Homework 3

1. Price ceilings are primarily targeted to help __________, while price floors generally benefit __________.
a. producers; no one
b. increase tax revenue for governments; producers
c. increase tax revenue for governments; consumers
d. producers; consumers
e. consumers; producers

In Figure D-2, if the government imposes a price ceiling of $2, the result will be
a. equilibrium
b. excess supply
c. no different than before the price ceiling is imposed
d. excess demand
e. demand will shift leftward and supply will shift rightward

A price floor on corn would have the effect of
a. creating excess supply regardless of the level at which the price floor is set
b. creating excess supply when the floor is above the equilibrium price
c. creating excess demand when the price floor is set below the equilibrium price
d. creating excess demand regardless of where the price floor is set
e. ensuring a more equitable distribution of the good among consumers

If an excise tax is imposed on automobiles,
a. the demand curve will shift upward and the market price will increase
b. the supply curve will shift downward and the market price will increase
c. the supply curve will shift upward and the market price will increase
d. the equilibrium quantity supplied will increase
e. the equilibrium quantity demanded will increase

The price elasticity of demand is important to firms because
a. it explains the relationship between income and demand for the goods they sell
b. it shows how price changes affect total expenditures on the goods they sell
c. the law of demand suggests that elasticity falls with total expenditures
d. it helps identify the equilibrium price and quantity in the market
e. it relates price to supply

The price elasticity of demand measures the
a. responsiveness of a good's price to a change in quantity demanded
b. adaptability of suppliers when a change in demand alters the price of a good
c. responsiveness of quantity demanded to a change in a good's price
d. adaptability of buyers when there is a change in demand
e. responsiveness of quantity supplied to a change in quantity demanded

If the price elasticity of demand for Cheer detergent is -3.0, then a
a. 12 percent drop in price leads to a 36 percent rise in the quantity demanded
b. 12 percent drop in price leads to a 4 percent rise in the quantity demanded
c. $1,000 drop in price leads to a 3,000-unit rise in the quantity demanded
d. $1,000 drop in price leads to a 333-unit rise in the quantity demanded
e. 12 percent rise in price leads to a 36 percent rise in the quantity demanded

A $1.00 increase in the price of a restaurant meal results in a drop in quantity demanded of 5 meals. Which of the following
statements is correct?
a. the slope of the demand curve is -1/5; there is insufficient information to determine the price
elasticity of demand
b. the price elasticity of demand is -1/5; there is insufficient information to determine the slope of the
demand curve
c. both the slope of the demand curve and the price elasticity of demand are equal to -1/5
d. there is insufficient information to determine either the slope of the demand curve or the price
elasticity of demand
e. the slope of the demand curve is -1/5; the price elasticity of demand is 5

If a 20 percent decrease in the price of chicken results in a 10 percent increase in the quantity demanded, the price elasticity
of demand has a value of
a. -0.5
b. -2
c. -1
d. -0.1
e. none of these

Figure D-6 shows the prices of two services offered by Earl's Barber Shop and the resulting quantities demanded by
customers. In this example, the price elasticity of demand for haircuts (using the midpoint formula) is
a. -1
b. -1.8
c. -3.5
d. -2.25
e. -0.5

In Figure D-8, the price elasticity of demand equals __________ between points T and U and equals __________ between
points V and W.
a. -0.33; -1.86
b. -0.54; -3
c. -3; -0.54
d. -1.86; -0.33
e. -2; -2

The slope of the demand curve and the price elasticity of demand are
a. basically the same thing
b. determined by supply
c. are derived from production and distribution costs
d. different because slope is based on absolute changes and elasticity is based on percentage changes
e. implicit in the shape of the supply curve

Suppose that when the price of aspirin rises from $2 to $3 per bottle, the quantity demanded falls from 800 bottles per day to
700 bottles per day. Over this range, the demand for aspirin is
a. elastic
b. unitary elastic
c. perfectly elastic
d. inelastic
e. perfectly inelastic

If the demand curve is a vertical line, then
a. demand is perfectly elastic
b. demand is perfectly inelastic
c. demand is unit elastic
d. demand is determined by supply
e. supply is a horizontal line

When the numerical value of the price elasticity of demand is -3, then a one-percent change in price will cause a(n)
a. larger percentage change in quantity demanded, so demand is elastic
b. larger percentage change in quantity demanded, so demand is inelastic
c. smaller percentage change in quantity demanded, so demand is elastic
d. smaller percentage change in quantity demanded, so demand is inelastic
e. equal percentage change in quantity demand, so demand is unitary elastic

When demand is price elastic, a decrease in total expenditure on a good would result from a(n)
a. decrease in price
b. increase in quantity demanded
c. increase in price
d. decrease in income for an inferior good
e. increase in total revenue to the seller

As a result of heavy spring rains in the Midwestern states, the corn crop declined sharply. If corn growers experienced an
increase in sales revenue, the demand for corn must be
a. price-elastic
b. price-inelastic
c. unitary elastic
d. perfectly inelastic
e. perfectly elastic

The more available substitutes there are for a good, the
a. larger the number of consumers
b. smaller the number of consumers
c. smaller the supply side response
d. more elastic the demand for that good
e. less elastic the demand for that good

The demand for a necessity tends to be
a. less elastic than the demand for a luxury
b. more elastic than the demand for a luxury
c. unitary over the entire demand curve
d. less elastic, the larger is the number of sellers
e. unpredictable

The long-run price elasticity of demand for a good tends to be
a. positive, while the short-run elasticity is negative
b. smaller (in absolute value) than the short-run price elasticity
c. larger (in absolute value) than the short-run price elasticity
d. negative, while the long-run elasticity is positive
e. the same as the short-run elasticity