Question 1

For all goods,the long run demand curve is always more elastic than the short run demand curve.

Accepted Answer

Goods that can be easily stored may have a more elastic short run demand curve than long run.

Question 2

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?

Accepted Answer

The elasticity of supply measures how much the quantity supplied responds to a change in price. With an elasticity of 0.10, a 10% increase in price (removing the price floor allows prices to return to equilibrium, which is 10% higher) would lead to a 1% increase in quantity supplied (0.10 elasticity multiplied by the 10% price increase).

Question 3

The short-run price elasticity of demand for refrigerators is relatively inelastic.

Accepted Answer

People can put off buying a refrigerator in the short run.Therefore demand is elastic in the short run.

Question 4

Consumers will always pay the entire amount of a specific tax whenever

Accepted Answer

When demand is perfectly inelastic, consumers will buy the same amount regardless of price changes, absorbing the full tax. When supply is perfectly elastic, producers can sell as much as they want at a certain price, so any tax is fully passed on to consumers.

Question 5

Suppose the supply curve and the demand curve both have unitary elasticity at all prices.The price increase to consumers resulting from a specific tax of $1 imposed on sellers will be

Accepted Answer

With unitary elasticity for both supply and demand, the tax burden is evenly split between consumers and producers. Thus, a $1 tax results in a 50-cent increase in price for consumers.

Question 6

Explain why short-run demand for frozen fish sticks may be more price elastic in the short run than in the long run.

Accepted Answer

The answer of Explain why short-run demand for frozen fish...

Question 7

The National Association of Business Schools recently required that all business schools must hire three additional people with Ph.D.degrees in English literature.What is the immediate effect on the salaries of people with Ph.D.s in English literature? What will be the effect after ten years?

Accepted Answer

The answer of The National Association of Business Schools recently...

Question 8

Suppose the demand curve for a good is downward sloping and the supply curve is upward sloping.At the market equilibrium,if demand is more elastic than supply in absolute value,a $1 specific tax will

Accepted Answer

When demand is more elastic than supply, the burden of tax will fall more on consumers than on producers. So, the price increase to consumers will be less than the amount of tax, which is $1 in this case. Research has shown that the price increase to consumers will be equal to the amount of the tax multiplied by the ratio of the elasticity of demand to the sum of the elasticity of demand and the elasticity of supply. In this case, since demand is more elastic than supply, the elasticity of demand (in absolute value) is greater than the elasticity of supply, so the price increase to consumers will be less than 50 cents ($0.50).

Question 9

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?

Accepted Answer

Sam will have a less elastic response than Linda. This is because Sam has a lease that doesn't expire for three years, meaning he is locked into paying his current car payments, including gas costs. Linda, on the other hand, owns her car and can choose to drive it less or switch to a more fuel-efficient car if gas prices increase. Therefore, Linda has more flexibility to respond to the increase in gas prices than Sam, making her response more elastic.

Question 10

For a given positively sloped supply curve,the price increase to consumers resulting from a specific tax imposed on sellers will be

Accepted Answer

The price increase to consumers resulting from a specific tax imposed on sellers will be greater the less price elastic demand is. This is because when demand is inelastic, consumers are less responsive to price changes, meaning they will continue to buy the product even as the price increases, allowing sellers to pass more of the tax onto consumers.

Question 11

Suppliers with a high supply elasticity will bear a ________ tax incidence,while suppliers with a low supply elasticity will bear a ________ tax incidence.

Accepted Answer

Suppliers with a high supply elasticity can more easily adjust their quantity supplied in response to tax changes, thus passing more of the tax burden to consumers, leading to a lower tax incidence for them. Conversely, suppliers with low supply elasticity cannot easily adjust, bearing a higher or full tax incidence themselves. Both A and C statements are correct, reflecting this understanding.

Question 12

If a government wants to maximize revenues from a tax,it should

Accepted Answer

If a good has a relatively inelastic demand, it means that consumers will still buy the good even if the price increases due to the tax imposed. This means that the government can generate more revenue without significantly reducing the quantity demanded by consumers. In contrast, if a good has a relatively elastic demand, consumers are more likely to reduce their quantity demanded in response to a price increase, which can offset the government's revenue increase from the tax. Therefore, choosing a good with a relatively inelastic demand is the best option for maximizing tax revenue.

Question 13

In the elastic portion of the supply,small changes in prices lead to ________ changes in quantity,while in the inelastic portion of the supply curve,small changes in prices lead to ________ changes in quantity.

Accepted Answer

In the elastic portion of the supply, producers are very sensitive to price changes and will adjust their quantity supplied significantly in response to small price changes. Therefore, small changes in prices lead to large changes in the quantity supplied, hence D is the correct answer. On the other hand, in the inelastic portion of the supply curve, producers are not very responsive to price changes, so small changes in prices lead to small changes in the quantity supplied.

Question 14

If a linear supply curve has a zero intercept,the elasticity of supply is always unitary.

Accepted Answer

A linear supply curve from the origin takes the form Q = ap.Elasticity equals a ∗ p/Q.Substituting for Q yields a ∗ p/ap.Numerator and denominator cancel and the elasticity equals one at every price.

Question 15

A specific tax on sellers will

Accepted Answer

A specific tax on sellers will increase their costs of production, leading to a decrease in supply. This means that the supply curve would shift to the left.

Question 16

Suppose the demand curve is perfectly inelastic and the supply curve is upward sloping.The price sellers receive after a specific tax is imposed on sellers

Accepted Answer

The answer of Suppose the demand curve is perfectly inelastic...

Question 17

Explain whether you would expect the elasticity of supply to be highly elastic or inelastic for fresh cut flowers and why.

Accepted Answer

The answer of Explain whether you would expect the elasticity...

Question 18

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?

Accepted Answer

Environmental groups likely support higher gasoline prices because they believe it will lead to a more elastic response by consumers over time, meaning consumers will adjust their behavior to use less gasoline as prices remain high. This could include driving less, using more fuel-efficient vehicles, or switching to alternative forms of transportation, ultimately leading to reduced carbon emissions and environmental impact.

Question 19

If the demand curve for a good is unit price elastic and the supply curve is perfectly price elastic,a $1 specific tax imposed on the sellers of this good will

Accepted Answer

When a specific tax is imposed on sellers, the supply curve shifts vertically upwards by the amount of the tax, in this case, $1. This is because the tax effectively increases the cost of supplying the good by $1 at every quantity, which is represented graphically by shifting the supply curve upwards.

Question 20

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

Accepted Answer

The price elasticity of supply measures how much the quantity supplied responds to a change in price. As more people quit smoking, demand for cigarettes decreases. This can lead to an oversupply situation where producers are more responsive to price changes in an attempt to sell their product, thus potentially making the supply less elastic as they may reduce production or exit the market, leading to a decrease in the elasticity of supply.

Quiz 3: Applying the Supply-And-Demand Model