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Assignment From Lecture 3

This document contains an assignment with multiple choice and short answer questions related to concepts in economics including demand, elasticity, price controls, and taxes. The assignment includes 8 multiple choice questions about demand and elasticity from Chapter 5 and another 8 multiple choice questions about price controls and taxes from Chapter 6. It also includes 4 short answer questions asking to apply the concepts to scenarios about subway fare increases, policies to reduce obesity, and using supply and demand diagrams.

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J. Nawreen
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168 views5 pages

Assignment From Lecture 3

This document contains an assignment with multiple choice and short answer questions related to concepts in economics including demand, elasticity, price controls, and taxes. The assignment includes 8 multiple choice questions about demand and elasticity from Chapter 5 and another 8 multiple choice questions about price controls and taxes from Chapter 6. It also includes 4 short answer questions asking to apply the concepts to scenarios about subway fare increases, policies to reduce obesity, and using supply and demand diagrams.

Uploaded by

J. Nawreen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Name: Nawreen, Johora Siddika ID: 2020280421

Assignment from Lecture 3

Chapter 5

I. Multiple Choice questions.

1. A good will tend to have an inelastic demand if:


a. the good has many close substitutes.
b. the good is a luxury.
c. the market is defined very broadly.
d. the time horizon is long.

2. A perfectly elastic demand is represented graphically by a:


a. relatively steep demand curve.
b. relatively flat demand curve.
c. vertical demand curve.
d. horizontal demand curve.

3. What effect will an increase in the price have on Total Revenue, if demand is
elastic?
a. Total Revenue will increase.
b. Total Revenue will decrease.
c. Total Revenue will first decrease and then increase.
d. Total Revenue will remain unchanged.

4. The price elasticity of demand tends to be more elastic:


a. at points further up and to the left along the demand curve.
b. at points further down and to the right along the demand curve.
c. when the demand curve becomes steeper.
d. when the demand curve is vertical.

5. Suppose that General Cars increases the price of its Cadiclap model from $13,500
to $16,500. As a result of this, the quantity demanded of the Cadiclap model decreases
from 600,000 to 400,000 per year. Find the price elasticity of demand of the Cadiclap
using the Mid-Point method.
a. -3.0
b. -0.5
c. -2.0
d. -0.3
6. If a firm needs to increase its Total Revenue, the firm should ________ the price, if
the demand for its product is ________.
a. drop, inelastic
b. raise, elastic
c. drop, elastic
d. drop, unit elastic

7. Suppose that consumers' incomes rise by 3%, and that this causes the quantity
demanded for a good to increase by 4.5%. What is the income elasticity of demand?
a. 1.50
b. 0.67
c. -1.50
d. -0.67

8. Suppose that a good has an income elasticity of demand of -2.0. This means that
the good is:
a. normal.
b. inferior.
c. a substitute.
d. a complement.

Chapter 6

1. Suppose that a regulation is in place that does not allow the price of a good to
exceed $5. If this price is above the equilibrium price in the market, this would be an
example of a:
a. binding price ceiling.
b. not binding price ceiling.
c. binding price floor.
d. not binding price floor.

2. Suppose that a regulation is in place that does not allow the price of a good to fall
below $10. If this price is above the equilibrium price in the market, this would be an
example of a:
a. binding price ceiling.
b. not binding price ceiling.
c. binding price floor.
d. not binding price floor.

3. Suppose that a regulation is in place that does not allow the price of a good to
exceed $5. If this price is below the equilibrium price in the market, this would be an
example of a:
a. binding price ceiling.
b. not binding price ceiling.
c. binding price floor.
d. not binding price floor.

4. If a price floor is in place and it is binding, the market will:


a. remain in equilibrium, unaffected by the price floor.
b. experience a shortage.
c. experience a surplus.
d. adjust its equilibrium point toward the price floor.

5. If a price ceiling is in place and it is binding, the market will:


a. remain in equilibrium, unaffected by the price floor.
b. experience a shortage.
c. experience a surplus.
d. adjust its equilibrium point toward the price floor.

6. If a price floor is in place and it is not binding, the market will:


a. remain in equilibrium, unaffected by the price floor.
b. experience a shortage.
c. experience a surplus.
d. adjust its equilibrium point toward the price floor.

7. If a tax is imposed on a good and the incidence of the tax ends up falling more
heavily on the sellers than on the buyers, this will be because:
a. demand is more elastic than supply for that good.
b. demand is less elastic than supply for that good.
c. the tax was imposed on the buyers of the good.
d. the tax was imposed on the sellers of the good.

8. If a tax is imposed on a good and the incidence of the tax ends up falling more
heavily on the buyers than on the sellers, this will be because:
a. demand is more elastic than supply for that good.
b. demand is less elastic than supply for that good.
c. the tax was imposed on the buyers of the good.
d. the tax was imposed on the sellers of the good.

II． Questions and Application

1. The New York Times reported that subway ridership declined after a fare increase:
“There were nearly four million fewer riders in December this year, the first full
month after the price of a token increased 25 cents to $1.50, than in the previous
December, a 4.3 percent decline.”
a) Use these data to estimate the price elasticity of demand for subway rides.

Ans: 0.24

b) According to your estimation, what happens to the Transport Authority’s revenue


when the fare rises?

Ans: According my estimation, the Transit Authority's revenue rises when the fare
rises.

c) Why might your estimate of the elasticity be unreliable?

2. Consider the following policies, each of which is aimed at reducing obesity by


reducing the consumption of hamburgers. Illustrate each of the proposed policies
with a supply-and-demand diagram of the market for hamburgers.
A) a price floor on hamburgers

B) a tax on hamburger consumers

Answer: a tax on hamburger consumers and if the price of hamburgers increases,


hamburgers will seem more expensive, so consumers will demand fewer hamburgers
at that price. This change will only affect quantity demanded at that price, not at all
possible prices of hamburgers.

C) a subsidy to chicken producers that lowers the price of chicken sandwiches

Answer: A subsidy to chicken producers will help them to produce more


chicken sandwiches. So the supply will rise and the price will be lower. As a
result people will be more on to the chicken sandwiches instead of
hamburgers.

D) a tax on hamburger producers

Answer: the change in the price of the good itself will only change the quantity
demanded for that good. For example, if there is tax on hamburger producers and if
the price of hamburgers increases, hamburgers will seem more expensive, so
consumers will demand fewer hamburgers at that price. This change will only affect
quantity demanded at that price, not at all possible prices of hamburgers.

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