Exercise 2.

2
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 1.
(2 points) A government-imposed price ceiling set below the market's equilibrium price will
create an excess demand for a product. As a result of the excess demand, either the demand curve will tend to
shift to the left or the supply curve will shift to the right-or both.
a.
True
b.
False
____ 2.
(2 points) Price ceilings are primarily targeted to help __________, while price floors generally
benefit __________.
a.
producers; no one
b.
increase tax revenue for governments; producers
c.
increase tax revenue for governments; consumers
d.
producers; consumers
e.
consumers; producers
____ 3.
(2 points) Figure 4-4 depicts a market in which the government has imposed a price floor of
$5.00 per unit. To maintain the price floor, the government should
a.
buy 200 units of the good
b.
sell 200 units of the good
c.
buy 700 units of the good
d.
sell 700 units of the good
e.
buy 500 units of the good
____
a.
b.
c.
d.
e.

4.

(2 points) In

Figure 4-5, if the government imposes a price floor of $2, the result will be
equilibrium
no different than before the minimum price is imposed
a shortage
that the demand curve will shift leftward
a surplus

____
a.
b.
c.
d.
e.
____
a.

5.

(2 points) Another

term that could be used for elasticity is

sensitivity
utility
surplus
profit
slope
6.
(2 points) The price elasticity of demand is important to firms because
it explains the relationship between income and demand for the goods they
sell
b.
it shows how price changes affect total expenditures on the goods they sell
c.
the law of demand suggests that elasticity falls as total expenditures
continuously rises
d.
it helps identify the equilibrium price and quantity in the market
e.
it relates price to supply
____ 7.
(2 points) The price elasticity of demand measures the
a.
responsiveness of a good's price to a change in quantity demanded
b.
adaptability of suppliers when a change in demand alters the price of a good
c.
responsiveness of quantity demanded to a change in a good's price
d.
adaptability of buyers when there is a change in demand
e.
responsiveness of quantity supplied to a change in quantity demanded
____ 8.
(2 points) If the price elasticity of demand for Cheer detergent is 3.0, then a
a.
12 percent drop in price leads to a 36 percent rise in the quantity demanded
b.
12 percent drop in price leads to a 4 percent rise in the quantity demanded
c.
$1,000 drop in price leads to a 3,000-unit rise in the quantity demanded
d.
$1,000 drop in price leads to a 333-unit rise in the quantity demanded
e.
12 percent rise in price leads to a 36 percent rise in the quantity demanded
____ 9.
(2 points) Which of the following statements about the price elasticity of demand is true?
a.
All of the following are true.
b.
It is infinity when demand is perfectly elastic.
c.
It is unitary elastic when the demand curve slopes downward is 1.
d.
It is zero when demand is perfectly inelastic.
____ 10.
(2 points) Suppose that a local supermarket sells apples and oranges for 50 cents apiece, and at
these prices is able to sell 100 apples and 200 oranges per week. One week, the supermarket lowered the price
per apple to 40 cents and sold 120 apples. The next week, they lowered the price per orange to 40 cents (after
raising the price per apple back to 50 cents) and sold 240 oranges. These results imply that the

a.
b.
c.
d.
e.

price elasticity of apples is lower than the price elasticity of oranges

____ 11.
(2 points) Consider demand curve D in Figure 4-7. Between points F and G, the price elasticity
of demand is
a.
1
b.
0.5
c.
2
d.
0.2
e.
none of these
____ 12.
(2 points) In Figure 4-7, compare demand curve D between points F and G to demand curve D'
between points J and K. Which of the following statements is correct?
a.
Both demand curves have the same slope, but D' is more elastic in the $2 to $3
range.
b.
Both demand curves have the same slope, but D' is less elastic in the $2 to $3
range.
c.
Both demand curves have the same price elasticity of demand, but D' has a
largerslope.
d.
Both demand curves have the same price elasticity of demand, but D' has a
smaller slope.
e.
Both demand curves have the same slope and the same value for the price
elasticity of demand.
Figure 4-9
Price
$1
$2
$3
$4
$5

Quantity
Demanded
100
80
60
40
20

Quantity
Demanded
100
80
60
40
20

Price
$1
$2
$3
$4
$5
____ 13.
(2 points) Figure 4-9 shows the demand schedule for hockey pucks. What is the price elasticity
of demand when the price changes from $4 per puck to $5 per puck?
a.
0.33
b.
1.00
c.
1.15
d.
3.00
e.
none of these
____ 14.
(2 points) Figure 4-9 shows the demand schedule for hockey pucks. What is the price elasticity
of demand when the price changes from $2 per puck to $1 per puck (using the midpoint formula)?
a.
0.33
b.
0.15
c.
3.00
d.
1.00
e.
none of these

Exercise 2.2
Answer Section
MULTIPLE CHOICE
1.
ANS: B
PTS: 2
NAT: financial theories, analysis, reporting, and markets
TOP: Price Ceilings
2.
ANS: E
PTS: 2
NAT: financial theories, analysis, reporting, and markets
TOP: Price Ceilings
3.
ANS: A
PTS: 2
NAT: financial theories, analysis, reporting, and markets
TOP: Price Floors
4.
ANS: B
PTS: 2
NAT: financial theories, analysis, reporting, and markets
TOP: Price Floors

DIF: 2
LOC: Supply and demand
DIF: 1
LOC: Supply and demand
DIF: 2
LOC: Supply and demand
DIF: 3
LOC: Supply and demand

5.
ANS: A
PTS: 2
NAT: financial theories, analysis, reporting, and markets
TOP: Price Elasticity of Demand
6.
ANS: B
PTS: 2
NAT: financial theories, analysis, reporting, and markets
TOP: Price Elasticity of Demand
7.
ANS: C
PTS: 2
NAT: financial theories, analysis, reporting, and markets
TOP: Price Elasticity of Demand
8.
ANS: A
PTS: 2
NAT: financial theories, analysis, reporting, and markets
TOP: Price Elasticity of Demand
9.
ANS: A
PTS: 2
NAT: financial theories, analysis, reporting, and markets
TOP: Price Elasticity of Demand
10.
ANS: E
PTS: 2
NAT: financial theories, analysis, reporting, and markets
TOP: Calculating Price Elasticity of Demand
11.
ANS: B
PTS: 2
NAT: financial theories, analysis, reporting, and markets
TOP: Calculating Price Elasticity of Demand
12.
ANS: B
PTS: 2
NAT: financial theories, analysis, reporting, and markets
TOP: Calculating Price Elasticity of Demand
13.
ANS: D
PTS: 2
NAT: financial theories, analysis, reporting, and markets
TOP: Calculating Price Elasticity of Demand
14.
ANS: A
PTS: 2
NAT: financial theories, analysis, reporting, and markets
TOP: Calculating Price Elasticity of Demand

DIF: 1
LOC: Supply and demand
DIF: 2
LOC: Supply and demand
DIF: 1
LOC: Supply and demand
DIF: 2
LOC: Supply and demand
DIF: 2
LOC: Supply and demand
DIF: 3
LOC: Supply and demand
DIF: 2
LOC: Supply and demand
DIF: 2
LOC: Supply and demand
DIF: 2
LOC: Supply and demand
DIF: 2
LOC: Supply and demand