Answers to Week 2 Practice Questions

Multiple Choice

1) b
2) c
3) a
4) c
5) a
6) d
7) b
8) b
9) b
10) b

Challenge Questions

1) There will be a decrease in the demand for beef, which will decrease
the equilibrium price and quantity of beef. There will be an increase in
the demand for chicken, which will increase the equilibrium price and
quantity of chicken. 

2) If price controls were imposed, there would have been excess demand for
construction materials. The higher prices were necessary to encourage
suppliers to sell more construction supplies in Southern Florida. 

3) The supply curve of parking spaces is a vertical line in each case. For
the day students there is excess demand at a price of $20 and for the
night students there is an excess supply at $20. One suggestion would be
to raise the parking fee for day students to eliminate the excess demand
and reduce the fee for night students to eliminate the excess supply.

4) If the supply of labor is elastic, people will work more hours as tax
rates are reduced, thus increasing the tax base and possibly increasing
tax revenues.

5) If after tuition increased total revenue fell, then the demand for an
education at your university must be price elastic. It is likely to be
price elastic because there are many substitutes for an education at this
particular university and tuition represents a large share of an
individual's income. The university president assumed that the demand was
price inelastic.