Chapter 4: Self-Review Now that you are finished reading the chapter, answer the questions below. You can find the answers at the end 4-3 PRICE ELASTICITY OF SUPPLY of the chapter in Survey of ECON Online, or beginning on page 392 in the book. 6. What does it mean to say the elasticity of supply for one good is greater than that for another? ( measures the 4-1 PRICE ELASTICITY OF DEMAND relative changes in the Quantity spend that results fromachange inprice. 1. How is the price elasticity of demand calculated? 7. True or False: Supply tends to be more elastic in the long Divided by the " above run than in the short run." IRue 2. Why is the price elasticity of demand for products at a 24-hour convenience store likely to be lower at 2 a.m. 4-4 SUPPLY, DEMAND, AND POLICIES than at 2 p.m.? OF GOVERNMENT 8. What predictable effects result from price ceilings such as rent control? landlords are unable toraise 3. In each of the following cases, indicate which good rents, when housing is in Short- you think has a relatively more price elastic demand and identify the most likely reason, in terms of the 9. What predictable effects result from price floors such as the minimum wage? determinants of the elasticity of demand (more substitutes, greater share of the budget, or more time to adjust). a. cars or Chevrolets b. salt or housing 10. True or False: The consumer bears more of the tax burden c. going to a New York Mets game or a Cleveland when demand is relatively more elastic than supply. Indians game d. natural gas this month or over the course of a year 4-5 CONSUMER SURPLUS, PRODUCER PX QETR SURPLUS, AND THE EFFICIENCY 4-2 TOTAL REVENUE AND THE PRICE OF MARKETS ELASTICITY OF DEMAND 11. Why do the earlier units consumed at a given price add more consumer surplus than the later units consumed? 4. If taxi fares in a city rise, what will happen to the total revenue received by taxi operators? If the fares charged for subway rides, a substitute for taxi rides, do not change, what will happen to the total revenue earned by the subway as a result? 12. Why does a reduction in output below the efficient level The price of fare demands TOTal Revenue climbs then the price create a deadweight loss? 5. Why is a linear demand curve more price elastic at higher 13. Why is the efficient level of output in an industry defined price ranges and more price inelastic at lower price as the output where the sum of consumer and producer ranges? surplus is maximized? CHAPTER 4: Using Supply and Demand 95
