Quiz on Elasticities, Supply, and Demand

Consider the following three goods: DVD players; VCRs; movies on DVDs.

1. Which goods are likely to have positive cross-elasticities? Which goods are likely to have negative cross elasticities?

2. Which goods are likely to be complements? Which goods are likely to be substitutes?

3. If DVD players are normal goods and VCR's are inferior goods, what does that mean in terms of elasticities?

4. Could an increase in the price of VCR's lead to identical total revenue from the sale of VCR's? Explain.

5. Could an increase in the price of VCR's lead to lower total revenue from the sale of VCR's? Explain.

6. Would an increase in the price of a DVD player shift the demand for DVD players? Explain.

7. Would an increase in the price of VCR's shift the demand for DVD players? Explain.

8. On a clearly-labeled diagram, draw supply and demand schedules for DVD players, showing an equilibrium price of $100 and an equilibrium quantity of 1 million. Label consumers' surplus and producers' surplus.

9. Suppose that the government imposes a price floor (minimum price) of $80. Show the effect on market equilibrium. What can you say happens to consumers' and producers' surplus?

10. Suppose that the government imposes a price ceiling (maximum price) of $80. Show the effect on market equilibrium. What can you say happens to consumers' and producers' surplus?