Question 1

Among the following pairs, which is likely to have the greatest price elasticity of demand? Why?
a. Cars or Toyotas
b. Electricity usage during a month or during a year
c. Cable television or a vacation in Hawaii

Accepted Answer

The answer of Among the following pairs, which is likely...

Question 2

The demand curve for a good is also referred to as the:

Accepted Answer

The demand curve for a good represents the marginal benefit that consumers receive from consuming additional units of that good. Therefore, it is referred to as the marginal benefit curve. The other answer choices refer to different economic concepts, such as production possibilities, derived demand, and utility maximization.

Question 3

The following graph shows the demand and supply curves of a good. Identify the areas of consumer and producer surplus when the market price equals $20.Figure 4.2:

Accepted Answer

The answer of The following graph shows the demand and...

Question 4

Explain the impact of:
a. A rent ceiling set below the equilibrium price.
b. A price floor set above the equilibrium price.

Accepted Answer

The answer of Explain the impact of:
a. A rent ceiling...

Question 5

If a consumer buys six units of a good, _____.

Accepted Answer

According to the law of diminishing marginal utility, as a consumer consumes more units of a good, the additional satisfaction (marginal utility) gained from consuming each additional unit decreases. Therefore, the first units consumed provide more consumer surplus than the later units, because the consumer values them more highly.

Question 6

Prices have soared for parking facilities in downtown Dallas in recent months. Pressure from voters has convinced the Dallas City Council to impose a price ceiling of $5 per day on all parking garages and lots. What effect will this likely have on the market for parking spaces in Dallas? Who will gain? Who will lose?

Accepted Answer

The answer of Prices have soared for parking facilities in...

Question 7

Phil and Lasca have always wanted to take a cruise. Although willing to pay $5,000 for a Caribbean cruise for two, they bought two tickets for the cruise vacation for $3,500. Their total consumer surplus amounted to _____.

Accepted Answer

Consumer surplus is the difference between the maximum amount a consumer is willing to pay for a good or service and the actual amount they paid for it. In this case, Phil and Lasca were willing to pay $5,000 for the cruise, but they only paid $3,500, so their consumer surplus is $1,500 (Option C). The other answer options are not correct because they either do not take into account the actual amount paid for the cruise or overestimate the consumer surplus.

Question 8

In a recent fare war, America West reduced the price of its roundtrip airfare from Charlotte, North Carolina, to New York City from $198 to $138 to match the price charged by American Airlines. America West matched the fare reluctantly, saying it would cost the company millions of dollars in revenue for those tickets to be sold at a lesser price. American Airlines, on the other hand, believed the fare cut would increase its revenue even if rival airlines matched the lower fares. What did each airline assume about the underlying price elasticity of demand for airline tickets on that route?

Accepted Answer

The answer of In a recent fare war, America West...

Question 9

Erin likes a Vera Wang wedding gown priced at $8,000 but feels that the price is excessive. She argues that the company should lower prices not only to benefit customers but also to increase the company's revenues and profits. What has she assumed about the price elasticity of demand for these gowns? Is her assumption likely to be correct or incorrect? Why?

Accepted Answer

The answer of Erin likes a Vera Wang wedding gown...

Question 10

Mia have been hired by the city council to determine whether or not an increase in the price of tickets for the mass transit system would raise system revenues. The debate has been heated and the city council is divided. One side argues that in order to increase revenues from the transit system, prices must be increased. The opposing side argues that a price increase at this time will lower revenues. What assumptions are each side making about the price elasticity of demand, and how should Mia determine the best course of action?

Accepted Answer

The answer of Mia have been hired by the city...

Question 11

Consumer surplus is positive as long as the:

Accepted Answer

Consumer surplus is the difference between what consumers are willing to pay for a good or service (the money value of the marginal benefit) and what they actually pay (the market price). It is positive when the willingness to pay exceeds the market price, as stated in option A.

Question 12

Producer surplus for a particular unit of a good is the:

Accepted Answer

Producer surplus is the difference between the market price and the seller's cost of producing that unit. It represents the amount of surplus profit that the seller earns above their cost of production.

Question 13

Along the demand curve for a good, _____ as larger quantities of the good are consumed during any period.

Accepted Answer

The demand curve typically slopes downward, indicating that as more of a good is consumed, the marginal willingness to pay (or the value consumers place on an additional unit) decreases. This is because the first units consumed are usually the most valued, and each additional unit is valued less, reflecting diminishing marginal utility.

Question 14

Ceteris paribus, a decrease in the market price of a good will result in a(n):

Accepted Answer

Ceteris paribus, a decrease in the market price of a good typically results in an increase in consumer surplus because consumers are paying less for the same quantity of goods, thus deriving more benefit from their purchases at a lower cost.

Question 15

The supply curve of a good can also be referred to as the:

Accepted Answer

The supply curve shows the relationship between the price of a good and the quantity supplied, holding all else constant. It reflects the marginal cost of producing the good, as firms will only supply a higher quantity if they can cover their costs and earn a profit. Therefore, the supply curve is often referred to as the marginal cost curve of the good.

Question 16

Why will one expect that the longer the time suppliers have to adjust to a permanent increase in demand, the more the quantity supplied will change and the less the price will change? Why will it often mean that sudden increases in demand will result in sharp price increases, followed by them going back down?

Accepted Answer

The answer of Why will one expect that the longer...

Question 17

Arrange the following goods from the least to the most elastic, explaining your ordering: gasoline, Shell gasoline, and Shell gasoline at a particular gas station.

Accepted Answer

The answer of Arrange the following goods from the least...

Question 18

Which of the following is true about producer surplus?

Accepted Answer

Producer surplus is the difference between what a producer is paid for a good and the cost of producing that unit of the good. Therefore, option D is the correct choice. Option A is incorrect because a producer does not receive a surplus if the cost of production is higher than the market price. Option B is incorrect because the area under the demand curve but above the supply curve represents consumer surplus, not producer surplus. Option C is incorrect because an increase in the market price due to an increase in demand will increase producer surplus, not decrease it. Option E is incorrect because a decrease in the market price of a good due to a decrease in demand will decrease producer surplus, not increase it.

Question 19

In an attempt to reduce poaching of elephants for ivory, officials in Kenya burned the ivory gathered illegally. Will this move by the officials turn out to be helpful or hurtful?

Accepted Answer

The answer of In an attempt to reduce poaching of...

Question 20

Based upon the following estimates of price elasticity of demand, which markets are the best markets to tax if the government's goal is to raise tax revenue? Why?Table 4.7:

Accepted Answer

The answer of Based upon the following estimates of price...

Quiz 4: Using Supply and Demand

Among the following pairs, which is likely to have the greatest price elasticity of demand? Why? a. Cars or Toyotas b. Electricity usage during a month or during a year c. Cable television or a vacation in Hawaii