ECON HOMEWORKS 3

When the demand curve shifts to the right and supply doesn?t change:

equilibrium quantity will rise.

Refer to the figure below. There would be an excess supply of 25 at a price of ______.

$50

When the demand for a good is inelastic, that good is likely to have:

few close substitutes.

Excess demand occurs:

when price is below the equilibrium price.

When the price of hot dogs is $1.50 each, 500 hot dogs are sold every day. After the price falls to $1.35 each, 510 hot dogs are sold every day. At the original price, what is the price elasticity of demand for hot dogs?

0.2

If the absolute value of slope of the demand curve is 2.5, price is $6 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is:

0.3

Refer to the figure below. At a price of $2, the total expenditure on lattes each hour equals: Total expenditure equals price times quantity. Here, $2 × 30 = $60.

$60

If the quantity demanded of a good is Q when the price for the good is P, the price elasticity of demand for that good at that point is:

(P/Q) × (1/slope)

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then the price elasticity of demand is equal to:

0.5

The following graph depicts demand. The slope of the demand curve (ignoring the negative sign) is:

0.5

Refer to the figure below. When P = 4, the price elasticity of demand for the demand curve D1 is ______ and D2 is ______. The formula for the price elasticity of demand at a given point is (P/Q) × (1/slope). For D1, at a price of 4, (4/6) × (1/2) = 1/3, for D2, (4/12) × (1/0.5) = 2/3.

1/3; 2/3

Suppose the market for shoes consists of three consumers. The table below shows the quantity demanded at various prices for each consumer: What is the market demand for shoes when the price is $50 a pair?

11 pairs.

Fran runs a doughnut shop in a tiny 3-person town. The table below shows the quantity demand by the three townspeople at various prices.When the price of a doughnut is 25 cents, what is the market demand for doughnuts?

16 doughnuts

Refer to the figure below. When the price is equal to 8, the price elasticity of demand for the demand curve D1 is ______ and for D2 the price elasticity of demand is _____. The formula for the price elasticity of demand at a given point is (P/Q) × (1/slope). For D1, at a price of 8, (8/4) × (1/2) = 1, and for D2. at a price of 8, (8/4) × 2 = 4.

1; 4

If the absolute value of the price elasticity of demand for tickets to a football game is 2, then if the price increases by 1%, quantity demanded decreases by:

2%.

The following graph depicts demand. The price elasticity of demand at point D is:

2/5

Suppose that at a price of 25 cents per orange, 500 consumers each demand 4 oranges, and at a price of 20 cents per orange, 750 consumers each demand 5 oranges. Therefore, the market demand for oranges is ______ at a price of 25 cents per orange and ______ at a price of 20 cents per orange.

2000; 3750

Refer to the figure below. The absolute value of the slope of the demand curve D1 is ______, and the absolute value of the slope of demand curve D2 is ______.

2; 1/2

Refer to the figure below. For demand curve D1, what is the price elasticity of demand when P = 12? The formula for the price elasticity of demand at a given point is (P/Q) × (1/slope). Here, (12/2) × (1/2) = 3.

3

If 20% increase in the price of a good leads to a 60% decrease in the quantity demanded, then what is the price elasticity of demand?

3.

If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to:

3.

Refer to the figure below. If Laura and Chris are the only two consumers in this market then at a price of $2.50 per pound, the market demand for hamburger is:

4.5 pounds per week

The following graph depicts demand. The price elasticity of demand at point A is:

5/2

Refer to the figure below. If Laura and Chris are the only two consumers in this market, then at a price of $2.00 per pound, the market demand for hamburger is:

6 pounds per week

Fran runs a doughnut shop in a tiny 3-person town. The table below shows the quantity demand by the three townspeople at various prices. When the price of a doughnut is 50 cents, what is the market demand for doughnuts?

9 doughnuts

Refer to the figure below. At P = 4, how does the price elasticity of demand for D1 compare to that for D2? The formula for the price elasticity of demand at a given point is (P/Q) × (1/slope). For D1, at a price of 4, (4/6) × (1/2) = 1/3, for D2, (4/12) × (1/0.5) = 2/3. So, at P = 4, the price elasticity of demand is lower for D1 than D2.

It will be lower for D1 than D2.

Joe is shopping for a new computer. A computer can be delivered to Joe's home for $1,200. Alternatively, Joe can pick up the same computer at the warehouse for $1,000. How should Joe buy the computer?

Joe should drive to the warehouse if his cost of driving to the warehouse is less than $200.

Which of the following is likely to have the highest price elasticity of demand?

Nike running shoes

Refer to the figure below. Suppose this demand curve shows the demand for lattes at a single coffee shop that charges $2.00 for a latte. If the manager wants to increase total revenue, what should the manager do? Along a straight-line demand curve, revenue is the highest at the price that lies on the midpoint of the demand curve, where demand is unit elastic. In this case, this occurs when the price is $1.75. Thus, the manager should reduce the price from $2.00 to $1.75.

Reduce the price from $2.00 to $1.75.

Assume the demand for coffee increases and the supply of coffee decreases. Which of the following outcomes is certain to occur?

The equilibrium price of coffee will rise.

Refer to the figure below. If the government imposed a price ceiling of $40, what would happen in this market?

The price ceiling would have no effect.

Refer to the figure below. Suppose all the sellers in this market started out charging a price of $45 per unit. What is the most likely result?

They would lower their prices because at $45 there would be excess supply.

Suppose the equilibrium price and quantity of ketchup fall. The most likely explanation for these changes is:

a decrease in the demand for ketchup.

Suppose that the equilibrium price of french fries rises while the equilibrium quantity falls. The most likely explanation for these changes is:

a decrease in the supply of french fries.

Suppose you observe a decrease in the equilibrium price and quantity of corn. Of the options listed below, this is best explained by:

a fall in consumer income assuming corn is a normal good.

If the demand for computers increases as consumers' incomes rise, then computers are:

a normal good.

Suppose you observe an increase in the equilibrium price of coffee and a decrease in the equilibrium quantity of coffee. Of the options listed below, this is most consistent with:

an increase in the cost of producing coffee.

Suppose a new study highlights the health benefits of eating bacon. At the same time, suppose the cost of producing bacon falls. Given these changes, you should expect to see:

an increase in the equilibrium quantity of bacon, but it's hard to say what will happen to the equilibrium price.

Suppose that the equilibrium price of pickles falls while the equilibrium quantity rises. The most likely explanation for these changes is:

an increase in the supply of pickles.

The price elasticity of demand equals 1:

at the midpoint of a straight-line demand curve.

If two products are substitutes, then the:

cross-price elasticity of demand between them will be positive.

The responsiveness of the quantity demanded of one good to a change in the price of a different good is measured by the:

cross-price elasticity of demand.

If the absolute value of the price elasticity of demand for cell phone service is 3, then if the price of cell phone service increases by 1%, quantity demanded would:

decrease by 3%.

A decrease in both the equilibrium price and the equilibrium quantity of rice is best explained by a(n):

decrease in the demand for rice.

If the absolute value of the slope of the demand curve is 0.25, price is $8 per unit, and quantity demanded is 12 units, then demand for this good is:

elastic

Suppose the price P on a given demand curve results in a price elasticity of demand equal to 1. Any price higher than P will lie on the ______ part of the demand curve, and any price lower than P will lie on the ______ part of the demand curve.

elastic; inelastic

To increase total revenue, firms with ______ demand should lower price, and firms with ______ demand should increase price.

elastic; inelastic

Suppose supply decreases, but there is no change in demand. As the market reaches its new equilibrium:

excess demand will lead the price to rise.

Suppose demand decreases, but there is no change in supply. As the market reaches its new equilibrium:

excess supply will lead the price to fall.

Refer to the figure below. Assume demand remains unchanged at D1. If supply shifts from S1 to S2, then the equilibrium price will ______ and the equilibrium quantity will ______.

fall; rise

Suppose that the demand for electricity has been found to be price inelastic. The most likely explanation for this finding is that:

few substitutes for electricity exist.

For which of the following products is demand likely to be least elastic with respect to price?

food

Suppose the market for shoes consists of three consumers. The table below shows the quantity demanded at various prices for each consumer: The data suggest that Leigh:

has a greater demand for shoes than either Pat or Chris do.

If your income elasticity of demand for hot dogs is negative, then:

hot dogs are an inferior good for you.

All else equal, the price elasticity of demand for a good tends to be lower:

if the good has few close substitutes.

Suppose that the equilibrium price of apples decreases and the equilibrium quantity of apples increases. This is best explained by a(n):

increase in the supply of apples.

Refer to the figure below. If Laura and Chris are the only two consumers in this market, then when the price of hamburger decreases from $2.50 to $2.00 per pound, the quantity demanded in the market will ______ by ______ pound(s) per week.

increase; 1.5

Pepsi One is a close substitute for Diet Coke. When Pepsi introduced Pepsi One, the price elasticity of demand for Diet Coke ______ and Coke's ability to raise revenues through price increases ______.

increased; was reduced

If demand is ______ with respect to price, a price increase will ______ total revenue.

inelastic; increase

You have found data that indicates that the income elasticity of demand for generic (unbranded) shampoo is -0.7. You should conclude that generic shampoo:

is an inferior good.

Suppose the market for shoes consists of three consumers. The table below shows the quantity demanded at various prices for each consumer: At $100 per pair, market demand:

is the same as Leigh's demand. At $100 per pair, only Leigh wants to buy shoes, so the market demand is the same as Leigh's demand.

Suppose the price of a Snickers candy bar is $2.00 at both the airport and the grocery store. The price elasticity of demand for a Snickers candy bar at an airport is likely to be ______ the price elasticity of demand for a Snickers candy bar at the grocery store.

less than

The demand for a good is inelastic with respect to price if the price elasticity of demand is:

less than one.

Refer to the figure below. At P = 8 and Q = 4, D1 is ______ elastic than D2, which is shown graphically as D1 being _____ D2. At any given price and quantity, a steeper demand curve is a less elastic demand curve.

less; steeper than

All else equal, the price elasticity of demand for small-budget items such as soap tends to be ______ than the price elasticity of demand for big-ticket items such as flat-screen TVs.

lower

A firm that produces a good with many substitutes will most likely find that:

lowering its price will increase total revenue.

The cross-price elasticity of demand between two goods that are substitutes can never be:

negative.

If the demand for salad dressing increases when the price of lettuce decreases, the cross-price elasticity of demand between salad dressing and lettuce will be ______ because these two goods are ______.

negative; complements

If most consumer goods and services are ______, then most income elasticities are ______.

normal; positive

If the demand curve for open-heart surgery is vertical for people with serious heart conditions, then the demand for open-heart surgery is ______ with respect to price.

perfectly inelastic

If the percentage change in quantity demanded is zero for any percentage change in the price of the good, demand is classified as:

perfectly inelastic.

When calculating price elasticity of demand, if the percentage change in price is negative, then the percentage change in quantity demanded is typically:

positive.

If demand increases and supply decreases, the change in the equilibrium price will be ______, and the change in the equilibrium quantity will be ______.

positive; uncertain

The price elasticity of demand for a good measures the responsiveness of:

quantity demanded to a one percent change in price of that good.

In surveying their alumni, State U's economics department discovered that ramen noodle consumption declined once students graduated and found jobs. One conclusion the survey team might draw from this result is that:

ramen noodles are an inferior good.

Refer to the figure below. Assume demand remains unchanged at D1. If supply shifts from S2 to S1, then the equilibrium price will ______ and the equilibrium quantity will ______.

rise; fall

If cross-price elasticity of demand between two goods is positive, the two goods are:

substitutes

The owner of a pizza shop observes that when she raises the price of a large pizza, her total revenue decreases, and when she lowers the price of a large pizza, her total revenue increases. This suggests that:

the demand for her large pizzas is elastic with respect to price.

If pencils and paper are complements for most consumers, then if the price of paper increases, you would expect:

the equilibrium price and quantity of pencils to fall

When the supply curve shifts to the left and there is no change in demand:

the equilibrium price will rise.

Refer to the figure below. If demand shifts from D1 to D2, and at the same time, supply shifts from S1 to S2, then according to the figure:

the equilibrium quantity will increase and the equilibrium price will increase.

If consumers respond to a 10% price reduction by buying twice as much of a particular good, we would conclude that:

the price elasticity of demand at the original price was greater than one.

Suppose that the price of doughnuts decreases. Given that doughnut-holes are a by-product of producing doughnuts, one would expect:

the supply of doughnut holes to decrease.

You have noticed that there is a persistent shortage of teachers in an inner-city school district in your state. Based on this observation, you suspect that:

the wage for teachers in that district is lower than the equilibrium wage.

Suppose the company that owns the vending machines on your campus has doubled the price of a can of soda. If they then still sell almost the same number of sodas per day, this suggests:

there are few other places to purchase soda on campus.

Refer to the table below. Suppose the columns in this table reflect demand and supply. At a price of $50:

there will be an excess supply of 5 units.

Refer to the figure below. If the price of a latte increases from $2.00 to $2.50: When price is $2.00 total expenditure is $2.00 × 30 = $60, when price is $2.50 total expenditure is $2.50 × 20 = $50. Alternatively, when price is $2.00, we are on the elastic portion of the demand curve, implying that as price increases total expenditure will fall.

total expenditure would decrease.

If supply and demand both increase, the new equilibrium price will be ______ and the new equilibrium quantity will be ______.

uncertain; higher

If supply and demand both decrease, the new equilibrium price will be ______ and the new equilibrium quantity will be ______.

uncertain; lower

If the percentage change in the price of a good is equal to the percentage change in the quantity demanded of that good, then the demand for that good is:

unit elastic.

If the price elasticity of demand for a good equals one, then the demand for that good is:

unit elastic.

Suppose that total expenditures for coffee reach a maximum at a price of $5 per pound. At this price, the demand for coffee is:

unit elastic.