DEU - Faculty of Business
ECON 1001
Homework for Week 4 - Demand and Supply Applications
Each question is worth 5 points. Please mark your answers in the box below.
1) a
2) a
3) a
4) a
b
b
b
b
c
c
c
c
d
d
d
d
e
e
e
e
5)
6)
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8)
a
a
a
a
b
b
b
b
c
c
c
c
d
d
d
d
e
e
e
e
9)
10)
11)
12)
a
a
a
a
b
b
b
b
c
c
c
c
d
d
d
d
e
e
e
e
13)
14)
15)
16)
a
a
a
T
b c d
b c d
b c d
/ F
e
e
e
17)
18)
19)
20)
T
T
T
T
/
/
/
/
F
F
F
F
MULTIPLE CHOICE QUESTIONS
1.
When supply is perfectly inelastic,
a) price is determined solely by supply
b) the price may be set by either supply or demand
c) price is determined solely by demand
d) only the government can set the price
2.
If the equilibrium price of gasoline is $2.00 per gallon and the government will not allow oil companies
to charge more than $1.00 per gallon of gasoline, which of the following will happen?
a) Demand must eventually decrease so that the market will come into equilibrium at a price of $1.00
b) A nonprice rationing system such as ration coupons must be used to ration the available supply of
gasoline
c) Supply must eventually increase so that the market will come into equilibrium at a price of $1.00
d) The market will be in equilibrium at a price of $1.00
3.
A maximum price, set by the government, that sellers may charge for a good is known as
a) a price rationing mechanism
b) a price ceiling
c) a subsidy
d) a price floor
4.
Refer to the figure. An example of an effective price ceiling
would be the government setting rental rates for apartments at;
a) $700
b) $400
c) $500
d)$600
5.
Refer to the figure. Which of the following areas represents
deadweight loss?
a) A
b) B
c) C
d) There is no deadweight loss in this market.
6.
The government wants to reduce the consumption of electricity by 10%. The price elasticity of demand
for electricity is -.4. The government should
a) raise the price of electricity by 0.04%.
b) lower the price of electricity by 0.4%.
c) raise the price of electricity by 2.0%.
d) raise the price of electricity by 25.0%.
7.
Refer to the figure. The demand for milkshakes is unitarily elastic at
Point C. If the price of a milkshake is reduced from P1 to P2, total
revenue
a) will decrease
b) will increase
c) will remain constant
d) it depends on the preferences of consumers, so we couldn’t know.
8.
Refer to the figure above. At the world price of $10 per barrel of oil, the United States imports
__________ million barrels of oil per day.
a) 3
b) 5
c) 8
d) 11
9.
The more substitutes there are for a product,
a) the more price elastic the demand for the product is.
b) the greater the income elasticity for the product.
c) the less price elastic the demand for the product is.
d) the smaller the income elasticity for the product.
10.
A price floor is
a) a maximum price set by government that sellers may charge for a good.
b) a minimum price set by government that sellers must charge for a good.
c) the minimum price that consumers are willing to pay for a good.
d) the difference between the initial equilibrium price and the equilibrium price after a decrease in
supply.
11.
Refer to the figure. If the United States eliminates all taxes on computer chips, which of the following
would occur?
a) The price of computer chips in the United States would be $15 per computer chip, and the United
States would import 10 million computer chips.
b) The price of computer chips in the United States would be $20 per computer chip, and the United
States would import 6 million computer chips.
c) The price of computer chips in the United States would be $25 per computer chip, and the United
States would import 2 million computer chips.
d) The price of computer chips in the United States after the U.S. government eliminated all taxes on
imported computer chips cannot be determined from this information.
12.
Refer to the figure . The market is initially in equilibrium at Point A
and supply shifts from S1 to S2. Which of the following statements
is TRUE?
a) Price will still serve as a rationing device causing quantity
demanded to fall from 12 to 10 thousand pizzas.
b) The market cannot move to a new equilibrium until there is also
a change in demand.
c) There is no need for price to serve as a rationing device in this
case because the new equilibrium quantity is higher than the
original equilibrium quantity.
d) Price will still serve as a rationing device causing quantity
supplied to rise from 10 to 14 thousand pizzas.
13.
You would be willing to pay a maximum of $100 to attend a football game, and you can buy a ticket for
$30. Your consumer surplus is
a) $100.
b) $130.
c) $70.
d) $30.
14.
Cross-price elasticity of demand measures the response in
a) quantity of one good demanded when the quantity demanded of another good changes.
b) the income of consumers to the change in the price of goods.
c) the price of a good to a change in the quantity of another good demanded.
d) the quantity of one good demanded to a change in the price of another good.
15.
Price and total revenue are inversely related when demand is
a) inelastic
b) elastic
c) unitarily elastic
d) perfectly inelastic
16. When the slope of a demand curve is constant, elasticity is constant as well.
17. In 1973 and 1974, OPEC imposed an embargo on shipments of crude oil to the United States. This resulted
in a drastic reduction in the quantity of gasoline available, and in response Congress imposed a price ceiling,
which restored equilibrium in the market.
18. Price elasticity of demand is calculated using the change in quantity demanded and the change in price.
19. When an item represents a relatively small part of our total budget, we tend to pay little attention to its
price, and demand is likely to be elastic.
20. Income elasticity cannot be used to assess whether or not two goods are substitutes.