Econ 1 Test 2 Chapters 5-6, 7-8, 13

d

10. When small changes in price lead to infinite changes in quantity demanded, demand is perfectly a. elastic and the demand curve will be horizontal. b. inelastic and the demand curve will be horizontal. c. elastic and the demand curve will be vertical. d. inelastic and the demand curve will be vertical.

b

11. Suppose demand is perfectly inelastic and the supply of the good in question decreases. As a result, a. the equilibrium quantity decreases and the equilibrium price is unchanged. b. the equilibrium price increases and the equilibrium quantity is unchanged. c. the equilibrium quantity and the equilibrium price both are unchanged. d. buyers' total expenditure on the good is unchanged.

a

12. Alice says that she would buy one banana split a day regardless of the price. If she is telling the truth, a. Alice's demand for banana splits is perfectly inelastic. b. Alice's price elasticity of demand for banana splits is 1. c. Alice's income elasticity of demand for banana splits is 0. d. None of the above answers is correct.

b

13. Refer to Figure 5-7. Total revenue when the price is P2 is represented by the area(s) a. B + D. b. A + B. c. C + D. d. D.

b

14. Harry's Barber Shop increased its total monthly revenue from $1,500 to $1,800 when it raised the price of a haircut from $5 to $9. The price elasticity of demand for Harry's Haircuts is a. 0.567. b. 0.417. c. 1.429. d. 2.200.

a

15. Income elasticity of demand measures how a. the quantity demanded changes as consumer income changes. b. consumer purchasing power is affected by a change in the price of a good. c. the price of a good is affected when there is a change in consumer income. d. many units of a good a consumer can buy given a certain income level.

b

16. Which of the following expressions represents a cross-price elasticity of demand? a. percentage change in quantity demanded of apples divided by percentage change in quantity supplied of apples b. percentage change in quantity demanded of apples divided by percentage change in price of pears c. percentage change in price of apples divided by percentage change in quantity demanded of apples d. percentage change in quantity demanded of apples divided by percentage change in income

c

17. Muriel's income elasticity of demand for football tickets is 1.50. All else equal, this means that if her income increases by 20 percent, she will buy a. 150 percent more football tickets. b. 50 percent more football tickets. c. 30 percent more football tickets. d. 20 percent more football tickets.

b

18. If the quantity supplied responds only slightly to changes in price, then a. supply is said to be elastic. b. supply is said to be inelastic. c. an increase in price will not shift the supply curve very much. d. even a large decrease in demand will change the equilibrium price only slightly.

a

19. Which of the following would be true as the price elasticity of supply approaches infinity? a. Very small changes in price lead to very large changes in quantity supplied. b. Very large changes in price lead to very small changes in quantity supplied. c. Very small changes in price lead to no change in quantity supplied. d. Very large changes in price lead to no change in quantity supplied.

c

20. Knowing that the demand for wheat is inelastic, if all farmers voluntarily plowed under 10 percent of their wheat crop, then a. consumers of wheat would buy more wheat. b. wheat farmers would suffer a reduction in their total revenue. c. wheat farmers would experience an increase in their total revenue. d. the demand for wheat would decrease.

a

21. Technological advances in wheat production can lower farmers' total revenue because the a. demand for wheat is inelastic. b. demand for wheat is elastic. c. supply of wheat is elastic. d. supply of wheat is inelastic.

d

22. Which of the following statements does not help to explain why government drug interdiction increases drug-related crime? a. The demand for illegal drugs is inelastic. b. Interdiction results in drug addicts having a greater need for quick cash. c. Interdiction results in an increase in the amount of money needed to buy the same amount of drugs. d. Government drug programs are more lenient now with drug offenders than they were in the 1980s.

d

23. There are fewer farmers in the United States today than 200 years ago because of a. more educational opportunities and increases in farm technology. b. increased government regulations in farming and increased farm technology. c. an elastic demand for food and more attractive urban alternatives to farming. d. increases in farm technology and an inelastic demand for food.

a

5. Refer to Figure 5-1. Assume the section of the demand curve labeled A corresponds to prices between $6 and $12. Then, when the price increases from $8 to $10, a. the percent decrease in the quantity demanded exceeds the percent increase in the price. b. the percent increase in the price exceeds the percent decrease in the quantity demanded. c. sellers' total revenue increases as a result. d. it is possible that the quantity demanded fell from 550 to 500 as a result.

a

6. Demand is said to be unit elastic if a. quantity demanded changes by the same percent as the price. b. quantity demanded changes by a larger percent than the price. c. the demand curve shifts by the same percentage amount as the price. d. quantity demanded does not respond to a change in price.

b

7. Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the a. steeper the demand curve will be. b. flatter the demand curve will be. c. further to the right the demand curve will sit. d. closer to the vertical axis the demand curve will sit.

d

8. In the case of perfectly inelastic demand, a. the change in quantity demanded equals the change in price. b. the percentage change in quantity demanded equals the percentage change in price. c. infinitely-large changes in quantity demanded result from very small changes in the price. d. quantity demanded stays the same whenever price changes.

b

9. When demand is perfectly inelastic, the demand curve will be a. negatively sloped, because buyers decrease their purchases when the price rises. b. vertical, because buyers purchase the same amount as before whenever the price rises or falls. c. positively sloped, because buyers respond by increasing the market quantity demanded of the good when price rises. d. positively sloped, because buyers respond by increasing their total expenditure on the good when price rises.

a

A consumer's willingness to pay directly measures a. the extent to which advertising and other external forces have influenced the consumer's decisions regarding his or her purchases of goods and services. b. the cost of a good to the buyer. c. how much a buyer values a good. d. consumer surplus.

d

A legal maximum price at which a good can be sold is a price a. floor. b. stabilization. c. support. d. ceiling.

a

A shortage results when a. a binding price ceiling is imposed. b. a binding price floor is imposed. c. a price ceiling is imposed but it is not binding. d. a price floor is imposed but it is not binding.

a

A tax imposed on the sellers of a good will a. raise the price paid by buyers and lower the equilibrium quantity. b. raise the price paid by buyers and raise the equilibrium quantity. c. raise the effective price received by sellers and raise the equilibrium quantity. d. raise the effective price received by sellers and lower the equilibrium quantity.

c

A tax on the buyers of coffee will a. increase the effective price of coffee paid by buyers, increase the price of coffee received by sellers, and increase the equilibrium quantity of coffee. b. decrease the effective price of coffee paid by buyers, increase the price of coffee received by sellers, and decrease the equilibrium quantity of coffee. c. increase the effective price of coffee paid by buyers, decrease the price of coffee received by sellers, and decrease the equilibrium quantity of coffee. d. increase the effective price of coffee paid by buyers, decrease the price of coffee received by sellers, and increase the equilibrium quantity of coffee.

b

At a minimum wage that exceeds the equilibrium wage, a. the quantity demanded of labor will exceed the quantity supplied. b. the quantity supplied of labor will exceed the quantity demanded. c. the minimum wage will not be binding. d. the market for skilled workers is affected, but the market for unskilled workers remains unaffected.

a

Buyers of a good bear the larger share of the tax burden when a tax is placed on a product for which a. the supply is more elastic than the demand. b. the demand in more elastic than the supply. c. the tax is placed on the sellers of the product. d. the tax is placed on the buyers of the product.

c

Consumer surplus is a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. b. the amount a buyer is willing to pay for a good minus the cost of producing the good. c. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good. d. a buyer's willingness to pay for a good plus the price of the good.

d

Demand is elastic if elasticity is a. less than 1. b. equal to 1. c. equal to 0. d. greater than 1.

c

If an allocation of resources is efficient, then a. consumer surplus is maximized. b. producer surplus is maximized. c. all potential gains from trade among buyers are sellers are being realized. d. the allocation is necessarily equitable as well.

c

In which of the following circumstances would a buyer be indifferent about buying a good? a. The amount of consumer surplus the buyer would experience as a result of buying the good is zero. b. The price of the good is equal to the buyer's willingness to pay for the good. c. The price of the good is equal to the value the buyer places on the good. d. All of the above are correct.

c

Inefficiency exists in an economy when a good is a. being produced with less than all available resources. b. not distributed fairly among buyers. c. not being produced by the lowest-cost producers. d. being consumed by buyers who value it most highly.

d

Marjorie is willing to pay $68 for a pair of shoes for a formal dance. She finds a pair at her favorite outlet shoe store for $48. Marjorie's consumer surplus is a. $10. b. $20. c. $48. d. $68.

a

Noah drinks Dr. Pepper. He can buy as many cans of Dr. Pepper as he wishes at a price of $0.50 per can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Noah is rational in deciding how many cans to buy. His consumer surplus is a. $0.50. b. $0.85. c. $1.05. d. $1.20.

b

On a graph, consumer surplus is the area a. between the demand and supply curves. b. below the demand curve and above price. c. below the price and above the supply curve. d. below the demand curve and to the right of equilibrium price.

d

Opponents of the minimum wage point out that the minimum wage a. encourages teenagers to drop out of school. b. prevents some workers from getting needed on-the-job training. c. contributes to the problem of unemployment. d. All of the above are correct.

b

Over time, housing shortages caused by rent control a. increase, because the demand for, and supply of, housing are less elastic in the long run. b. increase, because the demand for, and supply of, housing are more elastic in the long run. c. decrease, because the demand for, and supply of, housing are less elastic in the long run. d. decrease, because the demand for, and supply of, housing are more elastic in the long run.

b

Price controls are usually enacted a. as a means of raising revenue for public purposes. b. when policymakers believe that the market price of a good or service is unfair to buyers or sellers. c. when policymakers detect inefficiencies in a market. d. All of the above are correct.

d

Producer surplus measures a. the benefits to sellers of participating in a market. b. the costs to sellers of participating in a market. c. the price that buyers are willing to pay for sellers' output of a good or service. d. the benefit to sellers of producing a greater quantity of a good or service than buyers demand.

a

Refer to Figure 5-1. The section of the demand curve labeled A represents the a. elastic section of the demand curve. b. inelastic section of the demand curve. c. unit elastic section of the demand curve. d. perfectly elastic section of the demand curve.

d

Refer to Figure 5-1. The section of the demand curve labeled C represents the a. elastic section of the demand curve. b. perfectly elastic section of the demand curve. c. unit elastic section of the demand curve. d. inelastic section of the demand curve.

a

Refer to Figure 6-12. In which market will the majority of the tax burden fall on the seller? a. market (a) b. market (b) c. market (c) d. All of the above are correct.

b

Refer to Figure 6-14. The amount of the tax per unit is a. $16. b. $14. c. $8. d. $6.

a

Refer to Figure 6-14. The effective price that buyers will pay after the tax is imposed is a. $24. b. $16. c. $10. d. $8.

c

Refer to Figure 6-14. The effective price that sellers receive after the tax is imposed is a. $24. b. $14. c. $10. d. $8.

d

Refer to Figure 6-2. If the government imposes a price ceiling of $8 in this market, the result would be a a. surplus of 10. b. surplus of 20. c. shortage of 10. d. shortage of 20.

a

Refer to Figure 6-2. In which of the following cases would sellers have to develop a rationing mechanism? a. A price ceiling is set at $8. b. A price ceiling is set at $12. c. A price floor is set at $8. d. A price floor is set at $10.

c

Refer to Figure 7-5. If the price of the good is $14, then producer surplus is a. $17. b. $22. c. $25. d. $28.

b

Refer to Figure 7-5. If the price of the good is $8.50, then producer surplus is a. $6.50. b. $8.00. c. $9.50. d. $11.00.

d

Refer to Figure 7-9. Assume demand increases and as a result, equilibrium price increases to $22 and equilibrium quantity increases to 110. The increase in producer surplus is equal to a. $210. b. $360. c. $480. d. $570.

a

Refer to Figure 7-9. At the equilibrium price, consumer surplus is a. $480. b. $640. c. $1,120. d. $1,280.

b

Refer to Figure 7-9. At the equilibrium price, producer surplus is a. $480. b. $640. c. $1,120. d. $1,280.

c

Refer to Figure 7-9. At the equilibrium price, total surplus is a. $480. b. $640. c. $1,120. d. $1,280.

b

Ronnie operates a lawn-care service. On each day, the cost of mowing the first lawn is $10; the cost of mowing the second lawn is $12; and the cost of mowing the third lawn is $15. His producer surplus on the first three lawns of the day is $53. If Ronnie charges all customers the same price for lawn mowing, that price is a. $25. b. $30. c. $36. d. $45.

a

Sally sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.50 per knife for as many knives as Sally is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $1.75, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.25. Assume Sally is rational in deciding how many knives to sharpen. Her producer surplus is a. $0.25. b. $0.50. c. $1.00. d. $1.75.

b

Suppose Katie, Kendra, and Kristen each purchase a particular type of cell phone at a price of $80. Katie's willingness to pay was $100, Kendras's willingness to pay was $95, and Kristen's willingness to pay was $80. Which of the following statements is correct? a. For the three individuals together, consumer surplus amounts to $35. b. Having bought the cell phone, Kristen is better off than she would have been had she not bought it. c. Had the price of the cell phone been $95 rather than $80, Katie and Kendra definitely would have been buyers and Kristen definitely would not have been a buyer. d. The fact that all three individuals paid $80 for the same type of cell phone indicates that each one placed the same value on that cell phone.

b

Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market a. decreases. b. is unchanged. c. increases. d. may increase, decrease, or remain unchanged.

b

Suppose there is an early freeze in California that reduces the size of the lemon crop. What happens to consumer surplus in the market for lemons? a. It increases. b. It decreases. c. It is not affected by this change in market forces. d. We would have to know whether the demand for lemons is elastic or inelastic to make this determination.

c

The burden of a luxury tax falls a. more on the rich than on the middle class. b. more on the poor than on the middle class. c. more on the middle class than on the rich. d. equally on the rich, the middle class, and the poor.

c

The demand for salt is inelastic and the supply of salt is elastic. The demand for caviar is elastic and the supply of caviar is inelastic. Suppose that a tax of $1 per pound is levied on the sellers of salt and a tax of $1 per pound is levied on the buyers of caviar. We would expect that most of the burden of these taxes will fall on a. sellers of salt and the buyers of caviar. b. sellers of salt and the sellers of caviar. c. buyers of salt and the sellers of caviar. d. buyers of salt and the buyers of caviar.

b

The minimum wage, if it is binding, lowers the incomes of a. no workers. b. only those workers who cannot find jobs. c. only those workers who have jobs. d. all workers.

c

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it a. maximizes costs of the seller. b. maximizes tax revenue for the government. c. maximizes the combined welfare of buyers and sellers. d. minimizes the expenditure of buyers.

a

There are very few, if any, good substitutes for motor oil. Therefore, a. the demand for motor oil would tend to be inelastic. b. the demand for motor oil would tend to be elastic. c. the demand for motor oil would tend to respond strongly to changes in prices of other goods. d. the supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars.

d

Total surplus in a market is represented by the total area a. under the demand curve and above the price. b. above the supply curve and up to the equilibrium price. c. under price and up to the point of equilibrium. d. between the demand and supply curves up to the point of equilibrium.

F

True/False Indicate whether the sentence or statement is true or false. 29. The flatter the demand curve that passes through a given point, the more inelastic the demand.

t

True/False Indicate whether the sentence or statement is true or false. A tax on golf clubs will cause buyers of golf clubs to pay a higher price, and the equilibrium quantity will decrease.

T

True/False Indicate whether the sentence or statement is true or false. 24. Necessities tend to have inelastic demands, whereas luxuries have elastic demands.

T

True/False Indicate whether the sentence or statement is true or false. 25. Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.

F

True/False Indicate whether the sentence or statement is true or false. 27. The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.

T

True/False Indicate whether the sentence or statement is true or false. 28. If the price of calculators increases by 15 percent and the quantity demanded per week falls by 45 percent as a result, then the price elasticity of demand is 3.

T

True/False Indicate whether the sentence or statement is true or false. 30. If demand is perfectly inelastic, the demand curve is vertical, and elasticity is equal to 0.

F

True/False Indicate whether the sentence or statement is true or false. 31. When demand is inelastic, a decrease in price increases total revenue.

F

True/False Indicate whether the sentence or statement is true or false. 32. Price elasticity of demand along a linear, downward-sloping demand curve increases as price falls.

T

True/False Indicate whether the sentence or statement is true or false. 33. The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in income.

F

True/False Indicate whether the sentence or statement is true or false. 34. Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.

T

True/False Indicate whether the sentence or statement is true or false. 35. Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

F

True/False Indicate whether the sentence or statement is true or false. 36. Supply tends to be more elastic in the short run and more inelastic in the long run.

F

True/False Indicate whether the sentence or statement is true or false. 37. When the price of knee braces increased by 25 percent, the Brace Yourself Company increased its quantity supplied of knee braces per week by 75 percent. BYC's price elasticity of supply of knee braces is 0.33.

T

True/False Indicate whether the sentence or statement is true or false. 38. If a supply curve is horizontal then supply is said to be perfectly elastic and the price elasticity of supply approaches infinity.

T

True/False Indicate whether the sentence or statement is true or false. 39. OPEC failed to maintain a high price of oil in the long run, partly because both the supply of oil and the demand for oil are more elastic in the long run than in the short run.

F

True/False Indicate whether the sentence or statement is true or false. 40. Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for drugs is inelastic.

t

True/False Indicate whether the sentence or statement is true or false. A binding minimum wage in a competitive labor market creates unemployment.

t

True/False Indicate whether the sentence or statement is true or false. A government-imposed tax on a market shrinks the size of the market.

f

True/False Indicate whether the sentence or statement is true or false. Binding price ceilings benefit consumers because they allow consumers to buy all the goods they demand at a lower price.

f

True/False Indicate whether the sentence or statement is true or false. Economists use the term tax incidence to refer to who is legally responsible for paying the tax.

t

True/False Indicate whether the sentence or statement is true or false. If a price ceiling is below equilibrium price, the quantity demanded will exceed the quantity supplied.

f

True/False Indicate whether the sentence or statement is true or false. If a price ceiling of $2 per gallon is imposed on gasoline, and the market equilibrium price is $1.50, the price ceiling is a binding constraint on the market.

f

True/False Indicate whether the sentence or statement is true or false. If a tax is imposed on the buyers of a product, the tax burden will fall entirely on the buyers.

t

True/False Indicate whether the sentence or statement is true or false. In general, a tax burden falls more heavily on the side of the market that is more inelastic.

t

True/False Indicate whether the sentence or statement is true or false. Lawmakers can decide whether the buyers or the sellers must send a tax to the government, but they cannot legislate the true burden of a tax.

t

True/False Indicate whether the sentence or statement is true or false. Rent control may lead to lower rents for those who find housing, but the quality of the housing may also be lower.

T

True/False Indicate whether the sentence or statement is true or false. The demand for Rice Krispies is more elastic than the demand for cereal in general.

f

True/False Indicate whether the sentence or statement is true or false. The incidence of a tax depends on whether the tax is levied on buyers or sellers.

b

Under rent control, tenants can expect a. lower rent and higher quality housing. b. lower rent and lower quality housing. c. higher rent and a shortage of rental housing. d. higher rent and a surplus of rental housing.

c

We can say that the allocation of resources is efficient if a. producer surplus is maximized. b. consumer surplus is maximized. c. total surplus is maximized. d. sellers' costs are minimized.

a

When a tax is imposed on tea and buyers of tea are required to send in the tax payments to the government, a. buyers of tea and sellers of tea both are made worse off. b. buyers of tea are made worse off and the well-being of sellers is unaffected. c. buyers of tea are made worse off and sellers of tea are made better-off. d. the well-being of both buyers of tea and sellers of tea is unaffected.

a

When government imposes a price ceiling or a price floor in a market, a. price no longer serves as a rationing device. b. efficiency in the market is enhanced. c. shortages and surpluses are eliminated. d. buyers and sellers both become better off.

d

Which of the following is not a result of government-imposed rent control? a. fewer new apartments offered for rent b. less maintenance provided by landlords c. bribery d. higher quality housing

b

Which of the following is the most correct statement about tax burdens? a. A tax burden falls most heavily on the side of the market that is more elastic. b. A tax burden falls most heavily on the side of the market that is less elastic. c. A tax burden falls most heavily on the side of the market that is closer to unit elastic. d. A tax burden is distributed independently of relative elasticities of supply and demand.

d

Which of the following statements is not correct about a market in equilibrium? a. The price determines which buyers and which sellers participate in the market. b. Those buyers who value the good more than the price choose to buy the good. c. Those sellers whose costs are less than the price choose to produce and sell the good. d. Consumer surplus will be equal to producer surplus.

b

Which of the following statements is true? a. A tax levied on buyers will never be even partially paid by sellers. b. Who actually pays a tax depends on the price elasticities of supply and demand. c. Government can decide who actually pays a tax. d. A tax levied on sellers always will be passed on completely to buyers.