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LAB 1 to 5 econ201 automn semester 2021
Introduction to Microeconomics (Concordia University)
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LAB 1-5 ECON 201
LAB 1
QUESTION 1
Fill in the blanks to make the following statements correct.
a. The three general categories of any economy's resources are land, labour, and capital. Economists
refer to these resources as the factors of production.
b. When we use any resource, the benefit given up by not using it in its best alternative way is known as
the opportunity cost of that resource.
c. The concepts of scarcity, choice, and opportunity cost can be illustrated by a curve known as the
production possibilities boundary.
d. When looking at a production possibilities boundary, any point that is outside the boundary
demonstrates scarcity. The Negative slope of the production possibilities boundary demonstrates
opportunity cost.
e. A straight-line production possibilities boundary (PPB) indicates that the opportunity cost of each good
is constant, no matter how much of that good is produced. A PPB that is concave to the origin indicates
that a(n) increasing amount of one good must be given up to produce more of the other good.
f. Consider an economy producing two goods, A and B, with a PPB that is concave to the origin. As the
economy produces more of good A and less of good B, its opportunity cost of producing A increases
QUESTION 2
What is the difference between microeconomics and macroeconomics?
A. Microeconomics lends itself to empirical analysis, while macroeconomics uses the concept of
incentives.
B. Microeconomics studies the allocation of resources as it is affected by the workings of the
price system, while macroeconomics studies the determination of economic aggregates.
C. Microeconomics deals with positive analysis of big corporations and its effect on long-term growth,
while macroeconomics deals with normative analysis of small corporations and its effect on short term
growth.
D. Microeconomics examines the big picture of the national economy, while macroeconomic examines
individual units and how they affect one another.
ANSWER: B
QUESTION 3
QUESTION 4
QUESTION 5
QUESTION 6
The problem of scarcity
A. would disappear if there were no market failures.
B. exists because the limited human wants cannot be satisfied with available resources.
C. always results in shortages of some goods.
D. exists because the unlimited human wants cannot be satisfied with limited resources.
E. can be solved in a market economy.
ANSWER: D
QUESTION 7
QUESTION 8
Production possibilities boundaries are typically drawn as being non-linear and
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A. concave to the origin, since they reflect the increasing opportunity cost of producing goods.
B. convex to the origin, since they reflect the increasing productivity of inputs.
C. concave to the origin, since they reflect the constant productivity of inputs.
D. convex to the origin, since they reflect the decreasing opportunity cost of producing goods.
E. concave to the origin, since they reflect the constant opportunity cost of producing goods.
ANSWER: A
QUESTION 9
QUESTION 10
Lars can initially produce 10 pizzas or 2 cakes. After some training from a pizza-making expert, his
opportunity cost of making
A. cakes will remain unchanged.
B.1 cake will become equal to 0 pizzas
C.1 cake will become more than 5.00 pizzas.
D.1 cake will become less than 5.00 pizzas.
ANSWER: C
QUESTION 11
Which of the following is one of the four basic questions that must be answered in all economies?
A. What is consumed and where is it consumed?
B. Why are products sometimes priced too high?
C. Is productive capacity growing?.
D. Why are products sometimes unsold?
ANSWER: C
QUESTION 12
A point on a production possibilities boundary shows an
A. unattainable combination of goods.
B. efficient combination of goods.
C. inefficient combination of goods.
D. inefficient combination of inputs.
ANSWER: B
QUESTION 13
Suppose there are only three things you can do rather than attend a community social event: read a novel
which you value at 5 units of satisfaction, go to work where you could earn 7 units of satisfaction, or watch
videos with some friends, which you value at 10 units of satisfaction.
If the cost of admission to the community social event is zero, then the opportunity cost of attending the
community social event is
A. 7 units of satisfaction.
B. 0 units of satisfaction.
C. 5 units of satisfaction.
D. 10 units of satisfaction.
E. 22 units of satisfaction.
ANSWER: D
QUESTION 14
Consider an economy that can produce video games and houses.
If worker productivity improves for the production of video games and remains unchanged for the
production of houses, then the opportunity cost
A. stays the same for houses and falls for video games.
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B. falls for both goods.
C. rises for houses and stays the same for video games.
D. rises for houses and falls for video games.
E. falls for houses and rises for video games.
ANSWER: D
QUESTION 15
A farmer owns 10 acres of land. He can either plant potatoes or corn. Each acre of land yields either 10
kilograms of potatoes or 5 bushels of corn. Now suppose that a more productive corn seed is discovered,
which results in an acre of land yielding 20 bushels of corn. If corn is on the vertical axis and potatoes on
the horizontal axis, then consider the following statements about the effect of the more productive corn on
the production possibilities boundary (PPB) and opportunity cost.
Statement I:
The PPB has become steeper.
Statement II:
The opportunity cost of corn has increased from 0.5 kilograms of potatoes to 2 kilograms of potatoes
Statement III:
The maximum corn production has increased from 100 bushels to 400 bushels.
Which statement or statements are true?
A. I only
B. I and II only
C. II only
D. All are true
E. None are true
ANSWER: A
QUESTION 16
The concept of scarcity in economics usually refers to a condition
A. where production is efficient, but distribution is inefficient.
B. that afflicts only poor countries.
C. where society is not employing all of its available resources in an efficient manner.
D. where people's wants can never be satisfied by the available resources.
E. Where a convex production possibilities boundary exists
ANSWER: D
QUESTION 17
Because resources are scarce, individuals are required to
A. sacrifice production but not consumption.
B. consider opportunity cost of using resources.
C. consume more services than goods.
D. consume at efficient points above the production possibilities curve.
E. Increase consumption of services.
ANSWER: B
QUESTION 18
QUESTION 19
Fill in the blanks to make the statements correct, and answer any questions below.
a. An important insight by early economists was that an economy based on free-market transactions is
self-organizing. Adam Smith developed the idea that self-interest, not benevolence, is the foundation of
economic order.
b. Self-interested buyers and sellers respond to incentives
.
c. Identify the types of decision makers in any economy. (Select all that apply.)
A. Consumers
B. Government
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C. Producers
D. Law enforcement
E. Marketers
ANSWER: A, B & C
d. Consumers are assumed to make decisions that will maximize their utility. Producers are assumed to
make decisions that will maximize their profits
.
e. Consumers and producers are assumed to weigh the costs and benefits of their decisions at the
margin. For example, for a consumer, the benefit of buying "one more" unit of a good must outweigh the
marginal cost of buying that unit.
QUESTION 20
Which of the following explains why the specialization of labour is more efficient than universal selfsufficiency? Select all that apply.
A. Individuals or countries can become more proficient and efficient at the activity.
B. No individual or country can do all tasks efficiently.
C. Without specialization, there would be no trade, creating inefficiencies.
D. Individuals or countries can focus on what they do relatively well while leaving everything else to be
done by others.
E. Specialization cannot occur through "learning by doing," and "learning by doing" is inefficient.
ANSWER: A & D
QUESTION 21
The interaction of consumers and producers through goods and factor markets is illustrated by the
circular flow of
A. income and expenditure.
B. capital and consumer goods.
C. profits and losses.
D. wages and salaries.
ANSWER: A
QUESTION 22
The main characteristics of market economies that produce spontaneous self-organization include
A. regulation.
B. labour unions.
C. self-interest.
D. scarcity
ANSWER: C.
QUESTION 23
Which of the following statements is true?
A. A consumer trying to maximize his utility will buy a CD only if he thinks the benefit to him in terms of
extra utility exceeds the marginal cost.
B. A producer interested in maximizing his profit will hire the extra worker only if the benefit in terms of
extra revenue exceeds the cost in terms of higher wages.
C. Firms and consumers who are trying to maximize should weigh the costs and benefits of their
decisions at the margin.
D. All of the above are true.
ANSWER: D
QUESTION 24
In the circular flow of income, the allocation of resources is largely decided by
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A. political parties and firms only.
B. individuals only.
C. central authorities and producers acting independently.
D. central authorities and firms only.
E. Producers and consumers acting independently.
ANSWER: E
QUESTION 25
The barter system of exchange is inefficient because
A. exchange partners need to know each other.
B. the double coincidence of wants may not exist.
Your answer is correct.
C. limited resources cannot satisfy unlimited wants.
D. ''fair'' values cannot be defined without the use of money.
E. bargaining power is unequal between rich and poor.
ANSWER: B
QUESTION 26
Fill in the blanks to make the following statements correct.
a. The allocation of different jobs to different people is referred to as the specialization of labour. The
specialization within the production process of a particular product is referred to as the division of labour.
b. When people specialize in their activities, it becomes necessary for them to trade to obtain most of the
things they need or want.
c. Trade is facilitated by money because it eliminates the cumbersome system of barter.
d. The rapid reduction in both transportation and communication costs has greatly contributed to the
globalization of the world economy.
QUESTION 27
Which is not a type of economic system?
A. The free-market economic system is an economy in which most economic decisions are made by
private households and firms.
B.The split economic system is an economy in which half the economic decisions are made by the govern
ment and the other half are made by individuals.
C. The traditional economic system is an economy based mostly on tradition.
D. The command economic system is an economy in which most economic decisions are made by a
central planning authority.
E. The mixed economic system is an economy in which some economic decisions are made by firms and
households and some by the government.
ANSWER: B
QUESTION 28
Comment on the following statement: "One of the mysteries of semantics is why the governmentmanaged economies ever came to be called planned and the market economies unplanned. It is the
former that are in chronic chaos, in which buyers stand in line hoping to buy some toilet paper or soap. It
is the latter that are in reasonable equilibrium—where if you want a bar of soap or a steak or a shirt or
a car, you can go to the store and find that the item is magically there for you to buy. It is the liberal
economies that reflect a highly sophisticated planning system, and the government-managed economies
that are primitive and unplanned."
A. The statement does not make sense because the term planned economy does not describe the
conscious use of centralized decision making for key economic decisions.
B. The statement makes sense because decentralized market economy often uses advantages of
centralized decision making for key economic decisions.
C. The statement does not make sense because the liberal economies often result into rather dispirited
and unmotivated private sector.
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D. The statement makes sense because the planned economy process of decision making often leads to
shortages and surpluses.
ANSWER: D
QUESTION 29
Within a pure market economy we will never see
A. unemployment.
B. benevolence.
C. central planning.
D. market failure.
E. scarcity.
ANSWER: C
QUESTION 30
Most modern economies in the world today
A. let the government intervene in market transactions to correct market failures.
B. ignore countries' pressing social issues.
C. are complex systems that defy description and analysis.
D. are similar to feudal systems.
E. are mostly run by government decree
ANSWER: A
LAB 2
QUESTION 1
Normative statements are based on
A. unrealistic expectations about some aspects of the economy.
B. value judgements.
C. imaginary views of the world.
D. judgements about what the world is like.
E. the law, which may be quite different in various countries.
ANSWER: B
QUESTION 2
Indicate whether the following statements are positive or normative. Do this by inserting in each answer
box either P (for 'positive') or N (for 'normative').
The government ought to be more concerned with reducing unemployment.
N
Lowering the price of tobacco leads people to smoke more.
P
Higher income taxes reduce consumer spending.
P
QUESTION 3
Fill in the blanks to make the following statements correct.
a. Economists have designed theories to better explain and predict the behaviour we observe in the
world around us.
b. A variable, such as price or quantity, that is determined within a theory is known as an endogenous
variable. A variable that is determined outside the theory is known as an exogenous variable.
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c. Suppose that, based on a theory, we claim that "If A occurs, then B will follow," we are making a(n)
prediction that can then be tested by empirical observation.
d. If we observe that when variable A decreases, variable B also decreases, we can say that the two
variables are correlated. We cannot necessarily say that there is a causal relationship between A and
B.
e. An important assumption that is made in economics is that individuals and firms pursue their own selfinterest. We assume that individuals seek to maximize their Utility and firms seek to maximize their
profit.
QUESTION 4
In the following examples, identify the exogenous (or independent) variable and the endogenous (or
dependent) variable.
a. The world price of coffee and the price of a cup at Tim Hortons.
The exogenous variable is the world price of coffee, and the endogenous variable is the price of a cup
at Tim Hortons.
b. Corn production and rainfall. The exogenous variable is rainfall, and the endogenous variable is corn
production.
c. The desire for fuel-efficient cars and the price of gasoline. The exogenous variable is the price of
gasoline, and the endogenous variable is the desire for fuel-efficient cars.
d. Worker morale and the comfort and safety of the workplace. The exogenous variable is the comfort
and safety of the workplace, and the endogenous variable is worker morale.
QUESTION 5
An economic model
A. is developed to describe the relationships between the government and households when they act as
economic agents.
B. is always to some extent based on the supply-and-demand model.
C. is a model that is affordable.
D. is an abstraction designed to illustrate some point.
ANSWER: D
QUESTION 6
An endogenous variable is
A. a dependent variable.
B. an induced variable.
C. a variable that is explained within a theory.
D. All of the above.
ANSWER: D
QUESTION 7
Suppose it is revealed that students who achieve academic success (i.e., high grades) tend, on average,
to drink more coffee per day than those who are less successful academically. If some students conclude
that they should therefore drink coffee whenever possible, they will likely have
A. understood that the two behaviours are jointly caused by some third variable.
B. avoided the fallacy, "after this therefore because of this."
C. mistaken correlation for causality.
D. discovered the magic of caffeine
ANSWER: C
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QUESTION 8
Economists test their theories by
A. using controlled experiments in labs.
B. maximizing the details and relationships the theories explain.
C. assessing the reasonableness of the theories' assumptions.
D. confronting the theories' predictions with evidence.
E. subjecting them to examination by a jury of economic experts.
ANSWER: D
QUESTION 9
An economic theory requires, among other things,
A. a set of definitions of the variables to be considered.
B. a controlled laboratory setting in which the theory can be tested.
C. a description of the world in all its complexity.
D. the use of endogenous variables only.
ANSWER: A
QUESTION 10
Observations on one variable taken
across different locales
at the same point in time constitute a data set known as __________ data.
A. uniform
B. static
C. time-series
D. locational
E. cross-sectional
ANSWER: E
QUESTION 11
The table below shows hypothetical tuition costs at a Canadian university.
Year
Tuition
2005
$6,000
2006
$6,050
2007
$6,100
2008
$6,150
2009
$6,200
Refer to the table above. Assume that 2005 is used as the base year, with the index
number=100. The value of the index number in 2008 is calculated as follows:
A. 6,150/6,150×100=100.
B. 6,150/6,000=1.03.
C. 6,000/6,150=0.98.
D. (6,000/6,150)×100=98.
E. (6,150/6,000)×100=103.
ANSWER: E
QUESTION 12
Fill in the blanks to make the following statements correct.
a. On a graph with Y on the vertical axis and X on the horizontal axis, the slope of a straight line is
calculated as ΔY/ΔX.
b. In the equation Y = 500 + 4X, the vertical intercept is 500, Y and X are positively related to each other,
and the slope of this linear function is 4.
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c. In the equation Y = 12 − 0.2X, the vertical intercept is 12, Y and X are negatively related to each other,
and the slope of this linear function is −0.2.
d. For a non-linear function, the slope of the curve at any specific point is measured as the slope of a
straight-line drawn tangent to that point.
e. On a graph of a non-linear function with either a minimum or a maximum point, the slope at the
minimum or maximum is zero, meaning that the marginal response to a change in the independent
variable is zero.
QUESTION 13
QUESTION 14
QUESTION 15
The following questions refer to a coordinate graph with the variable X on the horizontal axis and the
variable Y on the vertical axis. Complete parts (a) through (h).
a. If two points on a line are (X=6, Y=4) and (X=26, Y=9), what is the slope of the line?
The slope of the line is 0.25.
b. If point A is at (X=50, Y=30) and point B is at (X=40, Y=60), what is the slope of the line joining points A
and B?
The slope of the line is −3.
c. What is the slope of the function described by Y=11,000+0.6X?
The slope of the function is 0.6.
d. What is the slope of the line described by Y=−2.3X?
The slope of the line is −2.3.
e. What is the slope of the line described by Y=32−6.9X?
The slope of the function is −6.9.
f. What is the Y-intercept of the function Y=9000+mX?
The Y-intercept is 9000.
g. What is the Y-intercept of the function Y=−500+10X?
The Y-intercept is −500.
h. What is the X-intercept of the function Y=100−0.1X?
The X-intercept is 1000
QUESTION 16
Suppose ABC Corp. spends $100,000 per year on some basic level of advertising, regardless of its
revenues. In addition, the company spends 35 percent of each dollar of revenue on extra advertising.
Write a mathematical equation that describes the functional relation between advertising (A) and
revenue (R).
A = 0.35R +100000
QUESTION 17
QUESTION 18
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QUESTION 19
QUESTION 20
According to the equation Q = 22 + 0.3P, where Q is the quantity supplied and P is the price of the good
measured in dollars, the
A. quantity supplied rises by 22 units as the price increases by $1.
B. quantity supplied equals 30 percent of the price.
C. quantity supplied rises by 6.6 units as the price increases by $1.
D. quantity supplied rises by 0.3 units as the price increases by $1.
E. slope of the supply curve equals 22.
ANSWER: D
QUESTION 21
According to the equation Q = 0.15P, where Q is the quantity supplied and P is the price of the good
measured in dollars, the
A. the number of units supplied rises by 1.5 percent as the price increases by $1.
B. quantity supplied rises by 15 percent of the price increase.
C. slope of the supply curve equals 15.
D. quantity supplied rises by 15 units as the price increases by $1.
E. quantity supplied falls by 0.15 units as the price increases by $1
ANSWER: B
QUESTION 22
QUESTION 23
QUESTION 24
Positively related variables change such that as the value of one variable
A. decreases, the value of the other variable remains the same.
B. increases, the value of the other increases.
C. increases, the value of the other variable remains the same.
D. increases, the value of the other variable decreases.
E. decreases, the value of the other variable increases.
ANSWER: B
QUESTION 25
LAB 3
QUESTION 1
Fill in the blanks to make the statements correct, and answer any questions below.
a. The term quantity demanded refers to desired purchases by consumers, whereas quantity exchanged
refers to actual purchases by consumers.
b. Quantity demanded refers to the quantity of widgets demanded per period of time. "The quantity
demanded of widgets is 1000 units" is not meaningful unless we know the time period over which the
1000 units are demanded. Quantity demanded is a(n) flow variable.
c. A demand curve represents the relationship between quantity demanded and price, ceteris paribus.
The negative slope indicates that when the price decreases, quantity demanded increases.
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d. Identify the five important causes of shifts in the demand curve. (Select all that apply.)
A. Price of Inputs
B. Prices of Other Goods
C. Population
D. Consumers' Tastes
E. Number of Sellers
F. Consumers' Income
G. Significant Changes in Weather
ANSWER: B, C, D, E & G
e. The Latin phrase meaning "other things being equal" is ceteris paribus. When we want to study the
effects of changes in one variable at a time, we hold all other variables constant
QUESTION 2
QUESTION 3
Are the following two observations inconsistent?
a. Rising demand for housing causes prices of new homes to soar.
b. Many families refuse to buy homes as prices become prohibitive for them.
The observations are
A. consistent because rising demand will shift the demand curve and higher prices will cause movement
along the demand curve.
B. consistent because both of them apply to movements along the demand curve.
C. inconsistent because due to rising demand prices will become too high and no one will be buying
homes.
D. inconsistent because in the first one the demand increases and in the second one the demand
decreases due to higher prices.
ANSWER: A
QUESTION 4
QUESTION 5
For an inferior good, an increase in consumer income will result in the
A. supply curve shifting to the left.
B. demand curve shifting to the right.
C. demand curve shifting to the left.
D. supply curve shifting to the right.
ANSWER: C
QUESTION 6
QUESTION 7
Quantity demanded is the
A. entire relationship between desired purchases and possible prices.
B. product of advertising, and is unrelated to price.
C. total amount of a good that people wish to sell, regardless of price.
D. total amount of a good that purchasers wish to purchase at a given price during a given period of time.
E. actually consumed quantity that is expressed as so much per period of time
ANSWER: D
QUESTION 8
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A demand schedule is
A. a table showing the relationship between quantity demanded and the price of a commodity, other thing
being equal.
B. a graph showing the inverse relationship between quantity demanded and price.
C. a functional statement of the demand relationship.
D. the relationship between the quantity of a commodity that buyers want to purchase and the price of th
commodity.
E. an abstract concept underlying the graph of a demand curve.
ANSWER: A
QUESTION 9
Fill in the blanks to make the statements correct, and answer any questions below.
a. The term quantity supplied refers to desired sales by producers, whereas quantity exchanged refers to
actual sales by producers.
b. Quantity supplied refers to the quantity of widgets supplied per period of time. "The quantity supplied
of widgets is 1000 units" is not meaningful unless we know the
time period over which the 1000 units are supplied. Quantity supplied is a(n) flow variable.
c. A supply curve represents the relationship between quantity supplied and price, ceteris paribus. The
positive slope indicates that when the price increases, quantity supplied increases
.
d. Identify six important causes of shifts in the supply curve. (Select all that apply.)
A. Price of Inputs
B. Significant Changes in Weather
C. Population
D. Consumers' Tastes
E. Technology
F. Government Taxes or Subsidies
G. Number of Suppliers
H. Prices of Other Products
ANSWER: A, B, E, F, G & H
QUESTION 10
Consider the world supply of cocoa beans, the main input in the production of chocolate. For each of the
events listed below, state and explain the likely effect on the supply of cocoa beans. How would each
event be illustrated in a diagram?
a. Ideal growing conditions lead to a bumper crop of cocoa beans in Ivory Coast, the largest supplier of
cocoa beans.
The world supply curve of cocoa beans would shift to the right, since this event would increase the
quantity supplied at every price.
b. There is a dramatic fall in the world price of coffee beans. Assume that farmers growing cocoa beans
can easily grow coffee beans instead.
The world supply curve of cocoa beans would shift to the right, since this event would
increase the quantity supplied at every price.
c. Wages for farm labour in cocoa-growing regions fall.
The world supply curve of cocoa beans would shift to the right, since this event would
increase the quantity supplied at every price.
d. Farmers in various parts of the world see profits being earned by cocoa farmers and choose to enter
this industry.
The world supply curve of cocoa beans would shift to the right, since this event would increase the
quantity supplied at every price.
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QUESTION 11
QUESTION 12
Sugar is needed to produce soft drinks. If the price of sugar rises,
A. the supply curve of soft drinks shifts to the left.
B. the supply curve of sugar shifts to the right.
C. there is a movement along the supply curve of soft drinks.
D. the supply curve of sugar shifts to the left.
E. the supply curve of soft drinks shifts to the right
ANSWER: A
QUESTION 13
A leftward shift in the supply curve for a good may be caused by any of the following except
A. consumers expect an increase in their future income.
B. an increase in the wage paid to labour.
C. an increase in the price of production equipment.
D. a rise in the price of a substitute in production.
E. a decrease in the number of firms in the industry
ANSWER: A
QUESTION 14
How does a decrease in the price of wheat influence the market for oats? Note that
wheat and oats are substitutes in production.
A. There would be a rightward shift in the supply curve.
B. There would be a leftward shift in the supply curve.
C. There would be a rightward shift in the demand curve.
D. There would be a leftward shift in the demand curve.
ANSWER: A
QUESTION 15
QUESTION 16
Suppose that some resource X is necessary to produce some good Y. If the price of X falls
A. the supply curve of good Y is unaffected.
B. there is a movement along the supply curve of good Y.
C. the supply curve of resource X shifts to the left.
D. the supply curve of good Y shifts to the right.
E. the demand curve for X shifts to the right.
ANSWER: D
QUESTION 17
QUESTION 18
Fill in the blanks to complete the statements about a supply-and-demand model, as applied in the
following situations.
a. Consider the market for cement in Toronto. If, ceteris paribus, half of the producers in this market
shut down, the supply curve for cement will shift to the left, indicating a(n) decrease in supply.
b. Consider the market for Canadian softwood lumber (a normal good). If, ceteris paribus, average
incomes in both Canada and the United States rise over several years, the demand curve for lumber will
shift to the right, indicating a(n) increase in demand.
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c. Consider the market for Quebec artisanal cheeses. If, ceteris paribus, the price of imported cheeses
from France rises significantly, the demand curve for Quebec cheeses will shift to the right,
indicating a(n) increase in demand.
d. Consider the market for milk in the United States. If, ceteris paribus, the U.S. government decreases
subsidies to dairy farmers, the supply curve for milk will shift to the left, indicating a(n) decrease in
supply.
e. Consider the world market for shipping containers. If, ceteris paribus, the price of steel (a major input)
rises, the supply curve for shipping containers will shift to the left, indicating a(n) decrease in supply.f.
Consider the market for hot dog buns. If, ceteris paribus, the price of wieners doubles, the demand curve
for hot dog buns will shift to the left, indicating a(n) decrease in demand.
QUESTION 19
Fill in the blanks to make the following statements correct.
a. Ceteris paribus, the price of a product and the quantity demanded are related negatively.
b. Ceteris paribus, the price of a product and the quantity supplied are related positively.
c. At any price above the equilibrium price, there will be excess supply. At any price below the equilibrium
price there will be excess demand
.
d. The equilibrium price is the price at which quantity demanded equals quantity supplied.
e. An increase in demand for some product will usually cause its equilibrium price to increase and also
cause an increase in equilibrium quantity exchanged
f. A decrease in the supply of some product will usually cause its equilibrium price to increase and also
cause a decrease in equilibrium quantity exchanged.
QUESTION 20
QUESTION 21
QUESTION 22
Find the equilibrium price and quantity for each of the following pairs of demand and supply functions.
a.
QD=12−3P
D
QS=5+4P
b.
Q =1960−30P
QS=1400+40P
c.
QD=240−0.4P
QS=180+0.1P
d.
QD=5000−0.4P
QS=2000+0.6P
e.
QD=6000−100P
QS=100P
a. The equilibrium price is $1 per unit and the equilibrium quantity is 9 unit(s).
b. The equilibrium price is $8 per unit and the equilibrium quantity is 1720 unit(s).
c. The equilibrium price is $120 per unit and the equilibrium quantity is 192 unit(s).
d. The equilibrium price is $3000 per unit and the equilibrium quantity is 3800 unit(s).
e. The equilibrium price is $30 per unit and the equilibrium quantity is 3000 unit(s).
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QUESTION 23
An increase in the demand for good A will increase the equilibrium quantity of good A and leave the
equilibrium price unchanged if
A. the supply curve is vertical and the demand curve has a non-zero positive slope.
B. the demand curve is downward sloping.
C. both the supply and demand curves have a non-zero slope.
D. the supply curve has a non-zero negative slope and the demand curve is vertical.
E. the supply curve is horizontal.
ANSWER: E
QUESTION 24
If both the demand for and supply of potatoes in Prince Edward Island increase, the equilibrium quantity
of potatoes
A. will remain the same.
B. will increase.
C. will decrease.
ANSWER: B
If both the demand for and supply of potatoes in Prince Edward Island decrease, the equilibrium price of
potatoes
A. might fall, rise, or remain the same.
B. will rise.
C. will fall.
ANSWER: A
QUESTION 25
QUESTION 26
QUESTION 27
QUESTION 28
Consider the world market for a particular quality of coffee beans. The following table shows the demand
and supply schedules for this market.
Price
Quantity Demanded
Quantity Supplied
(per kilogram)
(millions of kg per year)
(millions of kg per year)
$2.00
28
10
$2.40
26
12
$3.10
22
13.5
$3.50
19.5
19.5
$3.90
17
22
$4.30
14.5
23.5
At a price of $3.10 there is excess demand of 8.5 million kilograms.
QUESTION 29
QUESTION 30
Computers and software are complements in consumption. An increase in the price of software and
technological innovation in the computer production process will cause the
A. price of computers to fall and the quantity of computers to rise, fall, or stay constant.
B. price of computers to rise, fall, or stay constant and the quantity of computers to rise.
C. price of computers to rise and the quantity of computers to rise, fall, or stay constant.
D. price of computers to rise, fall, or stay constant and the quantity of computers to fall.
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ANSWER: A
LAB 4
QUESTION 1
Fill in the blanks to make the following statements correct.
a. When a 20 percent change in the price of a good brings about a 10 percent change in its
quantity demanded, we calculate the price elasticity of demand to be 0.5. We can say that demand for
this good is inelastic.
b. When a 4 percent change in the price of a good brings about a 4 percent change in its
quantity demanded, we calculate the price elasticity of demand to be 1. We can say that demand for this
good is unit elastic.
c. When a 10 percent change in the price of a good brings about a 16 percent change in its
quantity demanded, we calculate the price elasticity of demand to be 1.6. We can say that demand for
this good is elastic.
QUESTION 2
From the following quotations, what, if anything, can you conclude about elasticity of demand?
a. "Good weather resulted in record wheat harvests and sent wheat prices tumbling. The result has been
disastrous for many wheat farmers."
A. The demand has unit elasticity.
B. The demand is inelastic.
C. The demand is elastic.
D. This quotation tells nothing about the elasticity of demand.
ANSWER: B
b. "Ridership always went up when bus fares came down, but the increased patronage never was enough
to prevent a decrease in overall revenue."
A. The demand is inelastic.
B. The demand is elastic.
C. The demand has unit elasticity.
D. This quotation tells nothing about the elasticity of demand.
ANSWER: A
c. "As the price of cell phones fell, producers found their revenues soaring."
A. The demand is elastic.
B. The demand is inelastic.
C. The demand has unit elasticity.
D. This quotation tells nothing about the elasticity of demand.
ANSWER: A
d. "Coffee to me is an essential good-I've just got to have it no matter what the price."
A. The market demand is perfectly elastic.
B. The speaker's demand is perfectly inelastic.
C. The speaker's demand is perfectly elastic.
D. The market demand is perfectly inelastic.
ANSWER: B
e. "The soaring price of condominiums does little to curb the strong demand in Vancouver."
A. The demand is elastic.
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B. The demand is inelastic.
C. The demand has unit elasticity.
D. This quotation tells nothing about the elasticity of demand.
ANSWER: D
QUESTION 3
What would you predict about the relative price elasticity of demand for
boots?
The demand for boots is
A. less price elastic than the demand for brown leather hiking boots of size 9, since the product group of
boots is narrower than the product group of brown leather hiking boots of size 9.
B. more price elastic than the demand for brown leather hiking boots of size 9, since the product group of
boots is broader than the product group of brown leather hiking boots of size 9.
C. less price elastic than the demand for brown leather hiking boots of size 9, since the product group of
boots is broader than the product group of brown leather hiking boots of size 9.
D. more price elastic than the demand for brown leather hiking boots of size 9, since the product group of
boots is narrower than the product group of brown leather hiking boots of size 9.
ANSWER: C
QUESTION 4
Suppose a stamp dealer buys the only two existing copies of a stamp at an auction. After the purchase,
the dealer goes to the front of the room and burns one of the stamps in front of the shocked audience.
In order for this to be a wealth-maximizing action, the dealer must believe that the
A. supply is very elastic (flat) so the value of his purchase will rise sharply when demand rises.
B. supply is very inelastic (flat) so the value of his purchase will rise sharply when demand falls.
C. demand is very inelastic (steep) so the value of his purchase will rise sharply when supply falls.
D. demand is very elastic (steep) so the value of his purchase will rise sharply when supply falls.
ANSWER: C
QUESTION 5
The price elasticity along a perfectly horizontal demand curve
A.is zero.
B. is less than 1.
C. changes at every point.
D. is equal to 1.
E. is infinite.
ANSWER: E
QUESTION 6
Total expenditure is falling when
A. there is a price decrease and an inelastic demand.
B. η < 1 and the price is rising.
C. the percentage change in quantity demanded is equal to the percentage change in price.
D. there is a price increase and inelastic demand.
E. η = 3 and the price is decreasing.
ANSWER: A
QUESTION 7
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QUESTION 8
A DVD store decreases the price of its DVDs from $16 to $14. Correspondingly, sales increase
from 1,800 to 2,800 per month.
The total revenue increased, indicating that demand is elastic.
QUESTION 9
If the price elasticity of demand for some good with a negatively sloped demand curve is 3.6, a 12 percent
increase in the price results in
A. a 43.2 percent increase in the quantity demanded.
B. a 4.32 percent increase in the quantity demanded.
C. a 4.32 percent decrease in the quantity demanded.
D. a 43.2 percent decrease in the quantity demanded.
E. There is not enough information to answer this question.
ANSWER: D
QUESTION 10
Fill in the blanks to make the following statements correct.
a. Suppose the quantity supplied of some good is fixed in the short run. The supply curve is vertical and
the elasticity of supply is zero.
b. The elasticity of supply of some good is a measure of the responsiveness of quantity supplied to a
change in that good's price.
c. Elasticity of supply is defined as the percentage change in quantity supplied divided by the
percentage change in price.
d. If producers can easily switch production from strawberry jam to any other kind of jam, then the
elasticity of supply of strawberry jam will be relatively elastic.
e. The easier it is for producers to shift production toward a product whose price has risen, the more
elastic the supply for that product.
f. Long-run elasticity of supply for a product is more elastic than short-run elasticity of supply because it
usually takes time for producers to adjust production in response to a change in price
.
QUESTION 11
The determinants of price elasticity of demand for frozen orange juice include:
A. the availability of substitutes for the product.
B. the size of the product group.
C. the time allowed to adjust to a price change.
D. A and B only.
E. All of the above.
ANSWER: E
The determinants of price elasticity of supply for frozen orange juice include:
A. how costs behave as output is varied.
B. the adjustment of demand.
C. the size of the product group.
D. A and B only.
E. All of the above.
ANSWER: A
QUESTION 12
If the price elasticity of supply is 0.42, then this value can be interpreted as
A. an elastic price elasticity of supply.
B. quantity supplied increases 0.42 units for every 1% increase in price.
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C. quantity supplied decreases 0.42% for every 1% increase in price.
D. an inelastic price elasticity of supply.
E. quantity supplied increases 4.2% for every 1% increase in price
ANSWER: D
QUESTION 13
If the supply curve is perfectly horizontal, then the price elasticity of supply is
A. increasing as quantity supplied increases.
B. decreasing as quantity supplied increases.
C. zero.
D. less than 1.
E. infinite.
ANSWER: E
QUESTION 14
If the supply curve is very inelastic and the demand curve shifts to the left, then
A. both quantity and price will decrease by a small amount.
B. price will decrease by a small amount and quantity by a large amount.
C. both quantity and price will decrease by a large amount.
D. price will decrease by a large amount and quantity by a small amount.
E. the new price and quantity cannot be determined without more information.
ANSWER: D
QUESTION 15
When the price of ice cream decreased from $18 to $14, production decreased from 2,000 to 1,200
bottles per month.
The supply of ice cream is price elastic.
QUESTION 16
Excise taxes are sometimes referred to as "sin taxes" when applied to products such as alcohol and
cigarettes. Using the concepts of elasticity of demand and supply, explain how we could determine
whether it is the consumer or the producer that is bearing the burden of such a tax.
Since products such as alcohol and cigarettes can be addictive, if a tax is imposed on the sales of
cigarettes or alcohol, most of the tax will most likely be paid by the
A. consumers, since the supply is inelastic relative to demand.
B. consumers, since the demand is inelastic relative to supply.
C. producers, since the supply is inelastic relative to demand.
D. producers, since the demand is inelastic relative to supply.
ANSWER: B
QUESTION 17
QUESTION 18
Suppose the market demand and supply curves are as given below. In each case, quantity refers to
millions of litres of gasoline per month; price is the price per litre (in cents).
Demand: P=350−20QD
Supply: P=140+5QS
Given these demand and supply equations, the equilibrium price is 182 cents and the equilibrium quantity
is 8.4 million litres.Suppose the government imposes a tax per litre, and as a result the quantity sold is 5.9
million litres. What is the new "consumer price" and what is the new "producer price"?
The new price consumers pay is 232 cents.
The new price producers receive is 169.5 cents.
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Find the tax amount by comparing the two prices found above.
Tax per litre is 62 cents.
QUESTION 19
Suppose the market demand-and-supply curves for the gasoline market are as given below. In each case,
quantity refers to millions of litres of gasoline per month; price is the price per litre (in cents).
Demand: P=325−20QD
Supply: P=130+6QS
Given these equations, the equilibrium price is 75 cents and the equilibrium quantity is 7.5 million litres.
Compute the total revenue raised by the gasoline tax. What share of this tax revenue is "paid"
by consumers, and what share is "paid" by producers? (Hint: if the consumer price were unchanged from
the pre-tax equilibrium, we would say that consumers pay none of the tax.)
When the government imposes a tax of 65 cents per litre, Q*new=5 million litres, the price consumers now
pay is 225 cents and the price producers now receive is 160 cents.
The total revenue raised by the gasoline tax is $3.25 million.
The percentage share of this tax revenue that is "paid" by consumers is 76.9%.
The percentage share of this tax revenue that is "paid" by producers is 23.1%.
QUESTION 20
If the demand curve is more elastic relative to supply, then this suggests that the
A. sellers bear an equal burden since they must collect the tax.
B. sellers pay a smaller portion of the excise tax.
C. sellers pay a larger portion of the excise tax.
D. consumer price increases by the amount of the tax.
E. entire burden of the tax is borne by the sellers.
ANSWER: C
QUESTION 21
he consumers' burden associated with an excise tax will be largest when demand is
A. vertical.
B. horizontal.
C. unit elastic.
D. perfectly elastic.
ANSWER: A
QUESTION 22
Consumers bear most of the burden of excise taxes when
A. demand is perfectly elastic.
B. demand is inelastic relative to supply.
C. demand is elastic relative to supply.
D. supply is inelastic relative to demand
ANSWER: B
QUESTION 23
Suppose the market supply curve is upward sloping. If the imposition of an excise tax causes no change
in the price consumers pay, the good's demand curve must be
A. perfectly elastic, implying that the burden of the tax is entirely borne by consumers.
B. perfectly inelastic, implying that the burden of the tax is entirely borne by producers.
C. perfectly elastic, implying that the burden of the tax is entirely borne by producers.
D. perfectly inelastic, implying that the burden of the tax is
ANSWER: C
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QUESTION 24
If the price of pens falls from $1.35 to $1.45, and this increases the sales of paper by
350 units per week, we can say that pens and paper are
A. complements.
B. normal goods.
C. substitutes.
D. inferior goods.
E. unrelated goods.
ANSWER: A
QUESTION 25
Use the information in the table below to compute
Julie's
income elasticity of demand for
music downloads.
Music Downloads
Month
Demanded per Month
1
15
2
17
A. 1.097
B. −2.218
C. −0.411
D. −0.451
E. -2.432
ANSWER: B
Income per Month
$2645
$2500
QUESTION 26
Identify the relevant elasticity concept for the given event. Then, compute the measure of elasticity using
average prices and quantities in your calculations. In all cases, assume that these are ceteris paribus
changes.
After a major failure of Brazil's coffee crop sent coffee prices up from $3.00 per kg to $4.80 per kg,
sales of tea in Canada increased from 7,500 kg per month to 8,000 kg per month.
The relevant elasticity concept is __________________ and the computed elasticity is ______
A. income elasticity of demand, 7.15.
B. cross elasticity of demand, 0.14.
C. cross elasticity of demand, 7.15.
D. income elasticity of demand, 0.14
ANSWER: B
QUESTION 27
When the price of good A is $20, the quantity of good B purchased is 600. When the price of good A is
$40, the quantity of good B purchased is 800. The cross elasticity of demand between goods A and B is
A. −0.43, and the goods are complements.
B. 0.43, and the goods are substitutes.
C. 2.31, and the goods are substitutes.
D. −2.31, and the goods are complements.
ANSWER: B
QUESTION 28
If the income elasticity of demand for some good is 1.5, a 5 percent increase in income results in
A. a 7.5 percent decrease in quantity demanded.
B. a 1.5 percent increase in the quantity demanded.
C. a 75 percent increase in the quantity demanded.
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D. a 75 percent decrease in quantity demanded.
E. a 7.5 percent increase in the quantity demanded.
ANSWER: E
QUESTION 29
Consider the data in the table below for a hypothetical economy.
Year Average Household Income ($) Price of Gasoline ($/litre)
2009
77,200
1.65
2010
83,000
1.65
Calculate the income elasticity of demand for gasoline in this economy.
A. 2.46
B. 0.82.
C. 0.41
D. 1.23
E. 1.64
ANSWER : B
Qty Demanded Gasoline
(millions of litres)
1,950
2,070
QUESTION 30
The price of apples at a local market rises from $3.00 to $3.05 per kilo, and as a result the quantity of
oranges that households purchase increases from 3,950 to 4,010 kilos per week. The cross-price
elasticity is
A. −0.91.
B. 0.91.
C. 2.11.
D. 1.91.
E. −1.91.
ANSWER: C
LAB 5
QUESTION 1
Fill in the blanks to make the following statements correct.
a. A binding price floor is greater than the free-market equilibrium price.
b. A binding price ceiling is less than the free-market equilibrium price.
c. Starting from a free-market equilibrium, a binding price ceiling leads to excess demand and a(n)
decrease in the quantity exchanged.
d. With a binding price ceiling, the price is not allowed to increase to allocate the available supply.
e. Starting from a free-market equilibrium, a binding price floor leads to excess supply and a(n) decrease
in the quantity exchanged.
f. With a binding price floor, the price is not allowed to decrease to eliminate the excess supply. Often
the government steps in to Buy the excess.
g. & h. In markets for agricultural products, the government often imposes a price floor in an effort to
protect producers. In markets for products such as housing or gasoline, the government often imposes a
price ceiling in an effort to protect consumers.
QUESTION 2
Price
$1.00
$2.00
$3.00
$4.00
Market for Straw Hats
Quantity Demanded
1500
1300
1100
900
Quantity Supplied
300
400
500
600
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$5.00
$6.00
$7.00
$8.00
700
500
300
100
700
800
900
1000
Consider the market for straw hats on a tropical island. The demand and supply schedules are given at
the right.
a. The equilibrium price for straw hats is $5.
The equilibrium quantity demanded and quantity supplied is 700 hats.
b. Suppose the government believes that no islander should have to pay more than $4
for a hat. The government can achieve this by imposing a price ceiling.
c. At the government-controlled price of $4 there will be a shortage of 300 hats.
d. Suppose now that the government believes the island's hat makers are not paid enough for their hats
and that islanders should pay no less than $6 for a hat. They can achieve this by imposing a price floor.
e. At the new government-controlled price of $6 there will be a surplus of 300 hats.
QUESTION 3
A binding price ceiling leads to excess demand. Which of the following is a potential method of allocating
the available supply?
A. First-come, first-served .
B. Random lottery.
C. Government-issued ration coupons.
D. Sellers' preferences.
E. All of the above are possible methods.
ANSWER: E
A government might choose to implement a price ceiling to
A. restrict production of certain goods.
B. satisfy notions of equity.
C. free-up resources for other purposes.
D. keep specific prices down.
E. All of the above are possible motives.
ANSWER: E
QUESTION 4
A binding price floor leads to excess supply. Which of the following is a method by which government
might deal with this excess supply?
A. The government buys the unsold output and distributes it to low-income persons.
B. The government buys the unsold output and stores it.
C. The government pays firms to not produce beyond the quantity demanded.
D. All of the above have been employed by governments from time to time.
ANSWER: D
A government might choose to implement a price floor to
A. satisfy notions of equity.
B. give into powerful political groups.
C. keep specific prices up.
D. All of the above have served as motivations.
ANSWER: D
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QUESTION 5
In cities experiencing rapid growth, like Calgary and Saskatoon, it is often claimed that the "overheated"
real estate market puts housing out of reach of ordinary Canadians. Not surprisingly, governments often
debate how best to deal with this issue. Who bears the heaviest cost when rents are kept artificially
low by:
a. legislated rent controls.
A. Nobody suffers in case of legislated rent controls.
B. Landlords that lose part of their income and potential future tenants who cannot get accommodation.
C. Government because government spendings should be increased to compensate additional costs to
landlords.
D. Only new landlords because they do not get the rate of return they expected on their investments.
ANSWER: B
b. a subsidy to tenants equal to some fraction of their rent.
A. Both taxpayers and landlords because rentals of private dwellings are held down.
B. Taxpayers who do not receive the subsidy.
C. Landlords that lose part of their income and potential future tenants who cannot get accommodation.
D. Only new landlords because rentals of private dwellings are held down.
ANSWER: B
c. the provision of public housing which is made available at below-market rents.
A. Existing tenants, because they have to pay "key money" to landlords.
B. Current landlords as a lot of new private accommodations will be built.
C. Taxpayers and landlords because rentals of private dwellings are held down.
D. Nobody suffers in case the public housing is provided at any level of rent.
ANSWER: C
QUESTION 6
QUESTION 7
If the price mechanism is allowed to work freely, excess demand is eliminated by
A. black markets.
B. price decreases.
C. price controls.
D. price increases.
E. government sales.
ANSWER: D
QUESTION 8
QUESTION 9
QUESTION 10
Suppose that the free-market equilibrium price of natural gas would be $2.00 per unit, but to protect
producers the government has fixed the price at $2.3. At this floor price the quantity ________ will be
greater than the quantity ________, resulting in a ________ of natural gas.
A. demanded; supplied; surplus
B. demanded; supplied; shortage
C. supplied; demanded; surplus
D. demanded; supplied; reduction in equilibrium price
E. supplied; demanded; shortage
ANSWER: C
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QUESTION 11
If the equilibrium price for some product is $1000, a price ceiling of $800 will result in
A. the same general effects as an administered price of $1200.
B. the same general effects as a price floor of $1200.
C. the same general effects as a price ceiling of $1200.
D. shortages of the good.
E. surpluses of the good.
ANSWER: D
QUESTION 12
Fill in the blanks to make the following statements correct.
a. Rent controls are a form of price ceiling
.
b. Binding rent controls lead to a shortage (excess demand) in the availability of rental housing.
c. The short-run supply curve for rental housing is quite inelastic, the long-run supply curve is quite
elastic. A housing shortage caused by rent controls grows larger over time.
d. The group that benefits the most from rent controls is existing tenants. The two groups that are most
harmed by rent controls are future tenants and landlords.
QUESTION 13
QUESTION 14
QUESTION 15
QUESTION 16
QUESTION 17
Fill in the blanks to make the following statements correct.
a. We say that a market free to achieve its market-clearing price and quantity is efficient because total
economic surplus is maximized.
b. For any given quantity exchanged, the economic surplus is shown by the area under the demand
curve and above the supply curve.
c. Binding price controls lead to a(n) decrease in the quantity of a product produced and consumed. Each
of the units that are no longer produced or consumed generates no economic surplus. The overall loss
of surplus caused by the price control is the deadweight loss
.
d. The market inefficiency of any binding price control is reflected by the size of the deadweight loss.
QUESTION 18
QUESTION 19
QUESTION 20
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QUESTION 21
QUESTION 22
Consider the market for milk in Saskatchewan. If p is the price of milk (cents per litre) and Q is the
quantity of milk (millions of litres per month), suppose that demand and supply curves for milk are given
by the following.
Demand: p=220−10QD
Supply: p=30+10QS
a. Assuming there is no government intervention in this market, what is the equilibrium price and quantity?
The equilibrium quantity is 9.5 millions of litres.
The price is 125 cents per litre. The monthly revenue for milk producers without government intervention
is $11.9 million(s) of dollars.
b. Now suppose the government guarantees milk producers a price of
$2.00 per litre (that is, 200 cents per litre) and promises to buy any amount of milk that the producers
cannot sell. What is the quantity demanded and the quantity supplied at this guaranteed price?
The quantity demanded at the guaranteed price is 2 million(s) of litres.
The quantity supplied at the guaranteed price is 17 million(s) of litres.
The monthly revenue for milk producers with price supports is $34 million(s) of dollars.
c. How much milk would the government be buying (per month) with this system of price supports?
Under price supports the milk that government would be buying is 15 million(s) of litres. (Round your
response to one decimal place.)
d. Who pays for the milk that the government buys?
Taxpayers will pay for the milk that the government buys.
Who is helped by this policy and who is harmed?
A. Taxpayers benefit at milk producers' expense.
B. Milk producers benefit at taxpayers' expense.
C. Taxpayers and milk producers benefit.
D. Taxpayers and milk producers both lose.
ANSWER: B
QUESTION 23
Consider the market for milk in Saskatchewan. If p is the price of milk (cents per litre) and Q is the
quantity of milk (millions of litres per month), suppose that demand and supply curves for milk are
given by:
Demand: p=200−16QD
Supply: p=10+30QS
The equilibrium quantity is 4.1 million litres and the price is 133 cents per litre. Monthly revenue for milk
producers without government intervention is $5.5 million. Suppose the government used a quota system
instead of direct price supports to assist milk producers. In particular, it issued quotas to existing milk
producers for 2.1 million litres of milk per month.
a. If milk production is exactly equal to the amount of quotas issued, what price do consumers pay
for milk?
If milk production is exactly equal to the amount permitted by the quotas, consumers will pay
166.4 cents per litre of milk. (Round your response to the nearest cent.)
b. Which of the following is true?
A. Firms who received a share of the quota initially are better off.
B. Firms who received a share of the quota later are better off.
C. Any firms with a share of the quota are better off.
D. None of the above are true.
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ANSWER: A
QUESTION 24
QUESTION 25
Deadweight loss is
A. measured by the gains producers enjoy from a price increase.
B. maximized in a competitive market.
C. gained by consumers only.
D. borne entirely by producers.
E. the social loss from inefficiency
ANSWER: E
QUESTION 26
When a black market emerges there is
A. an economic deficit.
B. a deadweight gain for producers.
C. a deadweight gain for consumers.
D. a deadweight loss.
E. a maximized economic surplus
ANSWER: D
QUESTION 27
QUESTION 28
Consider the market for wheat in which the wheat marketing board sets a quota for wheat which is below
the equilibrium quantity. The quota will cause the price of wheat to _____ and the revenue earned by all
farmers to _____.
A. rise; rise if demand is inelastic and fall if demand is elastic
B. stay constant; fall
C. fall; fall
D. rise; rise if demand is elastic and fall if demand is inelastic
ANSWER: A
QUESTION 29
Geoff is willing to pay $18 for a sixth entrance to a mountain bike park. The market price for entrance is
$15.5. The bike park is willing to accept $10.5. The total economic surplus generated from Geoff's sixth
trip to the bike park is
A. $18.00.
B. $7.50.
C. $15.50.
D. $2.50
E. $5.00.
ANSWER: B
QUESTION 30
Downloaded by karsten stanley (saihim@hotmail.com)