ECON 4 + 5

Which of the following describe a product with an inelastic demand?

An appointment with a dentist.

Suppose, in the graph below, there is a price ceiling of $4. Then there is a shortage of:

4 units

Analyze the following diagram: Demand "D" represents a demand curve that is

perfectly inelastic.

Refer to the figure below. If the government set a price floor of $30, there would be

zero excess supply.

A government decides to set a price ceiling on bread of $2.40 so that bread is affordable to the poor. The conditions of demand and supply are given in the table below. What will be the price and quantity of bread purchased? PriceQdQs$1.609,0005,000$2.008,5005,500$2.408,0006,400$2.807,5007,500$3.207,0009,000$3.606,50011,000$4.006,00015,000

$2.40; 6,400

Refer to the figure below. If the government set a price ceiling of $40, there would be:

16 units sold.

Suppose, in the graph below, there is a price ceiling of $5. Then there is a shortage of

2 units

Given that total revenue = price x quantity, what will happen to total revenue if price increases when demand is elastic?

It will decrease.

Refer to the figure below. What is producer surplus?

The area of the producer surplus = ($12 * 30 units)/2 Answer:180

Compare a market operating at a quantity lower than equilibrium (ie. a price floor) with the same market operating at the equilibrium quantity. Which of the following statements are true?

A market operating below equilibrium will transfer some consumer surplus to producers.

________ are generally the result of price ceilings.

Shortages

If the government increases the minimum wage, the social surplus would

decrease

Teenage workers are assumed to have ________ labor supply; therefore a 5% increase in wages would result in ________ percentage change in quantity of labor supplied.

elastic; greater

If the elasticity of demand for a company's product is estimated to be 1.72, what would you advise the company to do if their objective is to increase revenue?

lower the price

Which product would have the quantity demanded decrease the most (be the most elastic) to a price increase?

organic whole chicken: considered a luxury item and therefore would not be as sensitive to a price increase.

You read an article stating that HTC's latest cell phone price has increased from $450 to $550. At the same time the quantity demanded for the Samsung Galaxy 7s increases from 1000 to 1850. Calculate the cross price elasticity of demand using the midpoint method. Are these two cell phones complements or substitutes?

The cross-price elasticity of demand is 2.98 and they are substitutes.

Which method for calculating elasticity uses the values of the average price and average quantity?

The midpoint (arc) elasticity approach

Suppose there is a major technological advance in the production of a good that causes production costs to fall. If demand for the product is relatively inelastic, what will happen in the market?

The price decrease will be relatively greater than the increase in quantity.

Which of the following goods represent a cross-price elasticity likely greater than zero?

The substitute goods of blueberries and strawberries.

What is total surplus area from the figure below?

The sum of producer and consumer surplus make the total or social surplus: [($2 x 30)/2] + [($14 x 30)/2] = $30+ $180 = $210

What happens to total revenue (TR) if the price decreases on a product with demand that is price elastic?

Total revenue will rise.

An increase in consumer surplus is caused by

a price ceiling.

Supply and demand for bushels of wheat (millions) are shown in the following table. A $10.00 price floor would result in:

an excess supply of 4 million bushels and a price of $10.00.

A price ceiling when it is set ________ the equilibrium price creates ________.

below; excess demand

Online mortgage companies have been growing in numbers and size. If all other things are equal, as a result of this growth, traditional banks have had to

decrease the interest on their mortgage loans as the demand for traditional mortgage loans decreased.

If a small change in price creates a large change in demand, then we would say that the demand is

elastic

Elasticities are often ________ in the long run than in the short run.

higher

An increase in demand will shift the demand curve to the right, therefore ________ the equilibrium price.

increasing

Refer to the figure below. If the government sets a price ceiling at $20, there would be a(n): (Chart is on desktop)

shortage of 20 units.

If the demand for a product is inelastic but the supply is elastic, the ________ will bear the tax incidence.

the consumer

If the % change in quantity divided by the % change in price from a graph for gasoline is less than 1, it is considered

Inelastic

You are the manager of the public transit system. You are informed that the system faces a deficit, but you cannot cut service, which means you cannot cut costs. Your only hope is to increase revenue by increasing fares. You are advised that the estimated price elasticity of demand for the first few months after a price change is about −0.3. Select the statement that best describes the results of raising the fare in the short run.

Total revenue rises immediately after the fare increase, since demand over the immediate period is price inelastic.

If you divide the change in quantity by the original quantity, you are calculating the

percentage change.

When the demand for a product does not fluctuate when there is a change in price, the good is ________.

perfectly inelastic

When a 10% increase in income causes a 4% increase in quantity demanded of a good

the income elasticity is .4 and the good is a normal good.

How does a price floor set above the equilibrium price affect quantity demanded and quantity supplied?

It results in a greater quantity supplied than the quantity demanded, otherwise known as excess supply.

Suppose the price elasticity of supply has been calculated as 0.80 for a particular product and the price increases by 5%. What would happen to the quantity supplied?

It would increase by 4%.

Paul has two tickets to the next Texan game while Bella has two tickets to the next Rockets game. Bella values the Rockets tickets at $200 while she values the Texans tickets at $250. Paul values the Rockets tickets at $250 and the Texans tickets at $150. Allocative efficiency can be improved for Paul and Bella if

Paul buys Rockets tickets from Bella and Bella buys Texan tickets from Paul at a price agreeable to both.

Using the midpoint method, calculate the price elasticity of demand of Good Z using the following information: When the price of good Z is $10 (P1), the quantity demanded of good Z is 85 units (Q1). When the price of good Z rises to $15 (P2), the quantity demanded of good Z falls to 60 units (Q2).

Remember the midpoint method calculation is [(Q2 - Q1) / ((Q1 + Q2) / 2)] / [(P2 - P1) / ((P1 + P2) / 2)], so [(60 - 85) / ((85 + 60) / 2)] / [(15 - 10) / ((10 + 15) / 2)]= (25/72.5)/(5/12.5)=0.345/0.4= 0.86. The price elasticity of demand for good Z = 0.86.

Advances in tax software such as TurboTax influenced the income tax preparer market in the following way:

The demand for income tax preparers (the person who calculates and prepares your income tax return) fell and as a result, there are fewer tax preparer jobs.

What effect over the last decade, has the increasingly efficient and inexpensive technology of online college courses had on the college textbook market?

The demand for physical textbooks have steadily decreased, and as a result more publishing companies are having less demand for high skilled textbook editor jobs.

Alabama this winter was socked in with snow which closed highways, stores and schools for weeks. Because of the road closures, soup was in greater demand but short on supply. The government put a temporary price ceiling on the cost of soup at $1. If the equilibrium for soup was at $5, what do you think happened?

There was greater demand than supplied and people began a black market for selling and delivering soup.

Refer to the figure below. If the government set a price ceiling of $80, the amount bought and sold will be:

20.

Demelza purchased her favorite perfume three months ago, J'adore by Dior, for $75. She logs online to purchase one for her friends birthday and it is now $100. What is the percentage change in the perfume price?

33%: The percentage change calculation is (original-new)/original so ($75-$100)/$75=33%.

The Kreidler Kids company can produce swing sets for $1,000. Kendra wants a new swing set for her children and will pay $1,500 for it. Kendra finds the swing set she wants and pays $1,500 for it from the Kreidler Kids company. The Kreidler Kids company has

a producer surplus of $500.

The country of Zanabar produces computers and produces them in a large quantity while the country of Abathana expertly produces cell phones in large quantities. In order for both countries to consume more desirable combinations of goods and services (computers and cell phones) they should

freely trade computers and cell phones to improve allocative efficiency.

If the demand curve for energy is at first inelastic, then changes over time and becomes increasingly elastic, then the demand curve is

getting flatter.

Elasticities are often ________ in the long run than in the short run.

higher because people have the chance to make changes.

Price and total revenue are positively related when demand is

inelastic

The electric power company in a city increased its prices by 15% this year. Since the demand for electricity is a(n) ________ demand in the short run, the equilibrium price will ________.

inelastic; greatly increase

If the government sets floor prices for wheat or corn that guarantee farmers an above-market price for that product, the most probable result would be what?

overproduction

The ________ approach for calculating elasticity makes for simple math, but is not as accurate.

point elasticity approach

Requiring that all employees get a minimum wage of $8.00 is an example of a

price floor.

A new technological breakthrough increases production for an industry and shifts the supply curve to the right. If the firm ________, then the firm will likely be happy about this new technology.

produces products that are considered elastic: The shift will move the price down which will decrease total revenue.

Elastic supply occurs if the change in quantity supplied is ________ to a change in price.

relatively responsive: If a small change in price results in a big change in the amount supplied, the supply curve appears flatter and is considered elastic.

The price elasticity of demand measures the

responsiveness of quantity demanded to a change in price.

The price elasticity of demand is defined as

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

The elasticity of supply is defined as the

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

Total revenue is defined as ________ and represented as ________.

the price of a product times the number of units sold; TR=P x Qd

When supply is inelastic and demand is elastic, the tax incidence falls on ________.

the producer

Elasticity allows economists to measure

the responsiveness of one variable to changes in another variable.: Elasticity has to do with the steepness of the line

Which of the following factors does NOT influence the price elasticity of demand of a product?

the slope of the supply curve

If you were describing consumer surplus, you would say

the social surplus minus producer surplus

If you were describing consumer surplus, you would say it is

the social surplus minus producer surplus.

Individuals and countries will continue to trade airplanes for cars until

the value of each additional airplane and car is equal for both countries or individuals.

When elasticity of demand is equal to one and the change in the quantity demanded and the change in price are exactly proportional. This type of elasticity is described as ________.

unitary elastic

Price elasticity of demand is

used to determine price sensitivity.

A product is considered relatively elastic ________.

when there are many substitutes

In the following figure, which area represents producer surplus? (Chart is on desktop)

Area C

Which of the following represents producer surplus? (chart on desktop)

B

Kelly's salary was bumped up this year after she accepted the new position of Vice President of Marketing. Her income increased from $65,000 to $83,000. Last year Kelly purchased 2 used cars. This year she purchased 0 used cars. Assuming that all of the other things remain constant, what type of a good is a used car and what type of income elasticity of demand does Kelly have?

A used car is an inferior good and the income elasticity of demand is 8.22.

Suppose the price of apples increase by 20%, resulting in consumers to purchase 15% more pears. Given this information, it appears that

cross-price elasticity of pears is 0.75.

What is a the typical result of a price floor?

excess supply.

A perfectly elastic supply curve is

horizontal

Refer to the figure below. Consumer surplus is:

$30