the government regulates the price of beef and chicken and sets them below their​ market-clearing levels. Explain why shortages of these goods will develop. The shortages will develop because at prices set below​ market-clearing levels firms will supply _______ than consumers wish to purchase.

less

Consider two​ goods: paper towels and televisions. Which is a durable good?

televisions