Question

1. Suppose we have a good known as Tablethas that has a PES of 0.5. Suddenly, there is a huge increase in tastes and preferences for it. What happens as a result?

a. The price decreases and the quantity increases

b. The price increases a little but the quantity increases a lot

c. The price increases a lot but the quantity increases only a little

d. The price increases a lot but the quantity falls by a lot

2. By one estimate, the PES for housing in California’s more regulated cities like San Francisco is 0.0. If so, what can we conclude from this number?

a. The supply curve is downward sloping

b. The supply is not affected by changes in price

c. The supply does not shift if there are more sellers

d. There will be no equilibrium price in this market

3. Which of the following will clearly cause a decrease in the total revenue for the entire market?

a. Buyers’ income increases and sellers expect the price to increase

b. The implementation of an effective price floor on the market

c. Tastes and preferences move away from the product

d. Buyers’ income increases

Answer 1

a) "C"

As the price elasticity of supply is very less in the market this will increase the price a lot and the quantity change will be very less.

b) "B"

We can conclude that the change in the price will not change the supply in the market.

c) "B"

An implementation of the effective price floor will decrease the revenue of the whole market.