econ #2

Rent-control laws dictate

a maximum rent that landlords may charge tenants.

Minimum-wage laws dictate

a minimum wage that firms may pay workers.

Which of the following observations would be consistent with the imposition of a price ceiling that is below the equilibrium price? After the price ceiling becomes effective,

a smaller quantity of the good is bought and sold.

Grace is a self-employed artist. She can make 20 pieces of pottery per week. She is considering hiring her sister Kate to work for her. When both Grace and Kate work together they can make 35 pieces of pottery per week. What is Kate's marginal product?

15 pieces of pottery

A price ceiling is below the equilibrium price

causes a shortage.

When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is

elastic.

Demand is elastic if the price elasticity of demand is

greater than 1

Suppose that quantity demanded rises by 10% as a result of a 15% decrease in price. The price elasticity of demand for this good is

inelastic and equal to 0.67

An increase in price causes an increase in total revenue when demand is

inelastic.

Which of the following is likely to have the most price inelastic demand?

insulin

When consumers face rising gasoline prices, they typically

reduce their quantity demanded more in the long run than in the short run.

As we move downward and to the right along a linear, downward-sloping demand curve

slope remains constant but elasticity changes.

For a good that is a necessity, demand

tends to be inelastic.

If a firm uses labor to produce output, the firm's production function depicts the relationship between

the number of workers and the quantity of output.

Suppose the price of potato chips decreases from $1.45 to $1.25 and, as a result, the quantity of potato chips demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for potato chips in the given price range is

0.64

Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is

1

If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a

40 percent decrease in the quantity demanded

Which of the following is consistent with the elasticities given below?Price Elasticity of Good A=1.3. Price Elasticity of Good B=2.1

A has fewer substitutes than B.

Which of the following statements is correct? The demand for flat-screen computer monitors is more elastic than the demand for monitors in general. The demand for grandfather clocks is more elastic than the demand for clocks in general. The demand for cardboard is more elastic over a long period of time than over a short period of time.

ALL

A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct?

The mayor would be correct if demand were price inelastic; the city manager would be correct if demand were price elastic.

If the government removes a price floor that is above the equilibrium price, then the price paid by buyers will

decrease, and the quantity sold in the market will increase.

The case of perfectly elastic demand is illustrated by a demand curve that is

horizontal

In general, elasticity is a measure of

how much buyers and sellers respond to changes in market conditions.

If the government removes a price ceiling that is below the equilibrium price, then the price paid by buyers will

increase, and the quantity sold in the market will increase

Goods with many close substitutes tend to have

more elastic demands.

The marginal product of labor can be defined as the change in

output divided by the change in labor.

Economists compute the price elasticity of demand as the

percentage change in quantity demanded divided by the percentage change in price.

In a free, competitive market, what is the rationing mechanism?

price

In a competitive market free of government regulation,

price adjusts until quantity demanded equals quantity supplied.

When government imposes a price ceiling or a price floor on a market,

price no longer serves as a rationing device.

The price elasticity of demand measures how much

quantity demanded responds to a change in price.

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should

raise the price of the cinnamon rolls.

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people not reduce their consumption of salt my much because they would have difficulty purchasing something to use in its place. These examples illustrate the importance of

the availability of close substitutes in determining the price elasticity of demand.

Which of the following is not a determinant of the price elasticity of demand for a good?

the steepness or flatness of the supply curve for the good

Price controls are usually enacted

when policymakers believe that the market price of a good or service is unfair to buyers or sellers.