Practice Questions 4a

1) Consider the market for a particular good, where the market demand is given by P=15-(QD/20) and the market supply is given by P=QS/5. The market equilibrium price and quantity is:

a. P*=$8, Q* = 20.
b. P*=$10, Q* = 20.
c. P*=$12, Q* = 60.
d. P*=$14, Q* = 10.
e. P*=$16, Q* = 40.

2) Consider the same market as in question 1. If the government imposed a price ceiling of $10,

a. A surplus of 30 units would result.
b. A surplus of 50 units would result.
c. A shortage of 30 units would result.
d. A shortage of 50 units would result.
e. The price ceiling would have no effect on the market.

3)The market for hotdogs is characterized by demand Qd=60-2P and supply Qs=4P. Which of the following price ceilings will result in a market shortage?

a. Price ceiling of $200.
b. Price ceiling of $50.
c. Price ceiling of $10.
d. Price ceiling $5.
e. None of the above.

4)The demand curve is Qd=12-2P. The supply curve is Qs=P. In equilibrium, price elasticity of demand is (use the point elasticity formula):
a. -.5.
b. -1.
c. -1.5.
d. -2.
e. -2.5.

5)You own a lemonade stand and have observed that when you raise the price of lemonade from 10 cents to 25 cents, your total revenue doubles. Using this information, you can conclude that:

a. The demand for lemonade is elastic.
b. The demand for lemonade is inelastic.
c. The demand for lemonade is unit elastic.
d. You should lower prices.
e. Both (b) and (c).