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Question: 1 a simple linear demand function may be stated as...

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1. A simple linear demand function may be stated as Q = a - bP + cI where Q is quantity

demanded, P is the product price, and I is consumer income. To compute an appropriate value for c, we can use observed values for Q and I and then set the estimated income elasticity of demand equal to:

A) c(I/Q)

B) c(Q/I)

C) -b(I/Q)

D) Q/(cI)

2. Suppose that, at the market clearing price of natural gas, the price elasticity of demand is -1.2 and the price elasticity of supply is 0.6. What will result from a price ceiling that is 10 percent below the market clearing price?

A) A shortage equal to 1.8 percent of the market clearing quantity

B) A shortage equal to 0.6 percent of the market clearing quantity

C) A shortage equal to 18 percent of the market clearing quantity

D) A shortage equal to 6 percent of the market clearing quantity

E) More information is needed.

3. Other things being equal, the increase in rents that occurs after rent controls are abolished is smaller when

A) the own price elasticity of demand for rental homes is price inelastic.

B) the own price elasticity of demand for rental homes is price elastic.

C) the own price elasticity of demand for rental homes has unitary price elasticity.

D) rented homes and owned homes are complements.

E) rented homes and owned homes are substitutes.

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