Question

1. Which of the following goods would be the most likely to be subject to a government-imposed tax?

A

Cereal

B

Bottles of alcohol, such as whiskey and gin

C

Shoes

2. Which of the following is likely to have the largest elasticity of supply?

A

The producer of vanilla ice cream

B

The producer of yachts

C

A dentist

3. Assume that as your income increases, your consumption of burgers decreases. We can assume that your income elasticity of demand for burgers is what?

A

Between 0 and 1

B

Greater than 1

C

Equal to 1

D

Negative

4. When price decreases, quantity increases. Price elasticity of demand measures how much ___________.

A

The price decreases

B

The price increases

C

The price decreases when quantity increases

D

The quantity increases when price decreases

5. Rank the following in order from the least elastic demand to most elastic:

A. Allergy medicine that is prescribed by a physician

B. Any over-the-counter allergy medicine

C. Sudafed Cold and Allergy Medicine

6. Why are the admission prices to Disneyland often discounted, but the price of concessions and souvenirs never discounted?

Answer 1

1) "B"

Liquor is heavily taxed because its demand is inelastic. Once a person is addicted to it he will buy it no matter how costly the liquor gets.

2) "A"

A producer of vanilla ice cream has most elastic supply curve because he is able to respond to the change in the market quickly.

3) "D", good whose demand decrease with increasing income is considered inferior BUrger here is an inferior good because its demand decreased with an increase in the income. which means the elasticity is less than 0.

4) "D"

Price elasticity is a measure of how much demand will respond in case of an increase or decrease in price.

5) "A", "C", "B". A medicine prescribed by the physician will have the lowest elasticity followed by a famous company medicine and any over the counter medicine will be highly elastic.

6) Disney land is considered as a luxury good and it also has substitutes. But the souvenir doesn't have any substitute people will buy it no matter what the price is.