midterm chapters 5-8

what does the price elasticity of demand measure?
how much quantity demanded responds to a change in price.
what does the price elasticity of supply measure?
how much the quantity supplied responds to changes in the price of the good.
when will a decrease in supply will cause the largest increase in price?
both supply and demand are inelastic.
what is elasticity a measure of?
how much buyers and sellers respond to changes in market conditions.
what does the price elasticity of supply measure?
how responsive sellers are to a change in price
what is the price elasticity of demand defined as?
the percentage change in quantity demanded divided by the percentage change in price
what is the midpoint method?
(new – old)/old
When consumers face rising gasoline prices, they typically……
reduce their quantity demanded more in the long run than in the short run
A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?
The number of firms in a market tends to be more variable over long periods of time than over short periods of time.
what happens if demand is price inelastic?
buyers do not respond much to a change in price
when is demand inelastic?
the quantity demanded changes only slightly when the price of the good changes.
what is a key determinant of the price elasticity of supply?
time horizon
do Goods with close substitutes tend to have more elastic demands than do goods without close substitutes?
yes
is the demand for Rice Krispies is more elastic than the demand for cereal in general?
yes
is the demand for soap is more elastic than the demand for Dove soap?
no
If the price elasticity of supply for wheat is less than 1, then the supply of wheat is……
inelastic
In a competitive market free of government regulation….
price adjusts until quantity demanded equals quantity supplied.
if the government removes a tax on a good, then the quantity of the good sold will…..
increase
If the government removes a tax on a good, then the price paid by buyers will……
decrease, and the price received by sellers will increase
In a free, competitive market, what is the rationing mechanism?
price
Which of the following is not a function of prices in a market system?
Prices ensure an equal distribution of goods and services among consumers
what does a tax on coffee mugs do?
decreases the size of the coffee mug market
what do rent control laws dictate?
the max rent landlords can charge
When a tax is placed on the sellers of a product, buyers pay…..
more, and sellers receive less than they did before the tax.
what is a price ceiling?
A legal maximum on the price at which a good can be sold
a tax imposed on the sellers of a good will raise the….
price paid by buyers and lower the equilibrium quantity.
what happens if the price ceiling isn’t binding?
the equilibrium price is below the price ceiling
what can price controls do?
generate inequalities of their own
when is a price ceiling binding?
when set below the equilibrium
Which of the following observations would be consistent with the imposition of a binding price ceiling on a market?
After the price ceiling becomes effective, a smaller quantity of the good is bought and sold.
what happens when a tax is placed on the cell phone market?
the size of the cell phone market and the effective price received by sellers both decrease.
Suppose the government has imposed a price ceiling on sliced sandwich bread. Which of the following events could transform the price ceiling from one that is binding to one that is not binding?
A decrease in the price of unsliced bread, which people consider as a substitute for sliced bread.

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