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Introduction to Economic Reasoning, 8e (Rohlf)
Chapter 4: Applications Using Demand and Supply
1) If the U.S. government were to artificially maintain the selling price of beef above the
equilibrium level, then
A) there would be a shortage.
B) consumers would be happy, but ranchers would be unhappy.
C) beef producers would be motivated to supply less beef than they would supply at the
equilibrium price.
D) price would still perform the rationing function.
E) there would be a surplus.
2) A price support
A) is a legally established maximum price.
B) generally results in a surplus.
C) generally results in a shortage.
D) can cause the quantity demanded to exceed the quantity supplied.
E) tends to discourage production but encourage consumption.
3) If a price ceiling is established
A) a surplus is likely to result.
B) a secondary rationing device will be necessary.
C) the quantity of the product supplied will probably exceed the quantity demanded.
D) the ceiling price will probably be above the equilibrium level.
E) the market for ceiling fans will skyrocket.
4) Suppose that a minimum wage is instituted at a level above the equilibrium wage rate. It is
reasonable to expect
A) a shortage of workers, because the quantity of labor demanded will exceed the quantity
supplied.
B) a shortage of workers, because the quantity of labor supplied will exceed the quantity
demanded.
C) a surplus of workers, because the quantity of labor demanded will exceed the quantity
supplied.
D) a surplus of workers, because the quantity of labor supplied will exceed the quantity
demanded.
E) a surplus of workers, because the demand for labor will exceed the supply of labor.
5) Suppose that a minimum wage is instituted at a level above the equilibrium wage rate. It is
likely that
A) more workers will be employed than would have been employed at the equilibrium wage.
B) fewer workers will be employed than would have been employed at the equilibrium wage.
C) the same number of workers will be employed as at the equilibrium wage.
D) there will be an increase in the demand for labor.
E) there will be a decrease in the demand for labor.
6) If the federal government provides wheat farmers with a subsidy of $1.00 a bushel, we would
expect
A) the equilibrium quantity of wheat to increase and the price of wheat to fall by $1.00 a bushel.
B) the equilibrium quantity of wheat to decline and the price of wheat to fall by $1.00 a bushel.
C) the equilibrium quantity of wheat to increase and the price of wheat to fall by less than $1.00
a bushel.
D) the equilibrium quantity of wheat to decline and the price of wheat to fall by less than $1.00 a
bushel.
E) the equilibrium quantity of wheat to increase and the price of wheat to fall by more than $1.00
a bushel.
7) Which of the following is a true statement regarding producer subsidies and excise taxes?
A) Producer subsidies tend to shift the supply curve of the subsidized product to the left.
B) Excise taxes tend to shift the supply curve of the taxed product to the right.
C) Producer subsidies tend to lower the price of the subsidized product by more than the amount
of the subsidy.
D) Excise taxes tend to reduce the supply of the taxed product.
E) Excise taxes generally raise the price of the taxed product by the amount of the tax.
8) A subsidy to corn producers would tend to
A) increase the demand for corn.
B) reduce the supply of corn.
C) reduce the market price of corn.
D) increase the cost of producing corn.
E) decrease the demand for corn.
9) An excise tax on doughnuts would tend to
A) raise the equilibrium price and quantity.
B) lower the equilibrium price and quantity.
C) raise the equilibrium price but lower the equilibrium quantity.
D) lower the equilibrium price but raise the equilibrium quantity.
E) raise the equilibrium price but leave the equilibrium quantity unchanged.
10) If an excise tax of $1.00 a pack were imposed on cigarettes, the price of cigarettes would
tend to rise by $1.00 if
A) the demand for cigarettes were perfectly elastic.
B) the demand for cigarettes were perfectly inelastic.
C) the demand for cigarettes were elastic, but not perfectly elastic.
D) the demand for cigarettes were inelastic, but not perfectly inelastic.
E) the demand for cigarettes were of unitary elasticity.
11) If the federal government imposes a $2.00 a bottle excise tax on wine, we would expect
A) the equilibrium quantity of wine to increase and the price of wine to rise by $2.00 a bottle.
B) the equilibrium quantity of wine to decrease and the price of wine to rise by $2.00 a bottle.
C) the equilibrium quantity of wine to decrease and the price of wine to rise by more than $2.00
a bottle.
D) the equilibrium quantity of wine to decrease and the price of wine to fall by less than $2.00 a
bottle.
E) the equilibrium quantity of wine to decrease and the price of wine to rise by less than $2.00 a
bottle.
12) If the price of Cleansall Soap is reduced and this leads to an increase in the quantity sold,
A) it can be concluded that demand is elastic.
B) demand must be inelastic.
C) nothing can be concluded about the elasticity of demand.
D) demand is of unitary elasticity.
E) demand is perfectly elastic.
13) If the Deluxe Cab Company increases its fares by 20 percent and the number of cab rides
demanded declines,
A) demand is elastic, but not perfectly elastic.
B) nothing can be concluded about the elasticity of demand, but the demand curve must slope
downward.
C) demand is of unitary elasticity.
D) the demand curve for cab service must be a vertical straight line.
E) demand must be inelastic, but not perfectly inelastic.
14) If the price of ladies handbags is reduced by 10 percent and the quantity demanded increases
by 20 percent,
A) demand is elastic.
B) demand is inelastic.
C) demand is of unitary elasticity.
D) demand is perfectly inelastic.
E) the elasticity coefficient is equal to 1.2.
15) Suppose that when the price of milk is increased by 25 percent the quantity demanded
declines by 20 percent. The coefficient of demand elasticity is equal to
A) 0.45.
B) 0.80.
C) 1.25.
D) 0.05.
E) 5.00.
16) When Trustworthy Airlines reduced its fares by 20 percent, it sold 35 percent more tickets
than before. The coefficient of demand elasticity is equal to
A) 0.55.
B) 1.25.
C) 0.57.
D) 0.07.
E) 1.75.
17) If the coefficient of demand elasticity is greater than 1.00, demand is described as
A) elastic.
B) inelastic.
C) unitary.
D) perfectly elastic.
E) perfectly inelastic.
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18) If the coefficient of demand elasticity is equal to 1.00, demand is described as
A) elastic.
B) inelastic.
C) unitary.
D) perfectly elastic.
E) perfectly inelastic.
19) On a linear, downward sloping demand curve
A) demand is more elastic at the upper end.
B) demand is more elastic at the lower end.
C) demand is more elastic midway on the curve.
D) the elasticity of demand is constant all along the curve.
E) demand is of unitary elasticity everywhere along the curve.
20) If a decrease in price leads to a reduction in total revenue, it can be concluded that
A) demand is elastic, but not perfectly elastic.
B) demand is inelastic.
C) demand is of unitary elasticity.
D) demand is perfectly elastic.
E) there has been a decrease in the quantity of the product demanded.
21) When XYZ manufacturing reduced the price of its product by 20 percent, its total revenue
increased from $2 million to $2.2 million per year. On the basis of this information
A) it can be concluded that demand is elastic.
B) it can be concluded that demand is inelastic, but the precise value of the elasticity coefficient
cannot be found.
C) it can be concluded that demand is of unitary elasticity.
D) nothing can be concluded about the elasticity of demand.
E) it can be concluded that demand is inelastic; the coefficient of elasticity is equal to .5.
22) The President of Ivy College just requested an increase in tuition in order to earn additional
revenue to help defray rising expenses. Apparently the President believes that
A) the demand for an Ivy College education is elastic.
B) the demand for an Ivy College education is inelastic.
C) the demand for an Ivy College education is of unitary elasticity.
D) the demand curve for an Ivy College education is upward sloping.
E) an increase in tuition will shift the demand curve for an Ivy College education to the right.
23) Total revenue will increase if
A) price is reduced and demand is inelastic.
B) price is increased and demand is elastic.
C) price is reduced and demand is elastic.
D) price is increased and demand is of unitary elasticity.
E) the quantity demanded increases in response to a price reduction.
24) The manager of the City Playhouse is contemplating an increase in ticket prices to help boost
revenue. His accountant believes that a rise in ticket prices would reduce the firm’s revenue, not
increase it. Apparently,
A) the manager believes that demand is elastic, while the accountant believes it is inelastic.
B) the manager believes that demand is inelastic, while the accountant believes it is elastic.
C) the manager believes that the price hike would reduce ticket sales, but the accountant
disagrees.
D) the accountant believes that the price hike would reduce ticket sales, but the manager
disagrees.
E) the manager believes that demand is perfectly inelastic, while the accountant believes it is
merely inelastic.
25) If demand is inelastic,
A) an increase in price will not alter the quantity of a product demanded and total revenue will
fall.
B) an increase in price will reduce the quantity of a product demanded, and total revenue will
fall.
C) an increase in price will increase the quantity of a product demanded, and total revenue will
rise.
D) an increase in price will not reduce the quantity of a product demanded, and total revenue will
rise.
E) an increase in price will reduce the quantity of a product demanded, but total revenue will
rise.
26) If demand is of unitary elasticity
A) an increase in price will cause total revenue to fall.
B) a decrease in price will cause total revenue to fall.
C) an increase in price will cause no change in total revenue.
D) a decrease in price will cause total revenue to rise.
E) an increase in price will cause total revenue to rise.
27) In general, demand for a product is more elastic
A) the fewer the substitutes and the larger the fraction of the family budget spent on the product.
B) the fewer the substitutes and the smaller the fraction of the family budget spent on the
product.
C) the greater the number of substitutes and the smaller the fraction of the family budget spent
on that product.
D) the greater the number of substitutes and the larger the fraction of the family budget spent on
that product.
E) if consumers believe it is a necessity, rather than a luxury.
28) Which of the following is true?
A) The fewer the substitutes that exist for a product, the more elastic the demand.
B) The smaller the fraction of the family budget spent on a product, the more elastic the demand.
C) The demand for Pepsi Cola is likely to be less elastic than the demand for cola drinks as a
group.
D) The demand for tennis shoes as a product class is likely to be more elastic than the demand
for a particular brand of tennis shoes.
E) The demand for Bic Pens is likely to be more elastic than the demand for ball point pens as a
product class.
29) The demand for a product is described as inelastic if
A) when price is increased, the quantity demanded falls.
B) when price is increased, the quantity demanded rises.
C) when price is increased, total revenue declines.
D) consumers are not very responsive to a price change.
E) when the price is reduced, the quantity demanded rises.
30) If the coefficient of demand elasticity is 0.5, then
A) a 10 percent reduction in price will increase the quantity demanded by 50 percent.
B) a 5 percent reduction in price will increase the quantity demanded by 1 percent.
C) a 50 percent reduction in price will increase the quantity demanded by 1 percent.
D) a 20 percent reduction in price will increase the quantity demanded by 10 percent.
E) a 5 percent increase in price will reduce the quantity demanded by 25 percent.
31) If the coefficient of demand elasticity is 2, then
A) a 10 percent reduction in price will increase the quantity demanded by 5 percent.
B) a 10 percent reduction in price will increase the quantity demanded by 20 percent.
C) a 2 percent reduction in price will increase the quantity demanded by 100 percent.
D) a 20 percent reduction in price will increase the quantity demanded by 10 percent.
E) a 5 percent reduction in price will increase the quantity demanded by 20 percent.
32) If policymakers desire to reduce the quantity of water demanded by 20 percent, and water
has an elasticity coefficient of 0.5, then the price of water must be
A) increased by 10 percent.
B) increased by 20 percent.
C) increased by 40 percent.
D) reduced by 10 percent.
E) increased by 100 percent.
33) If local policymakers want to increase bus ridership by 20 percent, and bus service has an
elasticity coefficient of 0.25, then bus fares should be
A) increased by 5 percent.
B) reduced by 5 percent.
C) reduced by 40 percent.
D) reduced by 80 percent.
E) reduced by 50 percent.
34) In general, supply tends to be more elastic
A) the longer the time period producers are given to adapt to a price change.
B) in the short run than in the long run.
C) the shorter the time period producers are given to adapt to a price change.
D) the smaller the coefficient of supply elasticity.
E) for small businesses than for large businesses.
35) If the supply curve were a vertical straight line, this would indicate that
A) producers would be willing to supply at a constant price as much of the product as consumers
desired.
B) producers would be very responsive to price changes.
C) a change in price would not cause producers to alter their output.
D) a reduction in price would cause suppliers to reduce their output to zero.
E) supply was highly elastic.
36) If the coefficient of supply elasticity were equal to 3,
A) a 30 percent increase in price would cause producers to expand the quantity supplied by 10
percent.
B) a 10 percent increase in price would cause producers to expand the quantity supplied by 30
percent.
C) a 5 percent reduction in price would cause producers to expand the quantity supplied by 15
percent.
D) a 20 percent reduction in price would cause producers to supply 10 percent less than before.
E) a 50 percent increase in price would cause producers to expand the quantity supplied by 75
percent.
37) The primary determinant of the elasticity of supply is
A) the number of good substitutes that are available to consumers.
B) the number of producers of the product.
C) the amount of time producers are given to adjust to the price change.
D) the income of consumers.
E) the amount of competition in the industry.
38) Which of the following is true?
A) In the short run, output is fixed.
B) In the long run, output can be expanded only by using a fixed plant and equipment more
intensively.
C) In the short run, production facilities can be expanded, but new facilities cannot be built.
D) In the long run, production facilities can be expanded or contracted.
E) In the short run, output can be reduced but it cannot be expanded.
39) Which of the following is not a short-run adjustment?
A) hiring additional personnel to operate the existing machinery
B) adding an additional work shift
C) purchasing additional raw materials to be used on the production line
D) enlarging the existing factory
E) hiring “assistants” to help machine operators work more rapidly
40) If the coefficient of supply elasticity is 2, what must happen to housing prices to cause
builders to expand the quantity of housing supplied by 30 percent?
A) Housing prices must rise by 60 percent.
B) Housing prices must rise by 15 percent.
C) Housing prices must fall by 15 percent.
D) Housing prices must rise by 6 percent.
E) Housing prices must fall by 6 percent.
41) Suppose that demand is perfectly inelastic, and supply has its conventional shape. If supply
were to increase,
A) the equilibrium price and quantity would rise.
B) the equilibrium price and quantity would fall.
C) the equilibrium price would rise, but the equilibrium quantity would be unchanged.
D) the equilibrium price would be unchanged, but the equilibrium quantity would fall.
E) the equilibrium price would fall, but the equilibrium quantity would be unchanged.
42) Suppose that an excise tax of $1 a pack is imposed on cigarette producers. Which of the
following would be true?
A) The price of a pack of cigarettes will generally rise by $1.
B) The more inelastic the demand for cigarettes, the more the price of a pack will rise.
C) The more elastic the demand for cigarettes, the more the price of a pack will rise.
D) The price a pack of cigarettes will rise by more than a dollar if demand in inelastic, but less
than a dollar if demand is elastic.
E) The price of a pack of cigarettes will rise by more than a dollar if demand is elastic, but less
than a dollar if demand is inelastic.
43) Suppose that a $10 a unit excise tax is imposed on widget producers. The price of widgets
would
A) always rise by $10.
B) rise by $10 if the demand for widgets was inelastic, but not perfectly inelastic.
C) always rise by less than $10.
D) rise by $10 if the demand for widgets was perfectly elastic.
E) rise by $10 if the demand for widgets was perfectly inelastic.
1) If the U.S. government were to artificially restrict the price of beef below the equilibrium
level, the result would be
A) a shortage.
B) a surplus.
C) an excess of the quantity supplied over the quantity demanded.
D) none of the above.
Question Status: Previous Edition
2) Which of the following is a true statement about price supports?
A) They are established below the equilibrium price.
B) They lead to the use of a secondary rationing device.
C) They result in surpluses.
D) They shift the supply curve to the left.
3) If a minimum wage is imposed above the equilibrium wage, the result will be
A) a surplus of jobs.
B) a reduction in the quantity of labor demanded by employers.
C) a shortage of workers.
D) an increase in employment.
4) When price ceilings are imposed,
A) they shift the supply curve to the right.
B) they lead to the use of a secondary rationing device.
C) they result in surpluses.
D) they shift the supply curve to the left.
5) A subsidy to wheat producers would tend to
A) increase the demand for wheat.
B) reduce the supply of wheat.
C) reduce the market price of wheat.
D) increase the cost of producing wheat.
6) An excise tax on cigarettes would tend to
A) raise the equilibrium price and quantity.
B) lower the equilibrium price and quantity.
C) raise the equilibrium price but lower the equilibrium quantity.
D) lower the equilibrium price but raise the equilibrium quantity.
7) If a seller reduces the price of a product and this leads to an increase in the quantity sold, what
can be concluded?
A) Demand is elastic.
B) Demand is inelastic.
C) Demand is of unitary elasticity.
D) Nothing can be concluded about the degree of elasticity.
8) When Miracle Drug reduced the price of its Stop Smoking Pill, it sold more of its product, but
its total revenue declined. We can conclude that demand for the Stop Smoking Pill must be
A) perfectly inelastic.
B) perfectly elastic.
C) inelastic.
D) elastic.
9) If a 20 percent reduction in the price of ZOLT cola brings a 40 percent increase in the quantity
demanded, then the coefficient of demand elasticity is
A) 2.0 and demand is elastic.
B) .5 and demand is inelastic.
C) 2.0 and demand is inelastic.
D) .5 and demand is elastic.
10) On a downward-sloping demand curve, demand is more elastic
A) at the upper end.
B) at the lower end.
C) in the middle.
11) In general, demand for a product is more elastic
A) the fewer the substitutes and the larger the fraction of the family budget spent on that product.
B) the greater the number of substitutes and the larger the fraction of the family budget spent on
that product.
C) the fewer the substitutes and the smaller the fraction of the family budget spent on that
product.
D) the greater the number of substitutes and the smaller the fraction of the family budget spent
on that product.
12) The local transit company is contemplating an increase in bus fares in order to expand
revenues. A local senior-citizens group, Seniors for Fair Fares, argues that a rate increase would
lead to lower revenues. This disagreement suggests that
A) the transit company does not believe that the rate increase would reduce the number of riders,
but the SFF believes that it would.
B) the transit company believes that the demand for bus service is elastic, but the SFF believes
that it is inelastic.
C) the transit company believes that the demand for bus service is inelastic, but the SFF believes
that it is elastic.
13) When an excise tax is imposed on a product,
A) the price of the product will generally increase by the amount of the tax.
B) the price of the product will rise by the amount of the tax if the demand for the product is
perfectly elastic.
C) the price of the product will rise by the amount of the tax if the demand for the product is
perfectly inelastic.
D) the price of the product will always rise by less than the amount of the tax.
14) When the demand for a product is very elastic,
A) that is probably because the product has few substitutes.
B) suppliers find it difficult to pass excise tax hikes on to consumers.
C) the coefficient of demand elasticity is less than one.
D) consumers pay a large fraction of any excise tax.
1) Price supports for cotton would tend to
A) produce a surplus of cotton.
B) reduce the demand for cotton.
C) produce a shortage of cotton.
D) increase the demand for cotton.