Question

In which of the following cases would you be able to predict with certainty the change in the equilibrium price? There is more than one answer to this question. You must mark all of the correct answers to receive full credit for this question.

There is a decrease in demand.

There is a decrease in demand and an increase in supply.

There is an increase in demand and an increase in supply.

There is an increase in supply.

There is a decrease in demand and a decrease in supply.

There is an increase in demand and a decrease in supply.

Assume the following in the market for coffee. A new study comes out showing that increased coffee consumption improves cardiovascular health. There is an expectation among consumers of a higher price. Firms that produce coffee are facing higher labor costs. Which of the following statements is correct?

The equilibrium quantity will definitely increase.

The equilibrium quantity will definitely decrease.

The equilibrium price will definitely increase.

The equilibrium price will definitely decrease.

Which of the following is not a problem typically associated with a price floor?

None of the other choices correctly answers this question.

A persistent surplus develops.

Actual consumption of the good or service in the market decreases.

Firms in the industry waste resources in an attempt to offer disguised discounts.

There is overinvestment in the industry.

A pizza shop sells pizza by the slice. On day when it charged $4.50 per slice it sold 380 slices. On the next day it charged $5.00 per slice and sold 340 slices. What is the price elasticity of demand?

0.50

0.95

1.24

1.06

0.80

When a furniture store increased its selling price by 5%, the quantity demanded decreased by 8%. The store’s price elasticity of demand was _______ and the demand was _______.

1.60, elastic

0.63, inelastic

0.63, elastic

1.60, inelastic

A firm sells a product that has a price elasticity of demand of 0.73. If the firm raises the selling price, it can expect its total revenue will _______.

increase

remain the same

decrease

There is no way of being able to predict what will happen to total revenue without additional information.

A market is in equilibrium. The government then comes along and imposes a price restriction. Due to this restriction the quantity demanded goes from 200 to 300 units, while the quantity supplied goes from 200 to 100 units. The government price restriction is imposed _______the equilibrium price and it is a price _______.

There is no way to answer this question without more information.

below, floor

above, floor

below, ceiling

above, ceiling

In one of the following cases it is impossible for the equilibrium price to increase. Which is it?

There is a decrease in supply.

There is a decrease in demand and an increase in supply.

There is a decrease in demand and a decrease in supply.

There is an increase in demand.

There is an increase in demand and an increase in supply.

There is an increase in demand and a decrease in supply.

When the percentage change in price (in absolute value) is larger than the percentage change in quantity demanded (in absolute value), the demand is inelastic.

True

False

Sorry I know this is a lot but I am desperate haha. Will definitely give a like to whoever answers thanks!

Answer 1

1. a, b, d, f

Decrease in demand shifts demand curve to left, decreasing price (a correct).

A simultaneous incraese in supply shifts supply curve to right, with net effect being a definite decraese in price (b correct).

Increase in supply shifts supply curve right, decreasing price (d correct).

Increase in demand shifts demand curve to right, increasing price. A simultaneous decraese in supply shifts supply curve to left, with net effect being a definite incraese in price (f correct).

2. c

Favorate health report and expected price hike will each increase demand, which shifts demand curve to right, increasing price. A simultaneous decrease in supply caused by higher labor cost shifts supply curve to left, with net effect being a definite incraese in price. But net effect on quantity is uncertain.

3. d

Price floor that causes a surplus doesn't provide incentive to increase investment by such firms.

4. d

Elasticity = (Change in Q / Average Q) / (Change in P / Average P)

= [(340 - 380) / (340 + 380)] / [(5 - 4.5) / (5 + 4.5)] = (- 40 / 720) / (0.5 / 9.5) = - 1.06

5. a

Elasticity (E) = % Change in Q / % Change in P = -8% / 5% = - 1.6

As |E| > 1, demand is elastic.

6. a

As |E| < 1, demand is inelastic, so higher price will increase revenue.

7. c

When price ceiling is imposed below equilibrium price, quantity demanded rises but quantity supplied falls.

8. b

Decrease in demand shifts demand curve to left, decreasing price. Increase in supply shifts supply curve right, decreasing price. Net effect is a definite decrease in price.

9. True

Elasticity (E) = % Change in Q / % Change in P

If % Change in P > % Change in Q, then E < 1 and demand is inelastic.