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Economics 200
Principles of Microeconomics
Homework Two (Chapters 3, 4, and 5)
15 Points
The following assignment contains 15 multiple choice problems. You may be asked to do some other tasks in order to answer the problems, but the problems will be what counts for your score.
1. Which of the following statements is true?
a. Shortages are permanent and cannot be eliminated.
b. Surpluses are the result of prices that are too low.
c. Even when the market is in equilibrium, there is still scarcity.
d. To reduce a shortage, the market reduces the price.
2. When there is an increase in demand, then the equilibrium price will ___ and the equilibrium quantity will ___.
a. fall; fall
b. fall; rise
c. rise; fall
d. rise; rise
3. What can you say for sure when the demand decreases and the supply increases?
a. Equilibrium price (Pe) and quantity (Qe) will both fall.
b. Qe will fall, but the impact on Pe is unclear without further information.
c. Pe will fall, but the impact on Qe is unclear without additional information
d. Both Pe and Qe will rise.
4. Use the above diagram to determine what we can predict if a price floor is set at $15.
a. The supply will increase.
b. The demand will decrease.
c. There will be a surplus of 30.
d. There will be a shortage of 20.
5. Which of the following will, ceteris paribus, will cause an increase in the supply of whole wheat cereal?
a. an increase in the price of cereal
b. a decrease in the price of wheat
c. poor weather that reduces the wheat crop
d. an increase in consumer preferences for whole wheat cereal
6. Fern’s Floral Shop found that when they offered a free vase with every bouquet of flowers, they sold more flowers. This is because ___.
a. flowers and vases are substitutes
b. flowers and vases are complements
c. flowers are a normal good
d. flowers are an inferior good
7. The substitution effect says that ___.
a. as your income increases, you buy more expensive goods
b. if the price of one good decreases, the demand for the other good decreases
c. as the price increases, you substitute the relatively cheaper good in place of the relatively more expensive good
d. as the price increases, your purchasing power falls
8. Consider the market for oranges. Suppose, ceteris paribus, that freezing temperatures have destroyed ½ of the crop. Which of the following best describes the above situation?
a. Demand rises.
b. Demand falls.
c. Supply rises.
d. Supply falls.
9. Which of the following will make the supply of a firm’s product
more
elastic?
a. An increase in the number of substitutes available to consumers.
b. Spending on this product uses up only a very small percentage of most consumer’s incomes.
c. The producers have time to adjust to changes in the market.
d. Most producers view this product as a necessity
10. The cross-price elasticity of demand (exy) for lamps and light bulbs is -1.75. Therefore, if the price of lamps falls by 10% ___.
a. sales of light bulbs will increase by 17.5%
b. sales of lamps will increase by 17.5%
c. sales of light bulbs will fall by 1.75%
d. sales of lamps will fall by .175%
11. The price elasticity of demand ___.
a. indicates how sensitive consumers are to price changes
b. can tell you whether a good is a substitute or a complement
c. is the change in price divided by the change in quantity demanded
d. differentiates between normal goods and luxury goods
12. If the income elasticity (eI) for plastic plates is -.50, then plastic plates are ___.
a. giffen goods
b. inferior goods
c. luxury goods
d. normal goods
13. Use the information in the following diagram to calculate the price elasticity of supply.
Between a price of $2 and $4 the supply is ___.
a. elastic
b. inelastic
c. unitary elastic
d. semi-elastic
14. Suppose the Cincinnati Reds increased the price of their tickets and notice that their revenues have not changed. Then we could infer that demand is ___.
a. elastic
b. inelastic
c. unitary elastic
d. semi-elastic
15. The consumer will bear most of the burden of a tax ___.
a. when demand is more elastic than supply
b. when supply is more elastic than demand
c. when supply is perfectly inelastic
d. always
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