1. Consider oil which has a PED of -0.4. What does this number mean?
A. Oil demand is elastic
B. Oil demand is inelastic
C. A 1% increase in the price of oil causes a 0.4% increase in the quantity demanded
D. An increase in the price of oil causes the demand for oil to shift right
E. Oil supply is highly responsive to changes in the price
2. Consider the market for gas. In the past decade, there has been the emergence of electricity as an alternative fuel source for cars. What do you think would be the effect of this new option for car fuel on the PED for gas?
A. Increase in magnitude
B. Decrease in magnitude
C. Unchanged
D. Unclear
E. None of the above
3. Consider a product known as Gaminos. Its PES has been calculated as 1.8. Which of the following is likely true about this product?
A. The supply curve is flat and upward sloping
B. The demand curve is flat and upward sloping
C. The supply curve is steep and upward sloping
D. The supply curve is steep and downward sloping
E. There is no such thing as supply and demand
4. Again, consider a product known as Gaminos whose PES has been calculated as 1.8. What happens if there is an increase in buyers’ incomes?
A. There will be a greater effect on price than quantity
B. There will be a greater effect on quantity than price
C. There will be no effect on quantity or price
D. There will be a decrease in the price of the good
E. The supply curve shifts left
5. According to the lecture slides, what is a major reason for why housing prices in California have increased so much?
A. The supply curve for housing is elastic
B. The supply curve for housing is inelastic
C. The demand curve for housing is elastic
D. The demand curve for housing is inelastic
E. The demand curve has shifted left over time
6. Why do gas prices vary so much from week to week?
A. Because gas station owners choose prices by throwing darts at a dart board
B. Because of the circular flow model
C. Because the supply curve for gas is so elastic
D. Because the demand curve for gas is so inelastic
E. Gas prices do not vary as they have remained at $2.00 per gallon for the past year
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