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Assignment for 2nd week meeting
(print out and handwrite your answer on the paper)

I. Matching

Complement Law of supply elastic Equilibrium inelastic

Equilibrium elasticity Substitute unit elastic Law of supply
price and demand

1. Two goods for which an increase in the price of one leads to an increase in the demand for the
other.
2. A situation in which the price has reached the level where quantity supplied equals quantity
demanded.
3. The claim that the price of any good adjusts to bring the quantity supplied and quantity
demanded for that good into balance
4. A measure of the responsiveness of the quantity demanded or quantity supplied to one of its
determinants.
5. When the quantity demanded or supplied responds only slightly to a change in one of its
determinants.

II. Multiple Choice

1) The law of demand states that an increase in the price of a good

a) decreases the demand for that good.
b) decreases the quantity demanded for that good.
c) increases the supply of that good.
d) increases the quantity supplied of that good.
e) does none of the above.

2) Which of the following shifts the demand for watches to the right?
a) a decrease in the price of watches
b) a decrease in consumer incomes if watches are a normal good
c) a decrease in the price of watch batteries if watch batteries and watches are complements
d) an increase in the price of watches
e) none of the above

3) A decrease (leftward shift) in the supply for a good will tend to cause
a) an increase in the equilibrium price and quantity.
b) a decrease in the equilibrium price and quantity.
c) an increase in the equilibrium price and a decrease in the equilibrium quantity.
d) a decrease in the equilibrium price and an increase in the equilibrium quantity.
e) none of the above.

4) Suppose a frost destroys much of the Florida orange crop. At the same time, suppose
consumer tastes shift toward orange juice. What would we expect to happen to the equilibrium
price and quantity in the market for orange juice?
a) Price will increase; quantity is ambiguous.
b) Price will increase; quantity will increase.
 c) Price will increase; quantity will decrease.
d) Price will decrease; quantity is ambiguous.
e) The impact on both price and quantity is ambiguous.

5) Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future.
What would we expect to happen to the equilibrium price and quantity in the market for wheat
today?
a) The impact on both price and quantity is ambiguous.
b) Price will increase; quantity is ambiguous.
c) Price will increase; quantity will increase.
d) Price will increase; quantity will decrease.
e) Price will decrease; quantity is ambiguous.

Use the following information to answer questions 6 and 7. Suppose that at a price of $30 per
month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision
raises its price to $40 per month, the number of subscribers will fall to 20,000.

6) Using midpoint method for calculating the elasticity, what is the price elasticity of demand for
cable television in Small Town?
a) 0.66
b) 0.75
c) 1.0
d) 1.4
e) 2.0

7) At which of the following prices does Small Town Cablevision earn the greatest total revenue?
a) either $30 or $40 per month because the price elasticity of demand is 1.0
b) $30 per month
c) $40 per month
d) $0 per month

8) If a fisherman must sell all of his daily catch before it spoils for whatever price he is offered,
once the fish are caught, the fisherman's price elasticity of supply for fresh fish is:
a) zero.
b) one.
c) infinite.
d) unable to be determined from this information.

9) Technological improvements in agriculture that shift the supply of agricultural commodities to

the right tend to
a) reduce total revenue to farmers as a whole because the demand for food is inelastic.
b) reduce total revenue to farmers as a whole because the demand for food is elastic.
c) increase total revenue to farmers as a whole because the demand for food is inelastic.
d) increase total revenue to farmers as a whole because the demand for food is elastic.

10) If there is excess capacity in a production facility, it is likely that the firm's supply curve is
a) price inelastic.
b) price elastic.
c) unit price elastic.
d) none of the above.
III. Essay

1. Suppose there is an increase in consumers' incomes. In the market for automobiles (a normal
good), does this event cause an increase in demand or an increase in quantity demanded?
Does this cause an increase in supply or an increase in quantity supplied? Explain.

2. Suppose there is an advance in the technology employed to produce automobiles. In the

market for automobiles, does this event cause an increase in supply or an increase in the
quantity supplied? Does this cause an increase in demand or an increase in the quantity
demanded? Explain

3. Suppose your income rises by 20 percent and your quantity demanded of eggs falls by 10
percent.
• What is the value of your income elasticity of demand for eggs?
• Are eggs normal or inferior to you?

4. Suppose that at a price of $2.00 per bushel, the quantity of corn is 25 million metric tons. At a
price of $3.00 per bushel, the quantity supplied is 30 million metric tons.
• What is the elasticity of supply for corn?
• Is supply elastic or inelastic?

5. Suppose that when the price of apples rises by 20 percent, the quantity demanded of oranges
rises by 6 percent.
• What is the cross-price elasticity of demand between apples and oranges?
• Are these two goods substitutes or complements?