4 - 6 Microeconomics chapters

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is a. 1.50, and an increase in price will result in an increase in total revenue for good A. b. 1.50, and an increase in price will result in a decrease in total revenue for good A. c. 0.67, and an increase in price will result in an increase in total revenue for good A. d. 0.67, and an increase in price will result in a decrease in total revenue for good A.

0.67, and an increase in price will result in an increase in total revenue for good A.

If a 39 percent change in price results in a 35 percent change in quantity supplied, then the price elasticity of supply is about

0.90, and supply is inelastic.

If the demand for a product increases, then we would expect equilibrium price

and equilibrium quantity both to increase.

The demand for grape-flavored Hubba Bubba bubble gum is likely

elastic because there are many close substitutes for grape-flavored Hubba Bubba.

Figure 6-8 Refer to Figure 6-8. When the price ceiling is enforced in this market, and the supply curve for gasoline shifts from S1 to S2, the resulting quantity of gasoline that is bought and sold is a. less than Q3. b. Q3. c. between Q1 and Q3 d. at least Q1.

less than Q3.

Refer to Figure 5-7. Using the midpoint method, what is the price elasticity of supply between point B and point C? a. 1.44 b. 1.29 c. 0.96 d. 0.69

1.44

Figure 5-1 Refer to Figure 5-1. Between point A and point B, price elasticity of demand is equal to

1.5

Which of the following changes would not shift the demand curve for a good or service?

A change in the price of the good or service

Figure 6-11 ​Refer to Figure 6-11.Suppose a tax of $2 per unit is imposed on this market. What will be the new equilibrium quantity in this market? a. Less than 60 units b. 60 units c. Between 60 units and 100 units d. Greater than 100 units

Between 60 units and 100 units

Figure 6-12 Refer to Figure 6-12.Suppose a tax of $98 per unit is imposed on this market. Which of the following is correct? a. Buyers and sellers will share the burden of the tax equally. b. Sellers will bear more of the burden of the tax than buyers will. c. Buyers will bear more of the burden of the tax than sellers will. d. There is no tax burden.

Buyers will bear more of the burden of the tax than sellers will.

For which of the following goods is the income elasticity of demand likely lowest? a. Clothing b. Apples c. Diamond earrings d. Limousines

Clothing

Figure 6-14 Refer to Figure 6-14. The buyers will bear the highest share of the tax burden compared to sellers if the demand is a. D1, and the supply is S1. b. D2, and the supply is S1. c. D1, and the supply is S2. d. D2, and the supply is S2.

D2, and the supply is S2.

For which of the following goods is the income elasticity of demand likely highest?

Diamonds

A discovery that increases wheat yields per acre helps farmers by increasing both supply and total revenues.

False

An increase in supply will cause a decrease in price, which will cause an increase in demand.

False

If we observe that when the price of chocolate increases by 10%, total revenue increases by 10%, then the demand for chocolate is unit price elastic.

False

Individual supply curves are summed vertically to obtain the market supply curve.

False

Necessities tend to have elastic demands, whereas luxuries tend to have inelastic demands.

False

Supply tends to be more elastic in the short run and more inelastic in the long run.

False

When quantity supplied exceeds quantity demanded at the current market price, the market has a surplus, and market price will likely rise in the future to eliminate the surplus.

False

If a tax is levied on the sellers of a product, then the demand curve will a. shift down. b. shift up. c. become flatter. d. not shift.

Not shift

Suppose that when the price of a 16 oz. to-go cup of gourmet coffee is $4.25, students purchase 750 cups per day. If the price decreases to $3.75 per cup, which of the following is the most likely outcome?

Students would purchase more than 750 cups per day.

Which of the following events would cause the price of oranges to fall?

The price of land throughout Florida decreases, and Florida produces a significant proportion of the nation's oranges.

A decrease in demand shifts the demand curve to the left.

True

A price ceiling set below the equilibrium price is binding.

True

A tax on a market with elastic demand and elastic supply will shrink the market more than a tax on a market with inelastic demand and inelastic supply will shrink the market.

True

An increase in demand will cause an increase in price, which will cause an increase in quantity supplied.

True

Cross-price elasticity is used to determine whether goods are substitutes or complements.

True

If the equilibrium price of an airline ticket is $400 and the government imposes a price floor of $500 on airline tickets, then fewer airline tickets will be sold than at the market equilibrium.

True

Policymakers use taxes to raise revenue for public purposes and to influence market outcomes.

True

Price ceilings are never binding when set above the equilibrium price.

True

Which of the following demonstrates the law of supply?

When ketchup prices rose, ketchup sellers increased their quantity supplied of ketchup.

Who gets scarce resources in a market economy?

Whoever is willing and able to pay the price

A price ceiling is a. often imposed on markets in which "cutthroat competition" would prevail without a price ceiling. b. a legal maximum on the price at which a good can be sold. c. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price ceiling. d. imposed to make sure everyone can earn a fair wage.

a legal maximum on the price at which a good can be sold.

Figure 4-1 ​ Refer to Figure 4-1.The movement from point A to point B on the graph shows

an increase in quantity demanded.

A likely example of complementary goods for most people would be

coffee and sugar.

The line that relates the price of a good and the quantity supplied of that good is called the supply

curve, and it usually slopes upward.

To say that a price ceiling is nonbinding is to say that the price ceiling a. results in a surplus. b. is set above the equilibrium price. c. causes quantity demanded to exceed quantity supplied. d. is set below the equilibrium price.

is set above the equilibrium price.

If a nonbinding price floor is imposed on a market, then the a. quantity sold in the market will decrease. b. quantity sold in the market will stay the same. c. price in the market will increase. d. price in the market will decrease.

quantity sold in the market will stay the same.

Which of the following statements is not correct concerning government attempts to reduce the flow of illegal drugs into the country? Drug interdiction

shifts the demand curve for drugs to the left.

Figure 4-7 Refer to Figure 4-7. At a price of $15, there would be a

shortage of 200 units.

A payroll tax is a a. fixed number of dollars that every firm must pay to the government for each worker that the firm hires. b. tax that each firm must pay to the government before the firm can hire workers and operate its business. c. tax on the wages that firms pay their workers. d. tax on all wages above the minimum wage.

tax on the wages that firms pay their workers.

If the price of walnuts rises, many people would switch from consuming walnuts to consuming cashews. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of

the availability of close substitutes in determining the price elasticity of demand.

A key determinant of the price elasticity of supply is the a. time horizon. b. income of consumers. c. price elasticity of demand. d. importance of the good in a consumer's budget.

time horizon.

Consider the market for gasoline. Buyers a. and sellers would lobby for a price ceiling. b. and sellers would lobby for a price floor. c. would lobby for a price ceiling, whereas sellers would lobby for a price floor. d. would lobby for a price floor, whereas sellers would lobby for a price ceiling.

would lobby for a price ceiling, whereas sellers would lobby for a price floor.