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The local public transportation system recently raised rates and was surprised to be faced with declining revenue. What can be accurately concluded?


A) The cross-price elasticity of demand for public transportation is less than 1.
B) The demand for public transportation is inelastic.
C) The income elasticity of demand for public transportation is greater than 1.
D) The demand for public transportation is elastic.
E) The demand curve for public transportation has a positive slope.

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

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D

A manager wishes to increase revenues. One suggestion is to cut prices; another is to raise prices. What are the assumptions each suggestion is based on?

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The first suggestion is based on the ass...

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If price gouging is prohibited by the government so that sellers cannot suddenly raise prices, then a sudden drop in gasoline supply due to bad weather will most likely result in


A) an equilibrium in the gasoline market.
B) a surplus in the gasoline market.
C) a shortage in the gasoline market.
D) high profits for sellers.
E) a sudden increase in the gasoline supply.

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

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A price ceiling is typically set below the equilibrium price.

A) True
B) False

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A price ceiling would result in a(n)


A) surplus.
B) shortage.
C) increase in equilibrium price.
D) decrease in equilibrium price.
E) increase in quantity supplied.

F) A) and E)
G) None of the above

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Use the following data for a supply curve to calculate the elasticity of supply. Use the following data for a supply curve to calculate the elasticity of supply. (A)Use the midpoint formula to calculate the elasticity of supply for the price between $6 and $7. (B)Use the midpoint formula to calculate the elasticity of supply for the price between $1 and $2. Use the midpoint formula. (A)Use the midpoint formula to calculate the elasticity of supply for the price between $6 and $7. (B)Use the midpoint formula to calculate the elasticity of supply for the price between $1 and $2. Use the midpoint formula.

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(A)Elasticity betwee...

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The price elasticity of supply is a measure of how


A) long it takes for producers to change technology.
B) sensitive producers are to a change in technology.
C) long it takes for producers to change their prices.
D) sensitive producers are to a change in input prices.
E) sensitive producers are to a change in output price.

F) A) and E)
G) C) and D)

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Does a price ceiling result in a shortage or a surplus? Why?

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A price ceiling results in a s...

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

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The price elasticity of supply tells us ...

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The price elasticity of demand is the same as the slope of the demand curve.

A) True
B) False

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False

The concept that explains to what degree price changes when there is a shift in demand, other things being equal, is


A) income elasticity of demand.
B) price elasticity of demand.
C) price elasticity of supply.
D) cost elasticity of supply.
E) cross-price elasticity of demand.

F) All of the above
G) None of the above

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The price elasticity of demand measures


A) a buyer's responsiveness to a change in income.
B) a buyer's responsiveness to a change in price.
C) a seller's responsiveness to a change in demand.
D) how much price increases for a change in demand.
E) how much demand changes for a change in supply.

F) B) and D)
G) A) and E)

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A price elasticity of supply of 1.5 implies that


A) a 20 percent increase in the quantity supplied increases the price by 30 percent.
B) total revenue is 1.5 times total cost.
C) a 20 percent increase in the price increases the quantity supplied by 30 percent.
D) a 20-unit increase in supply reduces the price by $30.
E) a $20 increase in the price increases the quantity supplied by 30 units.

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

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Demand is inelastic if the price elasticity of demand is greater than 1.

A) True
B) False

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Compare a market where supply and demand are both very elastic to one where supply and demand are both very inelastic. Suppose the current equilibrium price and quantity are the same in both markets. Suppose further that the government imposes a price ceiling $.50 below the equilibrium price. Prepare a diagram comparing the shortages that result. Explain the difference in these two cases.

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In the two diagrams below, the equilibri...

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If a firm wishes to raise the revenue of a product with elastic demand, then it should reduce price.

A) True
B) False

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Suppose the government sets beef prices, which in effect creates a price floor. Draw a supply and demand diagram for the beef market where the price is fixed greater than the market equilibrium price. Will there be a shortage or a surplus?

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Setting a price floo...

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Which of the following formulas is a correct expression of the price elasticity of demand?


A) Which of the following formulas is a correct expression of the price elasticity of demand? A) B) C) D) E)
B) Which of the following formulas is a correct expression of the price elasticity of demand? A) B) C) D) E)
C) Which of the following formulas is a correct expression of the price elasticity of demand? A) B) C) D) E)
D) Which of the following formulas is a correct expression of the price elasticity of demand? A) B) C) D) E)
E) Which of the following formulas is a correct expression of the price elasticity of demand? A) B) C) D) E)

F) A) and D)
G) A) and C)

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A vertical demand curve is perfectly elastic.

A) True
B) False

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False

Normal goods have positive income elasticities of demand, and inferior goods have negative income elasticities of demand.

A) True
B) False

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