Elasticity
If the price elasticity of supply is 1.2, and price increased by 5%, quantity supplied would
a. decrease by 6%.
b. increase by 6%.
c. increase by 4.2%.
d. decrease by 4.2%.
b. increase by 6%.
Suppose that the supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%. 39. Refer to Scenario 5-3. The price elasticity of supply for aged cheddar cheese could be
a. 1.5.
b. 0.
c. 0.5.
d. -1.
c. 0.5.
Rent control
a. is the most efficient way to allocate scarce housing resources.
b. is regarded by most economists as an efficient way of helping the poor.
c. serves as an example of a price ceiling.
d. serves as an example of how a social problem can be alleviated or eve
c. serves as an example of a price ceiling.
The price paid by buyers in a market will decrease if the government
a. increases a binding price ceiling in that market.
b. decreases a binding price floor in that market.
c. imposes a binding price floor in that market.
d. increases a tax on the good sold in that market.
b. decreases a binding price floor in that market.
When a payroll tax is enacted, the wage received by workers
a. rises, and the wage paid by firms falls.
b. falls, and the wage paid by firms rises.
c. falls, and the wage paid by firms falls.
d. rises, and the wage paid by firms rises.
b. falls, and the wage paid by firms rises.
When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about
a. 0.22.
b. 0.67.
c. 1.33.
d. 1.50.
b. 0.67.
In which of these instances is demand said to be perfectly inelastic?
a. A decrease in price of 2% causes a decrease in total revenue of 0%.
b. An increase in price of 2% causes a decrease in quantity demanded of 2%.
c. A decrease in price of 2% causes an increase in quantity demanded of 0%.
d. An increase in price of 2% causes a decrease in quantity demanded of 1/2%.
c. A decrease in price of 2% causes an increase in quantity demanded of 0%.
If a binding price ceiling is imposed on the baby formula market, then
a. the quantity of baby formula demanded will increase.
b. the quantity of baby formula supplied will decrease.
c. a shortage of baby formula will develop.
d. All of the above are correct.
d. All of the above are correct.
A legal minimum on the price at which a good can be sold is called a
a. price floor.
b. tax.
c. price ceiling.
d. price subsidy
a. price floor
Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the
a. supply curve will shift downward by $20, and the effective price received by sellers will increase by less than $20.
b. demand curve will shift upward by $20, and the price paid by buyers will decrease by $20.
c. supply curve will shift downward by $20, and the effective price received by sellers will increase by $20.
d. demand curve will shift upward by $20, and the price paid by buyers will decrease by less than $20.
a. supply curve will shift downward by $20, and the effective price received by sellers will increase by less than $20.
For which pairs of goods is the cross-price elasticity most likely to be positive?
a. bicycle frames and bicycle tires
b. college textbooks and iPods
c. pens and pencils
d. peanut butter and jelly
c. pens and pencils
A decrease in supply will cause the largest increase in price when
a. demand is elastic and supply is inelastic.
b. both supply and demand are inelastic.
c. both supply and demand are elastic.
d. demand is inelastic and supply is elastic.
b. both supply and demand are inelastic.
If a price ceiling is a binding constraint on a market, then
a. sellers cannot sell all they want to sell at the price ceiling.
b. buyers cannot buy all they want to buy at the price ceiling.
c. the equilibrium price must be below the price ceiling.
d. the quantity supplied must exceed the quantity demanded.
b. buyers cannot buy all they want to buy at the price ceiling.
The imposition of a binding price floor on a market
a. causes quantity demanded to be greater than quantity supplied.
b. causes quantity demanded to be less than quantity supplied.
c. causes quantity demanded to be equal to quantity supplied.
d. causes a decrease in demand.
b. causes quantity demanded to be less than quantity supplied.
The incidence of a tax falls more heavily on
a. consumers than producers if demand is more inelastic than supply.
b. producers than consumers if supply is more inelastic than demand.
c. consumers than producers if supply is more elastic than demand.
d. All of the above are correct.
d. All of the above are correct.
For a particular good, a 5 percent increase in price causes a 15 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
a. The relevant time horizon is short.
b. The market for the good is broadly defined.
c. There are many substitutes for this good.
d. The good is a necessity.
c. There are many substitutes for this good.
If the price elasticity of demand for a good is 0.8, then a 12 percent increase in the quantity demanded must be the result of
a. a 15 percent decrease in the price.
b. a 9.6 percent decrease in the price.
c. a 0.06 percent decrease in the price.
d. a 1.5 percent decrease in the price.
a. a 15 percent decrease in the price.
If the government removes a binding price ceiling from a market, then the price received by sellers will
a. decrease, and the quantity sold in the market will decrease.
b. increase, and the quantity sold in the market will increase.
c. decrease, and the quantity sold in the market will increase.
d. increase, and the quantity sold in the market will decrease.
b. increase, and the quantity sold in the market will increase.
If a price floor is a binding constraint on a market, then
a. the equilibrium price must be above the price floor.
b. sellers cannot sell all they want to sell at the price floor.
c. the quantity demanded must exceed the quantity supplied.
d. buyers cannot buy all they want to buy at the price floor.
b. sellers cannot sell all they want to sell at the price floor.
A tax imposed on the sellers of a good will lower the
a. price paid by buyers and raise the equilibrium quantity.
b. effective price received by sellers and raise the equilibrium quantity.
c. price paid by buyers and lower the equilibrium quantity.
d. effective price received by sellers and lower the equilibrium quantity.
d. effective price received by sellers and lower the equilibrium quantity.
Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good?
a. The quantity of the good demanded decreases by 0.05 percent.
b. The quantity of the good demanded decreases from 200 to 100.
c. The quantity of the good demanded decreases by 0.2 percent.
d. The quantity of the good demanded decreases from 250 to 150.
c. The quantity of the good demanded decreases by 0.2 percent.
Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. 5. Refer to Scenario 5-4. The change in equilibrium price will be
a. the same in the milk and beef markets.
b. greater in the beef market than in the milk market.
c. greater in the milk market than in the beef market.
d. Any of the above could be correct.
c. greater in the milk market than in the beef market.
A binding price ceiling
(i) causes a surplus.
(ii) causes a shortage. '
(iii) is set at a price above the equilibrium price.
(iv) is set at a price below the equilibrium price.
a. (ii) only
b. (iv) only
c. (i) and (iii) only
d. (ii) and (iv) only
d. (ii) and (iv) only
A nonbinding price floor
(i) causes a surplus.
(ii) causes a shortage.
(iii) is set at a price above the equilibrium price.
(iv) is set at a price below the equilibrium price.
a. (ii) and (iv) only
b. (iii) only
c. (iv) only
d. (i) and (iii) only
c. (iv) only
When a tax is levied on sellers of tea,
a. both sellers and buyers of tea are made worse off.
b. the well-being of both sellers and buyers of tea is unaffected.
c. sellers of tea are made worse off, and buyers of tea are made better off.
d. sellers of tea are made worse off, and the well-being of buyers is unaffected.
a. both sellers and buyers of tea are made worse off.