Deck 3: Applying the Supply-And-Demand Model

Question 1

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.

Answer 1

-3.

Question 2

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 2

will slightly decrease.

Question 3

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.

Answer 3

the price will increase more in Japan than in the U.S.

Question 4

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 5

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.

Question 6

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 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

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 quantity of lettuce if the government removed the current price floor?

A)Quantity = 125
B)Quantity = 121.5
C)Quantity = 112.5
D)Quantity = 75

Question 9

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

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

Question 10

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 11

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

Question 12

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 13

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 14

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 15

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 16

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 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 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 19

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

Question 20

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 21

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 22

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 23

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 24

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 25

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 26

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 27

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

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

Question 28

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 29

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 30

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 31

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 32

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 33

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 34

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 35

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 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

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 38

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 39

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 40

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 41

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 42

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 and the price of barley is $4, the price elasticity of demand

A)equals (-4/100).
B)equals (-25).
C)equals (-1).
D)cannot be calculated without more information.

Question 43

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 44

The above figure shows the demand curve for crude oil. Suppose the price is currently $15. A supply shock suddenly raises the price to $17. What happens with the crude oil sales revenue?

A)Crude oil sales revenue stays the same.
B)Crude oil sales revenue slightly declines.
C)Crude oil sales revenue increases.
D)Crude oil sales revenue exhibits a steep decline.

Question 45

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 46

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 47

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 48

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 49

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 50

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 51

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

Question 52

The above figure shows the demand curve for crude oil. Suppose the price is currently $7. A supply shock suddenly raises the price to $9. What happens with the crude oil sales revenue?

A)Crude oil sales revenue stays the same.
B)Crude oil sales revenue slightly increases.
C)Crude oil sales revenue declines.
D)Crude oil sales revenue significantly increases.

Question 53

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 54

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 55

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 56

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 57

Assume the market demand for wheat may be written as
Q = 45 - 2p + 0.3Y + 1p_b
where Y refers to income and p_b 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 58

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

Question 59

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 and the price of barley is $4, the cross-price elasticity of demand

A)equals (4/100).
B)equals (-2/100).
C)equals (-4/25).
D)cannot be calculated without more information.

Question 60

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

Question 61

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

Question 62

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 63

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 64

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 65

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 nondurable goods.

Question 66

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.

Question 67

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 68

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 69

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 70

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 71

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 72

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 73

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 74

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 75

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 76

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 77

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 78

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 79

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 80

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.