Econ 101 - Exam 2

Refer to Figure 6-24. In the after-tax equilibrium, government collects

$1,680 in tax revenue; of this amount, $1,260 represents a burden on buyers and $420 represents a burden on sellers.

Refer to Figure 6-6. Which of the following price floors would be binding in this market?

$10

Refer to Figure 5-5. At a price of $50 per unit, sellers' total revenue equals

$1250

Refer to Figure 6-25. How much tax revenue does this tax generate for the government?

$150

Refer to Figure 6-23. How much tax revenue does this tax produce for the government?

$18

Refer to Figure 5-14. Over which range is the supply curve in this figure the least elastic?

$220 to $430

Refer to Figure 6-22. The effective price sellers receive after the tax is imposed is

$3.00

Refer to Figure 6-22. The equilibrium price in the market before the tax is imposed is

$3.50.

Refer to Figure 6-13. Which of the following price ceilings would be binding in this market?

$4

Refer to Figure 6-9. A price ceiling set at

$4 will be binding and will result in a shortage of 16 units

Refer to Figure 5-8. When the price is $15, total revenue is

$4,500

Refer to Figure 6-21. In the after-tax equilibrium, how much revenue does the government collect from the tax on this good?

$420

Refer to Figure 5-5. At a price of $10 per unit, sellers' total revenue equals

$450

Refer to Figure 6-26. How much tax revenue does this tax produce for the government?

$480

Refer to Figure 6-9. At which price would a price floor be nonbinding?

$6

Refer to Figure 6-22. How much tax revenue does this tax generate for the government?

$60.

Refer to Figure 6-24. What is the amount of the tax per unit?

$8

Refer to Figure 6-25. The price that buyers pay after the tax is imposed is

$8

Refer to Figure 6-21. Acme, Inc. is a seller of the good. Acme sells a unit of the good to a buyer and then pays the tax on that unit to the government. Acme is left with how much money?

$8.00

Sellers of a good bear the larger share of the tax burden when a tax is placed on a product for which the (i) supply is more elastic than the demand. (ii) demand in more elastic than the supply. (iii) tax is placed on the sellers of the product. (iv) tax is placed on the buyers of the product.

(ii) only

Suppose that when the price of good X falls from $6 to $4, the quantity demanded of good Y rises from 30 units to 40 units. Using the midpoint method, the cross-price elasticity of demand is

-0.71, and X and Y are complements

Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20 units to 25 units. Using the midpoint method, the cross-price elasticity of demand is

-1.0, and X and Y are complements

When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about

0.55

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about

0.67

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

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

Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points C and D?

0.73

At price of $1.20, a local pencil manufacturer is willing to supply 150 boxes per day. At a price of $1.40, the manufacturer is willing to supply 170 boxes per day. Using the midpoint method, the price elasticity of supply is about

0.81

When demand is unit elastic, price elasticity of demand equals

1, and total revenue does not change when price changes

Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points B and C?

1.19

Refer to Figure 5-16. Using the midpoint method, what is the price elasticity of supply between $4 and $6?

1.25

If a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about

1.33, and supply is elastic

A legal minimum on the price at which a good can be sold is called a

price floor

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good

Which of the following is correct? Price controls

often hurt those they are designed to help

The minimum wage, if it is binding, raises the incomes of

only those workers whose jobs would pay less than the minimum wage if it didn't exist.

If the price elasticity of demand for a good is 0.4, then which of the following events is consistent with a 2 percent decrease in the quantity of the good demanded?

a 5 percent increase in the price of the good

Elasticity is

a measure of how much buyers and sellers respond to changes in market conditions.

Which of the following would not interfere with market equilibria?

a non-binding price floor

Refer to Figure 6-12. When the price ceiling applies in this market and the supply curve for gasoline shifts from S1 to S2,

a shortage will occur at the new market price of P2

Policymakers use taxes

both to raise revenue for public purposes and to influence market outcomes.

Under rent control, bribery is a mechanism to

bring the total price of an apartment (including the bribe) closer to the equilibrium price.

A good will have a more inelastic demand, the

broader the definition of the market.

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. 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.

At a price of $1.00, a local coffee shop is willing to supply 100 cinnamon rolls per day. At a price of $1.20, the coffee shop would be willing to supply 150 cinnamon rolls per day. Using the midpoint method, the price elasticity of supply is about

2.20

Refer to Figure 5-5. Using the midpoint method, between prices of $70 and $80, price elasticity of demand is

3

If the price elasticity of demand for a good is 1, then a 3 percent decrease in price results in a

3 percent increase in the quantity demanded

Table 6-3 The following table contains the demand schedule and supply schedule for a market for a particular good. Suppose sellers of the good successfully lobby Congress to impose a price floor $2 above the equilibrium price in this market.

5

Studies indicate that the price elasticity of demand for beer is about 0.9. A government policy aimed at reducing beer consumption changed the price of a case of beer from $10 to $20. According to the midpoint method, the government policy should have reduced beer consumption by

60%

If the price elasticity of demand for a good is 4, then a 12 percent decrease in price results in a

8 percent increase in the quantity demanded

Suppose the price elasticity of supply for cheese is 0.6 in the short run and 1.4 in the long run. If an increase in the demand for cheese causes the price of cheese to increase by 15%, then the quantity supplied of cheese will increase by

9% in the short run and 21% in the long run

Refer to Figure 6-6. Which of the following statements is correct?

A price floor set at $11 would result in a surplus

Refer to Figure 6-2. The price ceiling

All of the above are correct

Suppose buyers of fountain drinks are required to send $0.50 to the government for every fountain drink they buy. Further, suppose this tax causes the effective price received by sellers of fountain drinks to fall by $0.20 per drink. Which of the following statements is correct?

All of the above are correct

The price elasticity of demand for bread

All of the above are correct

Refer to Figure 6-5. If government imposes a price floor at $9, then the price floor causes

All of the above are correct.

When a tax is placed on the sellers of a product, the

All of the above are correct.

The mayor of Workerville proposes a local payroll tax to fund a new water park for the city. The mayor proposes to collect half the tax from workers and half the tax from firms. Workers will bear

All of the above are possible

Which of the following is likely to have the most price inelastic demand?

Athletic shoes

A decrease in supply will cause the largest increase in price when

Both supply and demand are inelastic

For which pairs of goods is the cross-price elasticity most likely to be positive?

Canoes and Kayaks

The price elasticity of demand for a good measures the willingness of

Consumers to buy less of the good as price rises.

Scenario 5-3 The supply of aged cheddar cheese is inelastic, and the supply of bread 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%.

Decrease, and total consumer spending on bread will decrease

When studying how some event or policy affects a market, elasticity provides information on the

Direction and magnitude of the effect.

How does the concept of elasticity allow us to improve upon our understanding of supply and demand?

Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept.

Demand is said to have unit elasticity if the price elasticity of demand is

Equal to 1

Refer to Figure 5-15. Along which of these segments of the supply curve is supply least elastic?

GH

If sellers respond to very small changes in price by adjusting their quantity supplied by extremely large amounts, the price elasticity of supply approaches

Infinity, and the supply curve is horizontal

Demand is inelastic if the price elasticity of demand is

Less than 1

Which of the following statements is valid when the market supply curve is vertical?

Market quantity supplied does not change when the price changes.

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?

One year after the price increase

Which of the following expressions represents a cross-price elasticity of demand?

Percentage change in quantity demanded of bread divided by percentage change in price of butter

Suppose that 50 hot dogs are demanded at a particular price. If the price of hot dogs rises from that price by 5 percent, the number of hot dogs demanded falls to 48. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

Price elasticity of demand for hot dogs in this price range is about 0.82

When a tax is placed on the buyers of lemonade, the

burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

The price elasticity of demand measures how much

Quantity demanded responds to a change in price

When consumers face rising gasoline prices, they typically

Reduce their quantity demanded more in the long run than in the short run

Which of the following is correct?

Rent control is an example of a price ceiling, and the minimum wage is an example of a price floor.

The price elasticity of supply measures how responsive

Sellers are to a change in price

If the cross-price elasticity of two goods is positive, then the two goods are

Substitutes

Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When the price of ginger ale is $3 per bottle, firms can sell 2 million bottles. Which of the following statements is true?

The demand for ginger ale is price elastic, so an increase in the price of ginger ale will decrease the total revenue of ginger ale producers.

Which of the following statements is valid when supply is perfectly elastic at a price of $4?

The elasticity of supply approaches infinity

Refer to Scenario 5-1. Using the midpoint method, what is the income elasticity of demand for pizza and what does the value indicate about the demand for pizza?

The income elasticity is 1 so pizza is a normal good.

For a particular good, an 8 percent increase in price causes a 4 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 5-12. Which of the following price changes would result in no change in sellers' total revenue?

The price decreases from $24 to $18

Refer to Figure 5-4. Assume, for the good in question, two specific points on the demand curve are (Q = 1,000, P = $40) and (Q = 1,500, P = $30). Then which of the following scenarios is possible?

The vertical intercept of the demand curve is the point (Q = 0, P = $60)

Suppose good X has a negative income elasticity of demand. This implies that good X is

an inferior good

When a tax is placed on the buyers of cell phones, the size of the cell phone market

and the effective price received by sellers both decrease

When a tax is placed on the sellers of cell phones, the size of the cell phone market

and the effective price received by sellers both decrease

When a tax is placed on the sellers of energy drinks, the

burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

A tax on the buyers of cameras encourages

buyers to demand a smaller quantity at every price

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. Your roommate still enjoys Ramen noodles very much and buys even more, but you plan to buy fewer Ramen noodles in favor of foods you prefer more. When looking at income elasticity of demand for Ramen noodles, yours would

be negative and your roommate's would be positive

A price ceiling will be binding only if it is set

below the equilibrium price

Refer to Figure 6-19. Suppose a tax of $2 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed?

between $3 and $5

Refer to Figure 6-4. A government-imposed price of $6 in this market is an example of a

binding price ceiling that creates a shortage

To say that a price floor is binding is to say that the price floor

causes quantity supplied to exceed quantity demanded.

A legal maximum on the price at which a good can be sold is called a price

ceiling

If the cross-price elasticity of two goods is negative, then the two goods are

complements

A tax on the buyers of cereal will increase the price of cereal paid by buyers,

decrease the effective price of cereal received by sellers, and decrease the equilibrium quantity of cereal.

If the government removes a tax on a good, then the price paid by buyers will

decrease, and the price received by sellers will increase

Suppose there is currently a tax of $50 per ticket on airline tickets. Buyers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $20 per ticket, then the

demand curve will shift upward by $30, and the price paid by buyers will decrease by less than $30.

If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then the

demand for the good is said to be inelastic

For a good that is a necessity,

demand tends to be inelastic

The minimum wage

does not apply to unpaid internships

If the government wants to reduce the burning of fossil fuels, it should impose a tax on

either buyers or sellers of gasoline

When quantity demanded responds strongly to changes in price, demand is said to be

elastic

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

elastic and equal to 6.

Refer to Figure 5-1. Between point A and point B on the graph, demand is

elastic, but not perfectly elastic.

Refer to Figure 5-8. When price falls from $25 to $20, demand is

elastic, since total revenue increases from $2,500 to $4,000

Scenario 5-3 The supply of aged cheddar cheese is inelastic, and the supply of bread 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%.

greater in the bread market than in the aged cheddar cheese market

Demand is elastic if the price elasticity of demand is

greater than 1

A minimum wage that is set below a market's equilibrium wage will

have no impact on employment

The goal of rent control is to

help the poor by making housing more affordable

In general, elasticity is a measure of

how much buyers and sellers respond to changes in market conditions

To determine whether a good is considered normal or inferior, one could examine the value of the

income elasticity of demand for that good

If the government removes a tax on a good, then the quantity of the good sold will

increase

Refer to Figure 5-12. If the price decreased from $36 to $12, total revenue would

increase by $4,800, and demand is elastic between points X and Z

Suppose the income elasticity of demand is -0.5 for good X. This implies that a 5% decrease in income will cause the quantity demanded of good X to

increase by 2.5%, and X is an inferior good

If the price elasticity of supply is 1.2, and price increased by 5%, quantity supplied would

increase by 6%.

If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would

increase by less than $1,000

Refer to Figure 5-4. The section of the demand curve from B to C represents the

inelastic section of the demand curve

The price elasticity of demand for bread is

influenced by whether consumers view bread as a necessity or luxury

When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. We can conclude that for Heather, macaroni

is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1.

While in college, Marty and Laura each buy 15 bus tickets per month. After they graduate and have full-time jobs, Marty buys 0 bus tickets per month and Laura buys 28 bus tickets per month. Comparing income elasticity of demand for bus tickets, Marty's

is negative, and Laura's is positive.

While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for mac-n-cheese, John's

is positive, and Bethany's is negative

The tax burden will fall most heavily on sellers of the good when the demand curve

is relatively flat, and the supply curve is relatively steep.

Minimum-wage laws dictate the

lowest price employers may pay for labor

When studying how some event or policy affects a market, elasticity provides information on the

magnitude of the effect on the market

When a tax is placed on the buyers of a product, buyers pay

more and sellers receive less than they did before the tax

Refer to Table 6-2. A price floor set at $5 will

not be binding

If the government removes a $2 tax on buyers of cigars and imposes the same $2 tax on sellers of cigars, then the price paid by buyers will

not change, and the price received by sellers will not change

Which of the following is likely to have the most price elastic demand?

sailboats

The price elasticity of supply measures how responsive

sellers are to a change in price

Suppose that in a particular market, the demand curve is highly elastic, and the supply curve is highly inelastic. If a tax is imposed in this market, then the

sellers will bear a greater burden of the tax than the buyers.

Rent control

serves as an example of a price ceiling

Last month, sellers of good Y took in $100 in total revenue on sales of 50 units of good Y. This month sellers of good Y raised their price and took in $120 in total revenue on sales of 40 units of good Y. At the same time, the price of good X stayed the same, but sales of good X increased from 20 units to 40 units. We can conclude that goods X and Y are

substitutes, and have a cross-price elasticity of 1.67

Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms,

supply is more elastic at low levels of output and less elastic at high levels of output.

When a supply curve is relatively flat, the

supply is relatively elastic

The term tax incidence refers to

the distribution of the tax burden between buyers and sellers.

Income elasticity of demand measures how

the quantity demanded changes as consumer income changes

The price elasticity of supply measures how much

the quantity supplied responds to changes in the price of the good

Refer to Figure 6-21. Suppose buyers, rather than sellers, were required to pay this tax (in the same amount per unit as shown in the graph). Relative to the tax on sellers, the tax on buyers would result in

the same amount of tax revenue for the government

A key determinant of the price elasticity of supply is the

time horizon

A key lesson from the payroll tax is that the

true burden of a tax cannot be legislated

When demand is perfectly inelastic, the demand curve will be

vertical, because buyers purchase the same amount as before whenever the price rises or falls.

The price elasticity of demand for mobile phones

will be lower if consumers perceive mobile phones to be a necessity

Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because

with shortages and waiting lists, they have no incentive to maintain and improve their property.