Question

29.) Over time, technological improvement lowers the cost of producing smartphones and also raises buyers’ incomes. Assume that smartphones are normal goods. As a result, the supply of smartphones will (increase, decrease) and the demand for smartphones will (increase, decrease). We would expect the equilibrium quantity of cellphones bought and sold will (increase, decrease, stay the same), while the price of smartphones could rise, fall, or stay the same. (6 points; 2 points each)

30.) When a hurricane accompanied by massive rainfall and flooding occurs, what would happen to the demand for bottled water, the supply of bottled water, and the price of a bottle of water? a.) The demand for bottled water would (increase, decrease, stay the same). (1 point) b.) The supply of bottled water would (increase, decrease, stay the same). (1 point) c.) The price of bottled water would (increase, decrease, stay the same). (1 point)

31.) At a recent AU basketball game, many seats at Bender Arena were empty. a.) In economic terms, would this be a shortage or surplus of seats? (shortage, surplus). (1 point) b.) What does the fact of empty seats suggest about the price of basketball tickets sold to the public? Those tickets are (too expensive, too cheap). (1 point) c.) What should AU do to the price of tickets if wants to fill the empty seats? It should (raise, lower) ticket prices. (1 point)

32.) True or False? The price elasticity of demand is defined to be the percentage change in quantity of a good demanded divided by the percentage change in its price. (2 points) 33.) The demand for a life saving medicine without any close substitutes will be (inelastic, elastic, unit elastic) (1 point)

34.) True or False? If the demand for a good is inelastic, a rise in that good’s price will reduce the revenue sellers receive from selling that good. (1 point)

35.) American University is interested in increasing total revenue from ticket sales to the public for basketball games at Bender Arena. Suppose AU estimates that the demand for basketball tickets is elastic. Should AU increase or decrease ticket prices sold to the public to raise total revenue? (increase, decrease) (1 point)

36.) True or False? The price elasticity of supply is defined to be the percentage change in the quantity of a good supplied divided by the percentage change in that good’s price. (1 point)

37.) True or False? Price elasticities of demand and supply both tend to be larger the longer the passage of time. (1 point)

38.) The price of gasoline rose sharply last month, while the quantity sold remained the same. Three people offer possible explanations: a.) Alice: Demand increased, but supply was perfectly inelastic. b.) Beth: Demand increased, but supply decreased at the same time. c.) Colleen: Supply decreased, but demand was perfectly inelastic Circle the letter(s) of the names of those whose explanations could be correct. (3 points)

39.) Rent control is an example of a binding (price ceiling, price floor) (1 point)

40.) The minimum wage is an example of a binding (price ceiling, price floor) (1 point)

41.) In the early 1970’s, long lines at the gas pump were a result of a binding (price ceiling, price floor) on the price of gasoline. (1 point)

42.) True or False? An excise tax imposed on the sellers of a good has exactly the same effects as one of equal size imposed on the buyers. (1 point)

43.) True or False? An excise tax imposed on the sellers of the good will raise the price paid by buyers, reduce the price received by sellers, and reduce the quantity bought and sold. (1 point)

44.) True or False? An excise tax creates a tax wedge between the price buyers pay and the price sellers receive. (1 point)

45.) True or False? The incidence of an excise tax depends on the elasticities of demand and supply for the good. (1 point)

Answer 1

29. Normal goods are any goods for which demand increases when income increases, and falls when income decreases but price remains constant, i.e. with a positive income elasticity of demand.

A change (increase or decrease) in the income of consumer directly affects the demand for a given commodity.

the supply of smartphones will increase and the demand for smartphones will increase. We would expect the equilibrium quantity of cellphones bought and sold will stay the same, while the price of smartphones stay the same.

30. a.) The demand for bottled water would increase

b.) The supply of bottled water would decrease

c.) The price of bottled water would increase.

price, quantity combination:

1. Demand Increase: price increases, quantity increases.
2. Demand Decrease: price decreases, quantity decreases.
3. Supply Increase: price decreases, quantity increases.
4. Supply Decrease: price increases, quantity decreases.

31. At a recent AU basketball game, many seats at Bender Arena were empty.

a.) In economic terms, this be a surplus of seats.

b.) The fact of empty seats suggest about the price of basketball tickets sold to the public are too expensive.

c.) if wants to fill the empty seats, It should lower ticket prices.

32. True

The variation in demand in response to a variation in price is called the price elasticity of demand. It may also be defined as the ratio of the percentage change in demand to the percent change in price of particular commodity. The formula for the coefficient of price elasticity of demand for a good is:

e(p) = dq(q)/dp(p)