Test #2 practice questions
12. Assume the price of a candy bar decreases from $1.00 to $0.80 and the quantity demanded does not change. If other things are unchanged, the price elasticity of demand, using the midpoint formula, is: 0. 0.2. 1. 2.
0. To calculate the price elasticity of demand, we find the ratio of the percent change in the quantity demanded to the percent change in the price.
If the price of chicken rises from $3.50 per pound to $4.50 per pound and Safeway observes the quantity demanded decline from 11,000 pounds sold to 9,000 pounds sold, what is the price elasticity of demand using the midpoint method? 0.8 0.78 1.25 1.28
0.8 Correct: The percent change in quantity demanded is calculated as [(9,000 − 11,000)/[(11,000 + 9000)/2]] × 100 = (-2,000/10,000) × 100 = (−1/5) × 100 = -20%. The percent change in price is calculated as [(4.50 − 3.50)/[(3.50 + 4.50)/2]] × 100 = (1/4) × 100 = 25%. So price elasticity = −20%/25% = −0.8. Dropping the minus sign, the price elasticity = 0.8.
1. At the annual half off sale at Macy's Amanda buys four times as much. What can we say about the elasticity of demand? a. It is elastic b. It is inelastic c. It is unitary elastic d. Nothing, not enough information is given
A
1. If buyers react strongly to a price change of good A, then good A is: a. Elastic b. Inelastic c. Unitary Elastic d. Perfectly Inelastic
A
1. If the elasticity for shoes is 1.7 we can say that shoes are: a. Elastic b. Inelastic c. Perfectly Inelastic d. Unitary Elastic
A
1. After a 20 percent decrease in the price of steaks, Robert increased the quantity of steaks he eats in a month by 10%. What is the elasticity of steaks? a. 2 b. 1/2 c. -2 d. -1/2
B
1. Cross price elasticity of demand a. Tells us whether a good is inferior or normal b. Measures the responsiveness of the quantity demanded of one good to the change in price of another good. c. Measures the responsiveness of the quantity demanded of one good to the change in income Measures the responsiveness of the quantity demanded of one good to the change in the total expenditures on that good
B
1. If buyers are unresponsive to a price change of good B, then good B is: a. Elastic b. Inelastic c. Unitary Elastic d. None of the above.
B
1. If the elasticity for Cardinal tickets is 0.78 we can say that Cardinal tickets are: a. Elastic b. Inelastic c. Unitary Elastic d. Perfectly Inelastic
B
1. The price of LG 42 inch color television sets has increased by 15 percent. Over the next several months, the number of 42-inch sets sold will fall by 9 percent. The demand curve for 42-inch television sets is? a. Elastic b. Inelastic c. Perfectly Inelastic d. Unitary Elastic
B
1. When Elizabeth increased the price of her cookies at I Like Cookies Bakery the number of cookies she sold fell her total revenue increased by 10%. What can we say about the price elasticity of cookies? a. It is Elastic b. It is Inelastic c. It is Perfectly Inelastic d. There is not enough information given to find elasticity.
B
1. An inferior good: a. Has no substitutes b. Always accounts for a small percentage of consumers' budget c. Has a negative income elasticity d. Has a positive income elasticity
C
1. When the price of a MetroLink ticket rose from $1.00 to $1.50 the quantity demanded for MetroLink rides fell by 50%. What can we say about the elasticity of MetroLink? a. It is elastic b. It is inelastic c. It is unitary elastic It is perfectly inelastic
C
The equilibrium price in the marketplace is: the market-clearing price. the price at which the quantity demanded of a good equals the quantity supplied of a good. the price determined by the intersection of the market demand and market supply curve. All of the answers are correct.
Correct. All of the options are correct statements about the equilibrium price.
1. The demand for which of the following goods would be the most inelastic? a. Rolex wrist watches b. A ticket to Six Flags c. A new car d. Insulin for a diabetic.
D
1. Which of the following will usually will have the greatest income elasticity? a. Elastic goods b. Inferior goods c. Substitute goods d. Luxury goods
D
What situation would make the demand for new cars relatively more price-elastic? Auto manufacturers have a difficult time hiring skilled workers. Auto manufacturers find it easy to hire skilled workers. Car buyers are prosperous, and they are seeking luxury cars. There is a plentiful supply of used cars.
How difficult or hard it is for auto manufacturers to hire skilled workers refers to car production or supply. When car buyers are prosperous and they are seeking luxury cars, they are likely to be less responsive to price changes. There is a plentiful supply of used cars.
A market supply curve is found by: vertically summing the individual supply curves in the market. adding up all the prices offered by suppliers in the marketplace. horizontally summing the individual supply curves in the market. using the individual supply curve of the largest producer in the market.
Incorrect: The market supply curve is the horizontal, not vertical, sum of all the individual supply curves in the market. The price is fixed and the quantity offered at each price is summed up. All the supply curves of producers in the market are used to find the market supply curve. horizontally summing the individual supply curves in the market.
Which of the following statements is true about the substitution effect? It measures the change in the quantity consumed that results from the change in the overall purchasing power of the consumer due to the change in the price of the good. It measures the change in the quantity consumed as the consumer substitutes away from the relatively more expensive good toward other relatively cheaper goods. It is significant for those goods whose price represents a large share of total income. It does not obey the law of demand.
It measures the change in the quantity consumed as the consumer substitutes away from the relatively more expensive good toward other relatively cheaper goods. Correct: The substitution effect of a change in the price of a good is the change in the quantity of that good demanded when the consumer substitutes the good that has become relatively cheaper for the good that has become relatively more expensive.
There is a growing concern that global warming is changing people's tastes such that they are choosing to do things that will reduce their individual emission of carbon into the atmosphere. How will this change in tastes affect the demand for bicycles? It will increase the demand for bicycles, all other things being equal. It will decrease the demand for bicycles, all other things being equal. It will increase the quantity demanded for bicycles, all other things being equal. It will decrease the quantity demanded for bicycles, all other things being equal.
It will increase the demand for bicycles, all other things being equal. Correct: The change in tastes will cause a shift in preference toward bicycles, increasing the demand for them, all other things being equal.
If Microsoft cuts the price of its Zune mp3 player by 30%, how would we show the impact of this action on the demand curve for iPods? It would cause a movement up along the current iPod demand curve. It would cause a movement down along the current iPod demand curve. It would shift the current iPod demand curve to the left. It would shift the current iPod demand curve to the right.
It would shift the current iPod demand curve to the left. The change in the price of Zune mp3 players causes a leftward shift in the demand for iPods, not a movement along the iPod demand curve
A bank increased its fees for processing personal checks from 18 cents to 24 cents per check. In a statement accompanying the announcement, the bank said that customers who could find ways to reduce the number of checks they write would see no increase in their overall account fee. What is the implication of this statement? The price elasticity of demand for check-writing is less than one. The price elasticity of demand for check-writing is greater than one. Account holders are indifferent to the check-writing fee. Some account holders have a unit-elastic demand for check-writing.
Some account holders have a unit-elastic demand for check-writing. Most account holders tend to pay attention to the check-writing fee. If consumers want to see no increase in their overall account fee, meaning that if they want to pay the same overall account fee, they should reduce the number of checks they write by the same percent change as the percent change in fees. This implies that some account holders have a unit-elastic demand for check-writing.
What happens to the price elasticity of demand as we move down to the right along a straight-line demand curve? It changes from a negative number to a positive number. It changes from a positive number to a negative number. The demand becomes relatively more elastic. The demand becomes relatively less elastic.
The demand becomes relatively less elastic. Correct: At higher prices, the demand is elastic, but at lower prices the demand becomes inelastic. Along a straight-line demand curve, the absolute change in quantity for a given price change is constant, but the percentage change will vary as the base quantity and base price vary.
If air travel to Hawaii becomes less expensive, what is likely to happen in the market for hotel rooms in Hawaii? The demand curve for hotel rooms will shift leftward. The demand curve for hotel rooms will shift rightward. The supply curve for hotel rooms will shift leftward. The supply curve for hotel rooms will shift rightward.
The demand curve for hotel rooms will shift rightward. Correct: Air travel to Hawaii and hotel rooms in Hawaii can be viewed as complements. The decline in airfare price will cause more people to travel to Hawaii and this in turn will increase the demand for hotel rooms. The demand curve for hotel rooms will shift rightward.
Which of the following would cause a surplus of newsprint? The supply of newsprint decreases, and the price is not permitted to change. The demand for newsprint decreases, and the price adjusts to the new equilibrium. The demand for newsprint decreases, and the price is not permitted to change. The supply of newsprint decreases, and the price adjusts to the new equilibrium.
The demand for newsprint decreases, and the price is not permitted to change. Correct: Without a downward adjustment in price, the leftward demand shift will result in a surplus.
If a good is an inferior good and its price rises, quantity demanded will: decline according to the substitution effect. rise according to the substitution effect. decline according to the income effect. rise according to the income effect.
The increase in the price of an inferior good causes the quantity demanded for the good to rise, due to the income, not substitution, effect. rise according to the income effect.
How would an increase in the price of cotton affect the market for cotton T-shirts at your university bookstore? The demand curve for cotton T-shirts will shift leftward. The demand curve for cotton T-shirts will shift rightward. The supply curve for cotton T-shirts will shift leftward. The supply curve for cotton T-shirts will shift rightward.
The supply curve for cotton T-shirts will shift leftward. Correct: The supply shifts to the left because of the higher cost in the manufacture of T-shirts.
Consider the market for kayaks. What happens when the process of manufacturing kayaks becomes less costly when new technology is used? The demand curve for kayaks will shift leftward. The demand curve for kayaks will shift rightward. The supply curve for kayaks will shift leftward. The supply curve for kayaks will shift rightward.
The supply curve for kayaks will shift rightward. Correct: Now, the quantity of kayaks supplied at every given price will be higher than before. Any reduction in manufacturing costs is reflected in a rightward shift of the supply curve
What would be the dominant effect in the new-home market of an increase in the wages of skilled tradesmen who work in housing construction? The supply of new homes would shift to the right. The supply of new homes would shift to the left. The demand for new homes would shift to the right. The demand for new homes would shift to the left.
The supply of new homes would shift to the left. Correct: Wages of skilled craftsman are an input cost. An increase in wages causes a leftward shift in the supply curve.
What happens in the market for wheat when dry winter weather results in a poor harvest? The demand for wheat increases; the supply remains unchanged. The demand for wheat increases; the supply decreases. The demand for wheat decreases; the supply increases. The supply of wheat decreases; the demand remains unchanged.
The supply of wheat decreases; the demand remains unchanged. Correct: Given the poor harvest, the quantity of wheat available at each price will be less than before. This implies that supply decreases, or the supply curve shifts to the left.
What describes the competitive market best? The government controls the allocation of inputs in production. There are many buyers and sellers of the same good. One firm controls production of all goods in an industry. Firms cooperate in setting the price of a good.
There are many buyers and sellers of the same good. Correct: A competitive market brings together groups of consumers and firms that produce the good or service.
If the price elasticity of demand for an annual magazine subscription is 1.6 in the range between $26 and $30, what happens in the market for this subscription when the price rises above this range? There will be an increase in the total revenue the magazine collects on its subscriptions. There will be a decrease in the total revenue the magazine collects on its subscriptions. Magazines will become a normal good. Magazines will become an inferior good.
There will be a decrease in the total revenue the magazine collects on its subscriptions. Correct: When the price elasticity of demand exceeds one, the sales effect outweighs the price effect. In this case, the demand is elastic. As a consequence, the quantity of subscriptions demanded will register a significant drop in response to the rate increase.
An increase in the price of a good will cause: a movement down along a given demand curve. a movement up along a given demand curve. a leftward shift in the demand curve. a rightward shift in the demand curve.
a movement up along a given demand curve. While changes in price do cause movements along a given demand curve, an increase in price moves us in the opposite direction: up along a given demand curve. Please read the section "Shifts of the Demand Curve." Changes in price do cause movements along a given demand curve, but do not shift the demand curve.
If fast-food dining is considered an inferior good, then as incomes fall due to a recession we would expect that the decrease in income would cause: a movement up along the current demand curve for Taco Bell. a movement down along the current demand curve for Taco Bell. a shift to the left of the demand curve for Taco Bell. a shift to the right of the demand curve for Taco Bell.
a shift to the right of the demand curve for Taco Bell. Correct: Consumers increase their demand for an inferior good when income declines. This increase in demand is reflected as a rightward shift in demand.
An increase in supply is illustrated as: a movement up along a given supply curve. a movement down along a given supply curve. a shift to the right of the supply curve. a shift to the left of a given supply curve.
a shift to the right of the supply curve. Correct: Increases in supply are represented as rightward shifts.
As calculated, the price elasticity of demand is: always positive. always greater than 1. usually equal to 1. always negative.
always negative. Correct: In mathematical terms, the price elasticity of demand is a negative number. The law of demand says that demand curves slope downward, so price and quantity demanded always move in opposite directions. For example, a positive percent change in price (a rise in price) leads to a negative percent change in the quantity demanded. So the price elasticity of demand is, in mathematical terms, a negative number.
Assume that as the price of cucumbers falls, the income effect causes consumers to buy fewer cucumbers. Given this information we can conclude that cucumbers are: an inferior good. not affected by the income effect. a normal good. expensive.
an inferior good. When the price of a normal good falls, consumers would buy more of that good as a result of the substitution effect. At the same time, the overall purchasing power of their income increases, so they would also buy more of that good, due to the income effect. In other words, for a normal good, both effects work in the same direction; the income effect reinforces the substitution effect. As the price falls, the quantity demanded rises. The law of demand holds. In this question, as the price of cucumbers falls, consumers buy fewer cucumbers; cucumbers are not a normal good. The law of demand does not hold. In fact, for cucumbers, the income effect and the substitution effect work in opposite directions, and the larger income effect dominates the substitution effect.
The equilibrium price of a good is the price: that consumers prefer. that producers prefer. at which there is no surplus and no shortage of the good. there is no opportunity cost associated with producing the good.
at which there is no surplus and no shortage of the good. Correct: The equilibrium price is the market-clearing price that equates quantity supplied with quantity demanded, where there is neither a surplus nor a shortage of the good.
The price elasticity of demand __________ along a downward-sloping demand curve. Demand is ________ at higher prices when compared to lower prices. is constant; the same changes; more elastic changes; less elastic changes; perfectly inelastic
changes; more elastic Correct: The value of the price elasticity of demand does change along a downward-sloping demand curve. Demand is elastic at high prices, unitary elastic at a particular price, and inelastic at lower prices.
The downward slope of the demand curve indicates that, all other things being equal: consumers will buy more of a good when its price decreases. producers will supply more of a good when its price increases. producers will supply more of a good when its price decreases. a decrease in the equilibrium price of a good will cause a shortage.
consumers will buy more of a good when its price decreases. Correct: The demand curve captures the consumer's behavior in response to price. An increase in the price of a good causes the quantity demanded of that good to decrease, all other things being equal.
The law of demand says: the quantity of a good demanded by consumers does not depend upon price, all other things being equal. consumers will demand a smaller quantity of a good the higher its price, all other things being equal. consumers will demand a greater quantity of a good the higher its price, all other things being equal. consumers will demand a smaller quantity of a good the lower its price, all other things being equal.
consumers will demand a smaller quantity of a good the higher its price, all other things being equal. Price matters in determining the quantity demanded; the higher the price, the lower the quantity that is demanded. Price affects the quantity demanded in the opposite way; the higher the price, the lower the quantity that is demanded.
The substitution effect of a change in the price of a good implies that, as good A gets more expensive when compared to good B, the consumer will: decrease the quantity consumed of good A. decrease the quantity consumed of good B. decrease consumption of both because the consumer's purchasing power has declined. substitute away from other goods as the consumer's purchasing power has decreased.
decrease the quantity consumed of good A.
During a drought, the price elasticity of demand for water is less than one. During a flood, the price elasticity of demand for water is greater than one. This means that the: demand for water is elastic during a drought and inelastic during a flood. demand for water is inelastic during a drought and elastic during a flood. demand curve for water cannot have a constant slope. quantity of water people choose to consume is independent of the price.
demand for water is inelastic during a drought and elastic during a flood. Correct: During a drought, the conditions surrounding the use of water are altered, and consumers thus make choices differently than they would otherwise. During a drought, consumers tend to be less responsive to changes in the price of water so their demand for water is inelastic. During a flood, consumers tend to be more responsive to changes in the price of water, so their demand for water is elastic. Consider that the terms elastic and inelastic relate to specific values calculated according to the elasticity formula.
Suppose that the number of students enrolled at Big University decreases. In the local market for college textbooks: demand will increase. demand will decrease. demand will remain the same. demand will increase and then shift back to its original level.
demand will decrease. Correct: If the number of buyers decreases, demand will decrease.
If consumers expect that the price of coffee will be higher in the future: demand will increase and the demand curve will shift to the right. the quantity of coffee demanded will increase. the demand for coffee will decrease and the demand curve will shift to the left. the quantity of coffee demanded will decrease, causing a movement along the same demand curve.
demand will increase and the demand curve will shift to the right. Correct: If consumers expect higher prices in the future, current demand will increase and the demand curve will shift to the right.
Using the midpoint method of elasticity to calculate the price elasticity of demand eliminates the problem of computing which of the following? different elasticities, depending on whether price decreases or increases different elasticities because price and quantity are inversely related on the demand curve total revenue when price falls and demand is inelastic total revenue when price falls and demand is elastic
different elasticities, depending on whether price decreases or increases Correct: The midpoint method eliminates the problem of computing different elasticities, depending on whether price decreases or increases. The midpoint method is a technique for calculating the percent change. In this approach, we calculate changes in a variable compared with the average, or midpoint, of the initial and final values. This eliminates the problem of computing different elasticities, depending on whether price decreases or increases.
If a good is a luxury, then we would expect the price elasticity of demand to be: inelastic. elastic. unit-elastic. perfectly inelastic.
elastic
When price elasticity of demand is greater than one, we say that demand is: perfectly inelastic. inelastic. elastic. unit-elastic.
elastic. Correct: By definition, goods with the price elasticity of demand being greater than one have elastic demand. unit-elastic.
When the price of a good rises, total revenue falls because of the quantity effect. This means that as the price of a good rises: each unit sold sells at a higher price. each unit sold sells at a lower price. more units are sold. fewer units are sold.
fewer units are sold. Correct: The quantity effect describes what happens to the quantity sold when prices rise. As prices rise, fewer units are sold because of the law of demand.
We would expect the price elasticity of demand for foreign travel to be: zero. one. less than one. greater than one.
greater than one. Correct: Foreign travel is a luxury good and luxury goods tend to be elastic.
What do you have to know in order to calculate the price elasticity of demand? how much of the good was purchased at two different prices the price elasticity of supply how many firms supply the good the portion of income the typical consumer spends on the good
how much of the good was purchased at two different prices Correct: These two observation points will give you the values necessary to calculate the percentage changes. The elasticity formula requires that you have an initial price and an amount of a price change, as well as an initial quantity and an amount of a quantity change.
If the price of a pound of Kenyan coffee decreases from $12 a pound to $10 a pound, we can expect a(n): leftward shift in the supply curve of Kenyan coffee. increase in the quantity supplied of Kenyan coffee. leftward shift in the demand curve for Kenyan coffee. increase in the quantity demanded of Kenyan coffee.
increase in the quantity demanded of Kenyan coffee. The demand curve will shift when there is a constant price but a change in another variable, such as income. The supply curve will shift when there is a constant price but a change in a variable, such as production costs. A decrease in price will increase the quantity demanded, causing a movement along the demand curve. A decrease in price will decrease the quantity supplied.
If coffee sold at Starbucks is a normal good, then an increase in consumers' income will: increase the supply of Starbucks coffee. decrease the supply of Starbucks coffee. increase the demand for Starbucks coffee. decrease the demand for Starbucks coffee.
increase the demand for Starbucks coffee. Correct: Changes in income levels will affect the way that consumers allocate their spending. Normal goods are those that consumers buy more of when they experience an increase in income.
A firm is more likely to raise total revenue if it: decreases prices in the section of its demand curve where prices are low. increases prices in the section of its demand curve where prices are high. increases prices in the section of its demand curve where prices are low. increases prices in the section of its demand curve where elasticity is unit-elastic.
increases prices in the section of its demand curve where prices are low. Total revenue would decrease if demand was in the inelastic portion of the demand curve and prices fell. Total revenue would decrease if demand was in the elastic portion of the demand curve and prices rose. Total revenue would not change if demand were in the unit-elastic portion of the demand curve and prices changed.
We would expect the price elasticity of demand for cigarettes to be: inelastic. elastic. unit-elastic. perfectly elastic.
inelastic.
If total revenue rises when the price increases, demand for the good must be: inelastic. elastic. unit-elastic. perfectly elastic.
inelastic. Total revenue would fall if a good's price increases and the price is in the elastic range of the good's demand curve. Total revenue would not change if a good's price increases and the price is in the unit-elastic range of the good's demand curve. Total revenue would fall to zero if a good's price increases and the price is in the perfectly elastic range of the good's demand curve.
Regardless of its price, Charlie spends $5 a week on ice cream. What can we conclude about Charlie's demand for ice cream? His income elasticity of demand for ice cream is equal to one. His income elasticity of demand for ice cream is equal to zero. His price elasticity of demand for ice cream is equal to one. His price elasticity of demand for ice cream is equal to zero.
is price elasticity of demand for ice cream is equal to one. Incorrect: Charlie's income elasticity of demand for ice cream is irrelevant in this question.
Total revenue is equal to: an area whose width is the price of a good and whose height is the quantity supplied at that price. total sales of a good minus the total cost of that good. price of a good multiplied by the quantity sold of that good. total profit of a good times the total quantity of that good.
price of a good multiplied by the quantity sold of that good.
The upward slope of the supply curve indicates that: consumers seek to buy goods that are relatively less expensive. consumers do not take price into consideration when deciding whether to purchase a good. producers supply more of a good when its price increases. firms do not take price into consideration when deciding how much of a good to produce.
producers supply more of a good when its price increases. Correct: The higher price serves to call forth more production.
Price elasticity of demand measures the responsiveness of: quantity demanded to changes in product quality. quantity demanded to changes in income. quantity demanded to changes in price. supply to changes in demand.
quantity demanded to changes in price. Correct: In the formula for elasticity, the percentage change in quantity demanded is divided by the percentage change in price.
A price above the equilibrium price will: result in quantity supplied being greater than quantity demanded. result in a shortage. create pressure for price to rise further. result in quantity supplied being greater than quantity demanded and also create pressure for the price to rise further.
result in quantity supplied being greater than quantity demanded. At a price above the equilibrium, a surplus, not a shortage, exists. This creates a pressure for the price to fall
A breakthrough in the production of computer hard drives allows them to now be assembled with cheaper materials, and to triple their storage capacity. This technological change should (assume all other things being equal): shift the supply curve for computer hard drives to the right. shift the supply curve for computer hard drives to the left. cause a movement down along the supply curve of computer hard drives. cause a movement up along the supply curve of computer hard drives.
shift the supply curve for computer hard drives to the right. Correct: Better technology reduces the costs of production and this makes suppliers willing to offer more products at every price—shifting the supply curve to the right.
Cocoa beans are an important input in chocolate production. We would expect that an increase in the price of cocoa beans should (assume all other things being equal): shift the supply of Hershey's chocolate bars to the right. shift the supply of Hershey's chocolate bars to the left. cause a movement up along the supply curve for Hershey's chocolate bars. cause a movement down along the supply curve for Hershey's chocolate bars.
shift the supply of Hershey's chocolate bars to the left. Correct: The rising price of cocoa beans increases the cost of making chocolate bars, so the producer is less willing to supply the good at any given price. This means a decrease in supply.
For goods that absorb a ______ share of the typical consumer's spending, the _______ effect is essentially the sole reason why the demand curve slopes downward. large; substitution effect small; substitution effect small; income effect large; marginal utility effect
small; substitution effect If the good is a larger part of the consumer's budget, then the income effect plays a bigger role in the adjustment of quantity demanded to price. The reduction in quantity due to a price change comes from either the substitution effect or the income effect. In this question, the marginal utility effect is irrelevant.
The demand for a good becomes relatively more elastic as: substitutes for the good become more available. substitutes for the good become less available. the good becomes more of a necessity. the time allowed for adjustment is shortened.
substitutes for the good become more available. Correct: The elasticity of demand increases when consumers feel they have more alternatives to choose from. In order for consumers to reduce their purchases of a good when its price rises, they must have alternatives available.
The income effect of a change in the price of a good implies that, as good A gets more expensive as compared to good B: the consumer will buy less of good A because their purchasing power has increased. the consumer will buy less of good B because their purchasing power has increased. the consumer will buy less of good A because their purchasing power has decreased. the consumer will buy less of good B because their purchasing power has decreased.
the consumer will buy less of good A because their purchasing power has decreased. Correct: This is the definition of the income effect.
When demand is perfectly elastic: the demand curve is vertical. the demand curve is horizontal. consumers do not respond to price changes. suppliers do not respond to price changes.
the demand curve is horizontal. Correct: A horizontal demand curve indicates extreme sensitivity to price changes. A perfectly elastic demand arises when any price increase will cause quantity demanded to fall to zero.
If the quantity demanded of cocoa beans is greater than the quantity supplied of cocoa beans, then: the equilibrium price of cocoa beans will fall in the market. the equilibrium price of cocoa beans will rise in the market. the demand for cocoa beans will shift to the right. the supply for cocoa beans will shift to the right.
the equilibrium price of cocoa beans will rise in the market. This situation describes a shortage. This will put an upward pressure on price, not downward pressure. Facing shortages or surpluses, the market price will adjust until a new equilibrium is reached, at which the quantity demanded is equal to the quantity supplied. There is no change in either the demand or supply.
When the price of air travel rises, both the income and substitution effects play a role in consumer response. The income effect describes what happens due to: the fact that many consumers will switch to traveling by car or by train. the fact that consumers find their incomes now have a lower purchasing power. the lower utility now received from air travel. the lower utility now received from travel of any type.
the fact that consumers find their incomes now have a lower purchasing power. Correct: The income effect refers to quantity changes resulting from changes in purchasing power
The price elasticity of demand is defined as: the percent change in quantity demanded divided by the percent change in quantity supplied. the percent change in quantity demanded divided by the percent change in price. the percent change in price divided by the percent change in quantity demanded. the percent change in quantity demanded divided by the percent change in income.
the percent change in quantity demanded divided by the percent change in price. Correct: This is the correct definition of price elasticity.
A shortage occurs when: demand for a good increases, causing an increase in the equilibrium price. demand for a good decreases, causing a decrease in the equilibrium price. the price of a good is held above the equilibrium price. the price of a good is held below the equilibrium price.
the price of a good is held below the equilibrium price. At a price below the equilibrium price, the quantity demanded will exceed the quantity supplied. When demand changes and the price adjusts to the new equilibrium, there is neither a shortage nor a surplus.
A surplus in the marketplace for cocoa beans will occur if: the price of cocoa beans is above the equilibrium price. the price of cocoa beans is below the equilibrium price. there is an excess of demand at the current price. quantity demanded is greater than quantity supplied at the current price.
the price of cocoa beans is above the equilibrium price. When the price of cocoa beans is below the equilibrium price there will be a shortage, not a surplus. When there is an excess of demand at the current price, there will be a shortage, not a surplus. When quantity demanded is greater than quantity supplied, there exists a shortage, not a surplus.
Which of the following is NOT a key element of the supply and demand model? the demand curve the supply curve the production possibilities frontier market equilibrium
the production possibilities frontier Correct: The production possibilities frontier is not one of the key elements of the demand and supply model. It is a model used to illustrate the trade-offs encountered in producing two goods.
If the price of e-book textbooks decreases from $60 to $55, then: the demand for e-books will increase. the quantity demanded of e-books will increase. the demand for e-books will decrease. the quantity demanded of e-books will decrease.
the quantity demanded of e-books will increase. Correct: The quantity demanded of e-books will increase.
A competitive market is one in which: the action of one buyer can affect the price of the good or service. there are many buyers and sellers of the same good or service. the action of one seller can affect the price of the good or service. there are many buyers and sellers of different goods and services.
there are many buyers and sellers of the same good or service. Competitive markets have many buyers and sellers of the same good or service, and the actions of any one buyer or seller have no noticeable effect on the price of the good or service.
Supply curves are usually _______ sloping. As the price of a good rises, the quantity supplied of the good __________. -upward; falls -upward; rises -downward; falls -downward; rises
upward; rises
Bar owners often offer lower beer prices to women than they do to men. This will enhance bar revenues if: women have a unit-elastic demand for beer. women have an inelastic demand for beer. women have an elastic demand for beer. women have a negative income elasticity of demand for beer.
women have an elastic demand for beer. Correct: Bar owners are assuming that women increase their beer consumption by a greater percentage than the price change. If the demand for a good is elastic, a lowering of the price will generate an increase in revenues.