ECO 365 Week 3 Practice: Elasticity and Consumer Choice Quiz

 

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ECO 365 Week 3 Practice: Elasticity and Consumer Choice Quiz
 

Complete the Week 3 Elasticity and Consumer Choice Quiz in McGraw-Hill Connect®. These are randomized questions. 

Note: You have unlimited attempts available to complete practice assignments. The highest scored attempt will be recorded. These assignments have earlier due dates, so plan accordingly. Grades must be transferred manually to eCampus by your instructor. Don’t worry, this might happen after the due date.

 

 
 

Which of the following scenarios would lead to a decrease in the demand for labor at Stephanie’s earring shop?

 

 

 

 

 
 

 

 

Labor productivity increases.

 

 

 

 
 

 

 

The cost of capital (a substitute for labor) decreases.

 

 

 

 
 

 

 

The price of earrings increases.

 

 

 

 
 

 

 

The wage rate increases.

 

 

 

 

Which of the following scenarios would lead to an increase in the demand for mixers at Henry’s bread bakery?

 

 

 

 

 
 

 

 

The market price of mixers decreases.

 

 

 

 
 

 

 

The productivity of mixers decreases.

 

 

 

 
 

 

 

The wage rate of labor (a substitute for capital) decreases.

 

 

 

 
 

 

 

The market price of bread increases.

 

 

Henry bakes loaves of bread, which he sells for $4 each. He is considering purchasing additional mixers (capital) for his bakery. Each additional mixer has the productivity described below. Fill in the “Marginal Product,” “Total Revenue,” and “Marginal Revenue Product” columns. Assume this is a perfectly competitive market.

 

Instructions: Enter your answers as a whole number.

 

Henry’s Bakery and Revenues

Capital (mixers)     Total Product (loaves of bread)     Marginal Product (loaves of bread)      Price (dollars) Total Revenue (dollars)       Marginal Revenue Product (dollars)

0     0     —    $4    $0    —

1     8     8     4     32    $ 32

2     20    12    4     80    48

3     28    8     4     112  32

4     34    6     4     136  24

5     38    4     4     152  16

6     40    2     4     160  8

7     41    1     4     164  4

 

 

 

 

The marginal revenue product schedule is

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upsloping.

 

 

 

 
 

 

 

the same whether the firm is selling in a purely competitive or imperfectly competitive market.

 

 

 

 
 

 

 

the firm’s resource demand schedule.

 

 

 

 
 

 

 

the firm’s resource supply schedule.

 

 

 

 

 

Marginal product is

 

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the output of the least skilled worker.

 

 

 

 
 

 

 

the amount an additional worker adds to the firm’s total output.

 

 

 

 
 

 

 

the amount any given worker contributes to the firm’s total revenue.

 

 

 

 
 

 

 

a worker’s output multiplied by the price at which each unit can be sold.

 

 

 

 

 

The change in a firm’s total revenue that results from hiring an additional worker is measured by the

 

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marginal product.

 

 

 

 
 

 

 

average revenue product.

 

 

 

 
 

 

 

marginal revenue.

 

 

 

 
 

 

 

marginal revenue product.

 

 

 

 

 

Marginal revenue product measures the

 

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increase in total revenue resulting from the production of one more unit of a product.

 

 

 

 
 

 

 

increase in total resource cost resulting from the hire of one extra unit of a resource.

 

 

 

 
 

 

 

amount by which the extra production of one more worker increases a firm’s total revenue.

 

 

 

 
 

 

 

decline in product price that a firm must accept to sell the extra output of one more worker.

 

 

 

 

 

 

If the marginal revenue product (MRP) of labor is less than the wage rate

 

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more labor should be employed.

 

 

 

 
 

 

 

the firm is making profits.

 

 

 

 
 

 

 

the firm is incurring losses.

 

 

 

 
 

 

 

less labor should be employed

 

 

 

 

 

A profit-maximizing firm employs resources to the point where

 

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MRP = MRC.

 

 

 

 
 

 

 

resource price equals product price.

 

 

 

 
 

 

 

MRC = MP.

 

 

 

 
 

 

 

MP = product price.

 

 

 

 

 

The following is a total-product schedule for a resource. Assume that the quantities of other resources the firm employs remain constant.

 

Units of Resource   Total Product

1     24

2     42

3     54

4     64

5     72

 

If the firm’s product sells for a constant $2 and the price of the resource is a constant $16, the firm will employ how many units of the resource?

 

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2

 

 

 

 
 

 

 

3

 

 

 

 
 

 

 

4

 

 

 

 
 

 

 

5

 

 

 

 

 

 

 

Marginal resource cost is

 

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the increase in total resource cost associated with the production of one more unit of output.

 

 

 

 
 

 

 

total resource cost divided by the number of inputs employed.

 

 

 

 
 

 

 

the change in total revenue associated with the employment of one more unit of the resource.

 

 

 

 
 

 

 

the increase in total resource cost associated with the hire of one more unit of the resource.

 

 

 

 

 

 

 

Daphne has received job offers in six different cities across the United States. The table below shows the nominal wage she is being offered in each city and the average monthly rent for an apartment in each city.

 

 

 

 

Calculate Daphne’s real wage in terms of how many months of rent her wage could purchase in each city and complete the “Real Wage” column in the table below.
 

 

 

Instructions: Enter your answers rounded to the nearest whole number.

 

Daphne’s Nominal and Real Wages

City Nominal Salary (dollars)       Monthly Rent (dollars)   Real Wage (months of rent)

Atlanta    $50,000   $1,200    42 ± 1%

Austin     50,500    1,368      37 ± 1%

Chicago   65,000    1,920      34 ± 1%

Lincoln   45,000    840  54 ± 1%

Madison  48,000    1,164      41 ± 1%

New York       95,000    3,204      30 ± 1%

 

 

 

 

In which city is the nominal wage highest?
 

 

 

 

 

 

 

In which city is the real wage highest?
 

 

 

 

 

 

 

Which of the following scenarios would result in an increase in the wage rate of solar panel installers and a decrease in the quantity of solar panel installers employed in Billy’s town?

 

 

 

 

 
 

 

 

A decrease in people’s income decreases the demand for solar panels.

 

 

 

 
 

 

 

A solar panel company shuts down in another town and solar panel installers try to find jobs in Billy’s town.

 

 

 

 
 

 

 

Wages of solar panel installers increase in another town and attract workers away from Billy’s town.

 

 

 

 
 

 

 

An increase in the demand for solar panels raises the price of each installation.

 

 

 

 

 

 

The marginal revenue product of an input tends to decrease as

 

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more of the input is used.

 

 

 

 
 

 

 

productivity increases.

 

 

 

 
 

 

 

the price of the input decreases.

 

 

 

 
 

 

 

the price of output increases.

 

 

 

 

 

 

 

Rising wages can be explained by which of the following?

 

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Labor demand increases more rapidly than labor supply.

 

 

 

 
 

 

 

Labor supply is highly sensitive to changes in labor productivity.

 

 

 

 
 

 

 

Labor supply increases more rapidly than labor demand.

 

 

 

 
 

 

 

Labor demand is stable and predictable.

 

 

 

 

 

 

Suppose two workers can harvest $46 and three workers can harvest $60 worth of apples per day. On the basis of this information we can say that the

 

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marginal revenue product of each of the first two workers is $23.

 

 

 

 
 

 

 

marginal revenue product of the third worker is $14.

 

 

 

 
 

 

 

marginal product of each of the first two workers is 23.

 

 

 

 
 

 

 

third worker should not be hired.

 

 

 

 

 

 

A characteristic of a competitive labor market is

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an overall reduction in employment due to firms having market power.

 

 

 

 
 

 

 

an equilibrium wage and quantity supplied.

 

 

 

 
 

 

 

high levels of unemployment.

 

 

 

 
 

 

 

labor supply changing as the wage changes.

 

 

 

 

 

 

 

Labor productivity and the price of the good being produced are two variables that contribute to

 

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the demand for the product.

 

 

 

 
 

 

 

the wage rate.

 

 

 

 
 

 

 

the marginal product.

 

 

 

 
 

 

 

whether or not a union forms.

 

 

 

 

 

As the real wage decreases, the quantity of labor demanded ______ and the quantity of labor supplied _______.

 

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increases; decreases

 

 

 

 
 

 

 

decreases; increases

 

 

 

 
 

 

 

increases; increases

 

 

 

 
 

 

 

decreases; decreases

 

 

 

 

 

 

 

 

An inclusive union

 

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organizes a wide range of workers in an industry to gain bargaining power.

 

 

 

 
 

 

 

is most effective in a purely competitive industry.

 

 

 

 
 

 

 

restricts supply of labor through licensing requirements.

 

 

 

 
 

 

 

is most concerned with increasing the demand for workers in an industry.

 

 

 

 

 

 

 

The supply curve for labor in a purely competitive market slopes upward because

 

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higher wages must be paid to bid workers away from other opportunities.

 

 

 

 
 

 

 

marginal resource cost rises as productivity increases.

 

 

 

 
 

 

 

the marginal product of labor falls as output increases.

 

 

 

 
 

 

 

the wage rate paid to workers falls as more are hired.

 

 

 

 

 

 

 

Compared to a competitive labor market, workers participating in an inclusive union will enjoy

 

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higher wages and more workers employed.

 

 

 

 
 

 

 

higher wages and fewer workers employed.

 

 

 

 
 

 

 

similar outcomes with respect to pay and employment.

 

 

 

 
 

 

 

lower pay and more workers employed.

 

 

 

 

 

 

 

The concept of “wages” does not include which of the following items?

 

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money spent by workers

 

 

 

 
 

 

 

direct money payments, like salaries and commissions

 

 

 

 
 

 

 

bonuses and royalties earned

 

 

 

 
 

 

 

fringe benefits, like health insurance and paid leave

 

 

 

 

 

 

 

Use the following graph (where L is the quantity of labor) to answer the next question.

 

 

 

It shows a firm that buys its inputs and sells its output in competitive markets. If the firm develops a new technology that increases labor productivity, the equilibrium level of employment for this firm is expected to be

 

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lower than L0.

 

 

 

 
 

 

 

L0.

 

 

 

 
 

 

 

zero.

 

 

 

 
 

 

 

higher than L0.

 

 

 

 

 

 

 

 

The individual firm that hires labor under competitive conditions faces a labor supply curve that

 

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is horizontal, because individual firms have no control over wages.

 

 

 

 
 

 

 

slopes upward to the right.

 

 

 

 
 

 

 

is vertical, because workers need a job at any wage.

 

 

 

 
 

 

 

slopes downward to the right.

 

 

 

 

 

 

 

 

In a purely competitive labor market, a profit-maximizing firm will hire labor up to the point where the marginal revenue product of labor equals the

 

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marginal cost of one extra unit of output.

 

 

 

 
 

 

 

price of the product.

 

 

 

 
 

 

 

average cost of each unit of output.

 

 

 

 
 

 

 

wage rate, or the price of labor.

 

 

 

 

 

For each of the following scenarios, determine which benefit of international trade applies: lower-priced goods, increased variety of products, or access to scarce resources.

 

 

 

 

Today most television sets bought in the United Stated are made in China; however, this was not the case twenty years ago.
 

 

 

 

 

 

 

In large grocery stores in the United States, consumers can buy noodles from Asia, soups from France, pickled herring from Scandinavia, and beer from Germany.
 

 

 

 

 

 

 

The United States has become a prime location for producers of semiconductors, whose products are then exported to nations around the world. This choice to produce in the United States is largely due to the access to the high-skilled workforce that is required for this type of production.
 

 

 

 

 

 

 

While many developed nations have at least one domestic car manufacturer, consumers in these nations also have access to cars produced in other nations.
 

 

 

 

 

 

 

The United States has long been the world’s largest exporter of wheat. The access to vast, fertile, and highly productive soil combined with high-technology farming practices have made the United States a very cost-efficient producer of agricultural goods.
 

 

 

 

 

 

 

 

 

In economics, goods, services, or resources produced domestically and sold abroad are known as:

 

 

 

 
 

 

 

imports.

 

 

 

 
 

 

 

net exports.

 

 

 

 
 

 

 

exports.

 

 

 

 
 

 

 

international trade.

 

 

 

 

 

Domestic producers might oppose free trade agreements because

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there could be a decrease in consumer surplus.

 

 

 

 
 

 

 

there could be an increase in consumer surplus.

 

 

 

 
 

 

 

there could be a decrease in producer surplus.

 

 

 

 
 

 

 

there could be an increase in producer surplus.

 

 

 

 

 

 

 

 

The principal concept behind comparative advantage is that a nation should

 

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concentrate production on those products for which it has the lowest domestic opportunity cost.

 

 

 

 
 

 

 

strive to be self-sufficient in the production of essential goods and services.

 

 

 

 
 

 

 

maximize its volume of trade with other nations.

 

 

 

 
 

 

 

use tariffs and quotas to protect the production of vital products for the nation.

 

 

 

 

Use the following table for a certain product’s market in Marketopia to answer the next question.

 

Quantity Demanded Domestically Price       Quantity Supplied Domestically

1,400      $10  2,200

1,600      9     2,000

1,800      8     1,800

2,000      7     1,600

2,200      6     1,400

2,400      5     1,200

 

 

If Marketopia is entirely closed to international trade, the equilibrium price and quantity would be

 

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$6 and 1,400 units.

 

 

 

 
 

 

 

$9 and 2,000 units.

 

 

 

 
 

 

 

$7 and 2,000 units.

 

 

 

 
 

 

 

$8 and 1,800 units.

 

 

 

 

 

 

 

Benefits from international trade are not based on differences in

 

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resource availability.

 

 

 

 
 

 

 

technological capabilities.

 

 

 

 
 

 

 

product quality and other attributes.

 

 

 

 
 

 

 

income levels.

 

 

 

 

 

 

 

Limits on the quantity or total value of specific products imported to a nation are

 

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import quotas.

 

 

 

 
 

 

 

nontariff barriers.

 

 

 

 
 

 

 

protective tariffs.

 

 

 

 
 

 

 

export subsidies.

 

 

 

 

 

 

 

Governments often intervene in international trade and impose quotas to

 

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improve the performance of multinational corporations.

 

 

 

 
 

 

 

shift a nation’s production possibilities frontier.

 

 

 

 
 

 

 

increase revenues from export subsidies.

 

 

 

 
 

 

 

protect domestic industries from foreign competition.

 

 

 

 

 

 

 

 

An import quota on a product reduces the quantity of the product imported and

 

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will not affect the price of the product to the consumers.

 

 

 

 
 

 

 

increases the total quantity of the product consumed.

 

 

 

 
 

 

 

decreases the price of the product to the consumers.

 

 

 

 
 

 

 

increases the price of the product to the consumers.

 

 

 

 

 

 

Tariffs

 

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are excise taxes on goods exported abroad.

 

 

 

 
 

 

 

are per-unit subsidies designed to promote exports.

 

 

 

 
 

 

 

may be imposed either to raise revenue or to shield domestic producers from foreign competition.

 

 

 

 
 

 

 

are also called import quotas.

 

 

 

 

 

 

 

 

The slopes of the production possibilities curves for two nations reflect the

 

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relative prices of the resources in the two nations.

 

 

 

 
 

 

 

average income levels in the two nations.

 

 

 

 
 

 

 

amounts of imports and exports of the two nations.

 

 

 

 
 

 

 

opportunity costs of production in the two nations.

 

 

 

 

 

 

If a nation imposes a tariff on an imported product, then that nation will experience a(n)

 

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decrease in quantity supplied and an increase in the price of the product.

 

 

 

 
 

 

 

decrease in demand and a decrease in the price of the product.

 

 

 

 
 

 

 

decrease in the supply of, and an increase in the quantity demanded of, the product.

 

 

 

 
 

 

 

increase in the quantity supplied of, and a decrease in the price of the product.

 

 

 

 

 

 

A tariff is a

 

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quantity limit.

 

 

 

 
 

 

 

tax.

 

 

 

 
 

 

 

price ceiling.

 

 

 

 
 

 

 

subsidy.

 

 

 

 

 

 

 

 

 

A tax imposed by the U.S. government on imported Chinese frozen shrimp would be an example of

 

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a voluntary restriction.

 

 

 

 
 

 

 

a regulatory trade restriction.

 

 

 

 
 

 

 

a tariff.

 

 

 

 
 

 

 

a quota.

 

 

 

 

 

 

 

 

A maximum limit set on the amount of a specific good that may be imported into a country over a given period of time is called a

 

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voluntary export restriction.

 

 

 

 
 

 

 

tariff.

 

 

 

 
 

 

 

quota.

 

 

 

 
 

 

 

nontariff barrier.

 

 

 

 

 

 

When a nation removes tariffs on imported products that nation will

 

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experience lower prices and consume lower quantities.

 

 

 

 
 

 

 

experience higher prices and consume lower quantities.

 

 

 

 
 

 

 

experience higher prices and consume higher quantities.

 

 

 

 
 

 

 

experience lower prices and consume higher quantities.

 

 

 

 

 

 

 

 

The ratio at which nations will exchange one product for another is known as the

 

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exchange rate.

 

 

 

 
 

 

 

discount rate.

 

 

 

 
 

 

 

terms of trade.

 

 

 

 
 

 

 

balance of trade.

 

 

 

 

 

 

The higher price of imported products due to trade barriers causes some consumers to shift their purchases to a domestically produced product that is now

 

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higher in price because import competition has risen.

 

 

 

 
 

 

 

higher in price because import competition has declined.

 

 

 

 
 

 

 

lower in price because import competition has declined.

 

 

 

 
 

 

 

lower in price because import competition has risen.

 

 

 

 

 

 

The use of tariffs and quotas for trade protection results in

 

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less rent-seeking activity.

 

 

 

 
 

 

 

lower prices for domestic consumers.

 

 

 

 
 

 

 

less efficiency in the economy.

 

 

 

 
 

 

 

less revenue for the government.

 

 

 

 

 

When a nation removes restrictions on imported products that nation will

 

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experience higher prices and consume lower quantities.

 

 

 

 
 

 

 

experience lower prices and consume lower quantities.

 

 

 

 
 

 

 

experience lower prices and consume higher quantities.

 

 

 

 
 

 

 

experience higher prices and consume higher quantities.

 

 

 

 

 

 

 

The benefit of saving some American jobs in specific industries protected from foreign competition

 

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is much greater than the costs to the whole American economy.

 

 

 

 
 

 

 

has risen in recent years.

 

 

 

 
 

 

 

is much less than the costs to the whole American economy.

 

 

 

 
 

 

 

has fallen in recent years.

 

 

 

 

 

 

Assume that a tariff is imposed on an imported product. The difference between the domestic price and the world price is captured by

 

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the government.

 

 

 

 
 

 

 

domestic producers.

 

 

 

 
 

 

 

foreign exporters.

 

 

 

 
 

 

 

domestic consumers.

 

 

 

 

 

 

Refer to the production possibility curve for Marketopia below.

 

 

 

The graph indicates that with the resources and technology it has available, Marketopia

 

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can produce either 40 units of rye or 20 units of eggs.

 

 

 

 
 

 

 

cannot produce both 20 units of rye and 5 units of eggs.

 

 

 

 
 

 

 

cannot produce both 20 units of rye and 10 units of eggs.

 

 

 

 
 

 

 

can produce both 40 units of rye and 20 units of eggs.

 

 

 

If an increase in the price of pineapple juice of 10% results in an increase in the demand for grape juice of 5%, the cross-price elasticity of demand between pineapple juice and grape juice is:

 

 

 

 
 

 

 

-0.5.

 

 

 

 
 

 

 

-5.0.

 

 

 

 
 

 

 

5.0.

 

 

 

 
 

 

 

0.5.

 

 

 

An economist recently estimated that for every 1% increase in the price of french fries at fast-food restaurants, 0.44% fewer french fries are sold. This indicates that the demand for fast-food french fries is:

 

 

 

 
 

 

 

inelastic.

 

 

 

 
 

 

 

elastic.

 

 

 

 
 

 

 

perfectly inelastic.

 

 

 

 
 

 

 

unit-elastic.

 

 

 

 

Generally, we calculate elasticity as the:

 

 

 

 
 

 

 

percentage change in quantity demanded/supplied divided by the percentage change in price.

 

 

 

 
 

 

 

percentage change in quantity demanded/supplied divided by the change in price.

 

 

 

 
 

 

 

percentage change in price divided by the percentage change in quantity demanded/supplied.

 

 

 

 
 

 

 

change in quantity demanded/supplied divided by the change in price.

 

 

 

For which of the following products is demand likely to be the most inelastic?

 

 

 

 
 

 

 

Flat screen TV

 

 

 

 
 

 

 

Table salt

 

 

 

 
 

 

 

Sports car

 

 

 

 
 

 

 

In-ground hot tub

 

 

 

If a state decided to place a tax on home heating oil, over time:

 

 

 

 
 

 

 

demand would become less elastic and tax revenue would decline.

 

 

 

 
 

 

 

demand would become less elastic and tax revenue would increase.

 

 

 

 
 

 

 

demand would become more elastic and tax revenue would increase.

 

 

 

 
 

 

 

demand would become more elastic and tax revenue would decline.

 

 

 

The price elasticity of demand increases with the length of the period considered because

rev: 05_14_2018

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consumers will be better able to find substitutes.

 

 

 

 
 

 

 

consumers’ incomes will increase over time.

 

 

 

 
 

 

 

all prices will increase over time.

 

 

 

 
 

 

 

the demand curve will shift outward as time passes.

 

 

 

 

The elasticity of demand for a product is likely to be greater

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the smaller the number of substitute products available.

 

 

 

 
 

 

 

the greater the amount of time over which buyers adjust to a price change.

 

 

 

 
 

 

 

if the product is a necessity, rather than a luxury good.

 

 

 

 
 

 

 

the smaller the proportion of one’s income spent on the product.

 

 

 

 

The basic formula for the price elasticity of demand is

 

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percentage change in quantity demanded/percentage change in price.

 

 

 

 
 

 

 

percentage change in price/percentage change in quantity demanded.

 

 

 

 
 

 

 

absolute decline in quantity demanded/absolute increase in price.

 

 

 

 
 

 

 

absolute decline in price/absolute increase in quantity demanded.

 

 

 

 

The price elasticity of supply measures how

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responsive the quantity supplied of X is to changes in the price of X.

 

 

 

 
 

 

 

easily labor and capital can be substituted for one another in the production process.

 

 

 

 
 

 

 

responsive the quantity supplied of Y is to changes in the price of X.

 

 

 

 
 

 

 

responsive quantity supplied is to a change in incomes.

 

 

 

 

The demand schedules for such products as eggs, bread, and electricity tend to be

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perfectly elastic.

 

 

 

 
 

 

 

relatively inelastic.

 

 

 

 
 

 

 

unit-elastic.

 

 

 

 
 

 

 

relatively elastic.

 

 

 

 

Use the following graph to answer the question below.

 

 

If the price is P3, then the total revenue is represented by area

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B + C + D.

 

 

 

 
 

 

 

B + C + D + E + F + G.

 

 

 

 
 

 

 

A + B + C + D + E + F + G.

 

 

 

 
 

 

 

E + F + G.

 

 

 

 

For which product is the income elasticity of demand most likely to be negative?

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apps for iPads

 

 

 

 
 

 

 

used clothing

 

 

 

 
 

 

 

computer software

 

 

 

 
 

 

 

bread

 

 

 

The definition of a normal good suggests that the

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income elasticity of demand for the good is greater than 0.

 

 

 

 
 

 

 

cross-price elasticity of demand for the good is positive.

 

 

 

 
 

 

 

income elasticity of demand for the good is negative.

 

 

 

 
 

 

 

price elasticity of demand for the good is negative.

 

 

 

 

 

 

The law of supply suggests that the price elasticity of supply is

 

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negative.

 

 

 

 
 

 

 

positive.

 

 

 

 
 

 

 

zero.

 

 

 

 
 

 

 

unknown.

 

 

 

 

The price elasticity of supply for a product will be 2 if a

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2% decrease in price causes a 1% decrease in quantity supplied.

 

 

 

 
 

 

 

1% decrease in price causes a 2% decrease in quantity supplied.

 

 

 

 
 

 

 

2% decrease in price causes a 2% decrease in quantity supplied.

 

 

 

 
 

 

 

1% decrease in price causes a 0.2% decrease in quantity supplied.

 

 

 

 

The total revenue received by sellers of a good is computed by

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dividing the percentage change in quantity by the percentage change in price.

 

 

 

 
 

 

 

multiplying the percentage change in price times the percentage change in quantity.

 

 

 

 
 

 

 

adding the price and the quantity sold.

 

 

 

 
 

 

 

multiplying the price times the quantity sold.

 

 

 

 

Demand is said to be inelastic when

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a reduction in price results in a decrease in total revenue.

 

 

 

 
 

 

 

an increase in price results in a reduction in total revenue.

 

 

 

 
 

 

 

a reduction in price results in an increase in total revenue.

 

 

 

 
 

 

 

the absolute value of the price elasticity of demand exceeds 1.

 

 

 

 

Use the figure below to answer the following question.

 

The diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate period, the short run, and the long run. Supply curves S1, S2, and S3 apply to the

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immediate period, long run, and short run respectively.

 

 

 

 
 

 

 

immediate period, short run, and long run respectively.

 

 

 

 
 

 

 

long run, short run, and immediate period respectively.

 

 

 

 
 

 

 

short run, long run, and immediate period respectively.

 

 

 

Use the figure below to answer the following question.

 

Which graph shows the immediate period for supply?

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graph 1

 

 

 

 
 

 

 

graph 3

 

 

 

 
 

 

 

graph 2

 

 

 

 
 

 

 

graph 4

 

 

 

 

 

Economists distinguish among the immediate period, the short run, and the long run by noting that

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supply is most elastic in the short run and perfectly inelastic in the immediate period.

 

 

 

 
 

 

 

supply is most elastic in the short run and perfectly inelastic in the long run.

 

 

 

 
 

 

 

demand is most elastic in the long run and perfectly inelastic in the immediate period.

 

 

 

 
 

 

 

supply is most elastic in the long run and perfectly inelastic in the immediate period.

 

 

 

 

Cross-price elasticity of demand is

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positive for general goods.

 

 

 

 
 

 

 

negative for complementary goods.

 

 

 

 
 

 

 

unitary for secondary goods.

 

 

 

 
 

 

 

negative for substitute goods.

 

 

 

 

For a linear demand curve

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demand is elastic at high prices.

 

 

 

 
 

 

 

elasticity is constant along the curve.

 

 

 

 
 

 

 

elasticity is unity at every point on the curve.

 

 

 

 
 

 

 

demand is elastic at low prices.

 

 

 

 

If a 10% increase in the price of one good results in no change in the quantity demanded of another good, then it can be concluded that the two goods are

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unrelated.

 

 

 

 
 

 

 

inferior.

 

 

 

 
 

 

 

complements.

 

 

 

 
 

 

 

substitutes.

 

 

 

 

The decision-making process followed by consumers to maximize utility assumes that

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consumers are unable to rank their preferences.

 

 

 

 
 

 

 

consumers have unlimited incomes.

 

 

 

 
 

 

 

consumers do not know how much marginal utility they obtain from consuming additional units of various products.

 

 

 

 
 

 

 

consumers behave rationally, attempting to maximize their satisfaction.