Micro Economics Chapters 4-5

In general, a flatter demand curve is more likely to be: A) Price elastic B) Price inelastic C) Unit price elastic D) None of the above

A) Price elastic

If consumers always spend 15 percent of their income on food, then the income elasticity of demand for food is: A) 0.15 B) 1.00 C) 1.15 D) 1.50 E) None of the above

B) 1.00

The law of demand states that an increase in the price of a good: A) Decrease the demand for that good B) Decreases the quantity for that good C) Increases the supply of that good D) Increases the quantity of that good E) None of the above

B) Decreases the quantity for that good

T/F: A perfectly competitive market consists of products that are slightly different from one another

False

T/F: An advance in technology that shifts the market supply curve to the right always increases total revenue received by producers

False

T/F: If there is a shortage of a good, then the price of that good tends to fall

False

T/F: When the price of a good is below the equilibrium price, it causes a surplus

False

T/F: An increase in the price of steel will shift the supply of automobiles to the right

False

T/F: If a demand curve is linear, the price elasticity of demand is constant along it

False

T/F: If apples and oranges are substitutes, an increase in the price of apples will decrease the demand for oranges

False

T/F: If the cross-price elasticity of demand between two goods is positive, the goods are likely to be complements

False

T/F: If the quantity demanded of a good is sensitive to a change in the price of that good, demand is said to be price inelastic

False

T/F: If there is an increase in supply accompanied by a decrease in demand for coffee, then there will be a decrease in both the equilibrium price and quantity in the market for coffee

False

T/F: The demand for a necessity such as insulin tends to be elastic

False

T/F: The demand for aspirin this month should be more elastic than the demand for aspirin this year

False

T/F: The law of demand states that an increase in the price of a good decreases the demand for that good

False

T/F: The price elasticity of demand is defined as the percentage change in the price of that good divided by the percentage change in quantity demanded of that good

False

T/F: If golf clubs and golf balls are complements, an increase in the price of golf clubs will decrease the demand for golf balls

True

T/F: If pencils and paper are complements, an increase in the price of pencils causes the demand for paper to decrease or shift to the left

True

T/F: If the income elasticity of demand for a bus ride is negative, then a bus ride is an inferior good

True

T/F: If the price elasticity of supply for blue jeans is 1.3, an increase of 10 percent in the price of blue jeans would increase the quantity supplied of blue jeans by 13 percent

True

T/F: The demand for tires should be more inelastic than the demand for Goodyear brand tires

True

T/F: The income elasticity of demand for luxury items, such as diamonds, tends to be large (greater than 1)

True

T/F: The law of supply states that an increase in the price of a good increases the quantity supplied of that good

True

T/F: The price elasticity of supply tends to be more inelastic as the firm's production facility reaches maximum capacity

True

T/F: Using the midpoint method to calculate elasticity, if an increase in the price of pencils from 10 cents to 20 cents reduces the quantity demanded from 1000 pencils to 500 pencils, then the demand for pencils is unit price elastic

True

If supply is price inelastic, the value of the price elasticity of supply must be: A) Zero B) less than 1 C) Greater than 1 D) Infinite E) None of the above

B) Less than 1

If the income elasticity of demand for a good is negative, it must be: A) A luxury good B) A normal good C) An inferior good D) An elastic good

C) An inferior good

If the cross-price elasticity between two goods is negative, the two goods are likely to be: A) Luxuries B) Necessities C) Complements D) Substitutes

C) Complements

If demand is linear ( a straight line), then the price elasticity of demand is: A) Constant along the demand curve B) Inelastic in the upper portion and elastic in the lower portion C) Elastic in the upper portion and inelastic in the lower portion D) Elastic throughout E) Inelastic throguhout

C) Elastic in the upper portion and inelastic in the lower portion

A perfectly competitive market has many: A) Only one seller B) At least a few sellers C) Many buyers and sellers D) Firms that set their own prices E) None of the above

C) Many buyers and sellers

T/F: The market supply curve is the horizontal summation of the individual supply curves

True

T/F: A monopolistic market has only one seller

True

Questions #16-#17 refer to handout

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An increase (rightward shift) in the demand for a good will tend to cause: A) An increase in the equilibrium price and quantity B) A decrease in the equilibrium price and quantity C) An increase in the equilibrium price and a decrease in the equilibrium quantity D) A decrease in the equilibrium price and an increase in the equilibrium quantity E) None of the above

A) An increase in the equilibrium price and quantity

A monopolistic market has only: A) Only one seller B) At least a few sellers C) Many buyers and sellers D) Firms that are price takers E) None of the aboe

A) Only one seller

Suppose a frost destroys much of the Florida orange crop. at the same time, suppose consumer tastes shift toward orange juice. what would we expect to happen to the equilibrium price and quantity in the market for orange juice?: A) Price will increase; quantity is ambiguous B) Price will increase; quantity will increase C) Price will increase; quantity will decrease D) Price will decrease; quantity is ambiguous E) The impact on both price and quantity is ambiguous

A) Price will increase; quantity is ambiguous

Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to: A) Reduce total revenue to farmers as a whole because the demand for food is inelastic B) Reduce total revenue to farmers as a whole because the demand for food is elastic C) Increase total revenue to farmers as a whole because the demand for food is inelastic D) Increase total revenue to farmers as a whole because the demand for food is elastic

A) Reduce total revenue to farmers as a whole because the demand for food is inelastic

If an increase in the price of blue jeans leads to an increase in the demand for tennis shoes, then blue jeans and tennis shoes are A) Substitutes B) Complements C) Normal goods D) Inferior good E) None of the above

A) Substitutes

If a supply curve for a good is price elastic, then: A) The quantity supplied is sensitive to change in the price of that good B) The quantity supplied is insensitive to changes in the price of that good C) The quantity demanded is sensitive to changes in the price of that good D) The quantity demanded is insensitive to changes in the price of that good

A) The quantity supplied is sensitive to change in the price of that good

Suppose consumer tastes shift toward the consumption of apples. Which of the following statement is an accurate description of the impact of this event on the market for apples? A) There is an increase in the demand for apples and an increase in the quantity supplied of apples B) There is an increase in the demand and supply of apples C) There is an increase in the quantity demanded of apples and in the supply of apples D) There is an increase in the demand for apples and a decrease in the supply of apples E) There is a decrease in the quantity demanded of apples and increase in the supply for apples

A) There is an increase in the demand for apples and an increase in the quantity supplied of apples

If a fisherman must sell all of his daily catch before it spoils for whatever price he is offered, once the fish are caught, the fisherman's price elasticity of supply for fresh fish is: A) Zero B) One C) Infinite D) Unable to be determined from this information

A) Zero

All of the following shift the supply of watches to the right except: A) an increase in the price of watches B) an advance in the technology used to manufacture watches C) a decrease in the wage of workers employed to manufacture watches D) manufacturers' expectations of lower watch prices in the future E) All of the above cause an increase in the supply of watches

A) an increase in the price of watches

Suppose there is an increase in both the supply and demand for personal computers. furthermore, suppose the supply of personal computers increases more than demand for personal computers. in the market for personal computers, we would expect the: A) Equilibrium quantity to rise and the equilibrium price to rise B) Equilibrium quantity to rise and the equilibrium price to fall C) Equilibrium quantity to rise and the equilibrium prices to remain constant D) Equilibrium quantity to rise and the change in the equilibrium price to be ambiguous E) Change in the equilibrium quantity to be ambiguous and the equilibrium price

B) Equilibrium quantity to rise and the equilibrium price to fall

If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is: A) Price inelastic B) Price elastic C) Unit price elastic D) Income inelastic E) Income elastic

B) Price elastic

If there is excess capacity in the production facility, it is likely that the firm's supply curve is: A) Price inelastic B) Price elastic C) Unit price elastic D) None of the above

B) Price elastic

In general, a steeper supply curve is more likely to be: A) Price elastic B) Price inelastic C) Unit price elastic D) None of the above

B) Price inelastic

Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future. what would we expect to happen to the equilibrium price and quantity in the market for wheat today? A) The impact on both price and quantity is ambiguous B) Price will increase; quantity is ambiguous C) Price will increase; quantity will increase D) Price will increase; quantity will decrease E) Price will decrease; quantity is ambiguous

B) Price will increase; quantity is ambiguous

If the price of a good is above the equilibrium price: A) There is a surplus and the price will rise B) There is a surplus and the price will fall C) There is a shortage and the price will rise D) There is a shortage and the price will fall E) The quantity demanded is equal to the quantity supplied and the price remains unchanged

B) There is a surplus and the price will fall

A decrease (leftward shift) in the supply for a good will tend to cause: A) An increase in the equilibrium price and quantity B) A decrease in the equilibrium price and quantity C) An increase in the equilibrium price and a decrease in the equilibrium quantity D) A decrease in the equilibrium price and an increase in the equilibrium quantity E) None of the above

C) An increase in the equilibrium price and a decrease in the equilibrium quantity

The price elasticity of demand is defined as: A) The percentage change in price of a good divided by the percentage change in the quantity demanded of that good B) The percentage change in the income divided by the percentage change in quantity demanded C) The percentage change in the quantity demanded for a good divided by the percentage change in the price of that good D) The percentage change in the quantity demanded divided by the percentage change in income E) None of the above

C) The percentage change in the quantity demanded for a good divided by the percentage change in the price of that good

If the price of a good is below the equilibrium price: A) There is a surplus and the price will rise B) There is a surplus and the price will fall C) There is a shortage and the price will rise D) there is a shortage and the price will fall E) The quantity demanded is equal to the quantity supplied and the price remains unchanged

C) There is a shortage and the price will rise

If an increase in the price of a good has no impact on the total revenue in that market, demand must be: A) Price inelastic B) Price elastic C) Unit price elastic D) All of the above

C) Unit price elastic

Which of the following shifts the demand for watches to the right?: A) A decrease in the price of watches B) a decrease in consumer incomes if watches are a normal good C) a decrease in the price of watch batteries if watch batteries and watches are complements D) an increase in the price of watches E) None of the above

C) a decrease in the price of watch batteries if watch batteries and watches are complements

If an increase in consumer income leads to a decrease in the demand for camping equipment, then camping equipment is: A) A complementary good B) A substitute good C) A normal good D) An inferior good E) None of the above

D) An inferior good

An inferior good is one for which an increase in income causes: A) Increase in supply B) Decrease in supply C) Increase in demand D) Decrease in demand

D) Decrease in demand

A decrease in supply (shift to the left) will increase total revenue in that market if: A) Supply is price elastic B) Supply is price inelastic C) Demand is price elastic D) Demand is price inelastic

D) Demand is price inelastic

If consumers think that there are very few substitutes for a good, then: A) Supply would tend to be price elastic B) Supply would tend to be price inelastic C) Demand would tent to be price elastic D) Demand would tend to be price inelastic E) None of the above is true

D) Demand would tend to be price inelastic

Suppose there is an increase in both the supply and demand for personal computers. in the market for personal computers, we would expect the: A) Equilibrium quantity to rise and the equilibrium price to rise B) Equilibrium quantity to rise and the equilibrium price to fall C) Equilibrium quantity to rise and the equilibrium prices to remain constant D) Equilibrium quantity to rise and the change in the equilibrium price to be ambiguous E) Change in the equilibrium quantity to be ambiguous and the equilibrium price

D) Equilibrium quantity to rise and the change in the equilibrium price to be ambiguous

The law of supply states that an increase in the price of a good: A) Decrease the demand for that good B) Decreases the quantity demanded for that good C) Increases the supply of that good D) Increases the quantity supplied of that good E) None of the above

D) Increases the quantity supplied of that good

Which of the following statements is true about the impact of an increase in the price of lettuce?: A) The demand for lettuce will decrease B) The supply of lettuce will decrease C) The equilibrium price and quantity of salad dressing will rise D) The equilibrium price and quantity of salad dressing will fall E) Both A and B are true

D) The equilibrium price and quantity of salad dressing will fall

Which of the following would cause a demand curve for a good to be price inelastic? A) There are a great number of substitutes for the good B) The good is inferior C) The good is a luxury D) The good is a necessity

D) The good is a necessity

The demand for which of the following is likely to be the most price elastic? A) Airline tickets B) Bus tickets C) Taxi rides D) Transportation

D) Transportation

If the price of a good is equal to the equilibrium price: A) There is a surplus and the price will rise B) There is a surplus and the price will fall C) There is a shortage and the price will rise D) There is a shortage and the price will fall E) The quantity demanded is equal to the quantity supplied and the price remains unchanged

E) The quantity demanded is equal to the quantity supplied and the price remains unchanged

T/F: If coca-cola and pepsi are substitutes, an increase in the price of coke will cause an increase in the equilibrium price and quantity in the market for pepsi

True

T/F: If the demand for a good is price inelastic, an increase in its price will increase total revenue in that market

True

T/F: The supply of automobiles for this week is likely to be more price inelastic than the supply of automobiles for this year

True

T/F: An advance in the technology employed to manufacture rollerblades will result in a decrease in the equilibrium price and an increase in the equilibrium quantity in the market for rollerblades

True

T/F: If consumers expect the price of shoes to rise, there will be an increase in the demand for shoes today

True