Homework Assignment II(Chap 4-5) student PDF

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Principles of Microeconomics Homework Assignment II (Chap. 4-5) Dr. Xiaoyong Cao Fall 2019, UIBE True/False Indicate whether the statement is true or false. ____

1. The quantity demanded of a product is the amount that buyers are willing and able to purchase at a particular price.

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2. The law of demand states that, other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises.

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3. If orange juice and apple juice are substitutes, an increase in the price of orange juice will shift the demand curve for apple juice to the right.

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4. If a company making frozen orange juice expects the price of its product to be higher next month, it will supply more to the market this month.

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5. An increase in supply will cause a decrease in price, which will cause an increase in demand.

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6. A decrease in supply will cause an increase in price, which will cause a decrease in quantity demanded.

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7. Measures of elasticity enhance our ability to study the magnitudes of changes in quantities in response to changes in prices or income.

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8. If we observe that when consumers’ incomes rise by 10%, the quantity demanded of ice cream increases by 5%, then ice cream is an inferior good.

Multiple Choice Identify the choice that best completes the statement or answers the question. ____

9. If a seller in a competitive market chooses to charge more than the going price, then a. the sellers’ profits must increase. b. the owners of the raw materials used in production would raise the prices for the raw materials. c. other sellers would also raise their prices. d. buyers will make purchases from other sellers.

____ 10. Assume the market for tennis balls is perfectly competitive. When one tennis ball producer exits the market, a. the price of tennis balls increases. b. the price of tennis balls decreases. c. the price of tennis balls does not change. d. there is no longer a market for tennis balls. ____ 11. Two goods are complements when a decrease in the price of one good a. decreases the quantity demanded of the other good.

b. decreases the demand for the other good. c. increases the quantity demanded of the other good. d. increases the demand for the other good. ____ 12. What would happen to the equilibrium price and quantity of peanut butter if the price of peanuts went up, the price of jelly fell, fewer firms decided to produce peanut butter, and health officials announced that eating peanut butter was good for you? a. Price will fall, and the effect on quantity is ambiguous. b. Price will rise, and the effect on quantity is ambiguous. c. Quantity will fall, and the effect on price is ambiguous. d. Quantity will rise, and the effect on price is ambiguous. ____ 13. For a particular good, a 5 percent increase in price causes a 2 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. There are many close substitutes for this good. b. The good is a luxury. c. The market for the good is broadly defined. d. The relevant time horizon is long. ____ 14. Suppose that quantity demand rises by 10% as a result of a 15% decrease in price. The price elasticity of demand for this good is a. inelastic and equal to 0.67. b. elastic and equal to 0.67. c. inelastic and equal to 1.50. d. elastic and equal to 1.50. ____ 15. Income elasticity of demand measures how a. the quantity demanded changes as consumer income changes. b. consumer purchasing power is affected by a change in the price of a good. c. the price of a good is affected when there is a change in consumer income. d. many units of a good a consumer can buy given a certain income level. ____ 16. If two goods are complements, their cross-price elasticity will be a. positive. b. negative. c. zero. d. equal to the difference between the income elasticities of demand for the two goods. ____ 17. If the price elasticity of supply is 1.2, and price increased by 5%, quantity supplied would a. increase by 4.2%. b. increase by 6%. c. decrease by 4.2%. d. decrease by 6%. Table 5-5 Price Quantity Supplied

Supply Curve A $1.00 $2.00 500

600

Supply Curve B $1.00 $3.00 600

900

Supply Curve C $2.00 $5.00 400

700

____ 18. Refer to Table 5-5. Which of the three supply curves represents the most elastic supply? a. supply curve A

b. supply curve B c. supply curve C d. There is no difference in the elasticity of the three supply curves. ____ 19. A manufacturer produces 400 units when the market price of $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about a. 0.45. b. 2.0. c. 2.2. d. 200. ____ 20. At price of $1.25, a paper manufacturer is willing to supply 150 spiral notebooks per day. At a price of $1.50, the paper manufacturer is willing to supply 175 spiral notebooks per day. Using the midpoint method, the price elasticity of supply is about a. 1.18. b. 1.00. c. 0.85. d. 0.25. Short Answer 21. Suppose we are analyzing the market for hot chocolate. Graphically illustrate the impact each of the following would have on demand or supply. Also show how equilibrium price and equilibrium quantity would change. a. Winter starts, and the weather turns sharply colder. b. The price of tea, a substitute for hot chocolate, falls. c. The price of cocoa beans decreases. d. The price of whipped cream falls. e. A better method of harvesting cocoa beans is introduced. f. The Surgeon General of the U.S. announces that hot chocolate cures acne. g. Protesting farmers dump millions of gallons of milk, causing the price of milk to rise. h. Consumer income falls because of a recession, and hot chocolate is considered a normal good. i. Producers expect the price of hot chocolate to increase next month. j. Currently, the price of hot chocolate is $0.50 per cup above equilibrium. 22. Using the midpoint method, compute the elasticity of demand between points A and B. Is demand along this portion of the curve elastic or inelastic? Interpret your answer with regard to price and quantity demanded. Now compute the elasticity of demand between points B and C. Is demand along this portion of the curve elastic or inelastic?

22

Pri ce

20 18

A

16 14 12

B

10 8 6

C

4 2

Demand 100 200 300 400 500 600 700 800 900

Quantity...