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Exam 4: Subtleties of the Supply and Demand Model

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Question 31

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Give four instances that cause price elasticity to vary. Explain.

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Substitutability. The easier it is to fi...

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Question 32

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Which of the following statements about the minimum wage is false?

A) The minimum wage causes a shortage of unskilled labor.
B) The minimum wage is an example of a price floor.
C) The minimum wage increases unemployment among unskilled workers.
D) More unskilled individuals are willing to offer their services in the labor market with a minimum wage than they would without it.
E) The minimum wage is set above the equilibrium wage.

F) C) and D)
G) B) and E)

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Question 33

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Explain why economists care about the price elasticity of supply. What does it tell us?

When supply shifts, supply elasticity affects the changes in equilibrium price and quantity.

When a higher price cannot bring about any increase in the quantity supplied, the supply is

If supply is perfectly inelastic, then the price elasticity of supply is infinity.

Supply is elastic if the quantity supplied responds substantially to a change in price, and supply is inelastic if the quantity supplied responds only slightly to a change in price.

If some product has an elastic demand, then we can expect

The government can issue ration coupons to deal with problems resulting from a price floor.

If a good has negative income elasticity, then it is an inferior good.

Calculate the cross-price elasticity for the following goods. Are they substitutes or complements? (A) The price of arline tickets goes up by 10 percent causing the quantity demanded far gasoline to ga up by 5 percent. (B) The price of pancalse flour goes up by 10 percent causing the quantity demanded far pancake syrup to drap by 20 percent. (C) The price of coffee gaes up by 5 percent causing the quantity demanded for tea to gu up by 5 percent. (D) The price of leptops goes up by 5 percent causing the quantity temanded for USB Hives to irap by 2 percent.

The cross-price elasticity of demand between two goods measures the percentage change in the demand for one good for a given percentage change in the price of another good.

All of the following are forms or examples of price control except

Suppose a 1 percent in the price of a good results in the quantity demanded changing by 0.2 percent. Then you know

If the price elasticity of demand is 5.3, demand is said to be

A product has elastic demand if, when price rises, total revenue falls.

If a 1 percent decrease in the price of breakfast cereals results in a 2 percent increase in the quantity demanded for breakfast cereals, then the price elasticity of the demand for breakfast cereals is

When the demand curve is a vertical line, demand is

One reason the demand for electricity is probably more price elastic than the demand for table salt is that

The price elasticity of demand is expressed in dollar changes in price and quantity demanded.