2. Supply and Demand

Assume a 10 percent increase in price increased the market quantity supplied by 20 percent. Which of the following is true? A. The value of the price elasticity of supply is 2. B. The value of the price elasticity of supply is 0.5. C. Supply is price inelastic. D. Demand is price elastic. E. This price-quantity combination violates the law of supply.

A. The value of the price elasticity of supply is 2.

If a 10 percent increase in the price of a good leads to a 25 percent decrease in the quantity demanded of the good, demand is A.relatively inelastic B. relatively elastic C.unit elastic D.perfectly elastic E.perfectly inelastic

B. relatively elastic

Which of the following best illustrates the concept of consumer surplus? A.A thirsty athlete pays $0.85 for a cold drink when she would have gladly paid $1.50 for the drink. B.An individual who is willing to accept a job at $7.50 per hour is offered $7.00 per hour. C.An individual pays the sale price of $15.00 for the same shirt that the individual refused to purchase earlier at $18.00. D.An individual finds that the price of artichokes, a food she dislikes, has been reduced by 50 percent. E.A wood-carver has a marginal cost of $5.00 for a unit of output, but sells that unit at $6.00.

A.A thirsty athlete pays $0.85 for a cold drink when she would have gladly paid $1.50 for the drink.

Which of the following statements about the price elasticity of demand is true? A) When demand is price inelastic, total revenue will decrease as price increases. B) When demand is price elastic, an increase in price will increase total revenue. C) Demand tends to be more elastic in the short run compared to the long run. D) As more close substitutes become available, demand tends to be more price elastic. E) As a good becomes viewed as a necessity, demand becomes more price elastic

D) As more close substitutes become available, demand tends to be more price elastic.

If the income elasticity of demand for good X is negative and the cross-price elasticity of demand between good X and good Y is negative, which of the following must be true of good X? A.X is a normal good and is a substitute for Y. B.X is a normal good and is a complement to Y. C.X is an inferior good and is a substitute for Y. D.X is an inferior good and is a complement to Y. E.X is a normal good and Y is an inferior good.

D.X is an inferior good and is a complement to Y.

If the government imposes a tariff on imports of cheese, the price and quantity of imported cheese will most likely change in which of the following ways?

Price: increase Quantity: decrease

If the demand for insulin is price inelastic, a 5 percent increase in the price of insulin will A) have no effect on the total revenue of insulin producers B) increase the total revenue of insulin producers C) decrease the total revenue of insulin producers D) decrease the total spending on insulin by consumers E) cause the demand for insulin to be less elastic

B) increase the total revenue of insulin producers

Following a decrease in the supply of oranges, the price of orange juice increased by 20 percent, which resulted in a 10 percent increase in the quantity of apple juice consumed. This implies that the cross elasticity of demand between orange juice and apple juice is A. 0 B.0.5 C.1 D.2 E. indeterminate

B.0.5

The cross-price elasticity of demand between good X and good Z measures the percentage change in the quantity demanded of good X in response to a percentage change in A.the price of good X B.income C.the price of good Z D.the supply of good Z E.total expenditures on good Z

C.the price of good Z

Moving from left to right along a downward- sloping linear demand curve, price elasticity varies in which of the following ways? A) First unit elastic, then inelastic throughout B) First unit elastic, then elastic throughout C) First inelastic, then unit elastic throughout D) First elastic, then unit elastic, and finally inelastic E) First inelastic, then unit elastic, and finally elastic

D) First elastic, then unit elastic, and finally inelastic

If a normal good is produced in a competitive market, which of the following combination of events could cause the price of the good to increase and the quantity to decrease? A. an increase in the average income of consumers and an increase in the number of producing firms B. An increase in the average income of consumers and an increase in the price of a variable input C. An increase in the price of a substitute good an an increase in the number of producing firms D. A decrease in the number of consumers and a decrease in the price of a variable input E. A decrease in the average income of consumers and an increase in the number of producing firms

B. An increase in the average income of consumers and an increase in the price of a variable input

Country Z is both a producer and an importer of green tea. If country Z imposes a tariff on imports of green tea, which of the following will occur in the domestic market of green tea? A.Consumer surplus will increase. B.Domestic production will increase. C.Total consumption of green tea will increase. D.Producer surplus will decrease. E.The price paid by domestic consumers will decrease.

B. Domestic production will increase. The imposition of the tariff increases the domestic price of green tea to producers and to consumers in country Z, which results in an increase in domestic production (an upward movement along the supply curve).

If an effective rent ceiling is eliminated, which of the following is most likely to occur in the rental housing market? A. An increase in the demand for housing, resulting in a decrease in the quantity of housing supplied B.An increase in rents, resulting in an increase in the quantity of housing supplied C.An increase in the demand for housing, resulting in an increase in the quantity of housing demanded D.A decrease in rents, resulting in an increase in the quantity of housing supplied E.A decrease in the demand for housing, resulting in an increase in the quantity of housing supplied

B.An increase in rents, resulting in an increase in the quantity of housing supplied

Which of the following is true of the cross-price elasticity of demand? A. It can indicate if a good is a necessity or a luxury. B.It is greater than zero for two goods that are substitutes. C. It is close to zero if the two goods are closely related. D. It is always negative because demand curves are downward sloping. E. It increases as income increases.

B.It is greater than zero for two goods that are substitutes.

Given an increase in the price of material K— which is an input used to produce good X— and an increase in the price of good Y— which is a substitute for good X— which of the following will definitely occur? A.The equilibrium price of good X will decrease. B.The equilibrium price of good X will increase. C.The equilibrium quantity of good X will be unaffected. D.The equilibrium quantity of good X will increase. E.The equilibrium quantity of good X will decrease

B.The equilibrium price of good X will increase.

Suppose that the demand for soft drinks is price elastic and the supply is price inelastic. If the government imposes a sales tax on soft drinks, which of the following will occur in the short run? A.The tax burden will fall equally on both consumers and producers. B.The tax burden will fall more on producers. C. The tax burden will fall more on consumers. D. The percentage increase in the price of soft drinks will be greater than the percentage increase in the quantity demanded. E. The percentage decrease in total revenue will be greater than the percentage decrease in the quantity demanded.

B.The tax burden will fall more on producers.

Assume that the market demand for a good is perfectly inelastic, the market supply for the good is perfectly elastic, and the market is in equilibrium. If there is a decrease in the price of a key input used in the production of the good, which of the following will occur? A.There will be a decrease in the equilibrium quantity. B.There will be no change in the producer surplus. C.There will be a decrease in the producer surplus. D.There will be a decrease in the consumer surplus. E.There will be an increase in the equilibrium price.

B.There will be no change in the producer surplus.

Assume the income elasticity of demand for good Z equals −5.0. Which of the following is true? A. Good Z is a normal good. B. Good Z must have an inelastic demand. C. An increase in income will lead to a decrease in demand. D. An increase in income will lead to an increase in demand. E. The income effect of a price increase will be a decrease in quantity demanded at every price.

C. An increase in income will lead to a decrease in demand.

Assume the market for a good is in equilibrium. An increase in the market supply of the good will result in A. a shortage at the original price of the good, which causes the market price to decrease B.a shortage at the original price of the good, which causes the market price to increase C.a surplus at the original price of the good, which causes the market price to decrease D.a surplus at the original price of the good, which causes the market price to increase E. neither a surplus nor a shortage

C. a surplus at the original price of the good, which causes the market price to decrease

Which of the following is true in the elastic range of a firm's demand curve? A. The firm should expand output to increase economic profits. B.An increase in price will also lead to an increase in total cost. C.A decrease in price will likely lead to an increase in total revenue. D.Marginal revenue is negative. E.The firm is maximizing total revenue.

C.A decrease in price will likely lead to an increase in total revenue.

Assume that the demand for a certain good is perfectly inelastic and the supply curve of the good is upward sloping. Which of the following occurs in the market for the good if the price of an input used to produce the good increases? A. decrease in both the quantity supplied and the equilibrium amount consumed B.A decrease in the quantity supplied and an increase in the equilibrium price C.A decrease in the supply and an increase in the equilibrium price D.A decrease in both the demand and the equilibrium amount consumed E.A decrease in both the quantity demanded and the equilibrium price

C.A decrease in the supply and an increase in the equilibrium price

Assume that demand for bottled water is relatively price elastic. An increase in supply of bottled water will result in which of the following? A. A decrease in price, leading to an increase in total revenue B. A decrease in price, leading to a decrease in total revenue C.An excess supply of bottled water D.An excess demand for bottled water E.A relatively small decrease in price and no change in equilibrium quantity

C.An excess supply of bottled water

Country Z has a downward sloping domestic demand curve and an upward sloping domestic supply curve for widgets. In the absence of trade, the domestic price of widgets is P0. Now the country engages in trade, and the price for widgets, Pw, is below the domestic price, P0. Which of the following will occur? A.Country Z will begin exporting widgets. B.Consumer surplus will decrease in Country Z. C.Domestic producer surplus will decrease in country Z. D.Domestic production of widgets in Country Z will increase. E.The price of widgets received by domestic producers will increase.

C.Domestic producer surplus will decrease in country Z. With the world price for widgets below the domestic price of widgets, the domestic production or quantity supplied of widgets will decrease, i.e., a downward movement along the supply curve. Therefore, domestic producer surplus will decrease.

If a severe drought destroys a significant portion of the peanut crop and peanut farmers' revenues increase, which of the following is true over the observed range of prices? A.The demand for peanuts must be unit price elastic. B.The demand for peanuts must be price elastic. C.The demand for peanuts must be unit price inelastic. D.The supply of peanuts must be price inelastic. E.The supply of peanuts must be price elastic.

C.The demand for peanuts must be unit price inelastic.

Which of the following will occur if the government imposes a price ceiling below the equilibrium price of a good? A. The quantity sold will exceed the equilibrium quantity. B.Firms' total revenues will increase if demand is price elastic. C.There will be a shortage in the market. D. All firms will shut down, since price is below the equilibrium price. E. Price will exceed the marginal cost of producing the last unit sold.

C.There will be a shortage in the market.

In the absence of market failures, a perfectly competitive market equilibrium is efficient for which of the following reasons? A.Consumer surplus is maximized and consumers are better off relative to producers. B.Producer surplus is maximized and producers are better off relative to consumers. C.Total economic surplus is maximized and all mutually beneficial transactions are exhausted. D.Total economic surplus is distributed equally between producers and consumers. E.The quantity of output is produced at a constant cost so that every consumer pays the same price.

C.Total economic surplus is maximized and all mutually beneficial transactions are exhausted.

Assume that the price of orange juice increases by 40 percent following a crop failure. If the quantity demanded falls by 10 percent, which of the following is true? A) The demand for orange juice is elastic. B) The price of grapefruit juice, a substitute good, will fall. C) The absolute value of the price elasticity of demand for orange juice is 4. D) The absolute value of the price elasticity of demand for orange juice is 0.25. E) The absolute value of the price elasticity of demand for orange juice is 10.

D) The absolute value of the price elasticity of demand for orange juice is 0.25.

The price elasticity of demand for a product is 0.5. If the price of the product increases by 20 percent, which of the following will occur? A) The quantity demanded of the good will increase by 10%. B) The quantity demanded of the good will increase by 20%. C) The quantity demanded of the good will increase by 40%. D) The quantity demanded of the good will decrease by 10%. E) The quantity demanded of the good will decrease by 40%.

D) The quantity demanded of the good will decrease by 10%.

Which of the following statements relating to income elasticity is true? A.A positive value for the income elasticity coefficient indicates an inferior good. B.If good X and good Y have negative income elasticities, then both goods are substitutes. C.With an income elasticity coefficient of 0.6, the demand is inelastic and the good is an inferior good. D.With an income elasticity coefficient of 5, a 10 percent increase in income will lead to a 50 percent increase in the quantity demanded of the good. E.With an income elasticity coefficient of −1.2−1.2, a 10 percent increase in income will lead to a 12 percent decrease in the price of the good.

D.With an income elasticity coefficient of 5, a 10 percent increase in income will lead to a 50 percent increase in the quantity demanded of the good.

Carlos has a van with 20 seats and charges $10 per person per ride to the airport from downtown. Carlos' cost of the trip is $140 for any number of passengers. On one trip, Carlos has 19 seats filled when a person offers him $5 for the last seat. Should Carlos accept the offer? A. No, since the $5 fare offered is below his average cost of $7. B.No, since the average variable cost is greater than $5. C.No, since it is illegal to charge different prices for the same service. D.Yes, since the marginal benefit exceeds the marginal cost. E.Yes, since his total revenue exceeds his total cost by $5.

D.Yes, since the marginal benefit exceeds the marginal cost.

Assume that the government imposes an effective minimum wage in a perfectly competitive labor market. What will happen to employment and total wage payments?

Employment: decrease Toal Wage Payments: increase

Assume that popcorn and movie attendance are complements and that Salty Concession grows corn suitable for popping. Mr Concession will most likely sell a greater quantity of popping corn at a higher price if which of the following occurs? A.The wages of farm workers and movie theater employees increase. B.A technological improvement results in less expensive and more efficient harvesting of corn. C.The introduction of new fat-free potato chips provides new competition in the snack-food market. D.The release of three summer movies sets records for movie attendance E.New government regulations force movie theaters to hire more security guards at each theater.

d) The release of three summer movies sets records for movie attendance.