Question

Please answer questions 14 and 15 by referring to the following demand and supply schedules for crude oil:

price per barrel quantity demanded quantity supplied
$100 100 160
$90 120 120
$80 140 80
            $75 150 60
$70 160 40
$60 180     0
$50 200     0

14. The equilibrium price and quantity exchanged of crude oil are:
      A. $50 and 200 units, respectively. C. $90 and 120 units, respectively.
      B. $60 and 180 units, respectively. D. $75 and 60 units, respectively.

15. At a price of $100 per barrel of oil,
      A. there is an excess supply of 160 barrels and the price of oil will fall.
      B. there is an excess supply of 60 barrels and the price of oil will fall.
      C. there is an excess demand of 60 barrels and the price of oil will fall.
      D. there is an excess demand of 60 barrels and the price of oil will rise.

16. Assume the income elasticity of demand for a service you provide is 2.0. Given this information, we would
      label your service:
      A. a normal good and a necessity.    B. a normal good and a luxury C. an inferior good.

17. As we more narrowly define a good (e.g., from snacks to cookies to Chips Ahoy! cookies to a family size
      bag of Chips Ahoy! cookies), the absolute value of the own-price elasticity of demand:
      A. increases as the quantity and quality of substitutes increases.
      B. decreases as the quantity and quality of substitutes increases.
      C. increases as the quantity and quality of substitutes decreases.
      D. decreases as the quantity and quality of substitutes decreases.

Answer 1

14. Ans: $90 and 120 units, respectively.

Explanation:

The equilibrium occurs at the point where quantity demanded is equal to quantity supplied. From the table it is seen that at the price level of $90, the quantity demanded is equal to quantity supplied is equal to 120.

Thus, option [C] is correct answer.

15. Ans: there is an excess supply of 60 barrels and the price of oil will fall.

Explanation:

At the price of $100, quantity demanded is 160 and quantity supplied is 100. So, there is an excess supply of 60 barrels and there is a downward pressure on the price of oil.

Thus, option [B] is correct answer.

16. Ans: a normal good and a luxury.

Explanation:

A positive income elasticity means the good is a normal good and if the income elasticity is greater than 1, it means the good is a luxury good. Thus, the income elasticity of demand of 2.0 means the good is a normal good and a luxury good.

Thus, option [B] is correct answer.

17. Ans: increases as the quantity and quality of substitutes increases.

Explanation:

When the number of substitute goods increases, the demand for a good will be more elastic.

Thus, option [A] is correct answer.