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intermediate microeconomics
Study Guide For N. Gregory Mankiw's Principles Of Microeconomics 5th Edition David R. Hakes - Solutions
3. A price floor set above the equilibrium price is a binding constraint.
2. A price ceiling set below the equilibrium price causes a surplus.
1. If the equilibrium price of gasoline is $1.00 per gallon and the government places a price ceiling on gasoline of $1.50 per gallon, the result will be a shortage of gasoline.
10. Suppose a gas-guzzler tax is placed on luxury automobiles. Who will likely bear the greater burden of the tax, the buyers of luxury autos or the sellers? Why?
9. Why is a tax collected from the buyers equivalent to a tax collected from the sellers?
8. When we use the model of supply and demand to analyze a tax that is collected from the buyers, which way do we shift the demand curve? Why?
7. When we use the model of supply and demand to analyze a tax that is collected from the sellers, which way do we shift the supply curve? Why?
6. What is the impact on the price and quantity in a market if a price floor is set above the equilibrium price?
5. What is the impact on the price and quantity in a market if a price floor is set below the equilibrium price? Why?
4. Is the impact of a binding price ceiling greater in the short run or the long run? Why?
3. What are some of the problems created by a binding price ceiling?
2. What is the impact on the price and quantity in a market if a price ceiling is set below the equilibrium price?
What is the impact on the price and quantity in a market if a price ceiling is set above the equilibrium price? Why?
1.\Vho bears the greater burden ofthis tax, the buyers or the sellers? Why?
2.Use the following supply and demand schedules for bicycles to answer the questions below.$300 400 500 600 700 800 a.b.Plot the supply and demand curves for bicycles in Exhibit 3. On the graph, impose a tax of $300 per bicycle to be collected from the sellers. After the tax, what has happened to
In response to lobbying by the Bicycle Riders Association, Congress places a price ceiling of$400 on bicycles. Use the infixmation provided above to plot the supply and demand curves for bicycles in Exhibit 1. Impose the price What is the result ofa price ceiling of$400 on Does a price ceiling
1.Use the following supply and demand schedules for bicycles to answer the questions below.~~.j(i;~$300 400 500 600 700 800 J'ifiBfJ~. ~I~';Q.60 55 50 45 40 35~u~.it~ lu~~liea . ~30 40 50 60 70 80 a.b.c.[n response to lobbying by the Bicycle Riders Association, Congress places a ceiling of$700 on
Show whether the buyers or sellers ofa good bear the burden of the tax when demand is inelastic and supply is elastic
Demonstrate why the results are the same when a tax is placed on the sellers or buyers ofa good
Demonstrate why a tax placed on a good generally reduces the quantity ofthe good sold
Explain why a binding price floor creates a surplus
Describe the conditions necessary for a price ceiling to be a binding constraint
3. As an alternative, suppose the president of your tobacco firm suggests that your firm raise the price of your cigarettes independent of the other tobacco firms be- cause the evidence clearly shows that smokers are insensitive to changes in the price of cigarettes. Is the president of your firm
2. Suppose you are in charge of pricing for a tobacco firm. The president of your firm suggests that the evidence received over the last month demonstrates that the cigarette industry should get together and raise the price of cigarettes further because total revenue to the tobacco industry will
1. Is the demand for cigarettes over the period of one month elastic or inelastic?
In order to reduce teen smoking, the government places a $2 per pack tax on cigarettes. After one month, while the price to the consumer has increased a great deal, the quantity demanded of cigarettes has been reduced only slightly.
20. If consumers think that there are very few substitutes for a good, thena. supply would tend to be price elastic.b. supply would tend to be price inelastic. demand would tend to be price elastic.c. d. demand would tend to be price inelastic.c. none of the above is true.
19. If the income elasticity of demand for a good is negative, it must bea. a luxury good.b. c. a normal good. an inferior good.d. an elastic good.
17. At which of the following prices does Small Town Cablevision earn the greatest total revenue?a. either $30 or $40 per month because the price elasticity of demand is 1.0b. $30 per monthc. $40 per monthd. $0 per month 18. If demand is linear (a straight line), then price elasticity of demand
16. Using the midpoint method for calculating the elasticity, what is the price elasticity of demand for cable television in Small Town?a. 0.66b. 0.75c. 1.0d. c. 1.4 2.0
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.
15. If there is excess capacity in a production facility, it is likely that the firm's supply curve isa. price inelastic.b. price elastic.c. unit price elastic.d. none of the above.
14. If supply is price inelastic, the value of the price elasticity of supply must bea. zero.b. less than 1. C. greater than 1.d. infinite.c. none of the above.
13. Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend toa. reduce total revenue to farmers as a whole because the demand for food is inelastic.b. reduce total revenue to farmers as a whole because the demand for food is elastic. increase
12. If consumers always spend 15 percent of their income on food, then the income elasticity of demand for food is 0.15.a. b. 1.00.c. 1.15.d. 1.50.e. none of the above.
11. If an increase in the price of a good has no impact on the total revenue in that market. demand must bea. price inelastic.b. price elastic.c. unit price elastic.d. all of the above.
10. A decrease in supply (shift to the left) will increase total revenue in that market ifa. supply is price elastic.b. supply is price inelastic.c. demand is price elastic.d. demand is price inelastic.
9. 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 isa. b.c. zero. one. infinite.d. unable to be determined from this information.
8. If a supply curve for a good is price elastic, then 2. the quantity supplied is sensitive to changes in the price of that good.b. the quantity supplied 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
7. If the cross-price elasticity between two goods is negative, the two goods are likely to bea. luxuries.b. necessities.c. complements.d. substitutes.
6. The demand for which of the following is likely to be the most price inelastic?a. airline ticketsb. bus ticketsc. taxi ridesd. transportation
5. Which of the following would cause a demand curve for a good to be price inelastic?a. There are a great number of substitutes for the good.b. The good is inferior. C. The good is a luxury.d. The good is a necessity.
4. In general, a steeper supply curve is more likely to bea. price elastic.b. price inelastic.c. unit price elastic.d. none of the above.
3. In general, a flatter demand curve is more likely to bea. price elastic.b. price inelastic.c. unit price elastic.d. none of the above.
2. The price elasticity of demand is defined asa. the percentage change in price of a good divided by the percentage change in the quantity demanded of that good.b. the percentage change in income divided by the percentage change in the quantity demanded. C. the percentage change in the quantity
1. If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good isa. price inelastic.b. price elastic.c. unit price elastic.d. income inelastic.e. income elastic.
15. The income elasticity of demand for luxury items, such as diamonds, tends to be large (greater than 1).
14. An advance in technology that shifts the market supply curve to the right always increases total revenue received by producers.
13. The price elasticity of supply tends to be more inelastic as the firm's production facility reaches maximum capacity.
12. If the price elasticity of supply for blue jeans is 1.3, an increase of 10 percent in the price of blue jeans would increase the quantity supplied of blue jeans by 13 percent.
11. The supply of automobiles for this week is likely to be more price inelastic than the supply of automobiles for this year.
10. If the income elasticity of demand for a bus ride is negative, then a bus ride is an inferior good.
9. If a demand curve is linear, the price elasticity of demand is constant along it.
8. The demand for a necessity such as insulin tends to be elastic.
7. If the demand for a good is price inelastic, an increase in its price will increase total revenue in that market.
6. If the cross-price elasticity of demand between two goods is positive, the goods are likely to be complements.
5. The price elasticity of demand is defined as the percentage change in the price of that good divided by the percentage change in quantity demanded of that good.
4. The demand for aspirin this month should be more elastic than the demand for aspirin this year.
3. The demand for tires should be more inelastic than the demand for Goodyear brand tires.
2. Using the midpoint method to calculate elasticity, if an increase in the price of pencils from 10 cents to 20 cents reduces the quantity demanded from 1,000 pencils to 500 pencils, then the demand for pencils is unit price elastic.
1. If the quantity demanded of a good is sensitive to a change in the price of that good, demand is said to be price inelastic.
10. Suppose that when the price of apples rises by 20 percent, the quantity demanded of oranges rises by 6 percent. What is the cross-price elasticity of demand between apples and oranges? Are these two goods substitutes or complements?
9. Suppose that at a price of $2.00 per bushel, the quantity supplied of corn is 25 million metric tons. At a price of $3.00 per bushel, the quantity supplied is 30 million metric tons. What is the elasticity of supply for corn? Is supply elastic or inelastic?
8. If a demand curve is linear, is the elasticity constant along the demand curve? Which part tends to be elastic and which part tends to be inelastic? Why?
7. Is the price elasticity of supply for fresh fish likely to be elastic or inelastic when measured over the time period of one day? Why?
6. Suppose a firm is operating at half capacity. Is its supply curve for output likely to be relatively elastic or inelastic? Why?
5. Suppose your income rises by 20 percent and your quantity demanded of eggs 10 percent. What is the value of your income elasticity of demand for eggs? Are eggs normal or inferior goods to you?
4. If the price of Pepsi increases by one cent and this induces you to stop buying Pepsi altogether and switch to Coca-Cola, what is your price elasticity of demand for Pepsi, and is it considered elastic or inelastic?
3. If the price of soda doubles from $1.00 per can to $2.00 per can and you buy the same amount, what is your price elasticity of demand for soda, and is it considered elastic or inelastic?
2. If demand is inelastic, will an increase in price raise or lower total revenue? Why?
1. What are the four major determinants of the price elasticity of demand?
5. For each pair of goods listed below, which good would you expect to have the more elastic supply? Why?a. televisions; beachfront propertyb. crude oil over the next week; crude oil over the next yearc. a painting by van Gogh; a print of the same painting by van Gogh
4. The demand schedule from question 3 above is reproduced below along with another demand schedule when consumer incomes have risen to $60,000 from $50,000. Use this information to answer the following questions. Use the midpoint method to calculate the percentage changes used to generate the
To maximize total revenue, should Small Town Motel raise or lower the price within this range?
. Over what range of prices is the demand for motel rooms unit elastic?
To maxi- mize total revenue, should Small Town Motel raise or lower the price within this range?
. Over what range of prices is the demand for motel rooms inclastic?
To maximize total revenue, should Small Town Motel raise or lower the price within this range?
3. Over what range of prices is the demand for motel rooms elastic?
3. The table below provides the demand schedule for motel rooms at Small Town Motel. Use the information provided to complete the table. Answer the following questions based on your responses in the table. Use the midpoint method to calculate the percentage changes used to generate the elasticities.
If the Daily Newspaper's only concern is to maximize total revenue, should it raise the price ofa newspaper from $1.00 to $1.50?Why or why not?
2.insulin; aspirin Suppose the Daily Newspaper estimates that ifit raises the price of its newspaper from$1.00 to $1.50 then the number of subscribers will fall from 50,000 to 40,000.a.What is the price elasticity of demand for the Daily Newspaper when elasticity is calculated using the midpoint
1.For each pair of goods listed below, which good would you expect to have the more elastic demand? Why?a.cigarettes; a trip to Florida over spring break b.c.an AIDS vaccine over the next month; an AIDS vaccine over the next five years beer; Budweiser
Demonstrate the impact ofthe price elasticity of demand on total revenue
Calculate the price elasticity of supply
Calculate the price and income elasticity of demand
3.Suppose a ,friend ofyours works for the u.s. Weather Bureau. She calls you and provides you with inside information about the approaching storm-information not available to the public. Can you "beat the market" with inside information? Why or why not?
3.Suppose a ,friend ofyours works for the u.s. Weather Bureau. She calls you and provides you with inside information about the approaching storm-information not available to the public. Can you "beat the market" with inside information? Why or why not?
2.Can you "beat the market" with public information? That is, can you use publicly available information to help you buy something cheap and quickly sell it at a higher price? Why or why not?
1.If this information about the storm is publicly available so that all buyers and sellers in the apple market expect the price ofapples to rise in the future, what will ~lappen immediately to the supply and demand for apples and the equilibrium price and quantity of apples?
You are watching anational news broadcast. It is reported that a typhoon i~ heading for the Washington coast and that it will likely destroy much of this year', apple crop. Your roommate says, "If there are going to be fewer apples available, I'll bet that apple prices will rise. We should buy
20. An inferior good is one for which an increase in income causes a(n)a. increase in supply.b. decrease in supply.c. increase in demand.d. decrease in demand.
19. 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 increase: quantity is ambiguous.
18. 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 demand for apples and an increase in the quantity supplied of apples.b. There is an
17. 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?a. Price will increase; quantity is ambiguous.b. Price will
16. Which of the following statements is true about the impact of an increase in the price of lettuce? 3. The demand for lettuce will decrease.b. The supply of lettuce will decrease. C.d. The equilibrium price and quantity of salad dressing will rise. The equilibrium price and quantity of salad
15. Suppose there is an increase in both the supply and demand for personal computers. Furthermore, suppose the supply of personal computers increases more than demand for personal computers. In the market for personal computers, we would expect thea. equilibrium quantity to rise and the
14. Suppose there is an increase in both the supply and demand for personal computers. In the market for personal computers, we would expect thea. equilibrium quantity to rise and the equilibrium price to rise.b. equilibrium quantity to rise and the equilibrium price to fall.c. equilibrium quantity
13. A decrease (leftward shift) in the supply for a good will tend to causea. an increase in the equilibrium price and quantity.b. a decrease in the equilibrium price and quantity. C.d. an increase in the equilibrium price and a decrease in the equilibrium quantity. a decrease in the equilibrium
12. An increase (rightward shift) in the demand for a good will tend to causea. an increase in the equilibrium price and quantity.b. c. a decrease in the equilibrium price and quantity. an increase in the equilibrium price and a decrease in the equilibrium quantity.d. a decrease in the equilibrium
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