Exam 1 Review Problems CH 2 Equilibrium The demand for salmon cakes is Qd 100 3P and the supply for salmon cakes is Qs 2P 1 The equilibrium quantity is 2 At the equilibrium the price elasticity of demand is Equilibirum The demand for salmon cakes is Qd 100 3P and the supply for salmon cakes is Qs 2P If the price is 10 there will be a shortage surplus of Income Elasticity of Demand Suppose the demand function for pizza in Tucson is Q 1000 100p 500pT 0 05I where Q is the quantity of pizza slices demanded in thousands per year p is the price of a slice of pizza pT is the price of Tacos and I is the average annual income of consumers Assume that p 2 cents pT 1 and I 40 000 What is the income elasticity of demand 0 05 x 40000 3300 0 61 Adapted from a problem in Perloff 6th Edition Suppose that the price elasticity of demand for lima beans is 0 5 A 10 decrease in price will bring about a percent change in quantity demanded A 5 B 5 C 0 5 D 0 5 0 5 10 5 Price Controls Elasticity Suppose that at the market clearing price the price elasticity of demand for lima beans is 5 and the price elasticity of supply is 1 What will result if the government caps the price 10 below the equilibrium price A A shortage of 15 of the equilibrium quantity B A shortage of 5 of the equilibrium quantity C A shortage of 1 5 of the equilibrium quantity D A shortage of 0 5 of the equilibrium quantity Elasticity and Time The price charged by a toll bridge increases We would expect the price elasticity of the demand to be more elastic in the A Short run B Long run Not a durable good it is a service More time equals more elastic Elasticity and Time The economy goes into recession The refrigerator market will be affected the most in the because the income elasticity of demand is more elastic in the A Long run long run B Short run long run C Long run short run D Short run short run Elasticity After a 5 increase in the price of pizza the quantity supplied increases by 2 The price elasticity of supply for pizza is 0 4 2 5 0 4 If the price elasticity of supply for pizza was 6 instead an increase in demand would lead to a smaller larger change in quantity supplied A Smaller B Larger 3 5 0 6 Elasticity Bob s Burgers wants to increase total revenue If demand is elastic what should it do A B C D Increase price Decrease price It is not possible for Bob to increase revenue when demand is elastic More information is needed Elasticity Which of the following goods is most likely to have a positive crossprice elasticity of demand A Wheat and honey B IPhone and android C Spaghetti sauce and pasta D Horses and saddles Elasticity Which of the following is most likely to have a negative income elasticity of demand A Bus tickets B Vacation packages to Hawaii C New automobiles D New snow skis Equilibrium In the market for soda the current price is 50 cents per can and 100 000 000 cans are sold Which of the following events would lead to a new equilibrium price of 40 cents and quantity of 50 000 000 cans A an increase in the price of the ingredients used to make soda B A decrease in the price hamburgers which consumers eat with soda C A decrease in the price of other kinds of beverage that consumers drink instead of soda D an improvement in soda manufacturing technology Equilibrium The cost of diesel engines a major component in tractors has decreased This will cause A the supply of tractors to increase B the supply of tractors to decrease C the demand for tractors to increase D None of the above