A linear demand curve: Show B) Can have both elastic and inelastic price elasticities of demand. Suppose the local real estate market is in equilibrium. Recently a recession has caused local household incomes to decline. At the same time, construction of a large subdivision of new homes has just been completed. Given these 2 changes, we can predict the price of real estate will _____ and the quantity of real estate bought and sold will _____. B) The price of real estate will fall and the quantity of real estate bought and sold will fall. A newspaper story recently reported the price of new cars has decreased, and the quantity of new cars sold has dropped. The price and quantity changes were probably caused by: C) A decrease in buyers' income. If the absolute value of the price elasticity of demand is found to be 6, then the demand is: Supply curves tend to be more _____ the greater the time period facing the producer. The best example of making a choice at the margin: D) eating another slice of pizza. When a chef creates a dinner place of food for a customer, which of the following represents the physical capital resource? Although water is very abundant in most places, it is scarce because: C) there is not enough of it to meet all needs. As part of an anti-obesity program, the government places an excise tax on high-fat foods. We would expect consumer to pay almost all of this tax if demand is: D) inelastic and supply is elastic. Assume the price elasticity of demand for tobacco is 0.5, and the income elasticity of demand for tobacco is 0.4. Then: C) a 50% increase in income will increase the quantity demanded of tobacco by 20% Price elasticity of demand = % change in quantity demanded/ % change in price Income elasticity of demand = % change in quantity demanded/ % change in income. If the state government allocates additional spending on education, the opportunity cost is: A) measured in terms of the alternatives used for that money. Given that chicken and beef are substitute goods, if the price of chicken decreases substantially, there would be: C) a decrease in the demand for beef. Suppose the price of university sweatshirts increases $10 to $20, and the quantity supplied increases from 20 to 30. Using the midpoint formula you can calculate the price elasticity of supply to be: B) 0.60 Midpoint formula: Technological improvements will: A) shift the PPF outward. The income elasticity of demand for peaches has been estimated to be 1.43. If income grows by 15% in a period, how will that affect total revenue from peaches in that period, all other things unchanged? Economists usually make the assumption that production is subject to increasing opportunity costs because: D) all resources are not equally suited to producing every good. In the market for wheat, what would happen if the price of ethanol (which is made from corn) increases dramatically? C) a decrease in the supply of wheat. If the estimated price elasticity of demand for foreign travel is 4, then: D) a 20% decrease in the price of foreign travel will increase quantity demanded by 80%. To minimize deadweight loss, markets where demand is relatively _____ and supply is relatively _____ should be taxed. Suppose the government imposes a $4 excise tax on Good X. If the demand for Good X is perfectly elastic and the supply curve is elasic, then the price of Good X will: Suppose the government of Coffeeland set coffee prices at $1 per pound, when the market price is $10. The government's actions will: B) cause coffee shortages even in a coffee-rich country. When Joe's income is $100 per week, he spends $20 per week on pizza. When his income rises to $110 per week, he spends $25 per week on pizza. If the price of pizza remains constant, this info implies that for Joe: B) pizza is a normal good and a luxury. The deadweight loss from an excise tax comes about because: C) the number of transactions in the market is reduced because some mutually beneficial transactions do not take place. Which of the following is not a factor is determining the price elasticity of demand? B) the slope of the supply curve. A market equilibrium occurs when: A) There is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears. The Cozy Chair Co. believes it can sell 200 chairs at $200 per chair, or 300 chairs at $150 per chair. Using the midpoint formula, you can calculate that the price elasticity of demand (to the nearest tenth) for Cozy Chairs is: It is certain that the equilibrium price will fall when: A) the supply curve shifts to the right and the demand curve shifts to the left. You manage a popular nightclub and lately revenues have been disappointing. Your bouncer suggests that raising drink prices will increase revenues, but your bartender suggests decreasing drink prices will increase revenues. You aren't sure who is right, but you do know that: A) your bouncer this demand for drinks is inelastic, while you bartender thinks the demand for drinks is elastic. An increase in supply of a good is caused by: B) an increase in the number of sellers. The incidence of a tax: B) refers to who in reality pays the tax to the government. If your purchases of shoes increase from 9 pairs per year to 11 pairs per year when your income increases from $19,000 to $21,000 a year, other things equal, then, for you, shoes are considered a(n): Which of the following demonstrates how people respond to incentives to make themselves better off? C) More students major in economics when they hear salaries for economists are rising. To say that 2 goods are substitutes, their cross-oruce elasticities of demand should be: C) greater than 0. The _____ principle implies that people with _____ should pay more taxes. A) ability-to-pay; higher incomes The problem of determining what goods and services society should produce: A) exists because there are not enough resources to provide all the goods and services that people want to purchase. Which situation would most likely cause a decrease in consumer surplus in the toy market? D) The cost of shipping increases due to higher oil prices. When moving along the production possibility frontier, the opportunity cost to society of getting more of one good: A) is measured by the amount of the other good that must be given up. The government decides to impose a price ceiling on a good because it thinks the market-determined price is "too high." If it imposes the price ceiling above the equilibrium price: A) there will be no change to either the price or quantity in the market. All children have to be immunized against polio, measles, mumps, and other diseases. If you don't have enough money to pay for the immunizations, they will be provided for free at the county health clinic. This statement best represents the economic concept of: B) when markets don't achieve efficiency, government intervention can improve society's welfare. A good is likely to have an inelastic demand curve if: A) the good has few available substitutes. Which of the following is a reason for governments imposing or maintaining price controls? D) It may be politically expedient to impose price controls that benefit influential voting groups. The average total cost curve in the short run slopes upward due to: In perfect competition, the assumption of easy entry and exit implies that: A) in the long run all firms in the industry will earn 0 economic profits The short run is period that is C) long enough in which to vary output but not plant capacity A perfectly competitive firm operating in the short run producing 100 units of output has ATC = $6 and AFC = $2. The market price is $3 and is equal to MC. In order to maximize profits (or minimize losses), this firm should: A monopoly can be temporary because of: If a consumer moves downward along an indifference curve, his or her total utility: An individual gets 5 units of utility from 1 slice of pizza and 9 units of utility from 2 slices of pizza. The principle of diminishing marginal utility implies that the total utility from 3 slices of pizza will be: The following are 4 differences between monopoly and perfect competition. Which is incorrect? D) Monopoly profits can continue to exist in the long run, because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry The substitution effect of a price change is described by which of the following statements? B) When the price of a good falls, consumers will now substitute this lower-priced good for a relatively higher-priced good. Suppose Sarah's pottery studio is currently charging the market price that is just higher than her minimum total cost. This means Sarah will: C) is earning a small economic profit Sid is thinking of mowing lawns over the summer. His friend Jason currently mows lawns, and says the marginal cost of the 4th lawn mown in a day is $40. Sid then realizes the cost of mowing 4 lawns is: D) not possible to determine from the info prodived Which of the following is not a barrier to entry? C) a ban on certain kinds of advertising John consumes only 2 goods, pizza and pasta. Both goods are normal goods for John. He is currently maximizing his utility in consumption of both goods. Now assume the price of pasta rises. As he adjusts the this event, the marginal utility of pizza: C) will fall and the marginal utility of pasta will rise Sunk costs: A) are not considered in marginal analysis In an industry characterized by extensive economies of scale: B) large cos are more profitable than small cos. A wheat farmer operating in the short run produces 100 bushels of wheat. Her average total cost per bushel is $1.75, total revenue is $450, and (total) fixed costs are $100. Then: B) profit per bushel is equal to $2.75 Provided that there are no external benefits or casts, resources are efficiently allocated when: The short-run supply curve for a perfectly competitive firm is: D) the marginal cost curve above the AVC cost curve. Economic profits in a perfectly competitive industry induce _____, and losses induce _____. Diminishing returns to an input set in: B) when some inputs are fixed and some are variable If marginal cost is equal to ATC, then: In the perfectly competitive guidebook industry, the market price is $35. A firm is currently producing 10,000 guidebooks; ATC is $38, MC is $30, and AVC is $30. The firm should: C) produce more guidebooks, because the next guidebook produced increases profit by $5 If economic profits exist in perfect competition, in the long run firms will enter because of easy entry, the _____ curve will shift to the right, and the _____ in the market will ______. A) supply, output, increase A firm that experiences economies of scale: B) over the entire range of outputs demanded is called a natural monopoly Because monopoly firms are price-setters: A) they can only sell more by lowering price If regulation of a monopoly results in a price equal to marginal cost, but price is below ATC: D) the firm will require subsidization or it will go out of business A decreasing cost industry is one in which: B) input prices fall or technology improves as the industry expands You own a small deli that produces sandwiches, soups, and other items for customers in your town. Which of the following is a decision most likely to make in the long run at your deli: C) you renovate the second floor of your building to increase the dining room If total utility is rising as more of Good X is consumed, we can definitely say that marginal utility: For a perfectly competitive firm, MR: Price discrimination leads to a _____ price in the market with a _____ demand. A monopoly is producing where ATC = $30, MR = $40, and P=$50. If ATC is at its minimum level and the ATC curve is U-shaped, in order to maximize profits the firm should: Which of the following is true? B) P and MR are the same in perfect competition A monopoly is likely to _____ and ______ than a perfectly competitive firm. B) produce less; charge more Benny spends all his money buying wine and cheese. The MU of the last bottle of wine is 60, and the MU of the last block of cheese is 30. The price of wine is $3 and the price of cheese is $2. Benny: B) should buy more wine and less cheese The net present value of a project is the difference between: D) the present value of current and future benefits and the present and current value of future costs A firm that is able to more efficiently utilize by-products as it increases production in the long run is an example of: Price-takers are individuals in a market who: D) have no ability to affect the price of a good in a market Which demand curve represents the most elastic demand?Answer and Explanation: The correct answer is option "c". That is, the demand curve that represents the perfectly elastic demand case is horizontal. We speak of perfectly elastic demand when a change in price, regardless of its proportion, corresponds to an astronomical variation in the quantity demanded.
What has the most elastic demand?In general, necessities and medical treatments tend to be inelastic, while luxury goods tend to be most elastic.
Which supply curve is the most elastic?A horizontal supply curve, as shown in Panel (b) of Figure 5.11 “Supply Curves and Their Price Elasticities”, is perfectly elastic; its price elasticity of supply is infinite. It means that suppliers are willing to supply any amount at a certain price.
What happens to elastic demand when price increases?When the price elasticity of demand is relatively elastic (−∞ < Ed < −1), the percentage change in quantity demanded is greater than that in price. Hence, when the price is raised, the total revenue falls, and vice versa.
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