QUESTION 9 If a demand curve for a product were horizontal, it would indicate th

Question

QUESTION 9

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

QUESTION 10

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

QUESTION 11

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

QUESTION 12

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.

QUESTION 13

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)

QUESTION 14

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:

                A.           

1

                B.           

10

                C.           

0

                D.           

-1

QUESTION 15

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

QUESTION 16

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

QUESTION 17

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

                A.           

positive

                B.           

negative

                C.           

direct

                D.           

zero

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.

QUESTION 19

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

                A.           

community college education.

                B.           

toothpaste

                C.           

filet mignon

                D.           

tickets to Redskins games

Explanation / Answer

(9) Perfectly elastic.

A horizontal demand curve signifies a perfectly elastic demand (i.e. elasticity of demand is infinite).

(10) True

Low responsiveness to price in short run means, supply is inelastic.

(11) (B)

This is because, genuine antiques are limited in supply and so their supply is inelastic.

(12) Demand was more Elastic than what Congress thought.

(13) Substitutes

(14) Cross-price elasticity of unrelated goods = 0

(15) False

(16) False

(17) Negative

As income rises (falls), demand for used clothes falls (rises).

(18) High

The higher the income elasticity, the higher the impact of recession and lower income on demand of the good.

(19) (A)

The higher the income, the higher the demand for premium college education and the lwoer the demand for community college education.

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