5. P x Q = a. MC b. TR c. MR d. TC 6. When demand is price-inelastic, a price de

Question

                5. P x Q =                    a. MC                          b. TR                          c. MR                                       d. TC                 6. When demand is price-inelastic, a price decrease will result in: a. an increase in total cost.   b. an increase in total revenue.       c. a decrease in total cost.      d. a decrease in total revenue.                 7. The practice of charging different prices to different buyers is called: a. total revenue.             b. price discrimination.                 c. price elasticity.                 d. an increase in demand. 8. A percentage change in quantity supplied divided by a percentage change in price is called: a. income elasticity.              b. price elasticity of demand.            c. price elasticity of supply.        d. elasticity of substitution. 9. When the price is 5, the quantity supplied is 10. When the price is 10, the quantity supplied is 20. What is the price elasticity of supply?          a. 1                     b. 0.5                                c. 0.33                                        d. 2                 10. When governments restrict agricultural production, the supply curve to shifts to the --------------------, the equilibrium price ---------------, and the result is --------------------------------- revenue for farmers. a. right; decreases; higher        b. left; decreases; higher             c. left; increases; lower               d. left; increases; higher                 11. The burden of a gasoline tax will be borne mostly by _______ because the demand curve is relatively _______. a. producers; inelastic          b. producers; elastic              c. consumers; inelastic                 d. consumers; elastic 12. To show the imposition of a tax on a supply and demand graph, shift the supply curve --------------. To show the imposition of a subsidy on a supply and demand graph, shift the supply curve -----------------------------------. a. upward; upward              b. downward; upward                   c. upward; downward                       d. downward; upward                 13. If demand is inelastic relative to supply, most of the burden of a tax will be borne by ------------------------. a. consumers                    b. producers                      c. firms                                   d. none of the above 14. When the minimum wage is raised, we would expect that unemployment ______, but if demand for labor is relatively inelastic, revenues of low-wage workers will ______ after the minimum wage increase. a. increases; increase             b. increases; decrease                      c. decreases; increase                    d. decreases; decrease                 15. Price ceilings generally lead to: a. unemployment.                  b. shortages.                        c. surpluses.                         d. none of the above.

Explanation / Answer

5. P x Q = b. TR

Total revenue is the product of price and quantity.

6. When demand is price-inelastic, a price decrease will result in d. a decrease in total revenue  

Inelastic demand has a small increase in quantity when price falls so a reduction will decrease total revenue

7. The practice of charging different prices to different buyers is called: b. price discrimination.     

For this to happen, the practice of resale has to be prohibited and the seller must have monopoly power and information about the market segments.     

8. A percentage change in quantity supplied divided by a percentage change in price is called: b. price elasticity of demand

It measures the response of demand to a change in price. It is useful in analysing the effect of price rise or fall on revenues and how demand can respond to own price changes.

9. When the price is 5, the quantity supplied is 10. When the price is 10, the quantity supplied is 20. What is the price elasticity of supply? a.1

This is because % change in quantity = (20 – 10)*100/10 = 100% and % change in price = (10 – 5)*100/5 = 100% so elasticity = 100%/100% = 1                    

10. When governments restrict agricultural production, the supply curve to shifts to the left, the equilibrium price rises, and the result is higher revenue for farmers. d. left; increases; higher                

11. The burden of a gasoline tax will be borne mostly by buyers because the demand curve is relatively inelastic. c consumers; inelastic

12. To show the imposition of a tax on a supply and demand graph, shift the supply curve upward. To show the imposition of a subsidy on a supply and demand graph, shift the supply curve downward c. upward; downward                      

13. If demand is inelastic relative to supply, most of the burden of a tax will be borne by consumers a. consumers

14. When the minimum wage is raised, we would expect that unemployment to increase, but if demand for labor is relatively inelastic, revenues of low-wage workers will increase after the minimum wage increase. a. increases; increase

15. Price ceilings generally lead to: b shortages

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