Question 1

Suppose the price of gasoline is $1.25 per litre, the quantity of gasoline demanded is 40 billion litres per year, the price elasticity of demand for gasoline is -0.06, and the federal government decides to increase the excise tax on gasoline by $0.75 per litre, which increases the price of gasoline by $0.50 per litre.What is the new equilibrium quantity of gasoline demanded after the tax is imposed?

Accepted Answer

The price elasticity of demand formula is: % change in quantity demanded = elasticity * % change in price. The % change in price is ($0.50/$1.25) * 100 = 40%. The change in quantity demanded is -0.06 * 40% = -2.4%. The new quantity demanded is 40 billion litres * (1 - 0.024) = 39.04 billion litres, which is approximately 39.21 billion gallons per year.

Question 2

Figure 6.5
 
-Refer to Figure 6.5.Identify the two goods which are complements.

Accepted Answer

The answer of Figure 6.5
 
-Refer to Figure 6.5.Identify the...

Question 3

If a firm is in an antitrust court case being accused of monopolizing a product, the firm would hire an economist to show

Accepted Answer

The answer of If a firm is in an antitrust...

Question 4

The demand for most farm products is relatively inelastic.All else constant, what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases in productivity?

Accepted Answer

The answer of The demand for most farm products is...

Question 5

The price of wheat has fallen since 1960.Which of the following explains this price decline?

Accepted Answer

When the price elasticity of demand is less than 1, demand is inelastic, meaning that a decrease in price leads to a smaller percentage increase in quantity demanded. If the income elasticity of demand is low, it means that changes in income have little effect on the demand for wheat, contributing to a decline in price as supply may have increased more than demand.

Question 6

Demand for staples such as dairy products and bread is likely to be both income and price inelastic.

Accepted Answer

This is because these items are considered necessities and people will likely continue to purchase them regardless of changes in income or price.

Question 7

In the alcohol industry, both wine and spirits are considered to be substitutes for beer.

Accepted Answer

The answer of In the alcohol industry, both wine and...

Question 8

For people who live near a bus route, a subway station, or a commuter rail line, public transportation provides a substitute to driving their own cars.So, for these people, the cross-price elasticity of demand between gasoline and public transportation is

Accepted Answer

The answer of For people who live near a bus...

Question 9

Between 1931 and 2014 the number of acres devoted to wheat production in Canada ________ and the price of wheat ________.

Accepted Answer

The number of acres devoted to wheat production in Canada declined due to various factors such as changes in agricultural practices and crop diversification, while the price of wheat increased due to inflation and changing market demands.

Question 10

Suppose Québec's largest nursing union, Fédération interprofessionelle de la santé du Québec (FIQ), successfully secured a 12 percent increase in the wages of registered nurses.If a hospital responds by reducing the quantity of registered nurses hired and increasing the quantity of physician's assistants hired, what conclusion can you draw?

Accepted Answer

The hospital's response indicates that registered nurses and physician's assistants are substitutes. When the wage of registered nurses increases, the hospital hires more physician's assistants, suggesting a positive cross-price elasticity of demand.

Question 11

Suppose a frost destroys the alfalfa crop in Manitoba but farmers see an increase in their revenues.Which of the following best explains this?

Accepted Answer

The answer of Suppose a frost destroys the alfalfa crop...

Question 12

Suppose a 4 percent increase in income results in a 2 percent decrease in the quantity demanded of a good.Calculate the income elasticity of demand for the good and determine what type of good it is.

Accepted Answer

The answer of Suppose a 4 percent increase in income...

Question 13

In recent years, the prices of new domestically produced cars have been falling.Suppose consumers respond by reducing their demand for used cars and mass transport services such as bus travel.This information suggests that the cross-price elasticity between new cars and used cars, and the cross-price elasticity between new cars and bus travel are negative.

Accepted Answer

The answer of In recent years, the prices of new...

Question 14

In September 2006, the Canadian Food Inspection Agency recommended that Canadians avoid eating imported raw spinach in the wake of an outbreak of E.coli bacteria in the United States.Following this recommendation, the food industry looked at alternatives and many turned to arugula.One U.S.distributor claimed, "The sale of the stuff has gone through the roof." Based on this information,

Accepted Answer

The increased demand for arugula following the E.coli outbreak suggests that it is a substitute for raw spinach. Therefore, the cross-price elasticity between arugula and spinach is positive, meaning that as the price of spinach increases or there is a decrease in its availability, the demand for arugula increases. Option A is incorrect, as there is no evidence to suggest that raw spinach is an inferior good. Option B is incorrect, as a negative cross-price elasticity would indicate that the two goods are complements, meaning that as the price of one increases, the demand for the other decreases. Option D is also incorrect, as there is no information provided on the price elasticity of either arugula or spinach.

Question 15

What factors would make you more sensitive or less sensitive to price when purchasing gasoline?

Accepted Answer

The answer of What factors would make you more sensitive...

Question 16

The cross-price elasticity of demand between an unlimited texting option and an unlimited call minutes option offered from a cell phone provider would be

Accepted Answer

The cross-price elasticity of demand between two goods is positive when they are considered as substitutes for each other, meaning that an increase in the price of one good would lead to an increase in demand for the other good. In this case, if the price of an unlimited texting option increases, subscribers may shift their demand to the unlimited call minutes option and vice versa, indicating that they are substitutes for each other.

Question 17

Suppose the price of gasoline is $1.25 per litre, the quantity of gasoline demanded is 40 billion litres per year, the price elasticity of demand for gasoline is -0.06, and the federal government decides to increase the excise tax on gasoline by $0.75 per litre, which increases the price of gasoline by $0.50 per litre.How much revenue does the federal government receive from the tax?

Accepted Answer

To calculate the revenue from the tax, we need to first calculate the new price of gasoline:

New price = $1.25 + $0.50 + $0.75 = $2.50 per litre

Now we can calculate the new quantity of gasoline demanded using the price elasticity of demand formula:

% change in quantity demanded = (price elasticity of demand) x (% change in price)

Since we know that the % change in price is 50/125 = 0.4, we can solve for the % change in quantity demanded:

-0.06 x 0.4 = -0.024

This means that the new quantity demanded will be:

New quantity = 40 billion litres x (1 - 0.024) = 39.04 billion litres

The revenue from the tax is simply the tax per litre multiplied by the new quantity demanded:

Revenue = $0.75 x 39.04 billion litres = $29.41 billion

Therefore, the best choice is (C).

Question 18

If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number, then it indicates that

Accepted Answer

A large positive cross-price elasticity of demand between two goods indicates that they are close substitutes. This means that a change in the price of one will have a significant impact on the demand for the other. In this case, if the price of Breeze Detergent were to increase, consumers may switch to Faber Detergent since it is a close substitute, causing an increase in demand for Faber Detergent. Similarly, if the price of Faber Detergent were to increase, consumers may switch to Breeze Detergent, causing an increase in demand for Breeze Detergent.

Question 19

Which of the following is one reason why the income of small family farms has decreased over time?

Accepted Answer

The demand for farm products is price elastic, meaning that a small change in price will lead to a large change in quantity demanded. This means that when the price of farm products falls, farmers will sell less of their products, which will lead to a decrease in their income.

Question 20

Figure 6.5
 
-Refer to Figure 6.5.Identify the two goods which are substitutes.

Accepted Answer