Deck 4: Supply and Demand: Elasticity and Applications

Question 1

If you want to purchase a good that decision will not depend on which one of the following items?

A)The price of the good.
B)Your tastes.
C)The prices of substitute goods.
D)Your income.
E)The elasticity of supply.

Answer 1

The elasticity of supply.

Question 2

During the first year that the Salk vaccine for infantile paralysis became available, the quantity produced was too small to inoculate all those in susceptible age groups.Although the cost of production and the price were not particularly high, production could not be expanded rapidly enough to meet the demand.The government therefore intervened to regulate its distribution.What do these facts suggest about the price of Salk vaccine during the first year it was available? It was:

A)at equilibrium and government should not have intervened.
B)above equilibrium and a price ceiling was required.
C)below equilibrium and a price ceiling was required.
D)indeterminate.
E)below equilibrium so there was a shortage

Answer 2

below equilibrium so there was a shortage

Question 3

The government levies an excise tax of 5 cents per unit sold on the sellers in a competitive industry.Both supply and demand curves have some elasticity with respect to price.This tax means that the:

A)supply curve shifts up by 5 cents, but (unless demand is perfectly elastic)price will not rise.
B)supply curve shifts up by less than 5 cents, but (unless demand is highly elastic)price will rise by the full 5 cents.
C)supply curve shifts up by less than 5 cents, but (unless demand is highly inelastic)price will rise by more than 5 cents.
D)supply curve shifts up by 5 cents, but (unless supply is perfectly elastic)any price rise will be less than 5 cents.
E)demand curve shift up by 5 cents and price will rise by 5 cents.

Answer 3

supply curve shifts up by 5 cents, but (unless supply is perfectly elastic)any price rise will be less than 5 cents.

Question 4

Rank the supply curves in the figure below in order of greatest to least price elasticity at the common intersection point.

A)C, A, B.
B)B, A, C.
C)B, C, A.
D)A, B, C.
E)None of the above.

Question 5

A cost cutting technical advance in the production of cars will cause:

A)the demand curve for cars to rise.
B)the demand curve for cars to fall.
C)no change in the supply of, or demand for cars.
D)a rightward shift in the supply curve of cars.
E)a leftward shift in the supply curve for cars.

Question 6

Rank the demand curves in the figure below in order of greatest to least price elasticity of demand at their in common intersection point.

A)A, B, C.
B)B, C, A.
C)B, A, C.
D)C, A, B.
E)none of the above.

Question 7

The price elasticity of demand is the:

A)change in total revenue divided by the change in price.
B)change in price divided by the change in quantity demanded.
C)percentage change in price divided by the percentage change in quantity demanded.
D)quantity demanded divided by the change in price.
E)percentage change in quantity demanded divided by the percentage change in price.

Question 8

An increase in supply will lower price unless:

A)supply is perfectly price inelastic.
B)demand is perfectly price elastic.
C)it is followed by a reduction in quantity demanded.
D)demand is highly price inelastic.
E)both demand and supply are highly price inelastic.

Question 9

During the summer of 1978, the airlines had a large increase in revenues after introducing a large number of bargain fares.Which of the following is a possible explanation?

A)Demand was price inelastic.
B)Demand was price elastic.
C)The demand curve had shifted leftward.
D)All the above.
E)None of the above.

Question 10

If a demand curve displays unitary elasticity, an upward shift in the supply curve will:

A)raise total revenue.
B)lower total revenue.
C)have no effect on total revenue.
D)have an indeterminant effect on total revenue.

Question 11

How do companies use price elasticity to improve their business?

A)By separating customers into groups, companies can attract different groups with different prices.
B)Companies can force everyone to pay the same price regardless of demand.
C)Companies can ignore price elasticity, it cannot improve business.
D)Customers are all the same and price elasticity is the same for all of them.
E)None of the above.

Question 12

A vertical supply curve may be described as:

A)relatively price elastic.
B)perfectly price inelastic.
C)relatively price inelastic.
D)perfectly price elastic.
E)none of the above are accurate descriptions.

Question 13

Rank the points A, B and C on the demand curve in the figure below in order of greatest to least elasticity of demand.

A)C, A, B.
B)B, A, C.
C)A, B, C.
D)They are of equal elasticity.
E)More information is needed.

Question 14

The government has declared that they will purchase every bushel of wheat you can produce, at the price of $15 per bushel.Which of the diagrams shows the government's demand curve?

A)a.
B)b.
C)c.
D)d.
E)None of these diagrams.

Question 15

Use the following to answer questions :
Figure 4-1
The price elasticity of supply shown in Figure 4-1 between points A and B is:

A).1.
B).5.
C)1.
D)5.
E)none of the above.

Question 16

A change in the supply of a given good could be caused by

A)a change in demand for the good.
B)a change in consumer preferences.
C)a change in technology that affects of production costs.
D)introduction of new consumers into the market.
E)none of the above.

Question 17

If at a price of $10, quantity bought will be 5400 per day, and at $15, quantity bought will be 4600 per day, then the price elasticity of demand is approximately:

A)0.2.
B)0.4.
C)0.6.
D)2.5.
E)6.0.

Question 18

Which of the following might explain why farm revenues are higher in years of lower production due to bad weather?

A)Demand is more elastic than supply.
B)Supply is perfectly elastic.
C)Demand is relatively inelastic; a leftward shift in supply will increase total revenue.
D)Supply is relatively inelastic; a leftward shift in supply will increase total revenue.
E)None of the above.

Question 19

How is it possible for a corn farmer to have a bumper crop season and yet make less income?

A)demand for corn is elastic.
B)demand for corn is inelastic.
C)demand for corn is unit elastic.
D)corn has lots of substitutes.

Question 20

Suppose that demand is everywhere price inelastic.In this case, a contraction in the quantity supplied at every price must cause:

A)total revenue to climb.
B)total revenue to fall.
C)total revenue to remain flexed as profits fall.
D)any of the above depending upon circumstance.
E)either answer a or c, depending upon circumstance.

Question 21

An increased government excise tax on liquor will NOT affect liquor consumption if:

A)the demand for liquor is perfectly elastic.
B)consumer tastes change.
C)the demand for liquor is perfectly inelastic.
D)liquor production becomes more expensive.
E)the supply of liquor is perfectly elastic.

Question 22

The government reduces the excise tax on the sellers in a competitive industry by $10 per unit sold.Both supply and demand curves have some elasticity with respect to price.This reduction in tax means that:

A)supply curve shifts down by $10, but (unless demand is perfectly elastic)price remain constant.
B)supply curve shifts down by less than $10, but (unless demand is highly inelastic)price falls by more than $10.
C)supply curve shifts down by less than $10, but (unless demand is highly elastic)price falls by $10.
D)supply curve shifts down by $10, but (unless supply is perfectly elastic)any price decline is less than $10.
E)demand curve shift down by $10 and price falls by $10.

Question 23

Use the following to answer questions :
Figure 4-2
Refer to the Figure 4-2.What is the elasticity of the demand curve DD between points A and B?

A)3.67
B)1.8
C)1.0
D)0.56
E)None of the above

Question 24

A horizontal demand curve may be described as:

A)relatively price elastic.
B)perfectly price inelastic.
C)relatively price inelastic.
D)perfectly price elastic.
E)unit elastic.

Question 25

Recently a railroad asked the state commerce commission for permission to increase its commuter rates by 20 percent.The railroad argued that declining revenues made this rate increase essential.Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike.It can be concluded that:

A)the railroad felt that the demand for passenger service was elastic and the opponents of the rate increase felt it was inelastic.
B)the railroad felt that the demand for passenger service was inelastic and the opponents of the rate increase felt it was elastic.
C)both groups felt that the demand was inelastic but for different reasons.
D)both groups felt that the demand was elastic but for different reasons.
E)both groups felt that the demand was inelastic for the same reason.

Question 26

Suppose that a large city is investigating the elimination of rent controls on housing at a time when the vacancy rate is extremely low-only 1 percent of all apartments in the city are vacant.Which of the following is most likely to occur if rent controls are eliminated?

A)An increase in the demand for housing, followed by a decrease in the supply of housing.
B)An increase in rents, perhaps followed later by an increase in the supply of housing.
C)A decrease in rents and a decrease in the supply of housing.
D)No change in rents, since price controls are usually set where supply and demand intersect.
E)A decrease in the demand for housing, followed by a decrease in the supply of housing.

Question 27

An increase in the minimum wage will automatically accomplish the following:

A)everyone's wages will go up.
B)everyone's wages will go down.
C)wages won't change.
D)unemployment will likely go down.
E)unemployment will likely go up.

Question 28

A shift to the left of the demand curve for X together with a shift to the right of the supply curve for X tends to:

A)increase the price of X; the effect upon the quantity exchanged is indeterminate.
B)increase the price of X and to increase the quantity exchanged.
C)decrease the price of X and to decrease the quantity exchanged.
D)decrease the price of X; the effect upon quantity exchanged is indeterminate.
E)make changes in both the price of X and the quantity of X exchanged that are indeterminate.

Question 29

What is meant by "the incidence of the tax"?

A)how much is the tax.
B)why the tax rate changed.
C)who changed the tax.
D)ultimate economic effect of the tax on the real income of consumers and producers.

Question 30

The government declares that it is prepared to sell any and all cotton yard goods from its surpluses to domestic purchasers at a price of $2 per yard.Which-if any-of the four panels in the figure below could be used as shown to illustrate this government supply situation?

A)a.
B)b.
C)c.
D)d.
E)None of these diagrams.

Question 31

If a good is in fixed supply, then the incidence of a tax

A)falls entirely on the consumers.
B)falls mostly on the producers and partly on consumers.
C)falls entirely on the producers.
D)depends on the elasticity of demand.
E)none of the above.

Question 32

"If its advocates are correct, the minimum-wage bill passed by the House of Representatives would raise wages for nearly 7 million underpaid workers, but would have no noticeable effect on employment." The quotation implies that the demand for the labor services of the 7 million workers mentioned, with respect to the price of labor services, has elasticity equal to:

A)2.
B)5.
C)1.
D)0.
E).5

Question 33

Given a relatively, but not perfectly, price elastic supply curve, an increase in demand will certainly:

A)raise price but leave quantity sold unchanged.
B)raise price and increase quantity sold.
C)lower price, since supply cannot increase except through the inducement of higher price.
D)reduce quantity sold but leave price unchanged.
E)do none of the above, since "increase in demand" refers to a movement along a given demand curve.

Question 34

If demand is relatively price inelastic:

A)a 1 percent increase in price evokes a less than 1 percent decrease in quantity demanded.
B)a 1 percent increase in price evokes a larger than 1 percent decrease in quantity demanded.
C)a 1 percent decrease in price evokes a larger than 1 percent increase in quantity demanded.
D)a 1 percent decrease or increase in price induces no change in total revenue.
E)none of the above.

Question 35

Use the following to answer questions :
Figure 4-2
Refer to Figure 4-2.What is the elasticity of the demand curve DD between points C and D?

A)3.33
B)1.8
C)1.0
D)0.56
E)None of the above

Question 36

If the elasticity coefficient of demand for coconuts is .40, then a 20% fall in price will result in:

A)a 20% rise in quantity demanded.
B)an 8% rise in quantity demanded.
C)a 200% rise in quantity demanded.
D)a 50% rise in quantity demanded.

Question 37

A price subsidy of 20 cents per gallon on milk (which does not have a perfectly inelastic demand curve)will result in a:

A)change in consumer tastes.
B)decrease in the equilibrium price of 20 cents per gallon.
C)decrease in the equilibrium price of less than 20 cents per gallon.
D)decrease in the equilibrium price of more than 20 cents per gallon.

Question 38

Use the following to answer questions :
Figure 4-1
The price elasticity of supply shown in Figure 4-1 between points B and C is:

A).1.
B).5.
C)1.
D)5
E)none of the above.

Question 39

Given the supply and demand curves shown in the figure below, a $1 tax on sales should be expected to cause:

A)price to increase by $1 with quantity unchanged.
B)quantity to fall with price left unchanged.
C)no change in either price or quantity.
D)price to rise and quantity to fall.
E)quantity to increase with price left unchanged.

Question 40

Use the following to answer questions :
Figure 4-2
Refer to Figure 4-2.What is the elasticity of the demand curve DD between points B and C?

A)3.33
B)1.8
C)1.0
D)0.56
E)None of the above

Question 41

A bumper harvest automatically means that farmers will have higher incomes.

Question 42

Use the following to answer questions :
Figure 4-2
Refer to Figure 4-2.Assume that the sellers in this market wish to maximize their total revenue.What price should they set along DD in order to maximize total revenue?

A)$5
B)$4
C)$3
D)S2
E)None of the above

Question 43

If you raise your prices on the product you sell, you will always increase total revenue.

Question 44

With all of the new technology available, farmers have been able to greatly increase the supply of agricultural goods.

Question 45

Economists make a distinction between an increase in supply and an increase in quantity supplied.

Question 46

Dollar receipts for every commodity will always be higher at lower prices.

Question 47

Consider some price range in which a slight change in either direction will have practically no effect on total revenue.This part of the demand curve is said to have unitary elasticity.

Question 48

Use the following to answer questions :
Figure 4-2
Refer to Figure 4-2 once again.Suppose that now the demand curve has shifted to D'D'.At what point along D'D' is price elasticity equal to 1?

A)G
B)between G and H.
C)H.
D)between H and I.
E)I.

Question 49

Price elasticity is the same as the slope of the curve.

Question 50

A straight-line demand curve, unless vertical or horizontal, does not have constant elasticity at every point.

Question 51

An increase in population will increase the rent of land.

Question 52

If a 1 percent change in price causes a 1 percent change in quantity demanded, then demand is unit elastic.

Question 53

Imposing a minimum wage may cause the quantity of labor services demanded to fall short of the quantity that laborers are willing to supply at the minimum wage.

Question 54

An increase in cigarette taxes can lead to fewer packs being smoked.

Question 55

Use the following to answer questions :
Figure 4-2
Refer again to Figure 4-2.At what point along the demand curve DD is price elasticity exactly 1?

A)P = 5, Q = 40
B)P = 4, Q = 60
C)P = 3,Q = 80
D)P = 2, Q = 100
E)P = 3.50, Q = 70

Question 56

If at a price of $8, the quantity of movie tickets bought will be 3300 per day, and at $12, the ticket quantity bought will be 2700 per day, then the price elasticity of demand for movie tickets is approximately:

A)0.4
B)0.5
C)0.7
D)2.0
E)2.5

Question 57

Sales of the common necessities of life tend to increase sharply when there is a drop in their price.

Question 58

When a reduction in the price of a college yearbook from $10 to $5 fails to increase the quantity sold, demand for the product must be perfectly inelastic.

Question 59

If a 1 percent change in price causes a 5 percent change in quantity demanded, then demand is price inelastic.

Question 60

The price elasticity of demand measures the ratio of percentage change in quantity demanded to percentage change in price.

Question 61

Society can easily fulfill everyone's desires, we just need government to step in and help out.

Question 62

When demand displays unitary price elasticity at all parts, total revenue is the same at all prices.

Question 63

Use the following to answer questions :
Figure 4-3
In Figure 4-3 elasticity of supply is greater than the elasticity of demand (in absolute value)at equilibrium.

Question 64

Most studies indicate that a 10 percent increase in the minimum wage would reduce employment of teenagers by between 1 and 3 percent.

Question 65

Use the following to answer questions :
Figure 4-4
The sales tax benefits the suppliers in the market depicted by Figure 4-4 since they now receive $40 per unit in equilibrium, while they had previously only received $30.00 per unit.

Question 66

Use the following to answer questions :
Figure 4-3
If the government then decides to set a price floor of $20 for the market in Figure 4-3, there is excess supply and 60 units of goods will be purchased.

Question 67

Economists distinguish between an increase in the quantity demanded and an increase in demand.

Question 68

If the government imposes higher taxes on oil the producers may have to pay part of it.

Question 69

Dollar receipts for sellers of some commodities will be lower at higher prices.

Question 70

A straight-line supply curve has a price elasticity equal to 1 everywhere along it.

Question 71

Sales of the common necessities of life tend to decrease sharply when there is an increase in their price.

Question 72

Use the following to answer questions :
Figure 4-4
The elasticity of S'S' in Figure 4-4 at equilibrium is negative.

Question 73

The more price inelastic the demand for a good, the greater tends to be the incidence on consumers of a per-unit tax.

Question 74

Use the following to answer questions :
Figure 4-4
Suppose the government decides to impose a $20.00 per unit, sales tax shifting the supply curve in Figure 4-4 up to S'S'.Since the suppliers have the more inelastic supply curve, the suppliers bear a greater burden of the sales tax.

Question 75

A perfectly price inelastic demand curve must be a vertical line.

Question 76

Everyone agrees that increasing the minimum wage is the best thing for the economy.

Question 77

In general, supply curves become less elastic the longer the time period under consideration.

Question 78

When all farmers have a small harvest, their total (combined)revenue may actually go up.This shows that the market demand for these agricultural products is relatively price inelastic in this price range.

Question 79

Use the following to answer questions :
Figure 4-3
If, for the market depicted in Figure 4-3, the government sets a price ceiling of $25, then the market can't adjust and there is excess supply.