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PRINCIPLES OF MICROECONOMICS MENTORA+ CHAPTER 2: THE MARKET FORCES OF SUPPLY AND DEMAND Which of the following statements is correct? A If demand increases and supply decreases, equilibrium price will fall B B If supply increases and demand decreases, equilibrium price will fall C If demand decreases and supply increases, equilibrium price will rise D If supply declines and demand remains constant, equilibrium price will fall If an increase in the price of blue jeans leads to an increase in the demand for tennis shoes, then blue jeans and tennis shoes are A complements B substitutes C inferior goods D normal goods The law of demand states that an increase in the price of a good A increases the supply of that good B decreases the quantity demanded for that good C decreases the demand for that good D increases the quantity supplied of that good The law of supply states that an increase in the price of a good A increases the quantity supplied for that good B increases the supply of that good C decreases the demand for that good D decreases the quantity demanded for that good If an increase in consumer income leads to a decrease in the demand for camping equipment, then camping equipment is A a normal good B an inferior good C a substitute good D a complementary good Which of the following shifts the demand for watches to the right? A an increase in the price of watches B a decrease in the price of watch batteries if watch batteries and watches are complements PRINCIPLES OF MICROECONOMICS MENTORA+ C a decrease in consumer incomes if watches are a normal good D a decrease in the price of watches Which of the following will cause the demand curve for product A to shift to the left? A population growth that causes an expansion in the number of persons consuming A B an increase in money income if A is a normal good C a decrease in the price of complementary product C D an increase in money income if A is an inferior good All of the following shift the supply of watches to the right except A an advance in the technology used to manufacture watches B an increase in the price of watches C a decrease in the wage of workers employed to manufacture watches D manufacturers' expectation of lower watch prices in the future If the price of a good is above the equilibrium price, A there is a surplus and the price will rise B there is a shortage and the price will fall C there is a shortage and the price will rise D there is a surplus and the price will fall 10 If the price of a good is below the equilibrium price, A there is a shortage and the price will rise B the quantity demanded is equal to the quantity supplied and the price remains unchanged C there is a shortage and the price will fall D there is a surplus and the price will rise 11 If the price of a good is equal to the equilibrium price, A the quantity demanded is equal to the quantity supplied and the price remains unchanged B there is a shortage and the price will fall C there is a surplus and the price will rise D there is a shortage and the price will rise 12 An increase (rightward shift) in the demand for a good will tend to cause A an increase in the equilibrium price and quantity PRINCIPLES OF MICROECONOMICS MENTORA+ B an increase in the equilibrium price and a decrease in the equilibrium quantity C a decrease in the equilibrium price and an increase in the equilibrium quantity D a decrease in the equilibrium price and quantity 13 A decrease (leftward shift) in the supply for a good will tend to cause A an increase in the equilibrium price and quantity B a decrease in the equilibrium price and an increase in the equilibrium quantity C a decrease in the equilibrium price and quantity D an increase in the equilibrium price and a decrease in the equilibrium quantity 14 Suppose there is an increase in both the supply and demand for personal computers In the market for personal computers, we would expect A the equilibrium quantity to rise and the equilibrium price to rise B the equilibrium quantity to rise and the equilibrium price to fall C the change in the equilibrium quantity to be ambiguous and the equilibrium price to rise D the equilibrium quantity to rise and the change in the equilibrium price to be ambiguous 15 Suppose there is an increase in both the supply and demand for personal computers Further, suppose the supply of personal computers increases more than demand for personal computers In the market for personal computers, we would expect A the change in the equilibrium quantity to be ambiguous and the equilibrium price to fall B the equilibrium quantity to rise and the equilibrium price to rise C the equilibrium quantity to rise and the change in the equilibrium price to be ambiguous D the equilibrium quantity to rise and the equilibrium price to fall 16 Suppose a frost destroys much of the Florida orange crop At the same time, suppose consumer tastes shift toward orange juice What would we expect to happen to the equilibrium price and quantity in the market for orange juice? decrease; quantity is ambiguous B Price will increase; quantity will increase C Price will increase; quantity will decrease D Price will increase; quantity is ambiguous A Price will PRINCIPLES OF MICROECONOMICS MENTORA+ 17 Suppose consumer tastes shift toward the consumption of apples Which of the following statements is an accurate description of the impact of this event on the market for apples? A There is an increase in the quantity demanded of apples and in the supply for apples B There is an increase in the demand and supply of apples C There is an increase in the demand for apples and a decrease in the supply of apples D There is an increase in the demand for apples and an increase in the quantity supplied of apples 18 Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future What would we expect to happen to the equilibrium price and quantity in the market for wheat today? A The impact on both price and quantity is ambiguous B Price will decrease; quantity is ambiguous C Price will increase; quantity is ambiguous D Price will increase; quantity will increase 19 Which of the following statements is true about the impact of an increase in the price of lettuce? A Both the demand for lettuce will decrease and the equilibrium price and quantity of salad dressing will fall B The supply of lettuce will decrease C The demand for lettuce will decrease D The equilibrium price and quantity of salad dressing will fall E The equilibrium price and quantity of salad dressing will rise 20 When the demand and supply curves both shift leftward, which of the following happens? A The equilibrium quantity increases and any change in the equilibrium price cannot be determined B The equilibrium price falls and any change in the equilibrium quantity cannot be determined PRINCIPLES OF MICROECONOMICS MENTORA+ C The equilibrium quantity decreases and any change in the equilibrium price cannot be determined D The equilibrium price increases and any change in the equilibrium quantity cannot be determined 21 An inferior good is one for which an increase in income causes a(n) A decrease in supply B increase in demand C increase in supply D decrease in demand 22 An increase in demand means that A when price falls consumers are willing to purchase greater quantities of the good B consumers are willing to purchase greater quantities of the good at any given price C when the price rises, consumers are willing to purchase greater quantities of the good D consumers cause the price drop by buying greater quantities of the good 23 If products C and D are close substitutes, an increase in the price of C will A tend to cause the price of D to fall B shift the demand curve of C to the left and the demand curve of D to the right C shift the demand curve of D to the right D shift the demand curves of both products to the right 24 If good B is a substitute for good A, and the price of good B increases A the quantity demanded of good A will decrease B the demand for good A will increase C the price of good A will decrease D the quantity demanded of good B will increase 25 When the price of good X increases A the quantity supplied of good X will increase B the quantity supplied of good X will decrease C the supply curve for good X will shift to the right D the supply curve for good X will shift to the left 26 A new technology that helps firms reduce production costs will cause a A movement down and left along the supply curve PRINCIPLES OF MICROECONOMICS MENTORA+ B movement up and right along the supply curve C shift to the right of the supply curve D shift to the left of the supply curve 27 Suppose that a scientific study just published demonstrates that eating apples makes people much healthier How will this affect the equilibrium price and quantity in the market? A The equilibrium price will increase and the equilibrium quantity will decrease B The equilibrium price will decrease and the equilibrium quantity will increase C Both the equilibrium quantity and price will increase D Both the equilibrium quantity and price will decrease 28 If the price in a market happens to be below equilibrium, there will be a in the market, and the price will tend to A surplus, fall B surplus, rise C shortage, fall D shortage, rise 29 If the price in a market happens to be above equilibrium, there will be a in the market, and the price will tend to A surplus, fall B surplus, rise C shortage, fall D shortage, rise 30 Suppose the price of corn syrup increases Given that corn syrup is a major ingredient in the production of soft drinks, how will this affect the equilibrium price and quantity in the soft drink market? A The equilibrium price will increase and the equilibrium quantity will decrease B The equilibrium price will decrease and the equilibrium quantity will increase C Both the equilibrium quantity and price will increase D Both the equilibrium quantity and price will decrease 31 If price is above the equilibrium level, competition among sellers will result in A surplus will increase quantity demanded and decrease quantity supplied PRINCIPLES OF MICROECONOMICS MENTORA+ B shortage will decrease quantity demanded and increase quantity supplied C surplus will decrease quantity demanded and increase quantity supplied D shortage will increase quantity demanded and decrease quantity supplied 32 An increase in demand will increase equilibrium price to a greater extent A if the product is a normal good B if the product is an inferior good C the less elastic the supply curve D the more elastic the supply curve 33 At the current price there is a shortage of a product We would expect price to A increase, quantity demanded to increase, and quantity supplied to decrease B increase, quantity demanded to decrease, and quantity supplied to increase C increase, quantity demanded to increase, and quantity supplied to increase D decrease, quantity demanded to increase, and quantity supplied to decrease 34 For a price ceiling to be binding on the market, the government must set it A above the equilibrium price B below the equilibrium price C precisely at the equilibrium price D at any price because all price ceilings are binding constraints 35 If a price ceiling is in place and it is binding, the market will A remain in equilibrium, unaffected by the price floor B experience a shortage C experience a surplus D adjust the equilibrium price until it is equal to the price ceiling 36 A price floor A always determines the price at which a good must be sold B sets a legal maximum on the price at which a good can be sold C is not a binding constraint if it is set above the equilibrium price D sets a legal minimum on the price at which a good can be sold 37 If a price floor is in place and it is not binding, the market will A remain in equilibrium, unaffected by the price floor B experience a shortage PRINCIPLES OF MICROECONOMICS MENTORA+ C experience a surplus D adjust the equilibrium price until it is equal to the price floor 38 If a price floor is in place and it is binding, the market will A remain in equilibrium, unaffected by the price floor B experience a shortage C experience a surplus D adjust the equilibrium price until it is equal to the price floor 39 Suppose that a regulation is in place that does not allow the price of a good to exceed $5 If this price is above the equilibrium point in the market, this is an example of a A binding price ceiling B non-binding price ceiling C binding price floor D non-binding price floor 40 Suppose the equilibrium price for apartments is €500 per month and the government imposes rent controls of €250 Which of the following is unlikely to occur as a result of the rent controls? A There may be long lines of buyers waiting for apartments B Landlords may discriminate among apartment renters C There will be a shortage of housing D The quality of apartments will improve 41 Which of the following workers would be most likely to find it more difficult to get a job after a rise in the minimum wage rate? A A teenage worker with few qualifications B A manual worker with fifteen years of work experience C A professional worker with a university degree D All three are equally likely to find it difficult to get a job 42 Which side of the market is more likely to lobby government for a price floor? A The buyers B The sellers C Both buyers and sellers desire a price floor D Neither buyers nor sellers desire a price floor PRINCIPLES OF MICROECONOMICS MENTORA+ 43 Within the supply-demand model, a tax imposed on the sellers of a good shifts the A demand curve downward by the size of the tax per unit B supply curve downward by the size of the tax per unit C demand curve upward by the size of the tax per unit D supply curve upward by the size of the tax per unit 44 Within the supply-demand model, a tax imposed on the buyers of a good shifts the A demand curve downward by the size of the tax per unit B supply curve downward by the size of the tax per unit C demand curve upward by the size of the tax per unit D supply curve upward by the size of the tax per unit 45 Which of the following takes place when a tax is placed a good? A a decrease in the price buyers pay, an increase in the price sellers receive, and a decrease in the quantity sold B an increase in the price buyers pay, a decrease in the price sellers receive, and an increase in the quantity sold C a decrease in the price buyers pay, an increase in the price sellers receive, and an increase in the quantity sold D an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold 46 A tax of €1.00 per litre on petrol A places a tax wedge of €1.00 between the price the buyers pay and the price the sellers receive B decreases the price the sellers receive by €1.00 per litre C increases the price the buyers pay by €1.00 per litre D increases the price the buyers pay by precisely €0.50 and reduces the price received by sellers by precisely €0.50 47 Suppose that demand function of good X is Q Dx = n.PX + m.PY + k If X and Y are subtitutes then A n.m = PRINCIPLES OF MICROECONOMICS MENTORA+ B n.m > C n.m < D Not enough information to conclude 48 If A and B are complementary goods, what will happen to price of good B when price of good A increases? A Price of good B will increase B Price of good B will decrease C Price of good B will stay the same D Cannot conclude about price of good B 49 Which of the following would not shift the demand curve for beef? A a widely publicized study that indicates beef increases one's cholesterol B a reduction in the price of cattle feed C an effective advertising campaign by pork producers D a change in the incomes of beef consumers 50 Setting a binding price floor will A increase consumer surplus and increase producer surplus B increase consumer surplus and decrease producer surplus C decrease consumer surplus and decrease producer surplus D decrease consumer surplus and increase producer surplus 51 Setting a binding price ceiling will A increase consumer surplus and increase producer surplus B increase consumer surplus and decrease producer surplus C decrease consumer surplus and decrease producer surplus D decrease consumer surplus and increase producer surplus CHAPTER 3: ELASTICITIES The price elasticity of demand is defined as A the percentage change in the quantity demanded divided by the percentage change in income B the percentage change in income divided by the percentage change in the quantity demanded 10 PRINCIPLES OF MICROECONOMICS MENTORA+ C the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good D the percentage change in price of a good divided by the percentage change in the quantity demanded of that good If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is A income inelastic C price elastic B price inelastic D unit price elastic In general, a flat demand curve is more likely to be A price elastic C price inelastic B unit price elastic D none of the above Which of the following would cause a demand curve for a good to be price inelastic? A The good is a luxury B There are a great number of substitutes for the good C The good is a necessity D The good is an inferior good The demand for which of the following is likely to be the most price inelastic? A Transportation C bus tickets B taxi rides D airline tickets If demand curve is linear (a straight line), then price elasticity of demand is A elastic in the upper portion and inelastic in the lower portion B inelastic in the upper portion and elastic in the lower portion C inelastic throughout D constant along the demand curve If the slope of a demand curve is constant, then the price elasticity of demand for the good will A be constant B become more elastic as price increases C become more elastic as price decreases D There is not enough information to conclude 11 PRINCIPLES OF MICROECONOMICS MENTORA+ If demand for a good is perfectly inelastic, then the demand curve will be A a horizontal line B a vertical line C a straight line with a constant negative slope D flatter and flatter as the price of the good falls A perfectly elastic demand is represented graphically by a A relatively steep demand curve B relatively flat demand curve C vertical demand curve D horizontal demand curve 10 Supply curve determines price entirely when A demand is perfectly inelastic B demand is perfectly elastic C supply is perfectly inelastic D supply is perfectly elastic 11 For perfectly price inelastic supply A supply determines price solely B demand determines price solely C only a government can set the price D either supply or demand may set the price 12 Demand is said to be inelastic if the A Quantity demanded changes proportionately more than the price B Quantity demanded changes proportionately less than the price C Price changes proportionately more than income D Quantity demanded changes proportionately the same as the price 13 A decrease in supply (shift to the left) will increase total revenue in that market if A demand is price inelastic B supply is price elastic C supply is price inelastic D demand is price elastic 14 If an increase in the price of a good has no impact on the total revenue in that market, demand must be 12 PRINCIPLES OF MICROECONOMICS MENTORA+ A price inelastic B unit price elastic C price elastic D All of the above 15 In which of the following instances will total revenue decline? A price rises and supply is elastic B price falls and demand is elastic C price rises and demand is inelastic D price rises and demand is elastic 16 Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to A increase total revenue to farmers as a whole because the demand for food is elastic B increase total revenue to farmers as a whole because the demand for food is inelastic C reduce total revenue to farmers as a whole because the demand for food is elastic D reduce total revenue to farmers as a whole because the demand for food is inelastic 17 If the demand for farm products is price inelastic, a good harvest will cause farm revenues to A increase B decrease C be unchanged D either increase or decrease, depending on what happens to supply 18 Assume that the demand for wheat is inelastic and that the supply of wheat is perfectly inelastic Then, a poor harvest will result in which of the following? A an increase in wheat farmers' revenue B an increase in the demand for wheat because it is in short supply C a fall in the price of wheat D an increase in the momentary supply of wheat 19 When the supply curve of corn shifts leftward, farmers' revenue because _ A decreases; supply is elastic B increases; supply is inelastic C decreases; demand is elastic D increases; demand is inelastic 13 PRINCIPLES OF MICROECONOMICS MENTORA+ 20 What effect will an increase in the price have on total revenue if demand is elastic? A Total revenue will increase B Total revenue will decrease C Total revenue will first decrease and then increase D Total revenue will remain unchanged 21 When the percentage change in price is greater than the resulting percentage change in quantity demanded A a decrease in price will increase total revenue B demand may be either elastic or inelastic C an increase in price will increase total revenue D demand is elastic 22 The price elasticity of demand tends to be more elastic A at points further up and to the left along the demand curve B at points further down and to the right along the demand curve C when the demand curve becomes steeper D when the demand curve is vertical 23 If consumers think that there are very few substitutes for a good, then A supply would tend to be price elastic B demand would tend to be price inelastic C demand would tend to be price elastic D supply would tend to be price inelastic 24 A good will tend to have an inelastic demand if A the good has many close substitutes B the good is a luxury C the market is defined very broadly D the time horizon is long 25 The elasticity of demand for a product is likely to be greater A if the product is a necessity, rather than a luxury good B the greater the amount of time over which buyers adjust to a price change C the smaller the proportion of one's income spent on the product D the smaller the number of substitute products available 26 A firm can sell more or less output at a constant price Demand is thus 14 PRINCIPLES OF MICROECONOMICS MENTORA+ A perfectly inelastic B perfectly elastic C relatively inelastic D relatively elastic 27 Ceteris paribus, the fewer substitutes there are for a good the more the demand for the good, and the longer period of time people have to adjust to a price change of a non-durable good, the more the demand is A elastic; elastic B elastic; inelastic C inelastic; elastic D inelastic; inelastic 28 The Illinois Central Railroad once asked the Illinois Commerce Commission for permission to increase its commuter ticket fares by 20% The railroad argued that declining revenues made this rate increase essential Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike It can be concluded that A both groups felt that the demand was elastic but for different reasons B both groups felt that the demand was inelastic but for different reasons C the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic D the railroad felt that the demand for passenger service was elastic and opponents of the rate increase felt it was inelastic 29 Which of the following statements is not correct? A If the relative change in price is greater than the relative change in the quantity demanded associated with it, demand is inelastic B In the range of prices in which demand is elastic, total revenue will diminish as price decreases C Total revenue will not change if price varies within a range where the elasticity coefficient is unity D Demand tends to be elastic at high prices and inelastic at low prices 15 PRINCIPLES OF MICROECONOMICS MENTORA+ 30 If the price elasticity of demand for a good is -1.5, then a 5% decrease in the price of the good will cause a A 7.5% increase in the quantity demanded B 7.5% decrease in the quantity demanded C 3.33% increase in the quantity demanded D 3.33% decrease in the quantity demanded 31 Suppose you produce tie-dyed t-shirts You notice that when you charge $10 per shirt, you sell 200 shirts Also, when you raise the price to $12, you sell 150 shirts As the price goes up from $10 to $12, your total revenue , therefore the demand for tiedyed t-shirts must be A increases; elastic C decreases; elastic B increases; inelastic D decreases; inelastic 32 Suppose that at a price of €30 per month, there are 30,000 subscribers to cable television in Small Town If Small Town Cablevision raises its price to €40 per month, the number of subscribers will fall to 20,000 Using the midpoint method for calculating the elasticity, what is the price elasticity of demand for cable TV in Small Town? A -1.4 C -0.75 B -0.66 D -2.0 33 If a firm needs to decrease its total revenue, the firm should the price if the demand for its product is A raise, inelastic C drop, elastic B raise, elastic D drop, unit elastic 34 Suppose that General Cars increases the price of its Cadiclap model from $13,500 to $16,500 As a result of this, the quantity demanded of the Cadiclap model decreases from 600,000 to 400,000 per year Find the price elasticity of demand of the Cadiclap using the mid-point method A -3.0 C -2.0 B -0.5 D -0.3 16 PRINCIPLES OF MICROECONOMICS MENTORA+ 35 A government wants to reduce electricity consumption by 5% The price elasticity of demand for electricity is ‐0.5 The government must _ the price of electricity by A raise; 10.0% B raise; 1.0% C raise; 0.1% D lower; 0.5% 36 Suppose that consumers' incomes rise by 3% and this causes demand for a good to increase by 4.5% What is the income elasticity of demand? A 1.50 C -1.50 B 0.67 D -0.67 37 Suppose that a good has an income elasticity of demand of -2.0 This means that the good is A Normal good C A substitute B Inferior good D A complement 38 The income elasticity of demand A measures the change in income necessary for a given change in quantity demanded B measures the responsiveness of income to changes in quantity demanded C measures the responsiveness of quantity demanded to changes in income D is the ratio of the percentage change in income to the percentage change in quantity demanded 39 Cross‐price elasticity of demand measures the response in the A price of a good to a change in the quantity of another good demanded B income of consumers to the change in the price of goods C quantity of one good demanded when the quantity demanded of another good changes D quantity of one good demanded to a change in the price of another good 40 The price of good A increases from $4.50 to $5.50 This causes the quantity demanded of good B to increase from 900 to 1100 units per month Find the cross-price elasticity of demand using the mid-point method A -1.0 C +1.0 B +2.0 D -2.0 41 Suppose that two goods have a cross-price elasticity of demand of -0.8 This means that these goods are A Normal C substitutes 17 PRINCIPLES OF MICROECONOMICS MENTORA+ B Inferior D complements 42 If the income elasticity of demand for a good is negative, it must be A an elastic good C a normal good B an inferior good D a luxury good 43 If the cross-price elasticity between two goods is negative, they are likely to be A substitutes C necessities B complements D luxuries 44 The cross-price elasticity of demand between good X and good Y is 0.5 Given this information, which of the following statements is TRUE? A The demand for goods X and Y is inelastic B Goods X and Y are substitutes C Goods X and Y are complements D The demand for goods X and Y is income inelastic 45 If the income elasticity of demand for cereal is -0.25 and the income elasticity of demand for peaches is 1.5 then A cereal and peaches are substitutes B cereal and peaches are complements C cereal is a normal good and peaches are an inferior good D cereal is an inferior good and peaches are normal goods 46 If a supply curve for a good is price elastic, then A the quantity supplied is sensitive to changes in the price of that good B the quantity demanded is insensitive to changes in the price of that good C the quantity demanded is sensitive to changes in the price of that good D the quantity supplied is insensitive to changes in the price of that good 47 In general, a steep supply curve is more likely to be A price elastic C price inelastic B unit price elastic D none of the above 48 If a fisherman must sell all of his daily catch before it spoils for whatever price he is offered, once the fish are caught the fisherman's price elasticity of supply for fresh fish is A zero 18 PRINCIPLES OF MICROECONOMICS MENTORA+ B infinite C one D unable to be determined from this information 49 The price elasticity of supply measures how A easily labor and capital can be substituted for one another in production B responsive the quantity supplied of X is to changes in the price of X C responsive the quantity supplied of Y is to changes in the price of X D responsive quantity supplied is to a change in incomes 50 If supply is price inelastic, the value of the price elasticity of supply must be A infinite C less than B zero D greater than 51 The main determinant of elasticity of supply is the A number of close substitutes for the product available to consumers B amount of time the producer has to adjust inputs in response to a price change C urgency of consumer wants for the product D number of users for the product 52 If the supply of product X is perfectly elastic, an increase in its demand will raise A equilibrium quantity but reduce equilibrium price B equilibrium quantity but equilibrium price will be unchanged C equilibrium price but reduce equilibrium quantity D equilibrium price but equilibrium quantity will be unchanged 53 Suppose that a 20% increase in the price of normal good Y causes a 10% decline in the quantity demanded of normal good X The coefficient of cross elasticity of demand is A negative and therefore these goods are substitutes B negative and therefore these goods are complements C positive and therefore these goods are substitutes D positive and therefore these goods are complements 54 The larger the positive cross-price elasticity coefficient of demand between products X and Y, the A stronger their complementariness B greater their substitutability 19 PRINCIPLES OF MICROECONOMICS MENTORA+ C smaller the price elasticity of demand for both products D the less sensitive purchases of each are to increases in income 55 Which of the following statements is not correct? A The larger an item is in one's budget, the greater the price elasticity of demand B The price elasticity of demand is greater for necessities than it is for luxuries C The larger the number of close substitutes available, the greater will be the price elasticity of demand for a particular product D The price elasticity of demand is greater the longer the time period under consideration in terms of non-durable goods 56 Which of the following elasticities represents the movement along demand curve? A Cross-price elasticity of demand B Income elasticity of demand C Price elasticity of demand D Price elasticity of supply 57 The surplus caused by a binding price floor will be greatest if A demand is inelastic and supply is elastic B supply is inelastic and demand is elastic C both supply and demand are elastic D both supply and demand are inelastic 58 Assume the demand for a product is perfectly inelastic If government establishes a price floor that is $2 above the equilibrium price, the resulting A shortage will be greater the more elastic the supply B shortage will be greater the less elastic the supply C surplus will be greater the more elastic the supply D surplus will be greater the less elastic the supply 59 Other things equal, the shortage associated with a price ceiling will be greater the A smaller the elasticity of both demand and supply B greater the elasticity of both demand and supply C greater the elasticity of supply and the smaller the elasticity of demand D greater the elasticity of demand and the smaller the elasticity of supply 20 PRINCIPLES OF MICROECONOMICS MENTORA+ 60 Which of the following statements about the burden of a tax is correct? A The tax burden generated from a tax placed on a good that consumers perceive to be a necessity will fall most heavily on the sellers of the good B The burden of a tax falls on the side of the market (buyers or sellers) from which it is collected C The distribution of the burden of a tax is determined by the relative elasticities of supply and demand and is not determined by legislation D The tax burden falls most heavily on the side of the market (buyers or sellers) that is most willing to leave the market when price movements are unfavourable to them 61 A tax is imposed on the sale of a product As long as neither the supply nor the demand is perfectly elastic or inelastic, A the price paid by the consumer will increase by more than the amount of the tax B the price paid by the consumer will increase by less than the amount of the tax C there will be no change in the price paid by the consumer D the price paid by the consumer will increase by the full amount of the tax 62 The tax incidence is determined by the A federal government in all cases B greed of the seller C level of government which imposes the tax D price elasticities of supply and demand 63 A tax placed on a good that is a necessity will likely generate a tax burden that A falls more heavily on sellers B falls entirely on sellers C falls more heavily on buyers D is evenly distributed between buyers and sellers 64 The burden of a tax falls more heavily on the buyers in a market when A both supply and demand are inelastic B demand is elastic and supply is inelastic C both supply and demand are elastic D demand is inelastic and supply is elastic 21 PRINCIPLES OF MICROECONOMICS MENTORA+ 65 The burden of a tax falls more heavily on the sellers in a market when A both supply and demand are elastic B both supply and demand are inelastic C demand is inelastic and supply is elastic D demand is elastic and supply is inelastic 66 Which of the following leads to the buyers paying all of a tax? A The demand is perfectly elastic B The supply is unit elastic C The demand is perfectly inelastic D The supply is perfectly inelastic 67 Which of the following leads to the producers paying all of a tax? A The supply is perfectly inelastic B The demand is unit elastic C The supply is perfectly elastic D The demand is perfectly inelastic 68 The amount of a tax paid by the buyer will be larger A the more inelastic are both the supply and demand B the more elastic are both the supply and demand C the more inelastic the demand and the more elastic the supply D the more elastic the demand and the more inelastic the supply 69 If a tax is imposed on a good and the incidence of the tax ends up falling more heavily on the sellers than on the buyers, we can tell that A demand is more elastic than supply for that good B demand is less elastic than supply for that good C the tax was imposed on the buyers of the good D the tax was imposed on the sellers of the good 70 If a tax is imposed on a good and the incidence of the tax ends up falling more heavily on the buyers than on the sellers, we can tell that A demand is more elastic than supply for that good B demand is less elastic than supply for that good C the tax was imposed on the buyers of the good 22 PRINCIPLES OF MICROECONOMICS MENTORA+ D the tax was imposed on the sellers of the good 23 ... quantity demanded divided by the percentage change in income B the percentage change in income divided by the percentage change in the quantity demanded 10 PRINCIPLES OF MICROECONOMICS MENTORA+ C the... falls more heavily on sellers B falls entirely on sellers C falls more heavily on buyers D is evenly distributed between buyers and sellers 64 The burden of a tax falls more heavily on the buyers... that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic D the railroad felt that the demand for passenger service was elastic and opponents of