Economics 2301 - Exam 2

A 2.5 percent increase in the price of milk causes a 5 percent reduction in the quantity demanded of chocolate syrup. What is the cross-price elasticity of demand for chocolate syrup with respect to the price of milk? Instructions: Enter your response rounded to one decimal place. If you are entering a negative number, be sure to include a negative sign (-). A. Cross-price elasticity of demand: ? B. Are the two goods complements or substitutes?

A. -2 B. Compliments

Suppose an 18 percent drop in the price of strawberries leads to a 24 percent increase in the quantity demanded of strawberries and a 12 percent decrease in the quantity demanded of plums. A. What is the price elasticity of demand for strawberries? Instructions: Enter your response rounded to two decimal places. B. At the current price level, the demand for strawberries is _____ because the price elasticity of demand for strawberries is _____. C. What is the cross-price elasticity of demand between strawberries and plums? Instructions: Enter your response rounded to two decimal places. D. Strawberries and plums are _____ because the cross-price elasticity of demand is _____.

A. 1.33 B. elastic; greater than 1 C. 0.67 D. substitutes; positive

What are the respective price elasticities of supply at A and B on the supply curve shown in the figure below? Instruction: Enter your responses as ratios. A. Elasticity of supply at point A: ?/? B. Elasticity of supply at point B: ?/?

A. 2/3 B. 3/4

If pencils and paper are complements for most consumers, then if the price of paper increases, you would expect: a) the equilibrium price and quantity of pencils to fall. b) the equilibrium price and quantity of pencils to rise. c) the equilibrium price of pencils to fall and the equilibrium quantity of pencils to rise. d) the equilibrium price of pencils to rise and the equilibrium quantity of pencils to fall.

a) the equilibrium price and quantity of pencils to fall.

State whether the following pairs of goods are complements, substitutes, or both. a. Washing machines and dryers - Substitutes - Complements b. Tennis rackets and tennis balls - Substitutes - Complements c. Birthday cake and birthday candles - Substitutes - Complements d. Cloth diapers and disposable diapers - Substitutes - Complements

a. Complements b. Complements c. Complements d. Substitutes

The accompanying graph depicts demand. The price elasticity of demand at point B is: a) 3/4 b) 4/3 c) 3 d) 1/3

b) 4/3

Refer to the accompanying figure. If the government imposed a price ceiling of $40, what would happen in this market? a) There would be excess supply. b) There would be excess demand. c) The price ceiling would have no effect. d) The equilibrium quantity would fall.

c) The price ceiling would have no effect.

Satellite TV is a close substitute for cable TV. In the 1990's, small satellite TV units were developed that made it less costly for individual consumers to subscribe to satellite TV service. This caused the price elasticity of demand for cable TV service to: a) become more inelastic. b) become less elastic. c) become more elastic. d) shift to the left.

c) become more elastic.

One reason the demand curve slopes ______ is that as prices fall _____. a) upward; more people find that the price is now less than their reservation price. b) upward; fewer people find that the price is now less than their reservation price. c) downward; more people find that the price is now less than their reservation price. d) downward; fewer people find that the price is now less than their reservation price.

c) downward; more people find that the price is now less than their reservation price.

Suppose quantity demanded is given by Q^d = 100 - P, and quantity supplied is given by Q^s = 20 + 3P. In this case, equilibrium price, P*, and equilibrium quantity, Q*, are as follows: a) P* = 80, Q* = 20 b) P* = 10, Q* = 90 c) P* = 40, Q* = 140 d) P* = 20, Q* = 80

d) P* = 20, Q* = 80

If the quantity demanded of a good is Q when the price for the good is P, the price of elasticity of demand for that good at the point is: a) (P/Q) * (1/slope) b) (Q/P) * (1/slope) c) (P/Q) * (slope) d) Q * P * (1/slope)

a) (P/Q) * (1/slope)

Suppose that the technology used to manufacture laptops has improved. The likely result would be: a) an increase in supply of laptops. b) an increase in quantity supplied of laptops. c) a decrease in supply of laptops. d) a decrease in quantity supplied of laptops.

a) an increase in supply of laptops.

If the demand for gadgets increases as a result of a decrease in the price of widgets, the widgets and gadgets are: a) complementary goods. b) substitute goods. c) normal goods. d) elastically demanded.

a) complementary goods.

Suppose the price P on a give 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. a) elastic; inelastic b) unit elastic; inelastic c) inelastic; elastic d) elastic; unit elastic

a) elastic; inelastic

Suppose that when the price of oranges is $3 per round, the quantity demanded is 4.7 tons per day and the quantity supplied is 3.9 tons. In this case: a) excess demand will lead the price of oranges to rise. b) excess supply will lead the price of oranges to fall. c) excess demand will lead the price of oranges to fall. d) excess supply will lead the price of oranges to rise.

a) excess demand will lead the price of oranges to rise.

The accompanying graph depicts demand. At point D, demand is: a) price inelastic. b) price elastic. c) unit elastic. d) perfectly price elastic.

a) price inelastic.

If cross-price elasticity of demand between two goods is positive, the two goods are: a) substitutes. b) inferior. c) complements. d) normal.

a) substitutes.

Suppose that a new drug has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph. Prior to approval of this drug, the only treatment for this condition was any one of several non-prescription, or over-the-counter, pain relievers. The demand for one brand of the several non-prescription pain relievers is also shown on the graph. A likely reason for the difference in the slope of the demand curves is that: a) the over-the-counter pain reliever has many substitutes, but the new drug does not. b) one drug is new on the market, but the other has been available for a long time. c) one drug is heavily regulated by the Food and Drug Administration and the other is not. D) one market is in equilibrium and the other is not.

a) the over-the-counter pain reliever has many substitutes, but the new drug does not.

Refer to the accompanying figure. 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 _____. a) 4; 1 b) 1; 4 c) 4; 4 d) 2; 4

b) 1; 4

When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Thus, we can infer that Moe's reservation price for a slice of pizza is: a) less than $1.75. b) at least $1.75 but less than $2. c) exactly $1.75. d) exactly $2.00.

b) at least $1.75 but less than $2.

The price elasticity of demand equals 1: a) whenever the slope of a straight-line demand curve is greater than 1 in absolute value. b) at the midpoint of a straight-line demand curve. c) whenever the slope of a straight line demand curve is less than 1 in absolute value. d) whenever the slope of a straight-line demand curve equals zero.

b) at the midpoint of a straight-line demand curve.

The demand for a good is elastic if the price elasticity of demand is: a) equal to one. b) greater than one. c) less than one. d) equal to zero.

b) greater than one.

The market equilibrium quantity: a) maximizes total economic surplus. b) is sometimes the socially optimal quantity. c) is social optimal quantity. d) is not the socially optimal quantity.

b) is sometimes the socially optimal quantity.

If the demand for a good decreases, then the good is a(n): a) complementary good. b) normal good. c) inferior good. d) substitute good.

b) normal good.

Suppose one observes that when the price of peanut butter increases, the demand for jelly increases. One should conclude that: a) peanut butter and jelly are complements. b) peanut butter and jelly are substitutes. c) peanut butter and jelly are normal goods. d) peanut butter and jelly are inferior goods.

b) peanut butter and jelly are substitutes.

The price elasticity of supply for the Hope Diamond is zero because there is only one. Therefore, the supply curve for the Hope Diamond is a) elastic. b) perfectly inelastic. c) unit elastic. d) perfectly elastic.

b) perfectly inelastic.

When the demand for a good is inelastic, that good is likely to have: a) many close complements. b) few close complements. c) many close substitutes. d) few close substitutes.

d) few close substitutes.

Suppose rice is a normal good. if consumers' incomes fall, and a new technology is introduced that lowers the marginal cost of producing rice, then the equilibrium: a) price of rice will increase, but we cannot say for sure what will happen to the equilibrium quantity. b) price of rice will fall, but we cannot say for sure what will happen to the equilibrium quantity. c) quantity of rice will increase, but we cannot say for sure what will happen to the equilibrium price. d) quantity of rice will decrease, but we cannot say for sure what will happen to the equilibrium price.

b) price of rice will fall, but we cannot say for sure what will happen to the equilibrium quantity.

If the demand for electricity is inelastic, and the local utility wants to increase its total revenue, it should _______ its price. a) lower b) raise c) not change d) frequently change

b) raise

Oil and oil products remain the main fuel for cars, planes, ships, and power plants. The amount of oil still in the earth is finite. Given this information, the supply of gasoline is: a) relatively elastic. b) relatively inelastic. c) unit elastic. d) greater than the quantity demanded.

b) relatively inelastic.

If fast food is an inferior good then: a) the demand for fast food will fall as income falls. b) the demand for fast food will fall as income rises. c) the quantity of fast food demanded will rise as the price of fast food rises. d) the demand for fast food will fall as the price of fast food rises.

b) the demand for fast food will fall as income rises.

A seller's reservation price is generally equal to: a) the buyer's reservation price. b) the seller's opportunity cost of producing an additional unit. c) the seller's marginal benefit from producing an additional unit. d) the market price.

b) the seller's opportunity cost of producing an additional unit.

A price ceiling that is set above the equilibrium price: a) will lead to a black market. b) will have no effect on the market. c) will lead to excess supply in the market. d) will lead to excess demand in the market.

b) will have no effect on the market.

Suppose an increase in the price of hamburger from $3 to $4 leads to an increase in quantity supplied from 100 units to 150 units. At the original price, the price elasticity of supply for hamburgers is ______ so supply is ______. a) 2/3; elastic b) 2/3; inelastic c) 3/2; elastic d) 3/2; inelastic

c) 3/2; elastic

What might cause a decrease in current supply of a product? a) An increase in the product's own price. b) New information that leads sellers to believe that the product's price will fall in the future. c) New information that leads sellers to believe that the product's price will rise in the future. d) A decrease in the price of one of the inputs used to make the product.

c) New information that leads sellers to believe that the product's price will rise in the future.

Assume the demand for sugar decreases and the supply of sugar increases. Which of the following outcomes is certain to occur? a) The equilibrium price of sugar will rise. b) The equilibrium quantity of sugar will rise. c) The equilibrium price of sugar will fall. d) The equilibrium quantity of sugar will fall.

c) The equilibrium price of sugar will fall.

At the beginning of the fall semester, college towns experience large increases in their population, causing a(n): a) decrease in the quantity of apartments demanded. b) increase in the supply for apartments. c) increase in the demand for apartments. d) decrease in the quantity of apartments supplied.

c) increase in the demand for apartments.

If the San Diego Opera decreases the price of their opera tickets and their total revenue falls, then this suggests that, at the original price, the demand for tickets to the San Diego Opera was: a) unit elastic. b) elastic. c) inelastic. d) either elastic or inelastic.

c) inelastic.

The championship game will be held next weekend in your college's 40,000-seat stadium. The supply of tickets to the game: a) will increase because the price charged will be higher. b) is elastic. c) is perfectly inelastic. d) depends on which teams make it to the championship game.

c) is perfectly inelastic.

The price elasticity of demand is typically expressed as a positive number because: a) price and quantity move in the same direction. b) the demand curve has a positive slope. c) it's convenient to use absolute values. d) both the numerator and the denominator are negative, so the formula yields a positive number.

c) it's convenient to use absolute values.

The buyer's reservation price for a particular good or service is the: a) smallest price the buyer would be willing to pay for it. b) same as the market. c) largest price the buyer would be willing to pay for it d) price the buyer must pay to ensure he or she gets it.

c) largest price the buyer would be willing to pay for it.

The price elasticity of demand for a good measures the responsiveness of: a) demand to a 1 percent change in price of that good. b) price to a 1 percent change in the demand for that good. c) quantity demanded to a 1 percent change in price of that good. d) price to a 1 percent change in the quantity demanded of that good.

c) quantity demanded to a 1 percent change in price of that good.

Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 is her: a) marginal revenue. b) equilibrium price. c) reservation price. d) producer's surplus.

c) reservation price.

Refer to the accompanying figure. Suppose the solid line represents the current supply of Star Wars action figures. If the price of the plastic used to make action figures rises, current supply will: a) shift to S(B). b) not change because a change in the price of plastic will not affect the demand for action figures. c) shift to S(A). d) not change; only the quantity supplied will change.

c) shift to S(A).

Refer to the accompanying figure. Suppose the solid line shows the demand for coffee and tea are substitutes, and the price of tea falls, then you would expect: a) a decrease in the quantity of coffee demanded, but no shift in the demand curve. b) an increase in the quantity of coffee demanded, but no shift in the demand curve. c) the demand curve to shift to D(A). d) the demand curve to shift to D(B).

c) the demand curve to shift to D(A).

If consumers respond to a 10% price reduction by buying twice as much of a particular good, we would conclude that: a) there was excess demand at the original price. b) there was excess supply at the original price. c) the price elasticity of demand at the original price was greater than one. d) the price elasticity of demand at the original price was less than one.

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

The accompanying graph depicts demand. The slope of the demand curve (ignoring the negative sign) is: a) 2. b) 1.5. c) 1. d) 0.5.

d) 0.5.

A perfectly elastic demand curve has a slope of _____ while a perfectly inelastic demand curve has a slope of _____. a) infinity; 0 b) 1; 0 c) 0; 1 d) 0; infinity

d) 0; infinity

Which of the following factors will lead to a decrease in the current supply of a good? a) A fall in the current price of a good or service. b) A technological advance that decreases production costs. c) A decrease in the price of the inputs to the production process. d) A belief that the price of a good or service will go up in the future.

d) A belief that the price of a good or service will go up in the future.

Assume both the demand for beef and the supply of beef decrease. Which of the following outcomes is certain to occur? a) The equilibrium price of beef will rise. b) The equilibrium quantity of beef will rise. c) The equilibrium price of beef will fall. d) The equilibrium quantity of beef will fall.

d) The equilibrium quantity of beef will fall.

Which of the following is NOT a determinant of the demand for gasoline? a) Consumer's incomes. b) The price of diesel. c) The price of automobiles. d) The supply of gasoline.

d) The supply of gasoline.

A decrease in both the equilibrium quantity of rice is best explained by: a) an increase in the demand for rice. b) an increase in the supply of rice. c) a decrease in the supply of rice. d) a decrease in the demand for rice.

d) a decrease in the demand for rice.

Refer to the accompanying figure. At a price of $9, there will be: a) an excess demand of 5 units. b) an excess supply of 6 units. c) an excess demand of 1 unit. d) an excess supply of 5 units.

d) an excess supply of 5 units.

The responsiveness of the quantity demanded of one good to a change in the price of a different good is measured by the: a) price elasticity of demand. b) income elasticity of demand. c) price elasticity of supply. d) cross-elasticity of demand.

d) cross-elasticity of demand.

The responsiveness of the quantity demanded of one good to a change in the price of a different good is measured by the: a) price elasticity of demand. b) income elasticity of demand. c) price elasticity of supply. d) cross-price elasticity of demand.

d) cross-price elasticity of demand.

Refer to the accompanying figure. A decrease in demand is represented by a shift from: a) curve A to curve B. b) curve B to curve A. c) curve C to curve D. d) curve D to curve C.

d) curve D to curve C.

If the absolute value of the price of demand for cell phone service is 3, then if the price of cell phone service increases by 1 percent, quantity demanded would: a) increase by 0.33 percent. b) decrease by 0.33 percent. c) increase by 3 percent. d) decrease by 3 percent.

d) decrease by 3 percent.

It takes many years to train to become an orthopedic surgeon. This suggests that, in the short run, a sudden increase in the demand for orthopedic surgeons will: a) not affect the salaries of orthopedic surgeons. b) have no impact on the number of people who decide to become orthopedic surgeons. c) lead to a large increase in the number of orthopedic surgeons. d) have little effect on the number of trained orthopedic surgeons.

d) have little effect on the number of trained orthopedic surgeons.

Suppose that the short-run price elasticity of demand for elasticity is 0.03, and the long-run price elasticity of demand is 1.2. One would classify the short-run elasticity as being _____ and the long-run elasticity as being _____. a) elastic; elastic b) elastic; inelastic c) inelastic; unit elastic d) inelastic; elastic

d) inelastic; elastic

A market equilibrium: a) leaves unexploited opportunities for individuals b) maximizes total economic surplus. c) exploits all gains achievable through collective action. d) leaves no unexploited opportunities for individuals.

d) leaves no unexploited opportunities for individuals.

Suppose one knows two facts: first, the market for prescription drugs experiences chronic shortages and second, the government sets the price for prescription drugs. One can conclude that the government has: a) set the price too high. b) set the price above the equilibrium price. c) encouraged buyers to hoard prescription drugs. d) set the price below the equilibrium price.

d) set the price below the equilibrium price.

When a market is in equilibrium: a) there is either excess demand or excess supply. b) both excess demand and excess supply are positive. c) both excess demand and excess supply are positive and equal to each other. d) there is neither excess demand nor excess supply.

d) there is neither excess demand or excess supply.

Refer to the given table. Suppose the columns in this table reflect demand and supply. At price of $30: a) the market will be in equilibrium. b) there will be an excess demand of 95 units. c) there will be an excess supply of 45 units. d) there will be an excess demand of 45 units.

d) there will be an excess demand of 45 units.