Section One: Multiple Choice
A 1. If a 20% decrease in the price of long distance phone calls leads to a 35% increase in the quantity of calls demanded, you may conclude that the demand for phone calls is
c. unit elastic.
d. stretchy elastic.
B 2. Which of the following pairs are examples of substitutes?
a. Popcorn and Soda
b. Automobiles and bicycles
c. Boats and fishing tackle
d. Wine and cheese
B 3. If a price in a competitive market is “too high to clear the market,” what does this usually mean? Assume upward-sloping supply curves.
a. No producer can cover the costs of production at that price.
b. Quantity supplied exceeds quantity demanded at ...view middle of the document...
3. Demonstrate, using supply and demand analysis, the effect on the equilibrium price and quantity of new hybrid automobiles when the following occurs. Using graphs similar to the notes in Week One, describe the change in the equilibrium price and quantity, and explain your answer. Is the equilibrium price higher or lower, or is the change indeterminate? Is the equilibrium quantity higher or lower, or is the change indeterminate?
a. Incomes increase: With the change in income people are more prone to buying Hybrids because more money accessible gives more opportunity to spend it on what the people want.
b. Interest rates decrease: With interest rates decreasing buyers are more prone to buy a Hybrid and then you may see more people who were leaning towards buying one with definitely buy with lower interest rates on them.
c. The price of batteries used in the production of these vehicles decreases: That would really make potential buyers lean towards buying a hybrid because the battery is a main function of the total use of the Hybrid.
d. price of gasoline decreases: I think that would make potential Hybrid buyers not buy Hybrid and stay in what they are in or stay in something other than Hybrid be Hybrids cost more and if gas drop they would not buy Hybrid and stay with a gas efficient vehicle.
4. Determine if the demand for the following products is price elastic or price inelastic, and explain your answer.
a. Box of cereal sold in a grocery store: is price elastic, because if the price of that same cereal raised to where you second guessed the purchase would you buy it still, probably not.
b. Gasoline as a commodity: is inelastic as far as short term because there are other ways around the use of gasoline if we wanted to try and find them, BUT in the long run it could/would be elastic because we as a people would have found a way to adapt.
c. Gasoline sold at a local gasoline station: in my opinion it is elastic and inelastic because prices fluctuate often and when they rise gas is brought but not as much as when that price at that station drops.
d. Fast food sold at a restaurant: in my opinion this to can be both because...