Please circle the most correct or appropriate answer. Please only choose one answer per
Question. Multiple selections will lead to a zero grade.
1. Which of the following event will shift the demand for apple to the right?
a. An increase in income
b. An increase in the price of bananas, a substitute for apple
c. A news release affirming that "an apple a day indeed keeps doctors away"
d. A sudden increase in birth rate
e. All of the above
2. If the government imposes a price above the equilibrium price, then this price is
called__________, which will lead to a(n) ___________.
a. a price ceiling, excess demand
b. a price ceiling, excess supply
c. a price floor, excess demand
d. a price floor, excess supply
e. an equilibrium price, equilibrium output
3. If the demand curve is Q P D = 100 −10 and there is $1 price increase, then the
elasticity of demand at P=2 is ___________. (Hint: you need to calculate the quantity
demanded at P=2 and P=3, and then apply the elasticity formula.)
e. Insufficient information to derive the elasticity
4. If the absolute value of a demand elasticity is less than 1, then
a. the demand is inelastic, and hence a price rise will reduce the total revenue.
b. the demand is inelastic, and hence a price rise will increase the total revenue.
c. the demand is elastic, and hence a price rise will reduce the total revenue.
d. the demand is elastic, and hence a price rise will increase the total revenue.
e. there is no information on the change of total revenue after a price rise.
5. If the cross-price elasticity is negative, then the two goods are ___________.
d. normal goods
This solution correctly identifies the answer to questions touching on demand, supply, equilibrium, and cross-price elasticity.