Microeconomics Exam 2 Study Set

Cross Elasticity When the price of a loaf of garlic bread increases by 4 percent, the quantity of lasagna demanded decreases by 2 percent.Calculate the cross elasticity of demand for lasagna with respect to the price of a loaf of garlic bread. (a.) The cross elasticity of demand for lasagna with respect to the price of a loaf of garlic bread is ______________. -Answer to 1 decimal place. -If your answer is negative, include a minus sign. If your answer is positive, do NOT include a plus sign.

-0.5

When Judy's income increased from $600 to $640 a week, she increased her demand for concert tickets by 15 percent and decreased her demand for bus rides by 5 percent.Calculate Judy's income elasticity of demand for bus rides. (b.) Judy's income elasticity of demand for bus rides is ______________. -Answer to 2 decimal places. -If your answer is negative, include a minus sign. If your answer is positive, do NOT include a plus sign.

-0.78

The graph shows the demand for and supply of rental housing in Townsville. (b.) When a rent ceiling is set at $600 a month, the shortage ofhousing is ______________ units (think carefully about whether a shortage even exists).

0

Elasticity of Demand U.S. drivers are ranked as the least sensitive to changes in the price of gasoline. For example, if the price rose from $3 to $4 per gallon and stayed there for a year, then U.S. purchases of gasoline would fall only about 5 percent. (a.) The price elasticity of demand for gasoline is ______________. -Answer to 3 decimal places and do NOT include the negative sign

0.175

Elasticity of Demand In 2003, when music downloading first took off, Universal Music slashed the average price of a CD from $21 to $15.The company expected the price cut to boost the quantity of CDs sold by 30 percent, other things remaining the same. (a.) Universal Music's estimate of the price elasticity of demand for CDs was ______________. -Answer to 1 decimal place and do NOT include the negative sign

0.9

Elasticity of Demand Rain spoils the strawberry crop, the price of strawberries rises from $4 to $6 a box, and the quantity demanded decreases from 1,000 to 600 boxes a week. (a.) Over the price range of $4 to $6 , the price elasticity of demand is ______________. (Answer to 2 decimal places, and do NOT include the negative sign)

1.25

Elasticity of Demand The figure shows the demand for pens. (a.) The elasticity of demand when the price rises from $6 to $8 a pen is ______________. -Answer to 1 decimal place and do NOT include the negative sign

1.4

Orange juice and apple juice makers are both trying to sell their product in the morning, fruit-based beverage market. Orange juice makers increase the price of their product by 8 percent, thus decreasing the quantity of orange juice demanded by 12 percent. Additionally, as a result, the quantity of apple juice demanded at the current price increases from 20,000 to 26,000 units. (a.) The price elasticity of demand for orange juice is ______________. -Answer to 1 decimal place and do NOT include the negative sign

1.5

(c.) If a rent ceiling is set at $300 a month, what quantity of housing will ultimately be rented? The quantity of housing rented under a $300 rent ceiling is ______________units. -Remember that the quantity given on the x-axis is in thousands of units

10,000

Cross Elasticity When the price of a gallon of gasoline increases by 5 percent and the price of a bus ride remains unchanged, the quantity of bus rides demanded increases by 10 percent.The cross elasticity of demand of bus rides with respect to gasoline is ______________. -If your answer is negative, include a minus sign. If your answer is positive, do NOT include a plus sign.

2.0

Income Elasticity When income increases by 4 percent and all prices remain the same, the quantity of smartphones demanded increases by 8 percent.The income elasticity of demand of smartphones is ______________. If your answer is negative, include a minus sign. If your answer is positive, do NOT include a plus sign.

2.0

When Judy's income increased from $600 to $640 a week, she increased her demand for concert tickets by 15 percent and decreased her demand for bus rides by 5 percent.Calculate Judy's income elasticity of demand for concert tickets. (a.) Judy's income elasticity of demand for concert tickets is ______________. -Answer to 2 decimal places. -If your answer is negative, include a minus sign. If your answer is positive, do NOT include a plus sign.

2.33

The table gives the supply schedules for jet-ski rides by the only suppliers: Rick, Sam, and Tom. What is the marginal social cost of producing 45 rides a day? -Answer to 2 decimal places. The marginal social cost of producing 45 rides a day is $ ______________.

20.00

Consumer Surplus Suppose that the price of a cashmere sweater is $100 and Jean's marginal benefit from the cashmere sweater is $300. If Jean buys this cashmere sweater, what is her consumer surplus?Jean's consumer surplus is $ ______________.

200

The table sets out the supply schedule of jeans. Calculate the elasticity of supply when the price rises from $125 to $135 a pair. (a.) The elasticity of supply when the price rises from $125 to $135 a pair is ______________. Answer to 2 decimal places

3.25

Orange juice and apple juice makers are both trying to sell their product in the morning, fruit-based beverage market. Orange juice makers increase the price of their product by 8 percent, thus decreasing the quantity of orange juice demanded by 12 percent. Additionally, as a result, the quantity of apple juice demanded at the current price increases from 20,000 to 26,000 units. (b.) What is the cross elasticity of demand for apple juice with respect to the price of orange juice? -Answer to 2 decimal places. -If your answer is negative, include a minus sign. If your answer is positive, do NOT include a plus sign.

3.26

The table sets out the supply schedule of jeans. Calculate the elasticity of supply when the average price is $125 a pair. (b.) The elasticity of supply when the average price is $125 a pair is ______________. Answer rounded to 2 decimal places

3.57

Elasticity of Supply U.S. coal production in 2016 is 17 percent down on that of 2015. Almost all coal use in the United States is for electricity generation and the price of coal for power plants fell from $2.27 per million Btu in 2015 to $2.17 per million Btu in 2016. The price elasticity of supply of coal is ______________. -Answer rounded to 1 decimal place.

3.8

The table gives the demand and supply schedules for sandwiches. The maximum price that consumers are willing to pay for the 100th sandwich an hour is $__________. The minimum price that producers are willing to accept for the 100th sandwich an hour is $__________. If 200 sandwiches per hour are available, the total surplus is $__________.

4.00 2.00 400.00

The graph shows the demand for and supply of rental housing in Townsville. (a.) The equilibrium rent is $__________ a month and the equilibrium quantity of rental housing is __________ units. -Remember that the quantity given on the x-axis is in thousands of units.

450.00 20,000

Consumer Surplus It's been two weeks since you ate a burger. You are willing to pay $15 to buy a burger. Fortunately, it only costs $10. What is your consumer surplus for this particular unit?

5.0

The table gives the supply schedules for jet-ski rides by the only suppliers: Rick, Sam, and Tom. The price of a ride is $17.50. Answer to 2 decimal places (for example, 15.00 or 16.75 or 24.00) Rick's producer surplus is $__________. Sam's producer surplus is $__________. Tom's producer surplus is $__________.

56.25 25.00 6.25

Individual and Market Supply Sarah, Kirk, and Jean are the only producers of cheesecakes in an isolated village. The table shows their weekly supply of cheesecakes.When the price of a cheesecake is $7.50, what is the quantity of cheesecakes supplied by the market in a week?The quantity supplied by the market is ______________ cheesecakes a week.

7

Consumer Surplus Assume a linear demand curve. The demand curve intersects the price axis at $10. The current market price of the good is $2 and the total quantity sold at this price is 20. Calculate the total consumer surplus in this market.

80.0

An increase in an inelastic demand will cause (a greater or lesser or same) change in the equilibrium quantity than the same increase in an elastic demand. a. A greater b. A lesser c. The same

a. A greater

If the income elasticity of a good is 0.8, what do we know about the good? a. It is a normal good. b. It is an inelastic good. c. It is an inferior good. d. It is an elastic good.

a. It is a normal good.

Elasticity of Demand Which of the following statements describes an elastic demand? a. Mary's quantity demanded of milk decreased by 8 percent when the price of milk rose by 5 percent. b. I can't afford as many books because my income has fallen. c. A fall in Ralph's income by 5 percent changes his demand for chocolates by 1 percent. d. Tom's demand for apples does not change when the price of bananas rises.

a. Mary's quantity demanded of milk decreased by 8 percent when the price of milk rose by 5 percent.

(b.) Given your answer in Q5.15a... If you were making the pricing decision at Universal Music would you cut the price, raise the price, or leave the price unchanged? a. Raise the price to increase total revenue. b. Leave the price unchanged to increase total revenue. c. Lower the price to increase total revenue.

a. Raise the price to increase total revenue.

Suppose that the demand for shoes is elastic, but the supply is inelastic. In the market for belts, the demand and the supply of belts are elastic. Assume that everything else is the same and that the increase in costs reduces quantities supplied in each case by the same amount at each price. In which market will a change in the costs of inputs have the greatest effect on the price? a. Shoes b. Belts c. The changes would be the same as the change in costs are identical. d. It does not make a difference. It is the elasticity of demand that influences the size of the change in the price.

a. Shoes

Suppose that the demand for pencils is inelastic, and the demand for highlighters is elastic. Compare the results of a decrease in supply for pencils with the results of a decrease in supply for highlighters. a. The price of pencils will change by more than the price of highlighters. The quantity of pencils will change by less than the quantity of highlighters. b. The price and quantity of pencils will change by more than the price and quantity of highlighters. c. The price of pencils will change by less than the price of highlighters. The quantity of pencils will change by more than the quantity of highlighters. d. The price and quantity of pencils will change by less than the price and quantity of highlighters.

a. The price of pencils will change by more than the price of highlighters. The quantity of pencils will change by less than the quantity of highlighters.

Consumer Surplus Which of the following would cause an increase in total consumer surplus in the market for cars? a. The price of steel decreases. b. Automakers must pay autoworkers more as the result of renegotiated contracts. c. Consumer want to buy bigger cars. d. Consumer income increases (assume cars are a normal good).

a. The price of steel decreases.

Elasticity and Revenue If demand is elastic, should a producer raise or lower price if the producer wants to increase total revenues? a. The producer should lower prices. b. The producer should raise prices. c. It depends upon the elasticity of supply. d. Neither change will increase revenues.

a. The producer should lower prices.

Search Activity Choose the statement that is correct. a. When a price is regulated and there is a shortage, search activity increases. b. The opportunity cost of a good is equal to its price. c. Search activity decreases the cost of housing in a rent-controlled market. d. Search activity occurs only in markets where there is a shortage.

a. When a price is regulated and there is a shortage, search activity increases.

Elasticity of Demand The demand for plums is unit elastic if ______________. a. a 5 percent rise in the price of plums results in a 5 percent decrease in the quantity of plums demanded b. any increase in the price of plums results in a 1 percent decrease in the quantity of plums demanded c. my demand for plums increases when the price of apples falls d. the price of plums does not change after a drought

a. a 5 percent rise in the price of plums results in a 5 percent decrease in the quantity of plums demanded

Consider the apartment rental market. What is a rent ceiling and what are its effects if it is set above versus below the equilibrium rent? (a.) A rent ceiling is ______________. a. a government regulation that makes it illegal to charge a rent higher than a specified level b. the opportunity cost of renting an apartment c. a price floor in the housing market d. the mechanism that eliminates search activity in the market for low-income housing

a. a government regulation that makes it illegal to charge a rent higher than a specified level

Rachel and Maya both want to make use of their vacation days at work. At Rachel's company, vacation days do not 'roll over' into the next year, and so she needs to use all her vacation days within the next three months. At Maya's company, vacation days do 'roll over' into the next year, so Maya has a more flexible timetable. All else equal, the price of airline tickets rise by 20%, and we observe Rachel decreases the number of planned trips by 12%. We can conclude that Maya's price elasticity of demand for airline tickets is likely... a. bigger than 0.6 b. smaller than 1.7 c. smaller than 0.6 d. bigger than 1.7

a. bigger than 0.6

Cross Elasticity What does the (positive/negative) sign of the cross elasticity of demand tell us about the relationship between two goods? (b.) If the cross elasticity of demand for TVs with respect to the price of a DVD is negative, then TVs and DVDs are ______________. a. complements b. inferior goods c. substitutes d. normal goods

a. complements

Elasticity and Revenue Demand is elastic if a price ______________ increases total revenue. a. cut b. rise

a. cut

Elasticity and Revenue Demand is unit elastic if a price ______________ leaves total revenue unchanged. a. cut or rise b. cut but not a rise c. rise but not a cut

a. cut or rise

Elasticity of Supply U.S. coal production in 2016 is 17 percent down on that of 2015. Almost all coal use in the United States is for electricity generation and the price of coal for power plants fell from $2.27 per million Btu in 2015 to $2.17 per million Btu in 2016. Is the supply of coal elastic or inelastic?The supply of coal is ______________. a. elastic b. inelastic

a. elastic

Given your answers above... Is the supply of jeans elastic, inelastic, or unit elastic?(c.) The supply of jeans is ______________. a. elastic b. inelastic c. unit elastic

a. elastic

Income Elasticity When Yvonne' s income increases by 3 percent, her demand for tickets to professional football games increases by 6 percent.Yvonne' s demand for tickets is income ______________. For Yvonne , football tickets are ______________ good. a. elastic ; a normal b. elastic ; an inferior c. Inelastic ; a normal d. inelastic ; an inferior

a. elastic ; a normal

Elasticity of Demand Demand for a luxury is generally more ______________ than demand for a necessity because a luxury has ______________ substitutes. a. elastic; more b. elastic; fewer c. inelastic; more d. inelastic; fewer

a. elastic; more

Consider the apartment rental market. What is a rent ceiling and what are its effects if it is set above versus below the equilibrium rent? (b.) A rent ceiling set above the equilibrium rent ______________. a. is ineffective b. is illegal c. decreases the demand for housing d. increases the supply of housing

a. is ineffective

Income Elasticity Sales of Spam are rising as consumers realize that Spam and other lower-cost foods can be substituted for costlier cuts of meat as a way of controlling their already stretched food budgets. Would the income elasticity of demand for Spam be negative or positive? Explain.The income elasticity of demand for Spam is ______________ because as income falls, the quantity of Spam demanded ______________. a. negative; increases b. positive; increases c. positive; decreases d. negative; decreases

a. negative; increases

Elasticity of Demand If the quantity of dental services demanded increases by 10 percent when the price of dental services falls by 10 percent, is the demand for dental services inelastic, elastic, or unit elastic?The demand for dental services is ______________. a. unit elastic b. elastic c. inelastic d. price unit elastic when the price falls, but price elastic if the price rises

a. unit elastic

Which of the following statements illustrates a rent ceiling? a. A housing shortage due to floods last summer has resulted in a rise in apartment rents in Denver. b. Bluestone Properties is permitted to charge a rent of $2,350 for 2-bedroom apartments that would rent for $2,500 in an unregulated market. c. In Los Angeles, tenants have to pay a rent as high as $2,200 per month, so people prefer buying houses. d. The interest on mortgage loans has gone up to 4.87 percent in 2013.

b. Bluestone Properties is permitted to charge a rent of $2,350 for 2-bedroom apartments that would rent for $2,500 in an unregulated market.

Consumer Surplus Generally speaking, when the price of a good increases, consumer surplus ________. a. Increases b. Decreases c. Doesn't change d. Cannot be determined unless the size of the price increases is known

b. Decreases

If the country enters a period of prosperity, resulting in consumer incomes increasing by 4% and the income elasticity of a good is 0.8, what will happen to the demand for that good as a result? a. Demand will increase by 1.2% b. Demand will increase by 3.2% c. Demand will increase by 4.8%

b. Demand will increase by 3.2%

TRUE or FALSE: A good with a straight line, downward-sloping demand curve has a constant elasticity of demand across the entire demand curve. a. TRUE b. FALSE

b. FALSE

If a man spends approximately 45% of his income on air travel and his sister only spends about 2% of her income on air travel (and that is the only difference), would the man's demand for air travel be less or more elastic than his sister's? a. Less b. More c. Cannot tell

b. More

Search ActivityWhich of the following statements best describes search activity? a. Scarce housing resources should be allocated to the poorest b. Tim spends time looking for jobs and sending applications to firms. c. Ron thinks Google is a better search engine than Yahoo! d. Wage floors result in higher unemployment.

b. Tim spends time looking for jobs and sending applications to firms.

Income Elasticity A good with an income elasticity greater than one is ______________.A good with an income elasticity that is positive and less than 1 is ______________. a. an inferior good; a normal good that is income elastic b. a normal good that is income elastic; a normal good that is income inelastic c. a normal good that is income inelastic; a normal good that is income elastic d. a normal good that is unit elastic; a normal good that is income elastic

b. a normal good that is income elastic; a normal good that is income inelastic

Given your answer to Q5.22a... (b.) Garlic bread and lasagna are ______________. a. substitutes b. complements

b. complements

Elasticity of Demand Rain spoils the strawberry crop, the price of strawberries rises from $4 to $6 a box, and the quantity demanded decreases from 1,000 to 600 boxes a week. (b.) Over this price range, the demand for strawberries is ______________. a. unit elastic b. elastic c. inelastic

b. elastic

A change in demand will cause the equilibrium price to change by ______________ and the equilibrium quantity to change by ______________ with an inelastic supply than if supply were elastic. a. more; more b. more; less c. less; less d. less; more e. the same amount; the same amount

b. more; less

A change in supply will cause the equilibrium price to change by ______________ and the equilibrium quantity to change by ______________ with an inelastic demand than if demand were elastic. a. more; more b. more; less c. less; less d. less; more e. the same amount; the same amount

b. more; less

Elasticity and Revenue Demand is inelastic if a price ______________ increases total revenue. a. cut b. rise

b. rise

Elasticity of Supply The figure shows the supply curve of lead.Between points A and B, the elasticity of supply is ______________, so the supply of lead is ______________. a. 2.5; elastic b. 2.25; inelastic c. 1.8; elastic d. 2; inelastic

c. 1.8; elastic

Elasticity of Supply Which of the following statements is an example of elasticity of supply? a. The quality of fruits sold by Safeway is getting better. b. A 20 percent discount at all Old Navy stores is drawing large crowds. c. A 10 percent fall in the price of turkey with no other change decreases quantity supplied by 12 percent. d. Farmers increase their supply of potatoes when the price of onions rises.

c. A 10 percent fall in the price of turkey with no other change decreases quantity supplied by 12 percent.

An increase in inelastic demand will cause _______ change in the equilibrium price than the same increase in an elastic demand. a. A lesser b. The same c. A greater d. One cannot tell

c. A greater

Which of the following is an example of a price ceiling (or price cap)? a. A regulation sets the minimum price of ethanol at 50 cents per gallon. b. Walmart promises to have the lowest prices. c. A regulation requires cable service to be provided for no more than $30 a month. d. WinCo Foods sells organic milk at $8 per gallon.

c. A regulation requires cable service to be provided for no more than $30 a month.

Search Activity and Consumer Surplus Consider a housing market with an effective price ceiling (i.e. rent control). The effective price ceiling results in a shortage in the housing market. Which of the following statements is TRUE? a. The price ceiling definitely increases the size of the consumer surplus (as compared to before the price ceiling). b. The price ceiling definitely decreases the size of the consumer surplus (as compared to before the price ceiling) because the increased search activity cuts into and decreases the consumer surplus. c. Consumers who are lucky enough to find housing right away (i.e. do not engage in lots of search activity) now have increased consumer surplus because of the price ceiling.

c. Consumers who are lucky enough to find housing right away (i.e. do not engage in lots of search activity) now have increased consumer surplus because of the price ceiling.

A firm has a choice of raising or lowering its price. If the firm wishes to increase its revenues (the price times the quantity sold), what should it do? a. Raise price when demand is elastic, because the quantity demanded will increase. b. Lower price when demand is elastic, because the quantity demanded will decrease. c. Raise price when demand is inelastic, because the revenues gained from the price increase will be larger than the revenues lost from the smaller quantity sold. d. Lower price when demand is inelastic, because the revenues lost from the lower price will be smaller than the revenues gained from the increase in quantity sold.

c. Raise price when demand is inelastic, because the revenues gained from the price increase will be larger than the revenues lost from the smaller quantity sold.

Elasticity and Revenue All else equal, if a firm increases the price of its good by 5% and it sells 10% fewer units, which of the following is true? a. The firm's product has an inelastic demand, and its revenue increases. b. The firm's product has a unit elastic demand and its revenue does not change. c. The firm's product has an elastic demand and its revenue decreases. d. The firm's product has an elastic demand and its revenue increases.

c. The firm's product has an elastic demand and its revenue decreases.

Elasticity and Revenue When the price of tomatoes rises from $3 per pound to $4 per pound, the quantity of tomatoes sold decreases from 15 pounds to 10 pounds. Total revenue ______________, and using the total revenue test, we can determine that the demand for tomatoes is ______________. a. Initially is $45; unit elastic b. decreases by $5; inelastic c. decreases from $45 to $40; elastic d. equals quantity sold divided by price; elastic

c. decreases from $45 to $40; elastic

When resources are allocated to the first in line the allocation method is ______________. When resources are allocated in the way that the most voters choose, the allocation method is ______________. When resources are allocated on the basis of individual attributes, the allocation method is ______________. a. majority rule; lottery; first-come, first-served b. first-come, first-served; personal characteristics; lottery c. first-come, first-served; majority rule; personal characteristics d. lottery; force; personal characteristics

c. first-come, first-served; majority rule; personal characteristics

Market Supply The market supply curve is the ______________ sum of the individual supply curves. It is formed by adding the ______________. a. vertical; marginal cost of all producers at each quantity b. horizontal; marginal cost of all producers at each quantity c. horizontal; quantities supplied by all the producers at each price d. vertical; quantities supplied by all the producers at each price

c. horizontal; quantities supplied by all the producers at each price

Elasticity of Supply You estimate a local furniture company's elasticity of supply is 1.75. If the price of furniture increases by 16 percent, then the quantity of furniture supplied by this company will... a. increase by 9 percent b. decrease by 10.9 percent c. increase by 28 percent d. decrease by 28 percent e. increase by 10.9 percent

c. increase by 28 percent

Elasticity of Supply The elasticity of supply for a given good is strongly influenced by the time frame. For example...The supply of apples in the short run will be ______________ than the supply in the long run and ______________ than the supply today. a. more elastic; less elastic b. less elastic; less elastic c. less elastic; more elastic d. more elastic; more elastic

c. less elastic; more elastic

Consumer Surplus The consumer surplus for a particular unit of a good is the ______________ of that good in excess of ______________. a. price; its value b. value; its marginal benefit c. marginal benefit; the price paid for it d. price; its marginal benefit

c. marginal benefit; the price paid for it

Cross Elasticity Ski trips and ski jackets are complements.The cross elasticity of demand for ski trips with respect to the price of a ski jacket must be ______________. a. zero b. positive c. negative d. positive, negative, or zero

c. negative

Cross Elasticity What does the cross elasticity of demand measure? The cross elasticity of demand is a measure of the responsiveness of the demand for a good to a change in the ______________, other things remaining the same (ceteris paribus). a. price of a normal good or an inferior good b. quantity demanded of a normal good or an inferior good c. price of a substitute or complement d. quantity demanded of a substitute or complement

c. price of a substitute or complement

Producer Surplus The producer surplus in a market is the ______________ a good or service, in excess of the ______________ of producing it, summed across the quantity produced. a. total revenue from; total cost b. marginal benefit from; variable cost c. price of; marginal cost d. price of; fixed cost

c. price of; marginal cost

The table gives the demand schedule for hotel rooms. (a.) If the price falls from $400 to $250 a night, total revenue ______________. If the price falls from $250 to $200 a night, total revenue ______________. a. rises; rises b. rises; falls c. remains the same; remains the same d. falls; falls

c. remains the same; remains the same

Nikita and Greg both need gas to fuel their respective cars. There are RaceTrak gas stations in both Nikita and Greg's towns. However, in Nikita's town there are additional gas station companies aside from RaceTrak, while Greg's town only has RaceTrak gas stations. All else equal, the price of RaceTrak gas rises by 20%, and Nikita decreases his gas purchase from RaceTrak by 30%. We can conclude that Greg's price elasticity of demand for RaceTrak gas is likely... a. smaller than 0.67 b. larger than 0.67 c. smaller than 1.5 d. larger than 1.5

c. smaller than 1.5

Elasticity of Supply Elasticity of supply measures the responsiveness of the quantity supplied to a change in ______________ when all other influences on selling plans remain the same. a. the consumers' income b. the price of a substitute c. the price of a good d. the price of a complement

c. the price of a good

Elasticity of Demand Define the price elasticity of demand.The price elasticity of demand is a units-free measure of the responsiveness of ______________. a. the quantity demanded of a good to a change in the quantity supplied when all other influences on buying plans remain the same b. the demand for a good when the price of one of it substitutes or a complement of it changes c. the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same d. the demand for a good when consumers' income changes

c. the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same

The table gives the demand schedule for hotel rooms. (b.) Given your answer to Q5.12a, the demand for hotel rooms is ______________ because ______________. a. elastic; if the price is set high enough, total revenue will decrease b. decreasing as the price falls; the demand curve for hotel rooms is straight-line demand curve c. unit elastic; a price cut leaves total revenue unchanged. Total revenue never reaches a maximum d. inelastic; if the price is set low enough, total revenue will decrease

c. unit elastic; a price cut leaves total revenue unchanged. Total revenue never reaches a maximum

The table gives some data on the supply of roses in a small town. When the price rises from $15 a dozen to $25 a dozen, the elasticity of supply is ______________. a. 1.25 b. 0.20 c. 5.00 d. 0.80

d. 0.80

Individual and Market DemandSara and Zoe are the only people in an economy. The following data tells you about their purchases of soda. Sara bought 3 bottles when the price is $3 a bottle, 4 bottles when the price is $2 a bottle, and 5 bottles when the price was $1 a bottle.Zoe bought no soda when the price was $3 a bottle, 2 bottles when the price is $2 a bottle, and 3 bottles when the price was $1 a bottle. Which statement correctly describes a quantity of soda demand point in the soda market? a. 5 bottles are demanded when the price is $1 a bottle b. 4 bottles are demanded when the price is $2 a bottle c. 5 bottles are demanded when the price is $3 a bottle d. 6 bottles are demanded when the price is $2 a bottle

d. 6 bottles are demanded when the price is $2 a bottle

Elasticity of Demand Which of the following statements describe an inelastic demand? a. A rise in the tax rate has decreased imports of auto parts from China. b. People are buying HDTVs before the Super Bowl game begins. c. Housing prices in London rose by 10 percent due to rock bottom interest rates. d. Megan did not buy too many hockey tickets even though their price dropped by 10 percent.

d. Megan did not buy too many hockey tickets even though their price dropped by 10 percent.

Assume that as your income increases, your consumption of burgers decreases. We can assume that your income elasticity of demand for burgers is what? a. Between 0 and 1 b. Greater than 1 c. Equal to 1 d. Negative

d. Negative

Elasticity of Demand Which of the following statements is an example of perfectly elastic demand? a. The price elasticity of demand for bottled water in Ohio is 1.5 while in Illinois it is 0.96. b. A 10 percent rise in Rita's income decreases supply of canned fish by 5 percent. c. A high incidence of diabetes has resulted in a large increase in demand for insulin. d. Sherry is overwhelmed with buyers of her peaches when she lowers their price by a penny a pound compared to other sellers in the farmers' market.

d. Sherry is overwhelmed with buyers of her peaches when she lowers their price by a penny a pound compared to other sellers in the farmers' market.

When price decreases, quantity increases. Price elasticity of demand measures how much ___________. a. The price decreases b. The price increases c. The price decreases when quantity increases d. The quantity increases when price decreases

d. The quantity increases when price decreases

Elasticity of Demand Which of the following statements describes a perfectly inelastic demand? a. The government is promoting generic drugs that are much cheaper. b. I prefer taking the subway to work rather than driving because of high fuel prices. c. A large number of people buy roses from Colombian rose-growers before Valentine's Day. d. Walgreens does not find any change in the number of people buying chlorthalidone after a 7 percent rise in its price.

d. Walgreens does not find any change in the number of people buying chlorthalidone after a 7 percent rise in its price.

Which is an example of resources being allocated by the command system? a. Waiting in line for a table at Red Lobster. b. Getting a ticket for parking offense. c. Buying tomatoes at Safeway for $3 per pound. d. Your manager at McDonalds assigns you to the drive-through window

d. Your manager at McDonalds assigns you to the drive-through window

(b.) The demand for pens is elastic at ______________. a. all prices less than $6 a pen b. all prices less than $4 a pen c. a price of $6 a pen d. all prices greater than $6 a pen

d. all prices greater than $6 a pen

Income Elasticity What does the (positive/negative) sign of the income elasticity tell us about a good?A good with an income elasticity that is negative is ______________. a. a complement b. a substitute c. a normal good d. an inferior good

d. an inferior good

Income Elasticity Sales of Spam are rising as consumers realize that Spam and other lower-cost foods can be substituted for costlier cuts of meat as a way of controlling their already stretched food budgets. Is Spam a normal good or an inferior good? Explain.Spam is ______________ good because ______________. a. a normal; it is a complement of other foods b. a normal; over time income increases and people buy more Spam c. an inferior; it is a substitute for other meats d. an inferior; as the income available to buy meat decreases, consumers buy more spam

d. an inferior; as the income available to buy meat decreases, consumers buy more spam

Income Elasticity The income elasticity of demand is a measure of the responsiveness of the demand for a good or service to a change in ______________, other things remaining the same. a. the relative price of another good b. the price of a substitute or complement c. the total output in the economy d. income

d. income

Income Elasticity When Mohesha receives an increase in her pay check from $1,800 a month to $2,200 a month, she increases the quantity of hot chocolate that she buys from 19 cups a month to 21 cups a month.Mohesha's demand for hot chocolate is income ______________. For Mohesha, hot chocolate is ______________ good. a. elastic; an inferior b. inelastic; an inferior c. elastic; a normal d. inelastic; a normal

d. inelastic; a normal

Elasticity and Revenue U.S. drivers are ranked as the least sensitive to changes in the price of gasoline. For example, if the price rose from $3 to $4 per gallon and stayed there for a year U.S. purchases of gasoline would fall only about 5 percent. (b.) Does the measurement from part (a.) indicate that the demand for gasoline is elastic, unit elastic, or inelastic?The price elasticity of demand for gasoline is ______________, and a rise in the price of gasoline ______________ total revenue from gasoline sales. a. inelastic; decreases b. elastic; decreases c. unit elastic; does not change d. inelastic; increases

d. inelastic; increases

Elasticity of Supply Honolulu is number 3 in the world for the most unaffordable housing market in urban locations, behind Los Angeles and San Diego and is deemed "severely unaffordable." With significant constraints on the supply of land for residential development, housing inflation has resulted. The supply of housing in Honolulu is ______________. The ______________ elastic the supply of housing, the greater the rise in the price of housing when demand increases. a. elastic; more b. inelastic; more c. elastic; less d. inelastic; less

d. inelastic; less

The table gives the supply schedules for jet-ski rides by the only suppliers: Rick, Sam, and Tom. Which owner has the largest producer surplus when the price of a ride is $17.50? The owner with the largest producer surplus is the owner with the ______________. a. greatest marginal benefit b. greatest marginal cost c. lowest marginal benefit d. lowest marginal cost

d. lowest marginal cost

Consumer surplus is ______________. a. greater on the 100th unit of a good that we buy than on the 1st unit of a good that we buy b. the value that we receive by purchasing a good or service c. equal to the amount that we pay for a good or service d. measured as the marginal benefit (or value) of a good minus the price paid for it, summed across the quantity bought

d. measured as the marginal benefit (or value) of a good minus the price paid for it, summed across the quantity bought

Cross Elasticity Rice and noodles are substitutes.The cross elasticity of demand for rice with respect to the price of noodles must be ______________. a. − 1 b. negative c. zero d. positive

d. positive

Consider the apartment rental market. What is a rent ceiling and what are its effects if it is set above versus below the equilibrium rent? (c.) A rent ceiling ______________. a. that is greater than the equilibrium rent results in a surplus of housing b. always results in a shortage of housing c. decreases search activity d. set below the equilibrium rent constrains the market forces and causes the shortage to persist.

d. set below the equilibrium rent constrains the market forces and causes the shortage to persist.

Cross Elasticity What does the (positive/negative) sign of the cross elasticity of demand tell us about the relationship between two goods? (a.) If the cross elasticity of demand for a T-shirt with respect to the price of a tank top is positive, then T-shirts and tank tops are ______________. a. normal goods b. inferior goods c. complements d. substitutes

d. substitutes

In the sleeping bag market, the marginal cost of the 30th sleeping bag is ______________. a. the value of the 30th sleeping bag b. the price received when the 30th sleeping bag is sold c. the producer surplus earned on the 30th sleeping bag d. the minimum price that producers must receive to induce them to sell the 30th sleeping bag

d. the minimum price that producers must receive to induce them to sell the 30th sleeping bag