Question 1

If the government imposes a price floor on wheat, and the price is above the market equilibrium level, there will be a surplus of wheat.

Accepted Answer

When the government sets a price floor above the market equilibrium price, the price at which wheat is sold is higher than the price at which consumers are willing to buy. This leads to a surplus of wheat because producers are willing to supply more wheat at the higher price, but consumers are not willing to buy as much at that price.

Question 2

Suppose the government imposes a ceiling on rent charged for residential apartments. If the ceiling is below the market equilibrium rent, some people would likely have a difficult time finding residential apartments to rent.

Accepted Answer

When the government imposes a rent ceiling below the market equilibrium, it causes a shortage as the quantity demanded exceeds the quantity supplied, making it harder for some people to find apartments.

Question 3

Examples of price ceilings include usury laws and minimum-wage laws for workers.

Accepted Answer

Usury laws, which limit the interest rate that can be charged on loans, are examples of price ceilings, but minimum-wage laws set a lower limit on wages and are considered price floors, not price ceilings.

Question 4

The more time that parsley producers have to adjust to price changes, the more elastic is the parsley supply curve.

Accepted Answer

Over time, parsley producers can adjust their production processes, such as planting more or less parsley, to respond to price changes, making the supply more elastic as they have more flexibility to increase or decrease supply.

Question 5

If the U.S. Postal Service increases the price of first-class mail to generate additional revenues, it estimates that the demand for mail is relatively elastic.

Accepted Answer

If the U.S. Postal Service estimates that increasing the price of first-class mail will generate additional revenues, it implies that the demand for mail is relatively inelastic, meaning consumers' demand does not decrease significantly with a price increase.

Question 6

If the price elasticity of demand for medical care is estimated to be 0.3, then doctors can raise total revenue by charging their patients more for their services.

Accepted Answer

When the price elasticity of demand is less than 1 (inelastic), it means that the percentage change in quantity demanded is less than the percentage change in price. Therefore, increasing prices will lead to a smaller percentage decrease in quantity demanded, resulting in an increase in total revenue.

Question 7

If the price elasticity of demand for taxi services is estimated to be 1.0, then the demand for taxi services is inelastic.

Accepted Answer

A price elasticity of demand of 1.0 indicates unit elasticity, meaning the percentage change in quantity demanded is equal to the percentage change in price, not inelastic demand.

Question 8

Some credit card companies have been able to charge very high rates on credit cards without losing too many customers because the demand for credit cards seems to be elastic.

Accepted Answer

The demand for credit cards is generally considered inelastic because many consumers rely on them for purchases and may not significantly reduce their usage in response to higher interest rates, allowing companies to charge high rates without losing many customers.

Question 9

If the price elasticity of demand for movie tickets is 3.0, then a new $1 tax on movie tickets would probably cause the price of a movie ticket to go up by less than $1.

Accepted Answer

With a price elasticity of demand of 3.0, demand is highly elastic, meaning consumers are very responsive to price changes. Therefore, the burden of the tax would likely be shared between consumers and producers, with producers unable to pass the full $1 tax onto consumers without significantly reducing the quantity demanded.

Question 10

If the price elasticity of supply for boots is 1.0 in the short run, then in the long run, we would expect the price elasticity of supply to become less that 1.0.

Accepted Answer

Typically, the price elasticity of supply increases in the long run because producers have more time to adjust their production and resources in response to price changes.

Question 11

The supply of veterinarians tends to be inelastic in the short run because of the years of training required for new entrants.

Accepted Answer

The supply of veterinarians is inelastic in the short run due to the extensive period of education and training required to enter the profession, making it difficult to quickly adjust the number of practicing veterinarians in response to changes in demand.

Question 12

The Pittsburgh Pirates found out in 2002 that the demand for home game seats was elastic.

Accepted Answer

The Pittsburgh Pirates discovered in 2002 that the demand for home game seats was elastic, meaning that changes in ticket prices had a significant impact on the quantity of tickets demanded by fans. This is a common characteristic for entertainment and leisure activities, where demand can be sensitive to price changes.

Question 13

One positive effect of putting rent controls on apartments is that it increases the future supply of apartments.

Accepted Answer

Rent controls can discourage developers from building new apartments and landlords from maintaining existing ones, as they limit the potential return on investment, potentially leading to a decrease in the future supply of apartments.

Question 14

Consumer responsiveness to price changes is known as the

Accepted Answer

Price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good, demonstrating consumer responsiveness to price changes.

Question 15

Producer responsiveness to price changes is known as the

Accepted Answer

The price elasticity of supply measures how much the quantity supplied of a good responds to a change in the price of that good, which is a direct indicator of producer responsiveness to price changes.

Question 16

Price elasticity of demand is a measure of the

Accepted Answer

Price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good, capturing the responsiveness of consumers to price changes, whether increases or decreases.

Question 17

Price elasticity of supply is a measure of the

Accepted Answer

Price elasticity of supply measures how much the quantity supplied of a good responds to a change in the price of that good, making option B the correct answer. It does not directly relate to changes in the supply curve due to factors other than price, nor does it directly concern changes in production costs.

Question 18

Demand is considered to be elastic when the coefficient of the price elasticity of demand is

Accepted Answer

Demand is considered to be elastic when the price elasticity of demand coefficient is greater than 1, indicating that the quantity demanded responds significantly to price changes.

Question 19

Demand is considered to be inelastic when the coefficient of the price elasticity of demand is

Accepted Answer

Demand is considered inelastic when the percentage change in quantity demanded is less than the percentage change in price, which corresponds to a price elasticity of demand coefficient less than 1.

Question 20

If the percentage change in quantity demanded is less than the percentage change in price, demand in that price range is

Accepted Answer

When the percentage change in quantity demanded is less than the percentage change in price, it indicates that demand is inelastic. This means consumers are not very responsive to price changes in that price range.

Quiz 3: Demand and Supply Applications