Unit 2 Econ Questions

PED coefficient for perfect inelastic demand

0

If CED < 0

complements

when cross price elasticity is zero

goods are unrelated

if total revenue increases and price decreases

demand is elastic

If YED < 0

inferior good

if total revenue decreases and price decreases

demand is inelastic

Assume that the market for a good is characterized by a downward-sloping demand curve and an upward-sloping supply curve. Suppose that there is an improvement in technology for producing the good. Which of the following would occur? A The impact on total consumer surplus would be indeterminate, because of the offsetting impact of the changes in equilibrium price and quantity. B The change in equilibrium price would cause total producer surplus to increase. C The total surplus (the sum of consumer and producer surpluses) in the market would increase. D The demand curve would shift right in response to an increase in the equilibrium price. E The supply curve would shift up resulting in an increase in the equilibrium price and the total producer surplus.

C

Determinants of Supply

Resource Costs Alternative goods Technology Number of sellers Expectations Subsidies Taxes Supply Shock

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

Which of the following explains why the supply curve is upward sloping? A At a higher price, consumers are willing to buy more of the good. B At a lower price, consumers are able to buy more of the good. C Producers receive subsidies as they increase production. D At a higher quantity, producers are more able to control the market price. E At a higher price, producers are more able to cover the higher marginal cost associated with increasing production.

E

A 10 percent increase in the price of a good results in a 4 percent increase in total revenue. From this information, it can be concluded that the demand over this range of prices A is upward sloping B is inelastic C has a price elasticity of demand equal to 2.52.5 D has increased by 14%14% E has increased by 40%

B

If demand increases

demand curve shifts right

If YED > 0

normal good

If CED > 0

substitutes

A change in which of the following causes a movement along a given demand curve for a normal good? A Consumer income B The demand for the good C The price of the good D The price of a substitute good E The number of buyers

C

Which of the following would cause the supply of good X to become more elastic? A Greater availability of substitutes for good XX B Increased prices of inputs required to produce good XX C The ability to easily reallocate inputs to production of good XX D A short time frame for making production decisions E More elastic demand for good X

C

If PED > 1

demand is elastic

If income elasticity is postive

then normal good

complementary goods

a good that goes well with another good

if total revenue increases and price increases

demand is inelastic

An increase in the price of good X causes buyers to want to buy more of good Y. Which of the following explains the resulting change in the market? A The demand curve for good X will shift to the right because the goods are substitutes. B The demand curve for good Y will shift to the right because the goods are substitutes. C The demand curve for good X will shift to the left because the goods are complements. D The demand curve for good Y will shift to the left because the goods are complements. E There will be a downward movement along the demand curve for good X because the goods are complements.

B

Which of the following statements about the market supply curve is true? A An increase in input prices will shift the market supply curve to the right. B At each price, a horizontal summation of the quantity supplied by each firm will yield the market supply curve. C At each quantity supplied, a vertical summation of the price set by each firm will yield the market supply curve. D A decrease in the price will shift the market supply curve to the left. E The law of supply states that the market supply curve may shift right, shift left, or remain the same as the price increases.

B

Price $0 $5 $10 $15 $20 Supply of Oranges 0 5 10 15 20 Demand for Oranges 10 15 10 5 0 The table above shows the supply and demand schedules in the orange market. Assume that the demand and supply curves are linear. At the market equilibrium price, what are the consumer surplus and the producer surplus? A Consumer surplus is $200$200; producer surplus is $200$200 B Consumer surplus is $100$100; producer surplus is $100$100 C Consumer surplus is $50$50; producer surplus is $50$50 D Consumer surplus is $45$45; producer surplus is $15$15 E Consumer surplus is $10$10; producer surplus is $10$10

C

Which of the following policies would result in an increase in the quantity supplied of a good in a market? A Providing a per-unit subsidy to sellers B Levying a per-unit tax on sellers C Imposing a binding price floor D Imposing a nonbinding price floor E Imposing a binding price ceiling

C

In the market described by the diagram above, the total economic surplus will be maximized at which of the following price and quantity combinations? A P3P3 and Q1Q1 B P3P3 and Q3Q3 C P2P2 and Q2Q2 D P1P1 and Q1Q1 E P1P1 and Q3Q3

C

If demand decreases

demand curve shifts left

If PED < 1

demand is inelastic

income elasticity of demand formula

% change in quantity demanded / % change in income

Elasticity of demand formula

% change in quantity demanded / % change in price

PED formula

% change in quantity demanded / % change in price

PES formula

% change in quantity supplied / % change in price

If supply decreases

supply curve shifts left

If supply increases

supply curve shifts right

If PES > 1

supply is elastic

If PES < 1

supply is inelastic

cross-price elasticity of demand formula

% change in quantity of A demanded / % change in price of B

Cross elasticity of Demand formula

% change in quantity demanded of product X / % change in price of product Y

If PED = 1

demand is unit elastic

When Cross Price Elasticity is Positive

goods are substitutes

If PES = 1

unit elastic

One reason consumers typically increase the quantity of a good they purchase when the price of the good decreases is that A the marginal utility of the good increases B consumers' purchasing power increases C consumers increase their purchases of substitute items D consumers increase their purchases of complementary items E the demand for the good increases

B

Which of the following will initially result from an increase in the market demand for a good? A There will be a matching increase in supply. B There will be a decrease in quantity supplied. C The equilibrium price will decrease. D There will be a temporary shortage at the original equilibrium price. E Total producer surplus in the market will decrease.

D

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

The supply curve for automobiles will shift to the left in response to A an increase in the efficiency of robot technology B an increse in wages in the automobile industry C a decrease in the number of consumers purchasing automobiles D a decrease in the interest rates for automobile loans E a decrease in consumers' income

B

Determinants of Price Elasticity of Demand

Proportion of Income Luxuries vs necessities Addiction Narrow/Broad Definition Time Substitute Availability

substitute goods

the price of good X causes buyers to want to buy more of good Y

For an inferior good, an increase in consumer income will cause A the demand curve to shift to the left B the demand curve to shift to the right C the short-run supply curve to shift to the right D the long-run supply curve to shift to the right E new firms to enter the market in the long run

A

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

if total revenue decrease and price increases

demand is elastic

PED coefficient for perfect elastic demand

infinity

A change in which of the following will cause a change in the supply of personal computers (PC's) in the short run? A Technology B Demand for PC's C Price of disks, which are a complement to PC's D Price of PC's E Consumers' incomes

A

Assume that good X is a normal good. Which of the following helps to explain why a decrease in the price of good X increases the quantity demanded of good X? A Good X becomes relatively less expensive than its substitutes, so consumers buy more of good X and fewer of the substitutes B The marginal utility of consuming good X increases as more of good X is consumed. C The lower price of good X decreases the marginal utility per dollar; therefore, consumers buy more of good X. D The demand curve for good X shifts to the left. E The supply curve for good X shifts to the right.

A

The table below shows the values of different elasticities of demand for good J at the market equilibrium price. Price elasticity (absolute value) 0.75 Cross-price elasticity with respect to good X 0.8 Cross-price elasticity with respect to good Y 2 Cross-price elasticity with respect to good Z −2.5 Income elasticity −0.5 Which of the following is true about good J? A Good J is a normal good. B Good J's demand is elastic. C Good J is an inferior good. D Good J is a complement to good Y. E Good J is a substitute to good Z.

A

Which of the following will occur as a result of a decrease in the prices of the inputs used to produce a good? A The quantity supplied would increase at each possible price for the good. B The price of the good would increase for any given quantity supplied. C The quantity supplied would increase as the price of the good increased. D The quantity supplied would increase as the price of the good decreased. E The price of the good would increase as the quantity supplied decreased.

A

Which of the following will tend to make the demand for a product more elastic? A New firms which produce similar products enter the industry. B A change in taste and preferences makes the product more desirable. C The product is necessary for use with a complement. D Production of the product is protected by a patent. E Production cost of the product decreases.

A

The market for tomatoes is in equilibrium at the price of $10, and quantity of 50 tomatoes. If consumer surplus is $400 and total surplus is $650, what is the producer surplus in the tomato market and why? A The producer surplus is $0$0, because producer surplus is offset by the costs of producing tomatoes. B The producer surplus is $250$250, because the total surplus less what consumers receive must go to producers. C The producer surplus is −$400−$400, because consumer and producer surplus must offset one another. D The producer surplus is $500$500, because the producer surplus is the equilibrium price times the equilibrium quantity =$10×50=$500=$10×50=$500. E The producer surplus is $650$650, because producer surplus and total surplus are always equal.

B

Which of the following statements is true about the demand curve above? A Demand is elastic at each given price because the slope is constant and equal to −2−2. B The elasticity of demand decreases when moving from point XX to point YY. C The elasticity of demand increases when moving from point XX to point YY. D Demand is inelastic between quantities 00 and 44. E Demand is elastic between quantities 44 and 88.

B

Which of the following will cause the demand for a normal good to increase? A A decrease in consumers' income B A decrease in the price of a complementary good C A decrease in the price of a substitute good D A decrease in the price of the good E A decrease in the number of consumers

B

Which of the following would cause the supply curve for notebook computers to shift to the right? A An increase in the price of notebook computers B An increase in the number of firms producing notebook computers C An increase in the wages of workers in the notebook-computer industry D A decrease in the price of notebook computers E A decrease in the supply of notebook computers

B

Suppose the price elasticity of supply for gasoline in the short run is estimated to be 0.4. Due to an unexpected surge in the demand for gasoline, the price of gasoline increases by 20 percent. As a result, the quantity supplied of gasoline will A increase by 50 percent B increase by 20 percent C increase by 8 percent D decrease by 0.2 percent E be impossible to determine from the given information

C

The table below shows the values of different elasticities of demand for good J at the market equilibrium price. Price elasticity (absolute value) 0.75 Cross-price elasticity with respect to good X 0.8 Cross-price elasticity with respect to good Y 2 Cross-price elasticity with respect to good Z −2.5 Income elasticity −0.5 Which of the following would result in the greatest rightward shift of the demand curve for good J? A 50% decrease in the price of good J. B 20% increase in the price of good X. C 10% increase in the price of good Y. D 10% increase in the price of good Z. E 10% decrease in income.

C

According to the law of demand, an increase in the price of grape juice will result in A a rightward shift in the demand curve for grape juice B a leftward shift in the demand curve for grape juice C a decrease in the demand for orange juice, a substitute D a decrease in the quantity of grape juice demanded E an increase in the quantity of grape juice supplied

D

If the demand for potatoes increases whenever a person's income increases, then potatoes are an example of A an inferior good B a free good C a Giffen good D a normal good E a public good

D

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

The demand curve for a normal good slopes down for which of the following reasons? I. An increase in the price of the good induces consumers to purchase substitute products. II. An increase in the price of the goods reduces consumers' purchasing power. III. An increase in the price of the good increases consumers' utility from consuming that good. A I only B II only C III only D I and II only E I and III only

D

Which of the following best describes the law of demand? A When income increases, the demand for goods increases. B When the price of a good decreases, the demand for the good increases. C When the price of a good decreases, the quantity demanded of the good decreases. D When the price of a good increases, the quantity demanded of the good decreases. E When the demand for a good increases, consumers' willingness and ability to buy the good increases.

D

Which of the following will shift the supply curve for apples to the right? A An increase in consumers' income B An increase in the price of apples C An increase in the wages of apple pickers D A decrease in the rental price for apple harvesting equipment E A decrease in the demand for oranges, a substitute in consumption

D

In which of the following cases would government intervention in a market result in an increase in the quantity sold? A Setting a price ceiling above the equilibrium price B Setting a price ceiling below the equilibrium price C Setting a price floor above the equilibrium price D Levying a per-unit tax on producers E Providing producers of a product with a per unit subsidy

E

The cross-price elasticity of demand between goods J and K is −3. A 20 percent decrease in the price of good K will result in a A 3 percent decrease in the quantity demanded of good K B 15 percent decrease in the quantity demanded of good K C 6 percent increase in the quantity demanded of good J D 12 percent increase in the quantity demanded of good J E 60 percent increase in the quantity demanded of good J

E

Which of the following correctly describes the income effect associated with the law of demand? A If consumer income increases, there will be an upward movement along the demand curve for a normal good. B If consumer income increases, the demand curve will shift to the right for an inferior good. C If the price of a good increases, the demand for the good decreases because the demand for its substitute increases. D If the price of a good decreases, the demand for the good increases because the lower price increases the demand for its complement. E If the price of a normal good decreases, the purchasing power of a consumer's income increases and therefore consumers will be willing and able to purchase more of the good.

E

Determinants of Demand

Tastes/preferences Income Market size Expectations Related goods

if income elasticity is negative

then inferior good

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

In the short run, a decrease in production costs of a product will shift A both the demand curve and the supply curve to the right B the demand curve to the left and the supply curve to the right C only the supply curve to the right D only the supply curve to the left E only the demand curve to the left

C

Consider the market for arugula, a normal good. Which of the following changes would result in an increase in both the equilibrium price and the equilibrium quantity of arugula? A A decrease in consumer income B An increase in the price of salad dressing, a complement C A decrease in the price of radicchio, a substitute D An increase in the price of water irrigation for arugula farms E An increase in population

E

The supply schedule gives two points on a market supply curve. PriceQuantity Supplied$1050$2060 Which of the following is true about the supply curve between the given points? A The supply curve is inelastic, because the percentage change in the price is greater than the percentage change in the quantity supplied. B The supply curve is unit elastic, because the change in price is $10$10 and the change in quantity supplied is 1010 units. C The supply curve is perfectly elastic, because the change in price is $10$10 and the change in quantity supplied is 1010 units. D The supply curve is elastic, because the price elasticity of supply is equal to 1010. E The supply curve is unit elastic, because the price elasticity of supply is equal to 11.

A

In a perfectly competitive market, a change in which of the following could cause a shift in the supply curve? A The incomes of consumers B The number of buyers C Technology D The price of the product E Tastes and preferences

C

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

At the current prices of goods X and Y, the quantity demanded of good X is 10 units, and the quantity demanded of good Y is 5 units. The cross-price elasticity of demand between goods X and Y is 0.6. A 10 percent increase in the price of good Y will result in which of the following? A A 0.5 percent decrease in the quantity demanded of good Y. B A 3 percent increase in the quantity demanded of good Y. C A 1 percent increase in the quantity demanded of good X. D A 6 percent increase in the quantity demanded of good X. E A 60 percent increase in the quantity demanded of good X.

D

when cross price elasticity is negative

goods are complements

Assume that consumers consider popcorn and pretzels to be substitutes. A significant decrease in the supply of popcorn will affect the pretzel market by A increasing the demand for pretzels and therefore the supply of pretzels B increasing the demand for pretzels and therefore the price of pretzels C decreasing the demand for pretzels and therefore the price of pretzels D increasing the supply of pretzels and therefore the price of pretzels E decreasing the supply of pretzels and therefore the price of pretzels

B

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

The market supply curve for a product is derived from the individual firm supply curves by A multiplying the equilibrium quantity sold by the number of consumers in the market B multiplying the equilibrium quantity sold by the number of producers in the market C multiplying the quantities each producer sells by the market price D summing the quantities each producer sells at each possible price E summing the quantities each producer sells and multiplying by the market price

D

Determinants of Price Elasticity of Supply

Mobility of factors of production Ability to Store Stocks Time Spare Capacity of Firms

Assume that good X is a normal good. If the price of good X increases, what will happen? A The substitution and income effects will both lead to more of good X being purchased. B The substitution and income effects will both lead to less of good X being purchased. C The substitution effect will lead to more of good X being purchased, while the income effect will lead to less of good X being purchased. D The substitution effect will lead to less of good X being purchased, while the income effect will lead to more of good X being purchased. E There will be no income effect because only the price of good X has changed.

B

Assume that the market for a good is in equilibrium at a price of $20 and a quantity of 100 units. After the government imposes a $5 per-unit excise tax on the good, the price that buyers pay for the good increases by $3. Which of the following are possible values for the government tax revenue and deadweight loss in the market? A Tax revenue is $200, deadweight loss $0 B Tax revenue is $300, deadweight loss $0 C Tax revenue is $300, deadweight loss $100 D Tax revenue is $500, deadweight loss $200 E Tax revenue is $500, deadweight loss $300

C

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