Deck 3: Applying the Supply and Demand Model

Question 1

If the supply curve of cigarettes shifts to the left,quantity demanded for cigarettes

A) will decrease substantially.
B) will increase substantially.
C) will slightly increase.
D) will slightly decrease.

Answer 1

D

Question 2

A vertical demand curve results in

A) no change in quantity when the supply curve shifts.
B) no change in price when the supply curve shifts.
C) no change in the supply curve being possible.
D) no change in quantity when the demand curve shifts.

Answer 2

A

Question 3

Explain why the shape of the demand curve will determine how a shock to the market equilibrium affects price and quantity.

Answer 3

A flatter demand curve has a smaller slope in absolute value.That means that consumers are more sensitive to price changes.Therefore,a change in price will cause a large reaction in quantity demanded.

Question 4

The above figure shows the demand curve for crude oil.If the market price is $10 a barrel,what is the price elasticity of demand?

A) -.02
B) -1
C) -10
D) -500

Question 5

The change in price that results from a leftward shift of the supply curve will be greater if

A) the demand curve is relatively steep than if the demand curve is relatively flat.
B) the demand curve is relatively flat than if the demand curve is relatively steep.
C) the demand curve is horizontal than if the demand curve is vertical.
D) the demand curve is horizontal than if the demand curve is downward sloping.

Question 6

If the demand function for orange juice is expressed as Q = 2000 - 500p,where Q is quantity in gallons and p is price per gallon measured in dollars,then the demand for orange juice has a unitary elasticity when price equals

A) $0.
B) $1.
C) $2.
D) $4.

Question 7

If an increase in income results in a rightward parallel shift of the demand curve,then at any given price,the price elasticity of demand will have

A) increased in absolute terms.
B) decreased in absolute terms.
C) remained unchanged.
D) increased, decreased or stayed the same. It cannot be determined.

Question 8

If the demand curve for a good is horizontal and the price is positive,then a leftward shift of the supply curve results in

A) a price of zero.
B) an increase in price.
C) a decrease in price.
D) no change in price.

Question 9

The percentage change in the quantity demanded in response to a percentage change in the price is known as the

A) slope of the demand curve.
B) excess demand.
C) price elasticity of demand.
D) All of the above.

Question 10

Consider the following products.Which of them has the flattest demand curve?

A) insulin
B) alcohol
C) cigarettes
D) butter

Question 11

The above figure shows the demand curve for crude oil.The demand curve has unitary price elasticity when price equals

A) $0.
B) $1.
C) $10.
D) $20.

Question 12

The change in price that results from a rightward shift in demand will be greater if

A) the supply curve is horizontal than if the supply curve is upward sloping.
B) the supply curve is relatively steep than if the supply curve is relatively flat.
C) the supply curve is upward sloping than if the supply curve is vertical.
D) the supply curve is horizontal than if the supply curve is vertical.

Question 13

Suppose the inverse demand curve for a good is expressed as Q = 50 - 2p.If the good currently sells for $3,then the price elasticity of demand is

A) -3 ∗ (2/50).
B) -2 ∗ (50/3).
C) -2 ∗ (3/44).
D) -3 ∗ (44/2).

Question 14

A vertical demand curve for a particular good implies that consumers are

A) sensitive to changes in the price of that good.
B) not sensitive to changes in the price of that good.
C) irrational.
D) not interested in that good.

Question 15

The above figure shows the supply and demand curves for rice in the U.S.and in Japan.Assume there is no trade between the two countries.If bad weather causes the supply curves in each country to shift leftward by the same amount,then

A) the price will increase the same amount in both countries.
B) the price will decrease the same amount in both countries.
C) the price will increase more in Japan than in the U.S.
D) the price will decrease more in Japan than in the U.S.

Question 16

The above figure shows the supply and demand curves for rice in the U.S.and Japan.Assume there is no trade between the two countries.If bad weather causes the supply curves in each country to shift leftward by the same amount,then

A) the price will increase in both countries.
B) the price will decrease in both countries.
C) the change in price cannot be determined.
D) None of the above.

Question 17

Suppose the demand function for a good is expressed as Q = 100 - 4p.If the good currently sells for $10,then the price elasticity of demand equals

A) -1.5.
B) -0.67.
C) -4.
D) -2.5.

Question 18

The current price floor in the agricultural lettuce market makes it such that price of lettuce is 25% higher than equilibrium price and 100 heads of lettuce are demanded.Assuming that the elasticity of demand for lettuce is -0.50,what would be the equilibrium price and quantity of lettuce if the government removed the current price floor?

A) Price = 0.875, Quantity = 125
B) Price = 1, Quantity = 112.5
C) Price = $0.75, Quantity = 112.5
D) Price = $0.75, Quantity = 125

Question 19

If the demand curve for orange juice is expressed as Q = 2000 - 500p,where Q is measured in gallons and p is measured in dollars,then at the price of $3,elasticity equals

A) -0.33.
B) -3.
C) -9.
D) -17.

Question 20

As the supply curve shifts to the right,the increase in quantity demanded will not depend on the shape of the demand curve.

Question 21

Which of the following is most likely to be true?

A) Income elasticity of demand for fur coats exceeds that of oatmeal.
B) Income elasticity of demand for oatmeal exceeds that of fur coats.
C) Income elasticity of demand for fur coats equals that of oatmeal.
D) It is not possible to make any prediction about relative income elasticities.

Question 22

The market demand for wheat is Q = 100 - 2p + 1p_b,where p_b is the price of barley.If the price of wheat is $2,the price elasticity of demand

A) equals (-4/46).
B) equals (-46).
C) equals (-1).
D) cannot be calculated without more information.

Question 23

If a consumer doubles her quantity of ice cream consumed when her income rises by 25%,then her income elasticity of demand for ice cream is

A) 8.0.
B) 4.0.
C) )25.
D) )08.

Question 24

How will a decrease in price affect a firm's revenues?

A) It depends on the price elasticity of demand.
B) Revenues will stay the same.
C) Revenues will decrease.
D) Revenues will increase.

Question 25

If the price elasticity of demand for a good is less than one in absolute value,economists would characterize consumers of this good

A) as not very sensitive to price.
B) as not very sensitive to the quantity they demand.
C) as very sensitive to price.
D) as elastic.

Question 26

If the demand for orange juice is expressed as Q = 2000 - 500p,where Q is measured in gallons and p is measured in dollars,then at the price of $3,the demand curve

A) is elastic.
B) has a unitary elasticity.
C) is inelastic.
D) is perfectly inelastic.

Question 27

If the price of orange juice rises 10%,and as a result the quantity demanded falls by 8%,the price elasticity of demand for orange juice is

A) -1.25.
B) -80.0.
C) -0.80.
D) -10.0.

Question 28

If the price of orange juice rises 10%,and as a result the quantity demanded falls by 8%,the price elasticity of demand for orange juice is

A) -1.25.
B) inelastic.
C) Both A and B above.
D) Neither A nor B above.

Question 29

On a linear demand curve,the lower the price,

A) the less elastic is demand.
B) the more elastic is demand.
C) the elasticity equals -1.
D) the elasticity equals zero.

Question 30

If the price of orange juice rises 10%,and as a result the quantity demanded falls by 10%,then one can conclude that the demand for orange juice

A) is perfectly elastic.
B) is inelastic.
C) has a unitary elasticity.
D) has a constant elasticity.

Question 31

If the demand curve for comic books is expressed as Q = 10,000/p,then demand has a unitary elasticity

A) only when p = 10,000.
B) only when p = 100.
C) always.
D) never.

Question 32

A horizontal demand curve for a good could arise because consumers

A) are irrational.
B) are not sensitive to price changes.
C) view this good as identical to another good.
D) have no equivalent substitutes for this good.

Question 33

The market demand for wheat is Q = 100 - 2p + 1p_b + 2Y.If the price of wheat,p,is $2,and the price of barley,p_b,is $3,and income,Y,is $1000,the income elasticity of wheat is

A) 2 ∗ (1000/2099).
B) 2.
C) 1/2 ∗ (1000/2099).
D) cannot be calculated from the information provided.

Question 34

If a good has an income elasticity of demand greater than 1,one might classify that good as

A) a necessity.
B) a luxury.
C) unusual.
D) inelastic.

Question 35

The cross price elasticity of demand for a good x is the percentage change in the quantity demanded of good x in response to a given percentage change in

A) income.
B) the price of good x.
C) the price of good y.
D) the quantity demanded of good y.

Question 36

If the price elasticity of demand for a good is greater than one in absolute value,economists characterize that demand is

A) elastic.
B) inelastic.
C) perfect.
D) vertical.

Question 37

The cross price elasticity of demand between two goods will be positive if

A) the two goods are complements.
B) the two goods are substitutes.
C) the two goods are luxuries.
D) one of the goods is a luxury and the other is a necessity.

Question 38

If the price of orange juice rises 10%,and as a result the quantity demanded falls by 8%,the price elasticity of demand for orange juice is

A) -1.25.
B) elastic.
C) Both A and B above.
D) Neither A nor B above.

Question 39

If the demand curve for a good always has unitary price elasticity,what does this imply about consumer behavior?

A) Consumers do not react to a price change.
B) Consumers will spend a constant total amount on the good.
C) Consumers are irrational.
D) Consumers do not obey the Law of Demand.

Question 40

The market demand for wheat is Q = 100 - 2p + 1p_b,where p_b is the price of barley.The cross price elasticity of demand for wheat with respect to barley

A) cannot be calculated from just the information provided.
B) is negative.
C) suggests that wheat and barley are complements.
D) equals 1.

Question 41

One reason the U.S.government might subsidize research of an alternative to crude-oil based gasoline is that

A) more substitutes will reduce the price of crude-oil based gasoline.
B) more substitutes will increase the elasticity of crude-oil based gasoline.
C) more substitutes will reduce the impact of supply shocks on the price of crude-oil based gasoline.
D) Any or all of the above.

Question 42

The price elasticity of demand

A) depends on the units in which quantity is measured.
B) depends on the units in which price is measured.
C) depends on the units in which money is measured.
D) is independent of the units in which quantity and price are measured.

Question 43

The elasticity of demand for employees is -0.50.It is also estimated that the existing minimum wage (price floor)has increased the raise the wage by 25% above equilibrium wage.How much would the employment change if the price floor was eliminated?

A) Employment would decrease by 12.5%.
B) Employment would increase by 12.5%.
C) Employment would decrease by 25%.
D) Employment would increase by 25%.

Question 44

The supply curve for tickets for a sporting event

A) is perfectly inelastic.
B) is vertical.
C) has a price elasticity of zero.
D) All of the above.

Question 45

Assume the market demand for wheat may be written as
Q = 45 - 2p + 0.3Y + 1pb
where Y refers to income and pb refers to the price of barley.Assuming that wheat and barley both sell for $1,and income is $20,calculate the price elasticity,cross price elasticity and income elasticity for wheat.

Question 46

An agricultural corn market faces a positive supply shock due to a beneficial rainy season and the use of new genetically modified seeds.As a result,farmers face the largest crop harvest in decades.Which answer below explains how a farm could actually go bankrupt under this scenario.

A) The elasticity of supply for corn is elastic such that a positive shock reduces total revenue.
B) The demand for corn is inelastic such that a positive supply shock reduces total revenue.
C) An inelastic demand curve will cause revenue to fall because price decreases by more than the increase in quantity demanded.
D) B and C

Question 47

When comparing elasticities between two different linear demand curves,the curve that is flatter has greater price elasticity at every given price.

Question 48

Explain why when the demand curve for a good is elastic,a one percent reduction in the price of the good will increase a consumer's expenditure on the good.

Question 49

The current price floor in the agricultural lettuce market makes it such that the price of lettuce is 25% higher than the equilibrium price and that 100 heads of lettuce are demanded.Assuming that the elasticity of demand for lettuce is -0.50,how much would revenue (P ∗ Q)change for the lettuce company if the government removed the current price floor?

A) Revenue will increase by $15.60.
B) Revenue will decrease by $15.60.
C) Revenue will increase by $40.60.
D) Revenue will increase by $ 9.40.

Question 50

If the cross price elasticity of two goods is -3.5,then

A) these two products are relatively elastic substitutes.
B) these two products are relatively inelastic substitutes.
C) these two products are relatively elastic complements.
D) these two products are relatively inelastic complements.

Question 51

The above figure shows three demand curves labeled D₁,D₂,and D₃.Rank these three demand curves in terms of elasticity at a price of c.

Question 52

The number of vehicle types available in the United States has increased dramatically over the past thirty years.Everything else equal,this would make

A) the demand for individual vehicle types to become less elastic.
B) the demand for individual vehicle types to become more elastic.
C) the demand for all vehicle types to become unitary elastic.
D) the demand for low quality vehicle types to become less elastic.

Question 53

The percentage change in the quantity supplied in response to a percentage change in the price is known as the

A) slope of the supply curve.
B) excess supply.
C) price elasticity of supply.
D) All of the above.

Question 54

As prices change,the elasticity of supply describes the movement

A) of a shift in the supply curve.
B) of the equilibrium price.
C) along the supply curve.
D) from a necessity to a luxury good.

Question 55

Explain why the price elasticity of demand changes along a linear demand curve.

Question 56

If a one percent increase in the population leads to a five percent increase in the quantity sold,an economist would claim

A) the good is elastic with respect to population.
B) the good is inelastic with respect to population.
C) the good is a fad.
D) consumers are misinformed about the quality of the product.

Question 57

Because demand curves slope downward according to the Law of Demand,the price elasticity of demand is a negative number.

Question 58

The price elasticity of demand for gasoline is estimated to be -0.2.Two million gallons are sold daily at a price of $3.Use this information to calculate a demand curve for gasoline assuming it is linear.

Question 59

Which good would you expect to have a greater price elasticity: a gallon of gasoline sold at a specific gasoline station on Main Street in Phoenix,a gallon of gasoline sold in Phoenix,or a gallon of gasoline sold in Arizona? Why?

Question 60

In the case of a linear demand curve,demand becomes more price elastic as price increases.

Question 61

If the supply curve for orange juice is estimated to be Q = 40 + 2p,then

A) supply is price elastic at all prices.
B) supply is price inelastic at all prices.
C) supply is elastic only at prices below 20.
D) No general statements about price elasticity of supply can be made.

Question 62

In the mid-1980s,the salaries of accounting professors with Ph.D.s increased dramatically.This resulted in an increase in enrollments in Ph.D.accounting programs.Since a Ph.D.degree in accounting may take at least four years to complete,the short-run elasticity of supply of accounting professors is

A) greater than the long-run-elasticity of supply.
B) less than the long-run elasticity of supply.
C) equal to the long-run elasticity of supply.
D) equal to the short-run elasticity of demand.

Question 63

Consider Sam and Linda both drive a relatively inefficient sport utility vehicle (SUV).Sam has a lease that doesn't expire for three years whereas Linda owns her sport utility vehicle free and clear.If the price of gasoline was to increase by fifty percent,which of these statements is most likely true?

A) Linda will have a less elastic response than Sam.
B) Sam will have a less elastic response than Linda.
C) Sam and Linda will have identically elastic responses.
D) Sam will have a more elastic response than Linda.

Question 64

As more people quit smoking in the United States,what is expected to happen to the price elasticity of supply of cigarettes?

A) It will decrease.
B) It will increase.
C) It can increase or decrease.
D) It will not change.

Question 65

Electricity accounts for almost 20% of the cost of making steel.A 10% increase in electricity prices results in steel firms decreasing production and thereby demanding 5% less electricity.Over many years,technological innovations can change the way steel firms make steel and reduce the industry's energy requirements.This suggests that the steel industry's short-run elasticity of demand for electricity is probably

A) less than one in absolute terms in the short run.
B) less than its long-run elasticity of demand for electricity.
C) Both A and B above.
D) Neither A nor B above.

Question 66

The rising price of oil has made it feasible to extract oil out of oily sand in Canada.Concerning the oil market this is an example of

A) a higher price elasticity of supply in the long run.
B) a higher price elasticity of supply in the short run.
C) a higher price elasticity of demand in the short run.
D) an inelastic long-run supply of oil.

Question 67

Relative to the short-run demand for gasoline,the long-run demand for gasoline is

A) probably more elastic since people need time to change automobiles and driving habits.
B) probably less elastic since people need time to change automobiles and driving habits.
C) probably more elastic because people can hoard this good.
D) probably less elastic because people cannot store this good.

Question 68

A given supply curve has a zero intercept.At the current equilibrium price the price elasticity of supply equals

A) 1.
B) 0.
C) 2.
D) Not enough information.

Question 69

The elasticity of supply of rental units in New York City is estimated to be about 0.10.Current price restrictions (price floors)are estimated to decrease the price of rental units by 10% below equilibrium price.By how much would price and quantity supplied change if the price floors were removed from the rental unit market in New York City?

A) Price will increase by 10% and quantity supplied will increase by 1%.
B) Price will decrease by 10% and quantity supplied will increase by 1%.
C) Price will increase by 10% and quantity supplied will decrease by 1%.
D) Price and quantity supplied will increase by 10%.

Question 70

Which of the following goods probably has the lowest (absolute value)short-run price elasticity of demand?

A) fresh fruit
B) frozen dinners
C) cars
D) refrigerators

Question 71

The price elasticity of supply when the supply curve is Q = 5 is

A) 5.
B) perfectly inelastic.
C) perfectly elastic.
D) Cannot be calculated from the information provided.

Question 72

In the late 1980s,the health benefits of oat bran were widely advertised.If the price of oats increased 50%,causing the quantity of oats supplied to increase by 40%,then the price elasticity of supply was

A) 1.25.
B) -1.25.
C) -0.80.
D) 0.80.

Question 73

Why is the supply of oil more price elastic in the long run?

A) New deposits are found.
B) Better extraction technology is developed.
C) Firms have the ability to change the amount of all inputs.
D) All of the above.

Question 74

The duration of the "short-run"

A) is one year.
B) is the same for all goods.
C) depends on the relative short-run elasticity of demand and supply for the good.
D) depends on how long it takes consumers or firms to adjust for a particular good.

Question 75

If the supply curve for orange juice is estimated to be Q = 40 + 2p,then,at a price of $2,the price elasticity of supply is

A) )01.
B) )09.
C) 1.
D) 11.

Question 76

A vertical supply curve exhibits

A) a constant elasticity of supply.
B) a perfectly inelastic supply curve.
C) Both A and B are true.
D) None of the above.

Question 77

The short-run elasticity of supply is less than the long-run elasticity of supply

A) because consumers' tastes and preferences change in the long run but not in the short run.
B) because producers can adjust the amount of machinery in the long run but not in the short run.
C) only for durable goods.
D) only for non-durable goods.

Question 78

As the demand for corn increases to provide input for ethanol production,what is expected to happen to the price elasticity of corn supply?

A) It will decrease.
B) It will become zero.
C) It will increase.
D) It will not change.

Question 79

Some environmental groups are on record suggesting that the price of gasoline should be much higher than it was in the early 1990s.Why might they say this?

A) They own stock in oil companies.
B) They anticipate that the longer the price is high, the more elastic the response by consumers will be.
C) They anticipate that the longer the price is high, the less elastic the response by consumers will be.
D) They anticipate that higher prices will reduce the price elasticity of supply of oil.

Question 80

The supply of movie tickets at one theater's box office for this Saturday's 4:30 show of a new movie is

A) perfectly elastic until all seats are filled.
B) unit elastic.
C) perfectly inelastic.
D) elastic.