ECON300 Exam 1
Farmers complain that they cannot make a living selling sugar at the current market-clearing price. They successfully lobby the government to initiate price controls on the sale of sugar. The government sets a price floor substantially above the equilibrium price, and no one is allowed to sell sugar for a price less than the price floor. As a result, a. the supply curve for sugar will shift to the right because of the higer price. b. the demand curve for sugar will shift to the left because of the higher price. c. there will be a surplus of sugar. d. All of the above are correct.
there will be a surplus of sugar.
The demand for a product is Q = 800 −5P and supply is Q = 100 + 2P. The market-clearing price is $_____ and the market-clearing quantity is _______ units
$100; 300 units
Suppose that the price elasticity of demand for lima beans is -0.5. A 10% decrease in price will bring about a ____ percent change in quantity demanded
(-0.5/-0.10) = 5 (makes it inelastic)
Suppose the demand curve for a product is given by Q= 13 − 1P +2PS where P is the price of the product and PS is the price of a substitute good. The price of the substitute good is $ 2.10. Suppose P= $0.80. The price elasticity of demand is; The cross-price elasticity of demand is (substitute)
0.05; 0.26
Consumers complain that this price amounts to price gouging and successfully lobby the government to set a price ceiling of $60 for the product. As a result, consumers will want to consume ______ units while producers will want to sell only _______
500; 220
Which of the following will cause the demand for kerosene heaters to increase? a. An increase in the price of kerosene. b. A decrease in the price of kerosene. c. An increase in the price of kerosene heaters. A decrease in the price of kerosene heaters.
A decrease in the price of kerosene.
Both the equilibrium price of cream cheese and equilibrium quantity of bagels have risen. What could be responsible for this pattern?
A fall in the price of flour (price of flour decreases, bagel supply increases, cream cheese is a bagel complement so demand for cream cheese rises)
Even though the annual consumption of copper is now about 100 times greater than it was in 1880, the real price of copper has remained relatively unchanged. Which of the following help account for this pattern? a. More efficient technologies reduced production costs. b. Demand for copper grew dramatically. c. New deposits that were cheaper to mine were discovered. d. All of the above.
All of the above.
Steel and aluminum are substitutes. If the price of steel increases, other things remaining the same, we would expect the price of aluminum to _______ and the equilibrium quantity of aluminum to __________
Increase; increase
Which one of the following would not occur if the market price was above the market-clearing price? a. There would be a surplus. b. Producers would want to produce and sell more than consumers would want to buy. c. Producers would begin to lower their prices to sell off excess inventory. d. Consumers would bid up the price.
Consumers would bid up the price.
Suppose the price of gas increases sharply. Demand for gas in a year from now will be ____ elastic than demand this week
more because gas is a normal good
Consider the market in the figure to the right. What happens to the market supply curve if the costs of production increase? According to the graph, for a given price, firms now supply a _______ quantity.
Moves to the left; smaller
Consider the market in the figure to the right. What happens to the market demand curve if consumer income increases? According to the graph, for a given price, consumers now demand a ______ quantity.
Moves to the right; larger
Suppose the demand function for pizza in Tucson is Q=1000-100p+500pt+0.05I where Q is the quantity of pizza slices demanded in thousands per year, p is the price of a slice of pizza, pt is the price of tacos, and I is the average annual income of consumers. Assume that p=2, pt=1, and I=40,000. What is the income elasticity of demand?
Q= 3,300 0.05= change Q/change I Ei= 0.05 * (40,000 / 3,300) = 0.61 (normal good)
What will happen to the price of pork? Explain briefly. If the prices of beef and chicken are set below market-clearing levels, then the price of pork will ______ because pork is a ________ of beef and chicken
Rise; substitute
The price elasticity of demand for natural gas is −1.2, and the price elasticity of supply for natural gas is 0.7. If the government imposes a ceiling price for natural gas that is 10 percent below the equilibrium price, the result will be a ______ equal to ________ percent of the equilibrium quantity
Shortage; 19
As a result of the price ceiling, there will be a ______ of ____ units
Shortage; 280
Consider two goods: paper towels and televisions.Which is a durable good?
Televisions
Which one of the following would not cause the demand for Coca-Cola to shift? a. A new study finds that drinking Coca-Cola causes stomach cancer. b. The cost of producing Coca-Cola increases. c. Coca-Cola increases its advertising expenditures by 20 percent. d. The price of Pepsi-Cola increases.
The cost of producing Coca-Cola increases
Increase in the price of broccoli because weather destroyed about half of this years spinach crop. What happened to the demand graph
The demand curve for broccoli has shifted rightward and the cross elasticity of demand between spinach and broccoli is positive
Why do long-run elasticities of demand differ from short-run elasticities? Long-run elasticities of demand differ from short-run elasticities because a. it may take time for additional substitutes to become available b. it takes time for consumers to respond to price changes c. firms may be constrained in the short run by production capacity. d. both A and B are correct. e. all of the above.
both A and B are correct
Experts predict that the price of gas will double in the next few days. As a result of the prediction, today demand will ____ and supply will ____
demand will rise; supply will fall
Would you expect the price elasticity of demand for paper towels to be larger in the short run or in the long run? Why? The price elasticity of demand for paper towels should be larger a. in the long run because some firms may be constrained by production capacity. b. in the short run because paper towels are non-durable. c. in the long run as new substitutes enter the market. d. in the long run because paper towels are made in a cyclical industry. e. in the short run because it takes time for people to respond to price changes
in the long run as new substitutes enter the market.
The university in a small college town increases enrollment by 20%. What will be the effect of this on the rental price of housing in the first semester after the increase in enrollment? The price _____ will be the most in the ____ run.
increase; short run
Suppose the government regulates the price of beef and chicken and sets them below their market-clearing levels. Explain why shortages of these goods will develop. The shortages will develop because at prices set below market-clearing levels firms will supply _______ than consumers wish to purchase.
less
Suppose the price of automobiles increases sharply. Demand for autos in a year from now will be ____ elastic than demand this week
less because autos are a durable good
For most industries, supply is _______ in the short run than in the long run.
less elastic
UA raised its tuition in hope of generating more revenue. However, total revenue decreased. Why?
price elasticity of demand was relatively elastic and the percentage increase in tuition was less than the percentage decrease in the number of students
Customers have juice with their bagels. When juice prices rise, what happens to quantity demanded for juice and demand for bagels.
quantity demanded for juice decreases; demand for bagel decreases
Increase in the federal ethanol subsidies (corn) is most likely to cause a ____ in the price of wheat and ______ in the quantity of wheat
rise in price; decrease in quantity
The demand for corn increases. As a result, the price of corn will _____ and the less elastic the supply of corn, the ______ will be the effect on price
rise; greater
Suppose that unusually hot weather causes the demand curve for ice cream to shift to the right. Why will the price of ice cream rise to a new market-clearing level? The weather will
shift demand curve to the right, initially creating a shortage until the price rises to where quantity supplied again equals quantity demanded
Suppose the price elasticity of demand for natural gas is -0.8 and the price of supply for natural gas is 0.4. If the government imposes a ceiling price for natural gas that is 10% below the equilibrium price, the result will be a _____ equal to ______% of the equilibrium quantity.
shortage; 12%
What factors will determine the sizes of the shortages? The extent of the excess demand implied by the shortages will depend on
the elasticities of supply and demand, where the shortages will be larger if both supply and demand are more elastic