Multiple Choice (Exercises) 1. Which of the following demonstrates the law of demand?
a. After Jon got a raise at work, he bought more pretzels at $1.50 per pretzel than he did
before his raise.
b. Melissa buys fewer muffins at $0.75 per muffin than at $1 per muffin, other things equal.
c. Dave buys more donuts at $0.25 per donut than at $0.50 per donut, other things equal.
d. Kendra buys fewer Snickers at $0.60 per Snickers after the price of Milky Ways falls to
$0.50 per Milky Way.
ANS: C
2. When the price of peaches changes, the demand curve for peaches
a. shifts because the price of peaches is measured on the vertical axis of the graph.
b. shifts because the quantity demanded of peaches is measured on the horizontal axis of the
graph.
c. does not shift because the price of peaches is measured on the vertical axis of the graph.
d. does not shift because the price of peaches is measured on the horizontal axis of the graph.
ANS: C
3. You lose your job and, as a result, you buy fewer iTunes music downloads. This shows that
you consider iTunes music downloads to be a(n)
a. luxury good.
b. inferior good.
c. normal good.
d. complementary good.
ANS: C
4.
What would happen to the equilibrium price and quantity of lattés if the cost to produce
steamed milk, which is used to make lattés, increased, and scientists discovered that lattés
cause heart attacks?
a. Both the equilibrium price and quantity would increase.
b. Both the equilibrium price and quantity would decrease.
c. The equilibrium price would decrease, and the effect on equilibrium quantity would be
ambiguous.
d. The equilibrium quantity would decrease, and the effect on equilibrium price would be
ambiguous.
ANS: D
5.
Consider the market for new DVDs. If DVD players became cheaper, buyers expected
DVD prices to fall next year, used DVDs became more expensive, and DVD production
technology improved, then the equilibrium price of a new DVD would
a. rise.
b. fall.
c. stay the same.
d. could rise, fall, or remain unchanged.
ANS: D
6.
The market for diamond rings is closely linked to the market for high-quality diamonds. If a
large quantity of high- quality diamonds enters the market, then the
a. supply curve for diamond rings will shift right, which will create a shortage at the current
price. Price will increase, which will decrease quantity demanded and increase quantity
supplied. The new market equilibrium will be at a higher price and higher quantity.
b. supply curve for diamond rings will shift right, which will create a surplus at the current
price. Price will decrease, which will increase quantity demanded and decrease quantity
supplied. The new market equilibrium will be at a lower price and higher quantity.
c. demand curve for diamond rings will shift right, which will create a shortage at the current
price. Price will increase, which will decrease quantity demanded and increase quantity
supplied. The new market equilibrium will be at a higher price and higher quantity.
d. demand curve for diamond rings will shift right, which will create a surplus at the current
price. Price will decrease, which will increase quantity demanded and decrease quantity
supplied. The new market equilibrium will be at a lower price and higher quantity.
ANS: B
7. Which of the following statements is correct?
a. The demand for natural gas is more elastic over a short period of time than over a long
period of time.
b. The demand for smoke alarms is more elastic than the demand for Persian rugs.
c. The demand for bourbon whiskey is more elastic than the demand for alcoholic beverages
in general.
d. All of the above are correct.
ANS: C
8. Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream
cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46.
Using the midpoint approach to calculate the price elasticity of demand, it follows that the
a. demand for ice cream cones in this price range is elastic.
b. demand for ice cream cones in this price range is inelastic.
c. demand for ice cream cones in this price range is unit elastic.
d. price elasticity of demand for ice cream cones in this price range is 0.
ANS: A
9.
Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a
result,
a. the equilibrium quantity decreases, and the equilibrium price is unchanged.
b. the equilibrium price increases, and the equilibrium quantity is unchanged.
c. the equilibrium quantity and the equilibrium price both are unchanged.
d. buyers’ total expenditure on the good is unchanged.
ANS: A
10. Suppose that demand is inelastic within a certain price range. For that price range,
a. an increase in price would increase total revenue because the decrease in quantity
demanded is proportionately less than the increase in price.
b. an increase in price would decrease total revenue because the decrease in quantity
demanded is proportionately greater than the increase in price.
c. a decrease in price would increase total revenue because the increase in quantity
demanded is proportionately smaller than the decrease in price.
d. a decrease in price would not affect total revenue.
ANS: A
11. Skip’s Sealcoating Service increased its total monthly revenue from $12,000 to $13,500 when
it raised the price of driveway repairs from $600 to $750. The price elasticity of demand for
Skip’s Sealcoating Service is
a. 0.11.
b. 0.47.
c. 1.12.
d. 2.11.
ANS: B
Figure 1
12. Refer to Figure 1. If the price decreased from $36 to $12, total revenue would
a. increase by $4,800, and demand is elastic between points X and Z.
b. increase by $7,200, and demand is elastic between points X and Z.
c. decrease by $4,800, and demand is inelastic between points X and Z.
d. decrease by $7,200, and demand is inelastic between points X and Z.
ANS: A
13. Last year, Jim bought 8 tickets to sporting events when his income was $30,000. This year, his
income is $33,000, and he purchased 10 tickets to sporting events. Holding other factors
constant and using the midpoint method, it follows that Jim’s income elasticity of demand is
about
a. 0.43, and Jim regards tickets to sporting events as inferior goods.
b. 0.43, and Jim regards tickets to sporting events as normal goods.
c. 2.33, and Jim regards tickets to sporting events as inferior goods.
d. 2.33, and Jim regards tickets to sporting events as normal goods.
ANS: D
14. Suppose the government has imposed a price ceiling on laptop computers. Which of the
following events could transform the price ceiling from one that is not binding into one
that is binding?
a. Improvements in production technology reduce the costs of producing laptop computers.
b. The number of firms selling laptop computers decreases.
c. Consumers' income decreases, and laptop computers are a normal good.
d. The number of consumers buying laptop computers decreases.
ANS: B
15. In response to a shortage caused by the imposition of a binding price ceiling on a market,
a. price will no longer be the mechanism that rations scarce resources.
b. long lines of buyers may develop.
c. sellers could ration the good or service according to their own personal biases.
d. All of the above are correct.
ANS: D
16. In the market for widgets, the supply curve is the typical upward-sloping straight line, and
the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the
market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is
imposed. The price paid by buyers increases by $2 and the after-tax price received by sellers
falls by $3. The government is able to raise $750 per month in revenue from the tax. The
deadweight loss from the tax is
a. $250.
b. $125.
c. $75.
d. $50.
ANSWER: B
Figure 1
The vertical distance between points A and B represents a tax in the market.
17. Refer to Figure 1. What happens to producer surplus when the tax is imposed in
this market?
a. Producer surplus falls by $600.
b. Producer surplus falls by $900.
c. Producer surplus falls by $1,800.
d. Producer surplus falls by $2,100.
ANSWER:C
18. Suppose the price of milk is $2.39 per gallon, and the equilibrium quantity of milk is 100
thousand gallons per day with no tax on milk. Starting from this initial situation, which of the
following scenarios would result in the smallest deadweight loss?
a. The price elasticity of demand for milk is 0.3, the price elasticity of supply for milk is 0.7,
and the milk tax amounts to $0.40 per gallon.
b. The price elasticity of demand for milk is 0.2, the price elasticity of supply for milk is 0.5,
and the milk tax amounts to $0.30 per gallon.
c. The price elasticity of demand for milk is 0.2, the price elasticity of supply for milk is 0.7,
and the milk tax amounts to $0.30 per gallon.
d. The price elasticity of demand for milk is 0.1, the price elasticity of supply for milk is 0.5,
and the milk tax amounts to $0.20 per gallon.
ANSWER:D
19. PlayStations and PlayStation games are complementary goods. A technological advance in
the production of PlayStations will
a. increase consumer surplus in the market for PlayStations and decrease producer surplus
in the market for PlayStation games.
b. increase consumer surplus in the market for PlayStations and increase producer surplus
in the market for PlayStation games.
c. decrease consumer surplus in the market for PlayStations and increase producer surplus
in the market for PlayStation games.
d. decrease consumer surplus in the market for PlayStations and decrease producer surplus
in the market for PlayStation games.
ANSWER:B
Table 1
Buyer
Calvin
Sam
Andrew
Lori
Willingness To Pay
$150.00
$135.00
$120.00
$100.00
Refer to Table 1. If the price of the product is $110, then who would be willing
to purchase the product?
a. Calvin
b. Calvin and Sam
c. Calvin, Sam, and Andrew
d. Calvin, Sam, Andrew, and Lori
20.
ANSWER: C
21.
a.
b.
c.
d.
Refer to Table 7-1. If the price of the product is $122, then the total consumer
surplus is
$28.
$41.
$43.
$405.
ANSWER: b
22. Oil is used to produce gasoline. If the price of oil increases, consumer surplus in
the gasoline market
a. decreases.
b. is unchanged.
c. increases.
d. may increase, decrease, or remain unchanged.
ANSWER: a
Table 2
The only four producers in a market have the following costs:
Seller
Evan
Selena
Angie
Kris
Cost
$50
$100
$150
$200
Refer to Table 2. If the sellers bid against each other for the right to sell the good
to a consumer, then the good will sell for
a. $50 or slightly more.
b. $100 or slightly less.
c. $150 or slightly less.
d. $200 or slightly more.
23.
ANSWER: b
Refer to Table 2. If Evan, Selena, and Angie sell the good, and the resulting
producer surplus is $300, then the price must have been
a. $200.
b. $300.
c. $450.
d. $600.
24.
ANSWER: a
Figure 1
Refer to Figure 1. If the supply curve is S, the demand curve is D, and the
equilibrium price is $100, what is the producer surplus?
a. $625
b. $1,250
c. $2,500
d. $5,000
25.
ANSWER: c
Refer to Figure 1. If the demand curve is D and the supply curve shifts from S’
to S, what is the change in producer surplus?
a. Producer surplus increases by $625.
b. Producer surplus increases by $1,875.
c. Producer surplus decreases by $625.
d. Producer surplus decreases by $1,875.
26.
ANSWER: b
Figure 2
Refer to Figure 2. At the equilibrium price, consumer surplus is
a. $600.
b. $900.
c. $1,500.
d. $1,800.
27.
ANSWER: b