7. Which one of the following does a supply curve for a good or service show? (a) the seller's target price (b) the seller's minimum acceptable price (c) the seller's maximum acceptable price (d) the seller's average acceptable price 8. If equilibrium quantity rises but equilibrium price remains unchanged, which one of the following is the cause? (a) an increase in both supply and demand (b) a decrease in both demand and supply (c) a decrease in demand and an increase in supply (d) an increase in demand and a decrease in supply 9. If equilibrium price rises but equilibrium quantity remains unchanged, which one of the following is the cause? (a) a decrease in demand and an increase in supply (b) an increase in demand and a decrease in supply (c) an increase in both supply and demand (d) a decrease in both supply and demand SHORT-ANSWER QUESTIONS 1. What would happen to the demand for apples if consumers' income rose, and apples are a normal good? What is apples are an inferior good? 4. Suppose the minister of health wants to reduce cigarette smoking by increasing tobacco taxes. Which one of the following describes why it will probably take a fairly large tobacco tax to make much of a difference? (a) Price is irrelevant for consumers (b) Supply of tobacco is relatively inelastic (c) Demand for cigarettes is totally inelastic (d) Demand for cigarettes is relatively inelastic 5. As income rises during economic upturns, consumption of potatoes decline, yet as income falls during economic downturns, consumption of potatoes rises. Which one of the following is the likely explanation for the change in potato consumption? (a) high income elasticity of demand (b) very high price elasticity of supply (c) very low price elasticity of demand (d) negative income elasticity of demand 6. Suppose there is excess capacity in the production facilities of Judith's Bakery. The bakery's supply curve is said to be (a) price elastic (b) price inelastic (c) unit price elastic (d) perfectly price inelastic 7. Which of the following is the income elasticity of demand for housing if people always spend 25% of their income on housing? (a) 0.25 (b) 1.00 (c) 2.50 (d) 25.00 8. If a 20% decline in price leads to a 30% decrease in quantity supplied, then which statement below is correct? (a) Price elasticity of demand is 1.5 (b) Price elasticity of supply is 1.5 (c) Price elasticity of demand is 3.0 (d) Price elasticity of supply is 3.0 5. Which one of the following would NOT be a predicted result if the government imposes a ceiling on the price of rental accommodation that is lower than the market equilibrium price? (a) A shortage of rental units would develop (b) The existing stock of rental units would deteriorate (c) Those who obtain rental units at the controlled price would benefit (d) Construction of new rental accommodation would be encouraged 6. Which one of the following will occur if the government of Prince Edward Island imposes a $4 recycling fee on the buyer whenever a new tire is sold? (a) It will move the demand curve down by $4 (b) It will move the demand curve up by $4 (c) It will move the supply curve up by $4 (d) It will move the supply curve down by $4 7. All else being equal, which one of the following describes conditions under which a binding price ceiling will cause greater shortages (a) if both supply and demand are inelastic (b) if both supply and demand are elastic (c) if supply is elastic, but demand is inelastic (d) if supply is inelastic, but demand is elastic 8. All else being equal, which one of the following describes when a binding price floor will cause will cause LESS of a surplus? (a) if both supply and demand are inelastic (b) if both supply and demand are elastic (c) if supply is elastic, but demand is inelastic (d) if supply is inelastic, but demand is elastic 9. Which one of the following will, in effect, occur with an increase in the demand in a market with a binding price ceiling? (a) an increase in the quantities bought and sold (b) a decrease in the quantities bought and sold (c) no alteration of the quantities bought and sold (d) an increase in the amount of shortage Use the following information to answer questions 5-7. Suppose that you own a classic Fender guitar. You have lost interest in it, and thus it is worth only $50 to you. Your friend, Juan, loves the guitar and would be willing to as much as $950 for it. 5. If you sell the guitar to your friend Juan (a) for more that $50, you have gained at his expense (b) for less than $950, Juan has gained at your expense (c) for $500, splitting the difference, you both gain; at any other price somebody loses. (d) For more than $50 but less than $950, you both gain and social welfare is increased 6. If you sell the guitar for $100, then social welfare (a) remains unchanged (b) rises by $50 (c) rises by $850 (d) rises by $900 7. It turns out that Juan is not the only friend who is interested in the guitar. Ben also likes it and would pay $500; Sanam would pay $1200 and Takashi would pay $2000. To maximize this society's well being, you should (a) sell the guitar to Juan, because he was the first to offer to buy it, but only if he matches Takashi's offer. (b) Sell the guitar to Juan, even if he doesn't match Takashi's offer. (c) Sell the guitar to Takashi, but only if he pays $2000. (d) Sell the guitar to Takashi, even if he pays no more than the others. 8. Judith is willing to sell her homemade brownies for $15 per box. She sells them and realizes a producer surplus of $12 per box. Judith's cost is _________ per box, and she sells her brownies for _________ per box. (a) $15; $12 (b) $12; $15 (c) $12; $27 (d) $15; $27 9.The price of a new car is $25,000. Consumers will continue to buy additional cars until the consumer surplus from the last car purchased is at which one of the following points? (a) zero (b) $25,000 (c) maximized (d) minimized 10. In the previous question, auto producers will continue to supply additional cars until the producer surplus from the last car produced is at which one of the following points? (a) zero (b) $25,000 (c) maximized (d) minimize