Deck 3: Demand and Supply Applications

Question 1

Price elasticity can be computed for demand but not for supply.

Answer 1

False

Question 2

If a 1 percent change in price leads to 5 percent change in quantity demanded, then the price elasticity of demand is 5.

Answer 2

True

Question 3

Demand is relatively elastic when the percentage change in price exceeds the percentage change in quantity demanded.

Answer 3

False

Question 4

Demand is relatively inelastic when the percentage change in quantity demanded is less than the percentage change in price.

Question 5

If two demand curves intersect, the flatter demand curve will be more inelastic and the steeper demand curve will be more elastic.

Question 6

If motorists decrease their gasoline consumption by 2 percent when the price increases by 10 percent, the demand for gasoline is relatively inelastic.

Question 7

If there is a rightward shift in the wheat supply curve, total revenue will increase only if wheat demand is inelastic.

Question 8

A freeze would result in higher total revenue for Florida orange producers when the demand for oranges is inelastic.

Question 9

The demand for a product is more elastic if the product has many close substitutes in consumption.

Question 10

The demand for a product tends to be less elastic if buyers consider the product to be a luxury rather than a necessity.

Question 11

When the price of gasoline rises, the decrease in quantity demanded will be greater in the short run than the long run.

Question 12

When the price of corn increases, the increase in quantity supplied will be greater in the long run than the short run.

Question 13

Over time, supply becomes more elastic and demand becomes less elastic.

Question 14

A usury law is a law that stipulates the maximum interest rate on loans.

Question 15

For a price floor to be effective, the price must be set above the market equilibrium price.

Question 16

If the government imposes a ceiling on the rent of residential housing at a below-market equilibrium level, the quantity of housing supplied will exceed the quantity demanded.

Question 17

Most people spend a small part of their income on birthday candles. This would suggest the demand for birthday candles is elastic.

Question 18

For a given supply curve of gasoline, the less elastic the demand, the larger the fraction of an excise tax that is borne by consumers.

Question 19

If airlines find they cannot raise ticket prices very much when the government imposes new, much higher excise taxes, this means the demand for airline tickets is probably fairly inelastic.

Question 20

Placing an excise tax on gasoline would better promote conservation if the demand for gasoline is relatively elastic, rather than relatively inelastic.

Question 21

If the government imposes a price floor on wheat, and the price is above the market equilibrium level, there will be a surplus of wheat.

Question 22

Suppose the government imposes a ceiling on rent charged for residential apartments. If the ceiling is below the market equilibrium rent, some people would likely have a difficult time finding residential apartments to rent.

Question 23

Examples of price ceilings include usury laws and minimum-wage laws for workers.

Question 24

The more time that parsley producers have to adjust to price changes, the more elastic is the parsley supply curve.

Question 25

If the U.S. Postal Service increases the price of first-class mail to generate additional revenues, it estimates that the demand for mail is relatively elastic.

Question 26

If the price elasticity of demand for medical care is estimated to be 0.3, then doctors can raise total revenue by charging their patients more for their services.

Question 27

If the price elasticity of demand for taxi services is estimated to be 1.0, then the demand for taxi services is inelastic.

Question 28

Some credit card companies have been able to charge very high rates on credit cards without losing too many customers because the demand for credit cards seems to be elastic.

Question 29

If the price elasticity of demand for movie tickets is 3.0, then a new $1 tax on movie tickets would probably cause the price of a movie ticket to go up by less than $1.

Question 30

If the price elasticity of supply for boots is 1.0 in the short run, then in the long run, we would expect the price elasticity of supply to become less that 1.0.

Question 31

The supply of veterinarians tends to be inelastic in the short run because of the years of training required for new entrants.

Question 32

The Pittsburgh Pirates found out in 2002 that the demand for home game seats was elastic.

Question 33

One positive effect of putting rent controls on apartments is that it increases the future supply of apartments.

Question 34

Consumer responsiveness to price changes is known as the

A) consumer sensitivity index
B) producer responsiveness index
C) demand coefficient
D) price elasticity of demand

Question 35

Producer responsiveness to price changes is known as the

A) price elasticity of supply
B) producer responsiveness index
C) producer sensitivity index
D) supply coefficient

Question 36

Price elasticity of demand is a measure of the

A) relative increase in the demand curve in response to a decrease in price
B) relative decrease in the demand curve in response to an increase in price
C) responsiveness of the quantity demanded to an increase or a decrease in price
D) responsiveness of consumers to advertising expenditures of firms

Question 37

Price elasticity of supply is a measure of the

A) relative increase in the supply curve in response to an increase in price
B) responsiveness of quantity supplied to a change in price
C) relative decrease in the supply curve in response to a change in price
D) responsiveness of quantity supplied to a change in production cost

Question 38

Demand is considered to be elastic when the coefficient of the price elasticity of demand is

A) less than 1
B) equal to 1
C) greater than 1
D) less than zero

Question 39

Demand is considered to be inelastic when the coefficient of the price elasticity of demand is

A) less than 1
B) less than zero
C) greater than zero
D) greater than 1

Question 40

If the percentage change in quantity demanded is less than the percentage change in price, demand in that price range is

A) perfectly inelastic
B) perfectly elastic
C) elastic
D) inelastic

Question 41

Supply is considered to be elastic when the coefficient of the price elasticity of supply is

A) less than 1
B) equal to 1
C) greater than 1
D) less than zero

Question 42

Supply is considered to be inelastic when the coefficient of the price elasticity of supply is

A) less than 1
B) less than zero
C) greater than zero
D) greater than 1

Question 43

Suppose that an excise tax of $1 is levied on the sale of a bottle of wine. Usually this tax will be paid

A) entirely by the seller if the consumer demand for wine is perfectly elastic
B) entirely by the consumer if the supply of wine is perfectly inelastic
C) by both the seller and the consumer, with the greater portion of the tax being paid by the consumer if the demand for wine is relatively inelastic
D) neither by the seller nor by the consumer

Question 44

Most likely, a tax on a luxury good such as yachts will result in

A) more yachts being bought
B) less revenue than expected
C) high unemployment for yacht workers
D) an increase in the quantity demanded of yachts

Question 45

Suppose that an excise tax of $1 is levied on the sale of a gallon of gas. Most of this tax will be borne by the buyer rather than the seller if the price elasticity of demand for gas equals

A) 0.4
B) 1.2
C) 1.4
D) 2.0

Question 46

Suppose that an excise tax of $1 is levied on the sale of a bottle of fruit juice. Most of this tax will be borne by the seller rather than the buyer if the price elasticity of demand for fruit juice equals

A) 0.1
B) 0.3
C) 0.6
D) 1.9

Question 47

If the U.S. Postal Service increases the price of first-class mail delivery and its total revenue increases, the demand curve for first-class mail delivery must be

A) relatively elastic
B) relatively inelastic
C) perfectly elastic
D) perfectly inelastic

Question 48

If an airline increases the price of a ticket to New York and its total revenue decreases, the demand curve for airline tickets to New York must be

A) elastic
B) inelastic
C) perfectly elastic
D) perfectly inelastic

Question 49

If Brown University increases its tuition and then its tuition revenue increases, the demand curve for attending Brown University must be

A) inelastic
B) elastic
C) perfectly inelastic
D) perfectly elastic

Question 50

If the University of Wisconsin increases its tuition and its tuition revenue decreases, the demand curve for attending the University of Wisconsin must be

A) elastic
B) inelastic
C) perfectly elastic
D) perfectly inelastic

Question 51

The price elasticity of demand is determined by all of the following except the

A) time period under consideration
B) availability of substitute goods
C) amount of spending on the good compared to the consumer's income
D) cost of producing the good

Question 52

Suppose that the short-run price elasticity of demand for flu shots is 0.6. In the long run, which one of the following is most likely to represent the price elasticity of demand for flu shots?

A) 0.2
B) 0.4
C) 0.6
D) 1.8

Question 53

The demand for a product is relatively elastic if

A) only a few close-substitute products are available
B) spending on the product constitutes a small portion of consumer income
C) the product is considered to be a necessity
D) the consumer has considerable time to adjust to price changes

Question 54

The demand for a product is relatively inelastic if

A) only a few close-substitute products are available
B) spending on the product constitutes a large portion of consumer income
C) the product is considered to be a luxury
D) the consumer has considerable time to adjust to price changes

Question 55

Suppose there is an upward-sloping supply curve and a downward-sloping demand curve for gasoline. If the government levies a tax of $1 on each gallon of gasoline that is sold

A) all of the tax will be borne by the seller
B) all of the tax will be borne by the buyer
C) the tax will be borne by both the seller and the buyer
D) the tax will be borne by neither the seller nor the buyer

Question 56

The government is thinking about increasing the cigarette tax to raise additional revenue, rather than to discourage consumption. The tax will result in the greatest amount of tax revenue if the price elasticity of demand for cigarettes equals

A) 1.8
B) 1.4
C) 1.0
D) 0.5

Question 57

The government is thinking about increasing the gasoline tax to promote conservation. The tax will discourage the consumption of gasoline by the greatest extent when the price elasticity of demand equals

A) 0.1
B) 0.7
C) 1.3
D) 2.0

Question 58

Which of the following products is likely to have the lowest price elasticity of demand?

A) foreign travel
B) Mobil motor oil
C) Green Giant peas
D) medical care

Question 59

The government will obtain the most revenue from a tax imposed on the sale of liquor when the demand for liquor is

A) highly inelastic
B) highly elastic
C) somewhat elastic
D) somewhat inelastic

Question 60

The government wants to raise additional tax revenues with the least disruption to prevailing demand patterns. For which product should an excise tax be levied?

A) root beer
B) diapers
C) Purina dog food
D) hot tubs

Question 61

If government sets a ceiling on rent that is below the market equilibrium rent, the result will be

A) greater profits for landlords
B) an increase in the quantity supplied of apartments
C) a surplus of apartments
D) a shortage of apartments

Question 62

Assume that the government sets a ceiling on the interest rate that banks charge on loans. If the ceiling is set below the market equilibrium interest rate, the result will be

A) a surplus of credit
B) a shortage of credit
C) greater profits for banks issuing credit
D) an increase in the quantity supplied of credit

Question 63

If the government sets a floor on the price of wheat that is above the market equilibrium price, the result will be

A) a surplus of wheat
B) a shortage of wheat
C) small profits for wheat farmers
D) a decrease in the quantity supplied of wheat

Question 64

If the government imposes a price floor on sugar that is above the market equilibrium price, it may also have to

A) establish programs to expand supply in the private sector
B) establish programs to reduce demand in the private sector
C) produce some sugar itself
D) purchase the surplus sugar

Question 65

The supply of corn will be more inelastic the

A) shorter the time that producers have to adjust to price changes
B) longer the time that producers have to adjust to price changes
C) greater the number the buyers in the corn market
D) easier it is to substitute capital for labor in corn production

Question 66

Figure 3.1 The Market for Wheat


-Refer to Figure 3.1. At the government-established support price of $7, there is a

A) shortage of 8 million bushels
B) shortage of 4 million bushels
C) surplus of 4 million bushels
D) surplus of 8 million bushels

Question 67

Figure 3.1 The Market for Wheat


-Refer to Figure 3.1. At the government-established support price of $7, wheat farmers will receive revenues from consumers totaling

A) $28 million
B) $32 million
C) $56 million
D) $84 million

Question 68

Figure 3.1 The Market for Wheat


-Refer to Figure 3.1. To defend its support price of $7, the government must

A) purchase 8 million bushels of wheat at a cost of $56 million
B) purchase 12 million bushels of wheat at a cost of $84 million
C) sell 8 million bushels of wheat and receive revenues totaling $40 million
D) sell 12 million bushels of wheat and receive revenues totaling $84 million

Question 69

$\begin{array}{ccc}\begin{array}{c}\text { Price per } \\\text { Bushel }\end{array} & \begin{array}{c}\text { Quantity of Bushels } \\\text { Demanded per Month }\end{array} & \begin{array}{c}\text { Quantity of Bushels } \\\text { Supplied per Month }\end{array} \\\$2&800&400\\3 & 700 & 500 \\4 &600 & 600 \\5 &500 & 700 \\6 & 300 & 800\\\end{array}$

-Refer to Table 3.1. At the support price of $5, there is a surplus of

A) 100 bushels of wheat
B) 150 bushels of wheat
C) 200 bushels of wheat
D) 250 bushels of wheat

Question 70

$\begin{array}{ccc}\begin{array}{c}\text { Price per } \\\text { Bushel }\end{array} & \begin{array}{c}\text { Quantity of Bushels } \\\text { Demanded per Month }\end{array} & \begin{array}{c}\text { Quantity of Bushels } \\\text { Supplied per Month }\end{array} \\\$2&800&400\\3 & 700 & 500 \\4 &600 & 600 \\5 &500 & 700 \\6 & 300 & 800\\\end{array}$

-Refer to Table 3.1. To maintain a $5 support price, government must

A) sell 200 bushels of wheat at revenues totaling $800
B) sell 700 bushels of wheat are revenues totaling $3,500
C) purchase 200 bushels of wheat at a total cost of $1,000
D) purchase 500 bushels of wheat at a total cost of $2,500

Question 71

Suppose that an economist estimates that the price elasticity of demand for televisions sets is exactly 1. This means demand is

A) elastic
B) inelastic
C) unit elastic
D) stable

Question 72

Renters usually spend a large proportion of their incomes on rent. Therefore, the price elasticity of demand for rental apartments is most likely to be which of the following numbers?

A) 2.2
B) 1.0
C) 0.5
D) 0

Question 73

In the long run, the coefficient for price elasticity of demand is likely to be ______ than the short-run elasticity coefficient.

A) lower than
B) higher than
C) the same as
D) more inelastic than

Question 74

A poor harvest for farmers may be desirable because

A) inelastic demand results in lower total revenue as the price rises
B) elastic demand results in higher total revenue as the price falls
C) inelastic demand results in higher total revenue as price rises
D) elastic demand results in lower total revenue as price falls

Question 75

A tax on diamonds will raise only a small amount of revenue for the government when the demand for diamonds is

A) equal to the supply of diamonds
B) elastic
C) inelastic
D) very high

Question 76

If the price elasticity of supply for lettuce is 0.1, then this means that

A) the demand for lettuce is quite high
B) the quantity supplied of lettuce changes little when the price changes
C) there is a surplus of lettuce
D) there is not very much lettuce being produced

Question 77

If the government passes a law establishing an interest-rate ceiling on credit cards, this

A) can create a surplus of credit
B) can result in other credit card fees being raised
C) usually benefits poor consumers the most
D) creates a government subsidy for borrowers

Question 78

Price ceilings on gasoline, such as those imposed in the 1970s in the U.S., will

A) generate surpluses of gasoline
B) cause gas stations to offer more free services
C) create a new favorable equilibrium price of gasoline
D) cause shortages of gasoline

Question 79

If a 10 percent increase in new car prices results in a 20 percent decrease in the quantity of new cars purchased by consumers, then the

A) price elasticity of demand for new cars is 2.0
B) price elasticity of demand for new cars is 0.5
C) demand curve for new cars is upward sloping
D) total revenue of new car dealers will increase as price rises

Question 80

If the price elasticity of demand for purebred Siamese kittens is 2.0, then a 4 percent decrease in the price of Siamese kittens will result in a ___ percent increase in quantity demanded.

A) 4
B) 2
C) 8
D) 16