MARKET and ELASTICITY

(You should be able to explain your answers in multiple-choice questions)

MARKET

1. in a perfectly competitive market,

a. every seller tries to distinguish itself by offering a better product than its rivals.

b. every seller takes the price of its product as set by market conditions.

c. every seller tries to undercut the prices charged by its rivals.

d. one seller has successfully outcompeted its rivals so no other sellers remain.

2. A change in which of the following will NOT shift the demand curve for hamburgers?

a. the price of hot dogs

b. the price of hamburgers

c. the price of hamburger buns

d. the income of hamburger consumers

3. Which of the following will shift the demand curve for pizza to the right?

a. an increase in the price of hamburgers, a substitute for pizza

b. an increase in the price of root beer, a complement to pizza

c. the departure of college students, as they leave for summer vacation

d. a decrease in the price of pizza

4. if pasta is an inferior good, then the demand curve shifts to the _________ when _________
rises.
a. right; the price of pasta

b. right; consumers’ income

c. left; the price of pasta

d. left; consumers’ income

5. Which of the following moves the pizza market up along a given supply curve?

a. an increase in the price of pizza

b. an increase in the price of root beer, a complement to pizza

c. a decrease in the price of cheese, an input to pizza

d. a kitchen fire that destroys a popular pizza joint

6. Which of the following shifts the supply curve for pizza to the right?

a. an increase in the price of pizza

b. an increase in the price of root beer, a complement to pizza

c. a decrease in the price of cheese, an input to pizza

d. a kitchen fire that destroys a popular pizza joint

7. movie tickets and film streaming services are substitutes. if the price of film streaming
increases, what happens in the market for movie tickets?

a. the supply curve shifts to the left.

b. the supply curve shifts to the right.

c. the demand curve shifts to the left.

d. the demand curve shifts to the right.

8. the discovery of a large new reserve of crude oil will shift the _________ curve for gasoline,
leading to a _________ equilibrium price.

a. supply; higher

b. supply; lower

c. demand; higher

d. demand; lower

9. if the economy goes into a recession and incomes fall, what happens in the markets for inferior
goods?

a. Prices and quantities both rise.

b. Prices and quantities both fall.

c. Prices rise and quantities fall.

d. Prices fall and quantities rise.

10. Which of the following might lead to an increase in the equilibrium price of jelly and a
decrease in the equilibrium quantity of jelly sold?

a. an increase in the price of peanut butter, a complement to jelly

b. an increase in the price of marshmallow Fluff, a substitute for jelly

c. an increase in the price of grapes, an input into jelly

d. an increase in consumers’ incomes, as long as jelly is a normal good

11.
ELASTICITY

1. A good tends to have a small price elasticity of demand if

a. the good is a necessity.

b. there are many close substitutes.

c. the market is narrowly defined.

d. the long-run response is being measured.

2. An increase in a good’s price reduces the total amount consumers spend on the good if the
_________ elasticity of demand is _________ than one.

a. income; less

b. income; greater

c. price; less

d. price; greater

3. A linear, downward-sloping demand curve is

a. inelastic.
b. unit elastic.

c. elastic.

d. inelastic at some points, and elastic at others.

4. the price of a good rises from $16 to $24, and the quantity supplied rises from 90 to 110 units.
calculated with the midpoint method, the price elasticity of supply is

a. 1/5.

b. 1/2.

c. 2.

d. 5.

5. the ability of firms to enter and exit a market over time means that, in the long run,

a. the demand curve is more elastic.

b. the demand curve is less elastic.

c. the supply curve is more elastic.

d. the supply curve is less elastic.

6. An increase in the supply of grain will reduce the total revenue grain producers receive if

a. the supply curve is inelastic.

b. the supply curve is elastic.

c. the demand curve is inelastic.

d. the demand curve is elastic.

7. Because the demand curve for oil is _________ elastic in the long run, OPEC’s reduction in
the supply of oil had a _________ impact on the price in the long run than it did in the short run.
a. less; smaller

b. less; larger

c. more; smaller

d. more; larger

8. over time, technological advances increase consumers’ incomes and reduce the price of
smartphones. Each of these forces increases the amount consumers spend on smartphones if the
income elasticity of demand is greater than _________ and the price elasticity of demand is
greater than _________.

a. zero; zero

b. zero; one

c. one; zero

d. one; one

9. Suppose that business travelers and vacationers have the following demand for airline tickets
from Chicago to Miami:

a. As the price of tickets rises from $200 to $250, what is the price elasticity of demand for (i)
business travelers and (ii) vacationers? (Use the midpoint method in your calculations.)

b. Why might vacationers and business travelers have different elasticities?

10. Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the
long run.

a. If the price of heating oil rises from $1.80 to $2.20 per gallon, what happens to the quantity of
heating oil demanded in the short run? In the long run? (Use the midpoint method in your
calculations.)

b. Why might this elasticity depend on the time horizon?

11. A price change causes the quantity demanded of a good to decrease by 30 percent, while the
total revenue of that good increases by 15 percent. Is the demand curve elastic or inelastic?
Explain.

12. The price of aspirin rose sharply last month, while the quantity sold remained the same. Five
people suggest various diagnoses of the phenomenon:

Meredith: Demand increased, but supply was perfectly inelastic.

Alex: Demand increased, but it was perfectly inelastic.

Miranda: Demand increased, but supply decreased at the same time.

Richard: Supply decreased, but demand was unit elastic.

Owen: Supply decreased, but demand was perfectly inelastic.

Who could possibly be right? Use graphs to explain your answer

13. Using simple algebra to show that ONE is a useful threshold of price elasticity of demand to
infer whether an increase/decrease in price leads to an increase/decrease in revenue.

delta P/P = 1% tại P1 = 3, P2 = 4

=> delta pi / pi = 3%
giá thay đổi ít nhất 1% thì lợi nhuận thay đổi 3%