Exam 2: Supply and Demand

Suppose a vaccine for the common cold is discovered.The government begins to produce the vaccine in as large a volume as possible.However,the market clearing price is very high due to high demand for it.Following this,the government introduces a price control and sets up an allocation scheme to control the vaccine's distribution.Which of the following is likely to be true about the price control introduced by the government?

The price elasticity of demand for a good is equal to:

If the average household income in some town increased from $50,000 to $60,000,and the their expenditure on housing increased from $1,400 per month to $1,484 per month,the income elasticity of demand for housing is:

The cross-price elasticity of demand between substitutes:

A local businessman points out that,as the price of VCR has fallen,sales have increased tremendously.The businessman cites this example as proof that the law of supply does not hold.Which of the following explanations best solves the paradox cited by the businessman?

An expectation that the price of housing will increase more rapidly in coming years will cause the:

Refer to Figure 2-1.Assume that a price ceiling of $2 is imposed in this market,what will be the new quantity sold in this market?

Determine the price elasticity of demand for commodity X,if a 15% increase in its price: a)has no impact on its total expenditure. b)reduces total expenditure. c)increases total expenditure.

The income elasticity of demand for an inferior good:

A rise in the quantity demanded of lemons can be attributed to:

If an increase in the price of oil from $20 to $24 per barrel induces firms to increase production from 1 million to 1.6 million barrels,then the elasticity of supply is:

Explain the difference between a change in demand (supply)and a change in quantity demanded (supplied).

Which of the following would cause the demand for coffee to increase?

Price ceilings are often associated with:

The low availability of houses on rent cause potential tenants to incur the cost of waiting.The first-come first-serve basis used by owners while letting out houses under a rent control is a form of:

Elasticity of demand tends to be greater:

For each of the following market situations,explain whether the supply curve or the demand curve shits,in which direction does it shift,and the equilibrium price and quantity as a result of the change. a)The market for Ginkgo Biloba after studies shows its efficacy at memory retention with no adverse side effects. b)The market is for automobiles after the price of steel,which is used to produce automobiles,increases by 50%. c)The market is for daily newspapers as more news becomes available for free on the Internet. d)The market is for accounting services after spreadsheet and accounting software is introduced for use with personal computers.

Explain how a change in price affects total expenditure by filling in each cell with the change in price that must have occurred.

Which of the following statements is not true about a demand curve?

The cross price elasticity of demand for Good X with respect to Good Y is 1.2 and that with respect to Good Z is -0.3.This implies: