ECO 1311 EXAM 2

If the price elasticity of supply is 1.5, and price increased by 7 percent, quantity supplied would

increase by 10.50 percent.

An example of positive analysis is studying

how market forces produce equilibrium.

Which of the following is not a determinant of the price elasticity of demand for a good?

The steepness of the supply curve for the good

Refer to Table 7-8.If the sellers bid against each other for the right to sell the good to a consumer, then the good will sell for

$100 or slightly less.

Figure 6-10 The vertical distance between points A and B represents the tax in the market. Refer to Figure 6-10. The price that buyers pay after the tax is imposed is

$24

Refer to Table 7-9.The equilibrium market price for 10 piano lessons is $400. What is the total producer surplus in the market?

$400

Billie Jo values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $425. Billie Jo's willingness to pay for the dishwasher is

$500

Figure 6-10 The vertical distance between points A and B represents the tax in the market. Refer to Figure 6-10. The per-unit burden of the tax on buyers is

$8

In January, the price of dark chocolate candy bars was $2.00, and Willy's Chocolate Factory produced 80 pounds. In February, the price of dark chocolate candy bars was $2.50, and Willy's produced 110 pounds. In March, the price of dark chocolate candy bars was $3.00, and Willy's produced 140 pounds. Using the midpoint method, the price elasticity of supply of Willy's dark chocolate candy bars was about

1.42 when the price increased from $2.00 to $2.50 and 1.32 when the price increased from $2.50 to $3.00.

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

1.5

Table 7-4For each of the three potential buyers of oranges, the table displays the willingness to pay for Bob, Sasha, and Eric, who are the only three buyers of oranges. Assume that only three oranges can be supplied per day. Refer to Table 7-4.If the market price of an orange is $0.60, then the market quantity of oranges demanded per day is

7

Refer to Figure 5-6. Along which of these segments of the supply curve is supply mostelastic?

AB

Refer to Figure 7-5.If the supply curve is S and the demand curve shifts from D to D', what is the change in producer surplus?

Producer surplus increases by $3,125

For a particular good, a 14 percent increase in price causes a7 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The market for the good is broadly defined.

Refer to Figure 6-3.A government-imposed price of $6 in this market is an example of a

binding price floor that creates a surplus.

Henry is willing to pay 45 cents, and Janine is willing to pay 55 cents, for 1 pound of bananas. When the price of bananas falls from 50 cents a pound to 40 cents a pound,

both Janine and Henry experience an increase in consumer surplus.

Scenario 5-2 The supply of pickles is inelastic, and the supply of rice is elastic.Both goods are considered to be normal goods by a majority of consumers.Suppose that a large income tax increase decreases the demand for both goods by 10 percent. Refer to Scenario 5-2. The equilibrium price will

decrease in both the pickles and rice markets.

If the government imposes a binding price ceiling on a market, then the price paid by buyers will

decrease, and the quantity sold in the market will decrease.

If the government removes a binding price floor from a market, then the price paid by buyers will

decrease, and the quantity sold in the market will increase.

If the cost of producing chairsincreases causing the price of chairs to increase, consumer surplus in the chair market will

decrease.

Dalia says that she would smoke one pack of cigarettes each day regardless of the price. If she is telling the truth, Dalia's

demand for cigarettes is perfectly inelastic.

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

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

Most labor economists believe that the supply of labor is

less elastic than the demand, and, therefore, workers bear most of the burden of the payroll tax.

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will

lower both price and total revenues.

Refer to Figure 6-2. The price ceiling

makes it necessary for sellers to ration the good using a mechanism other than price.

Refer to Figure 6-7.If the government imposes a price ceiling at $6, it would be

nonbinding if market demand is Demand A and binding if market demand is Demand B.

Rent-control laws dictate

only a maximum rent that landlords may charge tenants.

If a nonbinding price floor is imposed on a market, then the

quantity sold in the market will stay the same.

The maximum price that a buyer will pay for a good is called

willingness to pay.