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# Price elasticity of supply for substitute goods

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Review Questions

1. If CD's and MP3's are substitute goods and the price of MP3's rises (be careful because we don't know why the price of MP3's rises):

A) the demand for CD's will fall and their price fall
B) the demand curve for CD's will shift to the right and their price rise
C) the supply curve for CD's will shift to the left and their price fall
D) the quantity supplied of CD's will fall and their price rise
E) the inverse investment portfolio will increase in value

2. Which of the following will not shift the demand curve of a normal good to the
right?

A) an increase in incomes
B) an increase in the price of a substitute good
C) a decrease in the price of a complement good
D) a population increase
E) a decrease in the price of the product

3. The economic result(s) of raising the minimum wage above the market wage is
(are):

A) all low income people will make more money
B) everyone will make more money, but jobs will be lost
C) all prices will rise
D) some people will make more money, and overall more jobs will exist
E) some people will lose their jobs, but others will make more money

4. Price per ear of corn Quantity of corn per week

\$ .50 10
.75 20
.90 35

The above table represents:

A) Demand
B) Quantity demanded only
C) Supply
D) The market for corn
E) A surplus of corn

5. The fact that resources are scarce leads to:

A) the law of supply
B) opportunity costs
C) ceteris paribus
D) the income effect
E) the law of increasing opportunity costs

6. Assume the following equations are the market for Jeep Grand Cherokees, then pick the equilibrium level of price and quantity: Q= 80,000 - 2P and Q = 0 + 1.2P

A) Price = \$ 25,000 and Quantity = 30,000
B) Price = \$ 20,000 and Quantity = 24,000
C) Price = \$ 30,000 and Quantity = 36,000
D) Price = \$ 28,000 and Quantity = 33,600
E) Price = \$ 40,000 and Quantity = 48,000

7. Utility measures:

A) How much what you buy will cost you
B) How much consumer surplus you that you pay for
C) How much your electric bill will be in winter
D) How much extra happiness you get from changes in what you buy
E) How much happiness you get from what you buy

8. If you increase price by 45% and quantity increases by 53%:

A) the price elasticity of supply is 1.18 and is elastic
B) the price elasticity of supply is .85 and is inelastic
C) the price elasticity of demand is 1.18 and is inelastic
D) the price elasticity of demand is .85 and is inelastic
E) then the good is a normal good

9. If the price of a product rises, and sales of a related product fall, we know:

A) nothing about the cross price elasticity because we need the numbers
B) that the cross price elasticity will be positive because these are substitutes
C) that the cross price elasticity will be negative because these are compliments
D) that the cross price elasticity will be negative because these are substitutes
E) that the income elasticity will be negative because these are inferior goods

10. Even with unlimited funds we would eventually stop buying more of a specific product because of:

A) Increasing marginal cost
B) Diminishing marginal utility
C) Diminishing marginal product
D) The alpha principle
E) Inverted average utility

11. Consumer surplus is:

A) What we are willing to pay for a product
C) The extra happiness we give up due to our budget constraint
D) The difference between what we are willing to pay and the price
E) Not possible, only a theoretical concept

A) Average product
B) Average revenue
C) Marginal revenue
D) Marginal product
E) Total Product

13. At the level of output where the extra output per new extra input is at its highest:

A) Marginal Cost is at its lowest
B) Marginal Cost is at its highest
C) Average Total Cost is at its highest
D) Marginal Profit it at its highest
E) Marginal Revenue is at its lowest

14. Which of the following is not a characteristic of Perfect Competition:

A) normal profits in the long run
C) no or few barriers to entry and exit
D) homogeneous products
E) market power

15. A firm's supply curve is:

A) the portion of its marginal cost curve above the average total cost curve
B) the portion of its marginal revenue curve above the avg. total cost curve
C) the portion of its marginal cost curve above the avg. variable cost curve
D) the portion of its marginal revenue curve above the avg. variable cost curve
E) the portion of its average total cost curve that is above

16. Monopolies reduce societal efficiency because:

A) They produce too little at too low of a price
B) They produce too much at too low of a price
C) They produce too much at too high of a price
D) They produce too little at too high of a price
E) They are corrupt and evil

17. Giving quantity discounts is an example of:

A) Consumer Surplus
B) Price discrimination
C) Perfectly competitive profit maximization
D) Under-the-counter sales

18. If you are producing more than the quantity at which M.R. = M.C.:

A) You can increase profits by increasing production
B) You can increase profits by decreasing production
C) You can increase profits by increasing the number of workers you have
D) Average costs will be at their lowest
E) You have maximized profits (or minimized losses)

19. Which of the following statements is correct:

A) Marginal Product will rise due to overwhelming the fixed resource
B) Marginal Product will rise due to overwhelming the variable resource
C) Marginal Product will fall due to gains from specialization
D) Marginal Product will fall due to overwhelming the variable resource
E) Marginal Product initially rises due to gains from specialization

20. If a firms accounting profit = \$50,000 and the economic profit = \$12,000 we know for certain that:

A) The entrepreneur received a normal profit
B) Other firms will definitely enter the industry
C) The entrepreneur's opportunity costs were \$38,000
D) The firm is in perfect competition
E) The profits must be short run

21. K-Mart once decided to close several of the stores it has operated for many years. Because of this decision we can say:

A) K-Mart was operating only in the long run
B) K-Mart did not care about Wal-Mart as competition
C) K-Mart needed to end it's long run relationship with the ICEE corporation
D) K-Mart charged too much money
E) K-Mart had looked at its long run position

22. A natural monopoly occurs when:

A) The firms in the industry buy up all of the natural resources
B) Economies of scale are small relative to supply
C) There are no dis-economies of scale
D) A patent has been granted
E) Economies of scale are very large relative to demand

23. Microsoft was found guilty of violating the Antitrust law that forbids a company from attempting to limit competition using monopolistic actions.
This act was the:

A) Sherman Act of 1890
B) Clayton Act of 1914
C) Federal Trade Commission Act of 1914
D) Robinson-Patman Act of 1936
E) Celler-Kefauver Antimerger Act of 1950

24. Most streetlights are an example of:

A) a private good resulting from negative externalities
B) a public good resulting from negative externalities
C) a private good resulting from positive externalities
D) a public good resulting from positive externalities
E) a private good resulting from an individual's paranoia

25. With only market forces, meaning no government action, negative externalities lead to:

A) too little product at the market quantity
B) too much product at the market quantity
C) only too much demand
D) only too much supply
E) the perfectly competitive level of product quantity

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#### Solution Preview

Review Questions

1. If CD's and MP3's are substitute goods and the price of MP3's rises (be careful because we don't know why the price of MP3's rises):

A) the demand for CD's will fall and their price fall
B) the demand curve for CD's will shift to the right and their price rise
C) the supply curve for CD's will shift to the left and their price fall
D) the quantity supplied of CD's will fall and their price rise
E) the inverse investment portfolio will increase in value

B) the demand curve for CD's will shift to the right and their price rise

2. Which of the following will not shift the demand curve of a normal good to the
right?

A) an increase in incomes
B) an increase in the price of a substitute good
C) a decrease in the price of a complement good
D) a population increase
E) a decrease in the price of the product

E) a decrease in the price of the product

3. The economic result(s) of raising the minimum wage above the market wage is
(are):

A) all low income people will make more money
B) everyone will make more money, but jobs will be lost
C) all prices will rise
D) some people will make more money, and overall more jobs will exist
E) some people will lose their jobs, but others will make more money

E) some people will lose their jobs, but others will make more money

4. Price per ear of corn Quantity of corn per week

\$ .50 10
.75 20
.90 35

The above table represents:

A) Demand
B) Quantity demanded only
C) Supply
D) The market for corn
E) A surplus of corn

C) Supply

5. The fact that resources are scarce leads to:

A) the law of supply
B) opportunity costs
C) ceteris paribus
D) the income effect
E) the law of increasing opportunity costs

E) the law of increasing opportunity costs

6. Assume the following equations are the market for Jeep Grand Cherokees, then pick the equilibrium level of price and quantity: Q= 80,000 - 2P and Q = 0 + 1.2P

A) Price = \$ 25,000 and Quantity = 30,000
B) Price = \$ 20,000 and Quantity = 24,000
C) Price = \$ 30,000 and Quantity = 36,000
D) Price = \$ 28,000 and Quantity = 33,600
E) Price = \$ 40,000 and Quantity = 48,000

A) Price = \$ 25,000 and Quantity = 30,000

7. Utility measures:

A) How much what you buy will cost you
B) How much consumer surplus you that you pay for
C) How much ...

#### Solution Summary

Response provides the steps to calculate the price elasticity of supply

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Similar Posting

## Supply Curve Elasticity

1. A supply curve revels-
a) the highest price producers are willing to accept for each level of output b) the difference between quantity demanded and quantity supplied at each price c) the maximum level of output an industry can produce, regardless of price. d) the quantity of output that producers are willing to produce and sell at each possible market price
2. When the current price is above the market clearing level we would expect-
a) quantity demanded to exceed quantity supplied b) quantity supplied to exceed quantity demanded c) price to rise in future d) grater production to occur during the next period.
3. if the actual price were below the equilibrium price in the market for bread, a
a) a surplus would develop that cannot be eliminated over time b) shortage will develop, which market forces eliminate over time c) a surplus would develop that which market forces eliminate over time d) shortage will develop, which market forces would tend to exacerbate.
4. When the current price is above the equilibrium price, we would expect-
a) quantity demanded to exceed quantity supplied b) quantity supplied to exceed quantity demanded c) price to rise in future d) grater production to occur in the next period
5. From 1970 to 1993 the real price of college education increased and total enrollment increased. Which of the following would cause and unambiguous increase in the real price of college education?
a) A shift to the right to supply curve for college education and a shift to the right in the demand curve for college education b) A shift to the right to supply curve for college education and a shift to the left in the demand curve for college education c) A shift to the left to supply curve for college education and a shift to the right in the demand curve for college education d) A shift to the left to supply curve for college education and a shift to the left in the demand curve for college education
6. From 1970 to 1993 the real price eggs decreased and total annual consumption of eggs decreased. Which of the following would cause and unambiguous decrease in the real price of eggs?
a) A shift to the right to supply curve for eggs and a shift to the right in the demand curve for college education b) A shift to the right to supply curve for eggs and a shift to the left in the demand curve for eggs c) A shift to the left to supply curve for eggs and a shift to the right in the demand curve for eggs d) A shift to the left to supply curve for eggs and a shift to the left in the demand curve for eggs.
7. Gasoline and Automobiles are a.) are complements b) are both inferior goods c) are both more inelastic in demand in the long run that in the short run. d) have a positive cross price elasticity of demand

8. Which of the following would shift the demand curves for the new text books to the right?
a) a fall in the price of paper used in publishing text b) a fall in the price of equivalent used textbooks c) an increase in the number of student attending college. d) a fall in the price of new textbooks.
9. Which of the following will cause the demand curve for betakes CD shift to the right?
a). A increase in the price of disc b) A decrease in the income of people who like to buy the disc c) A increase price of a substitute CD. d) all of the above e) none of the above
10. Which of the following will not cause a shift to the right in the demand curve for beer? A) A change in price B) A change in income C) A change in price of a substitute D) A change in price of a complements E) None of the above
11. Which of the following will cause a shift to the right in the demand curve for Gasoline? I) A large increase of price in public transportation II) A large decrease in the price of Automobile III) A large reduction in the costs of producing gasoline
a) 1 only b) 2 only c) 1 and 2 only d) 2 and 3 only e) 1, 2 and 3
12. The income elasticity of demand is the
a) absolute change in the quantity demanded resulting from a one unit change in income b) Percent change quantity demanded resulting from the absolute change in income. c) Percent change quantity demanded resulting from the one percent change in income. d) Percent change in income resulting from a one percent change in quantity demanded. e) Percent change in income resulting from a one percent change in price.
13. Elasticity measures-
a) The slope of demand curve b) The inverse of the slope of demand curve c) the percentage change in one variable in response to a 1% change in quantity d) sensitivity of price to a change in quantity
14. A vertical demand curve is
a) Completely inelastic b) income elasticity c) cross-price elasticity d) cross-substitution elasticity
15. If two goods are substitutes, the cross price elasticity of demand
a) Negative b) Positive c) Zero d) Infinite

16. A freeze in brazils coffee growing regions will-
a) result in sharp increase in the price of coffee in the short run because demand and supply are highly inelastic b) result in sharp increase in the price of coffee in the short run because demand and supply are highly elastic c) result in sharp decrease in the price of coffee in the short run because demand is highly inelastic and supply are highly elastic d) result in little change in the price of coffee in the short run because supply in infinitely elastic.
17. The theory of consumer behavior is based on certain assumptions. It includes at least the assumptions that preferences are-
a) complete b) transitive c) intransitive d) a&b e) a&c
18. Which of the following is true about indifference curve where one commodity is bad?
a) It has a negative slop b) It has a positive slop c) It is horizontal d) It is vertical
Food Clothing
A 8 5
B 5 8
C 6 3
19. If preferences satisfy all four of the usual assumptions
a) A is on the same indifference curve as B b) B is on the same indifference curve as C c) A is preferred to B d) A is preferred to C e) Both A & B is correct
20. Which of the following cannot be true?
a) The consumer could be indifferent between A & B b) The consumer could be indifferent between B & C c) A & C could be the same indifference curve d) A & C must be on the same indifference curve
21. Assuming that food is measured in horizontal axis and clothing on vertical. If the price of food rises relative to that of clothing, the budget line will-
a) Become flatter b) Become steeper c) Shift outward d) Become steeper or flatter depending on the relationship between price and Income.
22. Which of the following will result in decrease in consumers purchasing power?
a) Decrease in consumer's income. b) an increase in the price of the good on the vertical axis c) an increase in the price of the good on the horizontal axis d) all of the above.
23. if Jill's MRS of popcorn for candy is 2 (Popcorn is in the horizontal axis), jill would willing to give up-
a) 2 but no more than 2, units of popcorn for an additional unit of candy. b) 2 but no more than 2, units of popcorn for an additional unit of popcorn c) 1 but no more than 1, units of popcorn for an additional 2 unit of candy d) 2 but no more than 2, units of popcorn for an additional 2 unit of candy
24. Pencils cell for 10 cents, Pens cell for 50 cents. Suppose jack whose preferences satisfy all of the usual assumptions, buys 5 pen and 1 pencil each semester, with this consumption bundle, his MRS of pencils for pens is 3, which of the following is true?
a. Jack could increase his utility by buying more pens and fewer pencils. b. Jack could increase his utility by buying more pencils and fewer pens. c. Jack could increase his utility by buying more pens and more pencils. d. Jack could increase his utility by buying fewer pens and fewer pencils. e. Jack is at the corner solution and is maximizing his utility.
25. An individual consumes only two goods. X & Y. Which of the following expressions represents the utility maximizing market basket?
a) MRSxy is at a maximum b) Px/Py= money income c) MRSxy= money income d) MRSxy= Px/Py e) all of the above
26. If prices and Income in a two-good society double, what will happen to budget line?
a) The intercepts of budget line will increase b) The intercepts of budget line will decrease c) The slope of budget line may increase or decrease c) insufficient information is given to determine what effect the change will have on the budget lien. e) there will be no effect in budget line.
27. The price of lemonade is \$.50 and price of popcorn is \$1.00. If fred has maximized his utility, by purchasing lemonade and popcorn, his marginal rate of substitution will be-
a) 2 lemonade for each person b) 1 lemonade for each person c) ½ lemonade for each person d) intermediate unless more information on Fred's marginal utilities is provided.
28. Which of the following is not necessarily true of a consumer who has maximized utility for two good X and Y
a) MRSxy= Px/Py b)MUx/MUy = Px/Py c) Px/Py= money income d) Px/Py= slope of indifference curve at the optimal choice e)MUx/Px=MUy/Py
29. When a person consumes two goods (A & B), the persons utility is maximized the budge is allocated such that-
a) The marginal Utility of A= The marginal Utility of B b) The marginal Utility of A* price of A= The marginal Utility of B* price of B c) The ratio of total utility of A to the price of A= The ratio of marginal utility of B to the price of A d) The ratio of marginal utility of A to the price of A= The ratio of marginal utility of B to the price of B
30. The Change in the Quantity demanded of resulting from a change in relative price with the level of satisfaction held constant is called the ____________ effect.
I. All Giffen goods are inferior goods. Ii. All inferior goods are Giffen goods
a) I and II are true b) I is true, II is false c) I is false, II is true d) I and II are false
31. For an Inferior good, the Income and substitution effects are-
a) Work Together b) Work against c) always cancel each other d) can work together or in position to each other upon their relative magnitudes.
32. The substitution effect of a price change for product X can be thought as the change in consumption of X associated with a change in-
a) the price of X with the level of real income held constant b) the price of X with the level of real income not considered c) the price of X with the prices of other good changing, by the same percentage as that for product X d) income, with prices of other good held constant.
33. Which of the following describes the Giffen good case? When the price of the good-
a) rise, the income effect is opposite the greater than the substitution effect , and consumption falls. b) falls, the income effect is in the same direction as the substitution effect, and consumption rises c) falls, the income effect is in the opposite direction as the substitution effect, and consumption falls d) falls, the income effect is in the opposite direction as the substitution effect, and consumption rises.
34. Use the following two statements in answering the question- I. For all Giffen goods the substitution effect is larger than the income effect II. For all inferior goods the substitution effect is larger than the income effect.
a. I & II are true b. I true, II false c. I false, II true d. I & II are false.
35. Assume Beer is a normal good and the price of beer rises, then the substitution effect results in the person buying ______ of the good and the good and the income effect results in the person buying ______ of the good.
a) more, more b)more, less c)less, more d)less, less
35. Assume Beer is a normal good and the price of beer falls, then the substitution effect results in the person buying ______ of the good and the good and the income effect results in the person buying ______ of the good.
a) more, more b)more, less c)less, more d)less, less

36. Good A is a Giffen good. If the price of good A were suddenly doubles, the income effect would cause the purchase of good A to increase by
a) more than double b)exactly double c) less than double d) any of the above e) none of the above.
37. For each situation illustrated which one fits with which?
a) Completeness b) Transitivity c) More is better d) Diminishing Marginal Rate of Substitution.
1. 2.

3. Middle one is 80 4.
100
60 80
100
5. 6.

38. For each of the following income elasticities of good X, indicate the classification of good (normal, superior), the sign of the income effect and whether IE is >, <, =.
Income Elasticity Classification Sign
a. = to 1.2 __________ +, -, 0, < ,>, =
b. = .8 __________ +, -, 0, < ,>, =
c. =0 __________ +, -, 0, < ,>, =
d. = -.2 __________ +, -, 0, < ,>, =
What is true of the following if good X has a demand curve with a positive slope?
Classification Sign
__________ +, -, 0, < ,>, =

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