QUESTION 6 1. On which items would the government be more inclined to place a ta

ID: 1221939 • Letter: Q

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QUESTION 6

1. On which items would the government be more inclined to place a tax – those with an elastic demand or those with an inelastic demand? (Careful on the spelling)

5 points

QUESTION 7

1. A point on a linear demand curve for widgets at a price lower than the point of unitary elasticity would represent a relatively(elastic/inelastic) _____________ relationship between the price and quantity of widgets demanded.

5 points

QUESTION 8

1. If the cross price elasticity of demand between widgets and zercs is a significantly positive number, that suggests that widgets and zercs are:

complements

substitutes

unrelated

the answer cannot be determined from the information given.

5 points

QUESTION 9

1. If a demand curve for a product were horizontal, it would indicate that the demand for that product was ___________ elastic. [Watch your spelling!]

5 points

QUESTION 10

1. Suppose that consumers are suddenly willing to pay a higher price for widgets. If widget producers are unable to respond by increasing quantity supplied by any significant degree, it suggests that the supply of widgets is relatively inelastic in the short run.

True

False

5 points

QUESTION 11

1. Which of the following would have a more elastic supply curve? A) genuine antiques, B) faux antiques (enter A or B)

5 points

QUESTION 12

1. Fill in the blank with the correct word: In 1990, Congress passed a "luxury tax" on yachts costing over $100,000, reasoning that only the rich could afford such a luxury and therefore this tax would only "hit the rich." Shortly thereafter, however, sales by boat builders dropped 77% resulting in massive layoffs of workers. The losses in business taxes and income taxes were greater than the "revenue enhancement" of this luxury tax. Yacht buyers, rather than buying new boats upon which the tax was placed, bought boats from foreign countries and used boats. The problem that Congress failed to foresee was that the demand for boats was much more (elastic/inelastic) ________________ than they had realized.

5 points

QUESTION 13

1. The long run demand curve for an item, such as delicatessen sandwiches, tends to be more elastic than the short run demand curve for the same item because longer periods of time give the consumer a greater chance to seek out ____________. (Fill in the blank with one word, be sure to watch your spelling)

5 points

QUESTION 14

1. If two goods are unrelated (e.g., walnuts & socks, or bicycles & printer paper), we would expect their cross-price elasticity of demand to be near:

-1

5 points

QUESTION 15

1. Acme Widget Corp. must use labor, wood, petroleum, titanium and widget making machines to produce a widget. Up until now, it was possible for the vendor of titanium to ship it to Acme within one week of Acme's order. Changing economic conditions, however, now require that the titanium used to produce widgets now be ordered six months in advance. The supply of widgets would would be more elastic as a result.

True

False

5 points

QUESTION 16

1. Refer to the question above. Prior to this change in economic conditions, a 10% increase in the demand for widgets would result in a $5 increase in the market price of widgets. Now, however, as a result of the change referred to in the question above, a 10% increase in the demand for widgets will result in an increase in the market price that is greater than $5. (Keep in mind that a more elastic supply curve has a flatter slope and a more inelastic supply curve has a steeper slope.)

True

False

5 points

QUESTION 17

1. The coefficient of income elasticity of demand for used clothing at the Good Will store is:

positive

negative

direct

zero

5 points

QUESTION 18

A recession, with its massive layoffs and dramatic wage cuts, will have the greatest negative impact on the sale of products with a [1] (high, low, negative)coefficient of income elasticity of demand.

5 points

QUESTION 19

1. Which of the following is more likely to have a negative coefficient of income elasticity of demand?

community college education.

toothpaste

filet mignon

tickets to Redskins games

5 points

complements

substitutes

unrelated

the answer cannot be determined from the information given.

Explanation / Answer

1. On which items would the government be more inclined to place a tax – those with an inelastic demand. The reason is that imposition of tax on these commodities will affect the demand for the commodity lesser in percentage than the change in price.

1. A point on a linear demand curve for widgets at a price lower than the point of unitary elasticity would represent a relatively(elastic/inelastic) inelastic relationship between the price and quantity of widgets demanded.

Explanation- E=Lower segment / Upper segment This means that if lower segment is smaller than the upper, the elasticity will be lower than 1 or inelastic.

1. If the cross price elasticity of demand between widgets and zercs is a significantly positive number, that suggests that widgets and zercs are Substitutes. Two goods that are substitutes have a positive cross elasticity of demand: as the price of good Y rises, the demand for good X rises.

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