Microeconomic Theory, Ch. 3

The supply curve for tickets for a sporting event A) is perfectly inelastic. B) is vertical. C) has a price elasticity of zero. D) All of the above.

All of the above.

Why is the supply of oil more price elastic in the long run? A) New deposits are found. B) Better extraction technology. C) Ability of firms to change the amount of all inputs. D) All of the above.

All of the above.

If the demand function for orange juice is expressed as Q = 2000 - 500p, where Q is quantity in gallons and p is price per gallon measured in dollars, then the demand for orange juice has a unitary elasticity when price equals A) $0. B) $1. C) $2. D) $4.

$2.

Suppose the demand curve for movie tickets has unitary price elasticity and the supply curve is perfectly price elastic. If 3 million tickets are currently sold at a price of $5, approximately how much tax revenue could the government generate from a $1 specific tax? A) $18 million B) $3 million C) $2.7 million D) $1.5 million

$2.7 million

Suppose the demand function for a good is expressed as Q = 100 - 4p. If the good currently sells for $10, then the price elasticity of demand equals A) -1.5. B) -0.67. C) -4. D) -2.5.

-0.67.

If the price of orange juice rises 10%, and as a result the quantity demanded falls by 8%, the price elasticity of demand for orange juice is A) -1.25. B) -80.0. C) -0.80. D) -10.0.

-0.80.

Suppose the inverse demand curve for a good is expressed as Q = 50 - 2p. If the good currently sells for $3, then the price elasticity of demand is A) -3 x (2/50). B) -2 x (50/3). C) -2 x (3/44). D) -3 x (44/2).

-2 * (3/44).

If the demand curve for orange juice is expressed as Q = 2000 - 500p, where Q is measured in gallons and p is measured in dollars, then at the price of $3, elasticity equals A) -0.33. B) -3. C) -9. D) -17.

-3.

If the supply curve for orange juice is estimated to be Q = 40 + 2p, then, at a price of $2, the price elasticity of supply is A) .01. B) .09. C) 1. D) 11.

.09.

If the government decides to levy an ad valorem tax on product with a perfectly inelastic supply. The consumers tax incidence will be A) 0 B) 1 C) .5 D) Cannot be determined.

0

In the late 1980s, the health benefits of oat bran were widely advertised. If the price of oats increased 50%, causing the quantity of oats supplied to increase by 40%, then the price elasticity of supply was A) 1.25. B) -1.25. C) -0.80. D) 0.80.

0.80.

A given supply curve has a zero intercept. At the current equilibrium price the price elasticity of supply equals A) 1. B) 0. C) 2. D) Not enough information.

1.

The market demand for wheat is Q = 100 - 2p + 1 pb + 2Y. If the price of wheat, p, is $2, and the price of barley, pb, is $3, and income, Y, is $1000, the income elasticity of wheat is A) 2 * (1000/2099). B) 2. C) 1/2 * (1000/2099). D) cannot be calculated from the information provided.

2 * (1000/2099).

If a consumer doubles her quantity of ice cream consumed when her income rises by 25%, then her income elasticity of demand for ice cream is A) 8.0. B) 4.0. C) .25. D) .08.

4.0.

Which of the following is an example of an ad valorem tax? A) 5% of price. B) 5% of quantity sold. C) $0.50 per unit sold. D) Government regulation.

5% of price.

Suppose the supply curve and the demand curve both have unitary elasticity at all prices. The price increase to consumers resulting from a specific tax of $1 imposed on sellers will be A) $1. B) 50 cents. C) zero. D) impossible to calculate without knowing the slope of the supply curve.

50 cents.

Consumers will always pay the entire amount of a specific tax whenever A) demand is perfectly inelastic. B) supply is perfectly elastic. C) Both A and B above. D) Either A or B above but not at the same time.

Both A and B above.

Electricity accounts for almost 20% of the cost of making steel. A 10% increase in electricity prices results in steel firms decreasing production and thereby demanding 5% less electricity. Over many years, technological innovations can change the way steel firms make steel and reduce the industry's energy requirements. This suggests that the steel industry's short-run elasticity of demand for electricity is probably A) less than one in absolute terms in the short run. B) less than its long-run elasticity of demand for electricity. C) Both A and B above. D) Neither A nor B above.

Both A and B above.

A vertical supply curve exhibits A) a constant elasticity of supply. B) a perfectly inelastic supply curve. C) Both A and B are true. D) None of the above.

Both A and B are true

Which of the following is most likely to be true? A) Income elasticity of demand for fur coats exceeds that of oatmeal. B) Income elasticity of demand for oatmeal exceeds that of fur coats. C) Income elasticity of demand for fur coats equals that of oatmeal. D) It is not possible to make any prediction about relative income elasticities.

Income elasticity of demand for fur coats exceeds that of oatmeal.

How will a decrease in price affect a firm's revenues? A) It depends on the price elasticity of demand. B) Revenues will stay the same. C) Revenues will decrease. D) Revenues will increase

It depends on the price elasticity of demand.

As more people quit smoking in the United States, what is expected to happen to the price elasticity of demand for cigarettes? A) It will decrease as those who are most price insensitive stay in the market. B) It will increase as those who are least price insensitive exit the market. C) It might increase or decrease. D) It will not change.

It will decrease as those who are most price insensitive stay in the market.

As more people quit smoking in the United States, what is expected to happen to the price elasticity of supply of cigarettes? A) It will decrease. B) It will increase. C) It can increase or decrease. D) It will not change.

It will decrease.

If the price of orange juice rises 10%, and as a result the quantity demanded falls by 8%, the price elasticity of demand for orange juice is A) -1.25. B) elastic. C) Both A and B above. D) Neither A nor B above

Neither A nor B above

Consider Sam and Linda both drive a relatively inefficient sport utility vehicle (SUV). Sam has a lease that doesn't expire for three years whereas Linda owns her sport utility vehicle free and clear. If the price of gasoline was to increase by fifty percent, which of these statements is most likely true? A) Linda will have a less elastic response than Sam. B) Sam will have a less elastic response than Linda. C) Sam and Linda will have identically elastic responses. D) Sam will have a more elastic response than Linda.

Sam will have a less elastic response than Linda.

Some environmental groups are on record suggesting that the price of gasoline should be much higher than it was in the early 1990s. Why might they say this? A) They own stock in oil companies. B) They anticipate that the longer the price is high, the more elastic the response by consumers will be. C) They anticipate that the longer the price is high, the less elastic the response by consumers will be. D) They anticipate that higher prices will reduce the price elasticity of supply of oil.

They anticipate that the longer the price is high, the more elastic the response by consumers will be.

The rising price of oil has made it feasible to extract oil out of oily sand in Canada. Concerning the oil market this is an example of A) a higher price elasticity of supply in the long run. B) a higher price elasticity of supply in the short run. C) a higher price elasticity of demand in the short run. D) an inelastic long-run supply of oil.

a higher price elasticity of supply in the long run.

If a good has an income elasticity of demand greater than 1, one might classify that good as A) a necessity. B) a luxury. C) unusual. D) inelastic.

a luxury.

As prices change, the elasticity of supply describes the movement A) of a shift in the supply curve. B) of the equilibrium price. C) along the supply curve. D) from a necessity to a luxury good.

along the supply curve.

If the demand curve for comic books is expressed as Q = 10,000/p, then demand has a unitary elasticity A) only when p = 10,000. B) only when p = 100. C) always. D) never.

always.

If the price elasticity of demand for a good is less than one in absolute value, economists would characterize consumers of this good A) as not very sensitive to price. B) as not very sensitive to the quantity they demand. C) as very sensitive to price. D) as elastic.

as not very sensitive to price.

The short-run elasticity of supply is less than the long-run elasticity of supply A) because consumers' tastes and preferences change in the long run but not in the short run. B) because producers can adjust the amount of machinery in the long run but not in the short run. C) only for durable goods. D) only for non-durable goods.

because producers can adjust the amount of machinery in the long run but not in the short run.

The market demand for wheat is Q = 100 - 2p + 1 pb, where pb is the price of barley. The cross price elasticity of demand for wheat with respect to barley A) cannot be calculated from just the information provided. B) is negative. C) suggests that wheat and barley are complements. D) equals 1.

cannot be calculated from just the information provided.

If a government wants to maximize revenues from a tax it should A) impose it on sellers. B) impose it on consumers. C) choose a good with a relatively elastic demand. D) choose a good with a relatively inelastic demand.

choose a good with a relatively inelastic demand.

If an increase in income results in a rightward parallel shift of the demand curve, then at any given price, the price elasticity of demand will have A) increased in absolute terms. B) decreased in absolute terms. C) remained unchanged. D) increased, decreased or stayed the same. It cannot be determined.

decreased in absolute terms.

The duration of the "short-run" A) is one year. B) is the same for all goods. C) depends on the relative short-run elasticity of demand and supply for the good. D) depends on how long it takes consumers or firms to adjust for a particular good.

depends on how long it takes consumers or firms to adjust for a particular good.

If the price elasticity of demand for a good is greater than one in absolute value, economists characterize that demand is A) elastic. B) inelastic. C) perfect. D) vertical.

elastic.

The vertical distance of the shift in supply from a specific tax of t amount on producers will A) equal t. B) be less than t. C) depend on the elasticity of supply. D) depend on the incidence of the tax.

equal t.

For a given positively sloped supply curve, the price increase to consumers resulting from a specific tax imposed on sellers will be A) greater the more price elastic demand is. B) greater the less price elastic demand is. C) equal to the entire tax when demand is perfectly elastic. D) equal to half of the tax whenever demand is unit elastic.

greater the less price elastic demand is.

If the price of orange juice rises 10%, and as a result the quantity demanded falls by 10%, then one can conclude that the demand for orange juice A) is perfectly elastic. B) is inelastic. C) has a unitary elasticity. D) has a constant elasticity.

has a unitary elasticity.

In the case of a specific tax, tax incidence is independent of who pays A) only when supply and demand elasticities are not constant. B) only when the tax is collected from consumers. C) in most but not all cases. D) in all cases.

in all cases.

If the price of orange juice rises 10%, and as a result the quantity demanded falls by 8%, the price elasticity of demand for orange juice is A) -1.25. B) inelastic. C) Both A and B above. D) Neither A nor B above.

inelastic.

If the demand for orange juice is expressed as Q = 2000 - 500p, where Q is measured in gallons and p is measured in dollars, then at the price of $3, the demand curve A) is elastic. B) has a unitary elasticity. C) is inelastic. D) is perfectly inelastic.

is elastic.

Suppose the demand curve is perfectly inelastic and the supply curve is upward sloping. The price sellers receive after a specific tax is imposed on sellers A) is less than before the tax. B) is higher than before the tax. C) is unchanged. D) depends on the supply elasticity.

is unchanged.

In the mid 1980s, the salaries of accounting professors with Ph.D.s increased dramatically. This resulted in an increase in enrollments in Ph.D. accounting programs. Since a Ph.D. degree in accounting may take at least four years to complete, the short-run elasticity of supply of accounting professors is A) greater than the long-run-elasticity of supply. B) less than the long-run elasticity of supply. C) equal to the long-run elasticity of supply. D) equal to the short-run elasticity of demand.

less than the long-run elasticity of supply.

If the demand curve for a good is horizontal and the price is positive, then a leftward shift of the supply curve results in A) a price of zero. B) an increase in price. C) a decrease in price. D) no change in price.

no change in price

A vertical demand curve results in A) no change in quantity when the supply curve shifts. B) no change in price when the supply curve shifts. C) no change in the supply curve being possible. D) no change in quantity when the demand curve shifts.

no change in quantity when the supply curve shifts.

A vertical demand curve for a particular good implies that consumers are A) sensitive to changes in the price of that good. B) not sensitive to changes in the price of that good. C) irrational. D) not interested in that good.

not sensitive to changes in the price of that good.

The price elasticity of supply when the supply curve is Q = 5 is A) 5. B) perfectly inelastic. C) perfectly elastic. D) cannot be calculated from the information provided.

perfectly inelastic.

The supply of movie tickets at one theater's box office for this Saturday's 4:30 show of a new movie is A) perfectly elastic until all seats are filled. B) unit elastic. C) perfectly inelastic. D) elastic.

perfectly inelastic.

The percentage change in the quantity supplied in response to a percentage change in the price is known as the A) slope of the supply curve. B) excess supply. C) price elasticity of supply. D) All of the above.

price elasticity of supply.

Relative to the short-run demand for gasoline, the long-run demand for gasoline is A) probably more elastic since people need time to change automobiles and driving habits. B) probably less elastic since people need time to change automobiles and driving habits. C) probably more elastic because people can hoard this good. D) probably less elastic because people cannot store this good.

probably more elastic since people need time to change automobiles and driving habits.

Suppose the demand curve for a good is downward sloping and the supply curve is upward sloping. At the market equilibrium, if demand is more elastic than supply in absolute value, a $1 specific tax will A) raise the price to consumers by 50 cents. B) raise the price to consumers by less than 50 cents. C) raise the price to consumers by more than 50 cents. D) raise the price to consumers by $1.

raise the price to consumers by less than 50 cents.

A specific tax on sellers will A) shift the demand curve to the right. B) shift the demand curve to the left. C) shift the supply curve to the right. D) shift the supply curve to the left.

shift the supply curve to the left.

If the demand curve for a good is unit price elastic and the supply curve is perfectly price elastic, a $1 specific tax imposed on the sellers of this good will A) shift the supply curve up vertically by $1. B) shift the demand curve down vertically by $1. C) not raise price at all. D) cause price to increase but by less than $1.

shift the supply curve up vertically by $1.

If the supply curve for orange juice is estimated to be Q = 40 + 2p, then A) supply is price elastic at all prices. B) supply is price inelastic at all prices. C) supply is elastic only at prices below 20. D) no general statements about price elasticity of supply can be made.

supply is price inelastic at all prices

The change in price that results from a leftward shift of the supply curve will be greater if A) the demand curve is relatively steep than if the demand curve is relatively flat. B) the demand curve is relatively flat than if the demand curve is relatively steep. C) the demand curve is horizontal than if the demand curve is vertical. D) the demand curve is horizontal than if the demand curve is downward sloping

the demand curve is relatively steep than if the demand curve is relatively flat.

On a linear demand curve, the lower the price, A) the less elastic is demand. B) the more elastic is demand. C) the elasticity equals -1. D) the elasticity equals zero.

the less elastic is demand.

The tax incidence of a specific tax or ad valorem tax is influenced by A) who pays the tax. B) the amount of the tax. C) the price elasticities of supply and demand. D) All of the above.

the price elasticities of supply and demand.

The change in price that results from a rightward shift in demand will be greater if A) the supply curve is horizontal than if the supply curve is upward sloping. B) the supply curve is relatively steep than if the supply curve is relatively flat. C) the supply curve is upward sloping than if the supply curve is vertical. D) the supply curve is horizontal than if the supply curve is vertical.

the supply curve is relatively steep than if the supply curve is relatively flat.

When it comes to the supply curve of janitors and accountants A) the supply curve of janitors is more elastic. B) the supply curve of accountants is more elastic. C) both supply curves are equally elastic. D) More information is needed.

the supply curve of janitors is more elastic.

The cross price elasticity of demand between two goods will be positive if A) the two goods are complements. B) the two goods are substitutes. C) the two goods are luxuries. D) one of the goods is a luxury and the other is a necessity.

the two goods are substitutes.

If the cross price elasticity of two goods is -3.5, then A) these two products are relatively elastic substitutes. B) these two products are relatively inelastic substitutes. C) these two products are relatively elastic complements. D) these two products are relatively inelastic complements.

these two products are relatively elastic complements.

A horizontal demand curve for a good could arise because consumers A) are irrational. B) are not sensitive to price changes. C) view this good as identical to another good. D) have no equivalent substitutes for this good.

view this good as identical to another good.