6. In general, over longer periods, demand tends to become (A) More elastic (B) Perfectly elastic (C) Perfectly inelastic (D) Less elastic

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1 5. The demand for a good is said to be inelastic if (A) More units will be purchased if price increases (B) The percentage change in quantity demanded is greater than the percentage in price (C) The demand for the good is sensitive to change in price (D) The absolute value of the price elasticity of demand is less than 1 6. In general, over longer periods, demand tends to become (A) More elastic (B) Perfectly elastic (C) Perfectly inelastic (D) Less elastic 7. What is the elasticity of demand between the price of $3 and $2? Price Quantity Demanded $5 400 $4 500 $3 600 $2 700 (A) -2/3 (B) -7/9 (C) -5/13 (D) -6/5

2 8. To prevent gas stations from passing on the burden of a new 4.3 cents per-gallon gas tax, a price ceiling of $3 per gallon is imposed. Given the demand and supply curves show below, what will the effect of price ceiling be? 3 Price Thousands of gallons (A) 2 thousands of gallons of shortage (B) 2 thousands of gallons of surplus (C) No shortage, no surplus, market equilibrium (D) Uncertain 9. The graph below shows the supply of and demand for raw green coffee bean. The current equilibrium price for raw coffee beans is $2 per pound, at which price 10 million pounds per day are sold. Suppose the government steps into control the price of coffee and establishes a price floor of $2 per pound for coffee. After the price floor is announced, there s a sharp increase in the supply of the coffee beans, possibly due to the harvest of coffee beans. Given the $2 price floor in the market, the increase in supply will result in a shortage/surplus of how many gallons?

3 Price (A) 2.5 millions of pounds of shortage (B) 2.5 millions of pounds of surplus (C) No shortage, no surplus, market equilibrium (D) 5 millions of pounds of surplus 10. If an effective ceiling price is placed on hamburgers then: (A) the quantity demanded will exceed the quantity supplied. (B) a black market for hamburger may evolve. (C) consumers may want government to ration hamburger. (D) All of these are likely outcomes. Supply If a legal ceiling price is set above the equilibrium price: (A) a shortage of the product will occur. (B) a surplus of the product will occur. (C) a black market will evolve. (D) neither the equilibrium price nor equilibrium quantity will be affected. 12. Which of the following is a consequence of rent controls established to keep housing affordable for the poor? (A) Less rental housing is available as prospective landlords find it unprofitable to rent at restricted prices. Supply 2 Million pounds

4 (B) The quality of rental housing declines as landlords lack the funds and incentive to maintain properties. (C) Apartment buildings are torn down in favor of office buildings, shopping malls, and other buildings where rents are not controlled. (D) All of these are consequences of rent controls. 13. The demand for a luxury good whose purchase would exhaust a big portion of one's income is: (A) perfectly price inelastic. (B) perfectly price elastic. (C) relatively price inelastic. (D) relatively price elastic. 14. If price and total revenue vary in opposite directions, demand is: (A) perfectly inelastic. (B) perfectly elastic. (C) relatively inelastic. (D) relatively elastic. 15. Over the $6-$4 price, refer to the above table. Over the $6-$4 price range, supply is: (A) perfectly elastic. (B) elastic. (C) perfectly inelastic. (D) inelastic.

5 16. The more time consumers have to adjust to a change in price: (A) the smaller will be the price elasticity of demand. (B) the greater will be the price elasticity of demand. (C) the more likely the product is a normal good. (D) the more likely the product is an inferior good. 17. A glass company making windows for houses also makes windows for other things (cars, boats, planes, etc.). We would expect its supply curve for house windows to be: (A) Dependent on the demand for boat and plane windows (B) No different than that of firms which only make those windows (C) Relatively more elastic than those of firms which only make house windows (D) Relatively more inelastic than those of firms which only make house windows 18. Airlines charge business travelers more than leisure travelers because there is a more: (A) Elastic supply of business travel (B) Inelastic supply of business travel (C) Elastic demand for business travel (D) Inelastic demand for business travel 19. In which instances will total revenues decline? (A) Price rises and the absolute value of elasticity of demand equals 0.41 (B) Price rises and demand is of unit elasticity (C) Price falls and demand is elastic (D) Price rises and the absolute value of elasticity of demand equals 2.47

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