Economics Chapter 4 and 6

black market market in which goods are sold illegally

True

disequilibrium describes any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market

True

equilibrium point at which quantity demanded and quantity supplied are equal

True

excess demand when quantity demanded is more than quantity supplied

True

price ceiling maximum price that can be legally charged for a good or service

True

price floor minimum price for a good or service

True

rationing system of allocating scarce goods and services using criteria other than price

True

rent control price ceiling placed on rent

True

search costs financial and opportunity costs consumers pay when searching for a good or service

True

shortage situation in which quantity demanded is greater than quantity supplied; also known as excess demand

True

spillover costs costs of production that affect people who have no control over how much of a good is produced

True

If a firm finds that it can sell $13,000 worth of a product when its price is $5 per unit and $11,000 worth of it when its price is $6, then: A. the demand for the product is elastic in the $6-$5 price range. B. the demand for the product must have increased. C. elasticity of demand is 0.74. D. the demand for the product is inelastic in the $6-$5 price range.

A

If quantity demanded is completely unresponsive to price changes, demand is: A. perfectly inelastic. B. perfectly elastic. C. relatively inelastic. D. relatively elastic.

A

If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then: A. demand is elastic. B. demand is inelastic. C. demand is of unit elasticity. D. not enough information is given to make a statement about elasticity.

A

Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z respectively. A 1 percent decrease in price will increase total revenue in the case(s) of: A. W and Y. B. Y and Z. C. X and Z. D. Z and W.

A

The demand for a product is inelastic with respect to price if: A. consumers are largely unresponsive to a per unit price change. B. the elasticity coefficient is greater than 1. C. a drop in price is accompanied by a decrease in the quantity demanded. D. a drop in price is accompanied by an increase in the quantity demanded.

A

The price elasticity of demand of a straight-line demand curve is: A. elastic in high-price ranges and inelastic in low-price ranges. B. elastic, but does not change at various points on the curve. C. inelastic, but does not change at various points on the curve. D. 1 at all points on the curve.

A

A demand curve which is parallel to the horizontal axis is: A. perfectly inelastic. B. perfectly elastic. C. relatively inelastic. D. relatively elastic.

B

A firm can sell as much as it wants at a constant price. Demand is thus: A. perfectly inelastic. B. perfectly elastic. C. relatively inelastic. D. relatively elastic.

B

A perfectly inelastic demand schedule: A. rises upward and to the right, but has a constant slope. B. can be represented by a line parallel to the vertical axis. C. cannot be shown on a two-dimensional graph. D. can be represented by a line parallel to the horizontal axis.

B

If the demand for farm products is price inelastic, a good harvest will cause farm revenues to: A. increase. B. decrease. C. be unchanged. D. either increase or decrease, depending on what happens to supply.

B

If the demand for product X is inelastic, a 4 percent increase in the price of X will: A. decrease the quantity of X demanded by more than 4 percent. B. decrease the quantity of X demanded by less than 4 percent. C. increase the quantity of X demanded by more than 4 percent. D. increase the quantity of X demanded by less than 4 percent.

B

Other things the same, if a price change causes total revenue to change in the opposite direction, demand is: A. perfectly inelastic. B. relatively elastic. C. relatively inelastic. D. of unit elasticity.

B

Suppose the price elasticity of demand for bread is 0.20. If the price of bread falls by 10 percent, the quantity demanded will increase by: A. 2 percent and total expenditures on bread will rise. B. 2 percent and total expenditures on bread will fall. C. 20 percent and total expenditures on bread will fall. D. 20 percent and total expenditures on bread will rise.

B

A perfectly inelastic demand curve: A. has a price elasticity coefficient greater than unity. B. has a price elasticity coefficient of unity throughout. C. graphs as a line parallel to the vertical axis. D. graphs as a line parallel to the horizontal axis.

C

If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then: A. the price elasticity of demand is 0.44. B. A is a complementary good. C. the price elasticity of demand is 2.25. D. A is an inferior good.

C

If a firm's demand for labor is elastic, a union-negotiated wage increase will: A. necessarily be inflationary. B. cause the firm's total payroll to increase. C. cause the firm's total payroll to decline. D. cause a shortage of labor.

C

If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will: A. increase the quantity demanded by about 2.5 percent. B. decrease the quantity demanded by about 2.5 percent. C. increase the quantity demanded by about 25 percent. D. increase the quantity demanded by about 250 percent.

C

In which of the following cases will total revenue increase? A. price falls and demand is inelastic B. price falls and supply is elastic C. price rises and demand is inelastic D. price rises and demand is elastic

C

Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week: A. demand will become more price elastic. B. price elasticity of demand will not change as price is lowered. C. demand will become less price elastic. D. the elasticity of supply will increase

C

Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is: A. 4.00. B. 2.09. C. 1.37. D. 3.94.

C

When the percentage change in price is greater than the resulting percentage change in quantity demanded: A. a decrease in price will increase total revenue. B. demand may be either elastic or inelastic. C. an increase in price will increase total revenue. D. demand is elastic.

C

A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the: A. more elastic the supply curve. B. larger the elasticity of demand coefficient. C. more elastic the demand for the product. D. more inelastic the demand for the product.

D

For a linear demand curve: A. elasticity is constant along the curve. B. elasticity is unity at every point on the curve. C. demand is elastic at low prices. D. demand is elastic at high prices.

D

Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is: A. decreasing. B. relatively elastic. C. perfectly elastic. D. relatively inelastic.

D

If the price elasticity of demand for a product is unity, a decrease in price will: A. have no effect upon the amount purchased. B. increase the quantity demanded and increase total revenue. C. increase the quantity demanded, but decrease total revenue. D. increase the quantity demanded, but total revenue will be unchanged.

D

In which of the following instances will total revenue decline? A. price rises and supply is elastic B. price falls and demand is elastic C. price rises and demand is inelastic D. price rises and demand is elastic

D

Most demand curves are relatively elastic in the upper-left portion because the original price: A. and quantity from which the percentage changes in price and quantity are calculated are both large. B. and quantity from which the percentage changes in price and quantity are calculated are both small. C. from which the percentage price change is calculated is small and the original quantity from which the percentage change in quantity is calculated is large. D. from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.

D

The larger the coefficient of price elasticity of demand for a product, the: A. larger the resulting price change for an increase in supply. B. more rapid the rate at which the marginal utility of that product diminishes. C. less competitive will be the industry supplying that product. D. smaller the resulting price change for an increase in supply.

D

The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a: A. 1 percent reduction in price. B. 12 percent reduction in price. C. 40 percent reduction in price. D. 20 percent reduction in price.

D

Which of the following is not characteristic of the demand for a commodity that is elastic? A. The relative change in quantity demanded is greater than the relative change in price. B. Buyers are relatively sensitive to price changes. C. Total revenue declines if price is increased. D. The elasticity coefficient is less than one.

D

Public Goods The government's selling of nationalized businesses back to private owners.

False

excess supply when quantity supplied is more than quantity demanded

False

minimum wage minimum price that an employer can pay a worker for an hour of work

False

supply shock sudden shortage of a good

False

surplus situation in which quantity supplied is greater that quantity demanded; also known as excess supply

False