Question 1

Suppose the demand for pork is given by $$Q = 286 - 20p. At $$the equilibrium price $$p = 3.30$$, what is the price elasticity of demand for pork?

Accepted Answer

$$\epsilon = -0.3$$

Question 2

If the supply curve for pork shifts to the left due to a $$0.25$$ increase in the price of pork, and the demand curve is very steep (inelastic), what happens to the equilibrium quantity and price?

Accepted Answer

Equilibrium price increases significantly, equilibrium quantity changes very little.

Question 3

Given the demand function $$Q = 171 - 20p + 20p_b + 3p_c + 2Y$$, where $$Y is $$income in thousands, $$Q = 220$$, and $$Y = 12.5$$, what is the income elasticity of demand for pork?

Accepted Answer

$$\xi = 0.114$$

Question 4

If the price elasticity of demand for internet use is $$-2.0$$ for high-speed users, what percentage decrease in connection time results from a $$1\%$$ increase in price per minute?

Accepted Answer

2\% decrease

Question 5

Which of the following statements is TRUE regarding the effect of a specific tax on equilibrium price and quantity?

Accepted Answer

The incidence of the tax does not depend on whether it is levied on producers or consumers.

Question 6

If the cross-price elasticity between the price of beef and the quantity of pork is positive, what does this imply?

Accepted Answer

Beef and pork are substitutes.

Question 7

Suppose the supply function for pork is $$Q = 88 + 40p. At$$ $$p = 3.30$$ and $$Q = 220$$, what is the price elasticity of supply?

Accepted Answer

$$\eta = 0.6$$

Question 8

If the demand for rice in Vietnam has an elasticity of $$-0.15$$, what does this indicate about consumer responsiveness to price changes?

Accepted Answer

Demand is highly inelastic; consumers are not very responsive to price changes.

Question 9

A $$1.05$$ specific tax is imposed on pork. If the price elasticity of demand is $$-0.3$$ and the price elasticity of supply is $$0.6$$, by how much does the price buyers pay increase?

Accepted Answer

$$0.70$$

Question 10

If the supply curve is perfectly elastic and the demand curve is downward sloping, what is the effect of a $$1$$ specific tax collected from producers?

Accepted Answer

The equilibrium price paid by buyers increases by $$1$$, and the entire tax is borne by consumers.

Question 11

Which of the following best describes the effect of a perfectly inelastic demand curve on total revenue when price increases?

Accepted Answer

Total revenue increases.

Question 12

If the short-run supply curve for fresh fruit is perfectly inelastic and an ad valorem tax is imposed, what is the incidence on consumers?

Accepted Answer

Consumers bear the entire burden of the tax.

Question 13

Which of the following is TRUE about the long-run versus short-run elasticities for most goods?

Accepted Answer

Elasticities tend to be larger in the long run.

Question 14

If the demand curve is horizontal, what is the price elasticity of demand?

Accepted Answer

Infinite (perfectly elastic)

Question 15

Suppose a 1% increase in the price of a related good causes a 3% decrease in the quantity demanded of a good. What is the cross-price elasticity, and what does it indicate?

Accepted Answer

$$-3$$, indicating the goods are complements.

Question 16

If a 1% increase in income leads to a 3% increase in quantity demanded, what is the income elasticity of demand?

Accepted Answer

$$\xi = 3$$

Question 17

If the demand for gasoline is more elastic in the long run than in the short run, what does this imply about consumer behavior?

Accepted Answer

Consumers are more responsive to price changes over time.

Question 18

If the supply elasticity is $$0.3$$ and the demand elasticity is $$-0.4$$, and a new oil field increases supply by $$0.8$$ million barrels per day, what happens to the world price of oil?

Accepted Answer

The world price decreases slightly.

Applying the Supply-and-Demand Model: Elasticity, Shocks, and Taxes

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