supply and demand
Unit 3 Macro Quiz (Ch 5 & 6)
Scenario 5-2
The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10 percent.
Refer to Scenario 5-2. Total consumer spending on aged cheddar cheese will
a. decrease, and total consumer spending on bread will decrease.
b. decrease, and total consumer spending on bread will increase.
c. increase, and total consumer spending on bread will increase.
d. increase, and total consumer spending on bread will decrease.
You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would
a. approach infinity, and your roommate’s would be zero.
b. be zero, and your roommate’s would approach infinity.
c. be negative, and your roommate’s would be positive.
d. be positive, and your roommate’s would be negative.
You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that
a. the mayor thinks demand is elastic, and the city manager thinks demand is inelastic.
b. both the mayor and the city manager think that demand is inelastic.
c. the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.
d. both the mayor and the city manager think that demand is elastic.
Figure 5-6
Refer to Figure 5-6 . Along which of these segments of the supply curve is supply least elastic?
a. GH
b. AC
c. AB
d. CD
Which of the following is likely to have the most price elastic demand?
a. Clothing
b. Pants
c. Blue jeans
d. Tommy Hilfiger jeans
Scenario 5-1
Suppose the demand function for good X is given by: Qdx = 15 − 0.5Px − 0.8Py where Qdx is the quantity demanded of good X, Px is the price of good X, and Py is the price of good Y, which is related to good X.
Refer to Scenario 5-1. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross-price elasticity of demand is about
a. −0.22, and X and Y are complements.
b. −0.80, and X and Y are complements.
c. −2.57, and X and Y are complements.
d. 0.57, and X and Y are substitutes.
Figure 5-6
Refer to Figure 5-6 . Using the midpoint method, what is the price elasticity of supply between points A and B?
a. 0.43
b. 0.1
c. 2.33
d. 1.0
For which of the following goods is the income elasticity of demand likely highest?
a. Housing
b. Diamonds
c. Water
d. Hamburgers
Figure 5-4
Refer to Figure 5-4 . Total revenue when the price is P1 is represented by
a. areas A + B.
b. area D.
c. areas C + D.
d. areas B + D.
n January, the price of dark chocolate candy bars was $2.00, and Willy’s Chocolate Factory produced 80 pounds. In February, the price of dark chocolate candy bars was $2.50, and Willy’s produced 110 pounds. In March, the price of dark chocolate candy bars was $3.00, and Willy’s produced 140 pounds. Using the midpoint method, the price elasticity of supply of Willy’s dark chocolate candy bars was about
a. 1.42 when the price increased from $2.00 to $2.50 and 1.32 when the price increased from $2.50 to $3.00.
b. 1.50 when the price increased from $2.00 to $2.50 and 1.18 when the price increased from $2.50 to $3.00.
c. 0.70 when the price increased from $2.00 to $2.50 and 0.76 when the price increased from $2.50 to $3.00.
d. 0.88 when the price increased from $2.00 to $2.50 and 1.08 when the price increased from $2.50 to $3.00.
Figure 6-5
Refer to Figure 6-5. A government-imposed price of $12 in this market is an example of a
a. nonbinding price floor that creates a surplus.
b. nonbinding price ceiling that creates a shortage.
c. binding price ceiling that creates a shortage.
d. binding price floor that creates a surplus.
Icon Key
If the government wants to reduce the burning of fossil fuels, it should impose a tax on
a. only the buyers of gasoline.
b. only the sellers of gasoline.
c. whichever side of the market is less elastic.
d. either buyers or sellers of gasoline.
Figure 6-15
Graph (a) Graph (b) Graph (c)
Refer to Figure 6-15 . In which market will the majority of the tax burden fall on buyers?
a. The market shown in graph (c)
b. The market shown in graph (b)
c. The tax burden on buyers is the same for all three graphs.
d. The market shown in graph (a) .
Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling is established,
a. a larger quantity of the good is supplied.
b. a smaller quantity of the good is bought and sold.
c. a smaller quantity of the good is demanded.
d. the price rises above the previous equilibrium.
If the government removes a tax on a good, then the price paid by buyers will
a. decrease, and the price received by sellers will decrease.
b. increase, and the price received by sellers will decrease.
c. decrease, and the price received by sellers will increase.
d. increase, and the price received by sellers will increase.
Figure 6-4
Graph (a) Graph (b)
Refer to Figure 6-4 . In graph (b), there will be
a. a shortage.
b. equilibrium in the market.
c. a surplus.
d. lines of people waiting to buy the good.
Icon Key
Most labor economists believe that the supply of labor is
a. less elastic than the demand, and, therefore, firms bear most of the burden of the payroll tax.
b. less elastic than the demand, and, therefore, workers bear most of the burden of the payroll tax.
c. more elastic than the demand, and, therefore, workers bear most of the burden of the payroll tax.
d. more elastic than the demand, and, therefore, firms bear most of the burden of the payroll tax.
Suppose the equilibrium price of a physical examination (“physical”) by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, the
a. number of physicals performed stays the same.
b. demand curve for physicals shifts to the right.
c. quantity demanded of physicals increases, and the quantity supplied of physicals decreases.
d. supply curve for physicals shifts to the left.
Figure 6-13
Refer to Figure 6-13. Acme, Inc. is a seller of the good. Acme sells a unit of the good to a buyer and then pays the tax on that unit to the government. After paying the tax, Acme receives how much?
a. $9.00
b. $8.00
c. $10.50
d. $12.00
The price paid by buyers in a market will decrease if the government
a. increases a binding price ceiling in that market.
b. increases a tax on the good sold in that market.
c. decreases a tax on the good sold in that market.
d. increases a binding price floor in that market.
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