The elasticity of demand for employees is -0.50. It is also estimated that the existing minimum wage (price floor) has increased the raise the wage by 25% above equilibrium wage. How much would the employment change if the price floor was eliminated? A) Employment would decrease by 12.5%. B) Employment would increase by 12.5%. C) […]
A horizontal demand curve for a good could arise because consumers A) are irrational. B) are not sensitive to price changes. C) view this good as identical to another good. D) have no equivalent substitutes for this good. ANSWER C
One reason the U.S. government might subsidize research of an alternative to crude-oil based gasoline is that A) more substitutes will reduce the price of crude-oil based gasoline. B) more substitutes will increase the elasticity of crude-oil based gasoline. C) more substitutes will reduce the impact of supply shocks on the price of crude-oil based […]
If a one percent increase in the population leads to a five percent increase in the quantity sold, an economist would claim A) the good is elastic with respect to population. B) the good is inelastic with respect to population. C) the good is a fad. D) consumers are misinformed about the quality of the […]
If a good has an income elasticity of demand greater than 1, one might classify that good as A) a necessity. B) a luxury. C) unusual. D) inelastic. ANSWER B
The cross price elasticity of demand for a good x is the percentage change in the quantity demanded of good x in response to a given percentage change in A) income. B) the price of good x. C) the price of good y. D) the quantity demanded of good y. ANSWER C
If the cross price elasticity of two goods is -3.5, then A) these two products are relatively elastic substitutes. B) these two products are relatively inelastic substitutes. C) these two products are relatively elastic complements. D) these two products are relatively inelastic complements. ANSWER C
The price elasticity of demand A) depends on the units in which quantity is measured. B) depends on the units in which price is measured. C) depends on the units in which money is measured. D) is independent of the units in which quantity and price are measured. ANSWER D
Explain why the shape of the demand curve will determine how a shock to the market equilibrium affects price and quantity. What will be an ideal response? ANSWER A flatter demand curve has a smaller slope in absolute value. That means that consumers are more sensitive to price changes. Therefore, a change in price […]
Consider the following products. Which of them has the flattest demand curve? A) insulin B) alcohol C) cigarettes D) butter ANSWER D
