ECON 1102 MID-TERM
According to the above table, there is an excess quantity demanded of 1500 earbuds at the price
$10
According to the above table, the equilibrium price of earbuds is
$12
Suppose you purchased 100 shares of stock in 2016 for $25 a share and you sell them today for $30 a share. If the capital gains tax is 30 percent, your tax liability is
$150
According to the market data for good X in the above table, a stable equilibrium price is established at
$4
If you were to face a marginal tax rate of 20 percent, how much would your tax bill increase when your income increased from $50,000 to $52,000?
$400
Eight years ago you purchased an asset for $100,000 that has yielded a nominal capital gain of $30,000. If you sold the asset today, your inflation-adjusted capital gains would be zero due to inflation over the last eight years. The capital gains tax is 28 percent. If you sold the asset today your tax liability would be
$8,400
Suppose that the price of cornflakes is $6.75 per box and the price of oatmeal is $4.50 per box. Both boxes contain the same number of ounces of cereal. The relative price of cornflakes in terms of oatmeal is
1.50
Homer earns $10,000 per year. Each year he spends $5,000 and saves $5,000. He pays a 5 percent sales tax on all of his spending. Assuming the sales tax is the only tax he pays, his average tax rate out of his income is
2.5 percent
Refer to the above table. The market quantity supplied when the price is $6 is
20
Assume that Mr. Smith's income increased from $50,000 last year to $55,000 this year and that he paid an additional $2,000 in taxes. This would indicate that his marginal tax rate is
40 percent
For all employee earnings subject to Social Security taxes, what is the current Social Security tax rate for employees?
6.2%
Which of the following statements is FALSE?
An increase in income causes the demand curve for an inferior good to shift to the right
Which of the following represents the law of supply?
An increase in the price of a good causes an increase in the quantity supplied of that good
Which of the following is an example of the law of demand?
An increase in the price of magnetic optical disks is followed by a reduction in the amount of magnetic optical disks purchased.
Which of the following best represents the law of demand?
As the price of a good decreases, the quantity demanded of that good increases.
Which of the following illustrates the law of demand?
College enrollment decreases when tuition increases.
Pam graduates from law school and gets a position in a law firm. At the same time the price of hamburger falls while other food prices have stayed the same. She notices that she buys less hamburger than she did before. Is she violating the law of demand?
No, since other things are not held constant, such as her income.
Refer to the above figure. Which panel demonstrates the law of demand?
Pannel A
Refer to the above figure. Which panel demonstrates the law of supply?
Pannel B
Which of the following statements is consistent with a decrease in supply?
Prices of raw material inputs have increased
Which of the following is the largest component of federal spending today?
Social Security
Examples of transfer payments are
Social Security checks and unemployment insurance payments
An example of a regressive tax is the
Social Security tax
Which one of the following statements is TRUE?
The U.S. Social Security tax is regressive
Suppose a college increases the wages paid to student employees. Which of the following options is the best description of the most likely effect of the increase in wage earnings on the demand curve for school sweatshirts in the bookstore?
The demand curve shifts to the right.
How is the market for gasoline affected if the excise tax on gasoline is reduced?
The equilibrium price of gasoline increases
What would happen in a free market system when production of a good generates negative externalities?
The equilibrium quantity of the good is more than the efficient amount
Jane has noticed that she used to pay $2.75 for a hamburger and now she pays $3.0. Which of the following statements is TRUE?
The money price of hamburgers has increased.
Which of the following is an example of the law of supply?
The price of gum has increased so producers are making more gum.
Which one of the following statements is TRUE?
The relative price of a good refers to the opportunity cost of purchasing it.
Which of the following statements is consistent with an increase in supply?
There has been an advance in technology
Which of the following is an example of a negative externality?
There is an increase in injuries to pedestrians caused by accidents resulting from electronic billboards distracting drivers
A change in the price of a good causes
a change in quantity supplied
An externality can best be defined as
a consequence of a transaction that spills over to affect third parties
Refer to the above figure. Moving from point A to point B indicates
a decrease in quantity supplied
Which of the following would likely cause an increase in the supply of single-serve coffee makers?
a decrease in the cost of manufacturing single-serve coffee makers
Refer to the above figure. A movement from point A to point B for a good is most likely a result of
a decrease in the price of that good.
An increase in quantity demanded is caused by
a decrease in the price of the good.
An increase in the price of input used to produce a product will lead to
a decrease in the supply of that product
The alternative quantities demanded for a given time period at different possible prices is known as
a demand schedule.
The relationship between quantity supplied and price is usually
a direct relationship.
Suppose that jeans that were fashionable in the 1990s become unfashionable today. If other factors were held constant, then there would be in the market of jeans
a leftward shift in the demand curve.
Markets are
a mechanism through which prices of goods and services are determined by the forces of supply and demand
A fundamental principle in demand analysis is that a change in price leads to
a movement along the demand curve.
When the price of a good falls, there will be
a movement along the good's demand curve.
Which of the following is an example of a positive externality?
a neighbor's flower garden that you enjoy seeing
If an increase in the incomes of people who live in the Los Angeles area leads to an increase in the demand for season tickets for games played by the Los Angeles Lakers professional basketball team, then these season tickets are
a normal good
Suppose an individual experiences a permanent increase in income. As a result of this increased income, further assume that the individual eats dinner at restaurants more frequently each month. This information suggests that dinners at restaurants for this individual are
a normal good.
An example of third parties in the market of automobiles is
a pedestrian that is affected by the polluted air from automobiles
One criticism of the corporate income tax is that
a portion of the corporations' tax burden is passed on to consumers via higher prices for goods and services and to workers via lower wages
A tax rate system characterized by higher marginal tax rates as income increases is known as
a progressive tax system
A "flat tax" on personal income, in which the same tax rate is applied to every dollar of income earned by each taxpayer, is an example of
a proportional tax
The demand curve is downward sloping because
a reduction in the price of a good causes individuals to increase their purchase of that good.
Which of the following will shift the supply curve for laptop computers to the left?
a reduction of the number of firms that make laptop computers
Which of the following is the best example of a public good?
a streetlight
The funding of public education is
a subsidy program
A government action that can help correct positive externalities is
a subsidy to consumers of the good that provides external benefits
According to the above table, at a price of $16 per earbud, there is
a surplus of 3000 earbuds
Refer to the above figure. The rightward shift of the curve could have been caused by
a technological improvement
Scarcity of resources
affects both market and public sector decision making
A price system is considered to be efficient when
all resources are allocated to the highest-valued uses
A situation in which a benefit or a cost associated with an economic activity spills over to third parties is called
an externality
Which one of the following would cause an increase in the supply of planes?
an improvement in the technology used to produce planes
When the price of a good rises, there is
an increase in quantity supplied
Refer to the above figure. The rightward shift of the curve indicates
an increase in supply
Assume that coffee and tea are substitutes. Given a downward sloping demand curve for tea, an increase in the price of tea will cause
an increase in the demand for coffee.
Which of the following would cause an increase in the market supply of drones?
an increase in the number of firms making drones
Suppose Good A is a normal good. Which of the following will increase the demand for Good A?
an increase in the price of its substitutes
Which of the following will cause a movement along the supply curve for oil?
an increase in the price of oil
If the demand of a good is inversely related to income, it must be
an inferior good.
An expected increase in the future price of automobiles will lead to
an outward shift in demand for automobiles today
Pollution is caused by a market failure, in an industry in which there is
an over-allocation of resources in production
Market failure occurs when
an unrestrained market economy leads to too few or too many resources going to a specific economic activity.
The law of supply states that other things being equal
as price increases, quantity supplied increases
The Social Security system was founded
as the United States began to recover from the Great Depression
Social Security taxes are paid by
both employers and employees
The price of a phone call at a pay phone was 5 cents in 1950 and the price of a first-class stamp was 3 cents. In 2016, the pay phone costs 50 cents for a call and a first-class stamp costs 47 cents. We know that
both the nominal prices of phone calls and first-class stamps increased from 1950 to 2016, but the relative price of stamps increased and the relative price of phone calls decreased from 1950 to 2016.
Federal antitrust laws in the United States are enforced
by the Department of Justice and by the Federal Trade Commission
One characteristic of a public good is that it
can be consumed simultaneously by many individuals
Last year there were 6 pizza shops in town. This year there are only 4. Other things being equal, the decrease in the number of suppliers will
cause a decrease in the quantity supplied at each price
If a state government wants to collect the maximum tax revenue from a unit excise tax, which of the following would they tax?
cigarettes
If the price of personal computers were to rise, then the demand for printers would decrease because personal computers and printers are
complementary goods.
There is an increase in the demand for cookies when the price of coffee falls. Other things constant, we can conclude that cookies and coffee are
complementary goods.
Which of the following is a determinant of market demand?
consumers' expectation of the future relative price of a product
Which one of the following is NOT a determinant of demand?
cost of inputs in production
The responsibility of paying for the Social Security benefits for currently retired individuals falls on
current and future workers
If the price of hot dogs increases, the demand for hot dog buns will
decrease.
The relative price of movies this year has
decreased
An inferior good is one for which
demand decreases as income increases
Which of the following is subject to double taxation?
dividends and retained earnings
The largest spending category for state governments is
education
Market clearing price
exists at a the point at which quantity demanded equals quantity supplied.
The three possible sources of government funding include
explicit fees, taxes, and borrowing
Costs that spill over to third parties are called
external costs
Market failures occur when
externalities exist.
In economic terminology, an inferior good is a good
for which demand increases as income decreases.
In economic terminology, a normal good is a good
for which demand increases when income increases.
A transfer payment is a payment
for which no services or goods are rendered
The government budget constraint implies that
government borrowings = government spending+ transfers - taxes and user charges
The fact that every dollar that the government spends or transfers must ultimately be provided by the taxes and user charges it collects plus government borrowing is known as the
government budget constraint
A difference between the market and the public sector is that
government can use force, while the market does not.
A public museum is an example of a
government-sponsored good.
A supply curve
has a direct or positive relationship between price and quantity supplied
The law of demand implies that the demand curve
has a negative slope.
Total market demand can be calculated by
horizontally summing individual demand curves at each and every price level
John argues that when the price of a good decreases, people will purchase less of the good. This statement is
inconsistent with the law of demand.
Which of the following causes a decrease in demand for a normal good?
increase in price of a complement
An expected future increase in the price of bananas may
increase the demand for bananas now.
Gasoline prices in the United States decreased significantly between 2014 and 2016. A decrease in the price of gasoline, holding other things constant, will cause which of the following to occur?
increase the quantity of gasoline demanded.
A technological improvement in the production of tablets would
increase the supply of tablets.
A subsidy to wheat farmers will
increase the supply of wheat.
Government can correct for negative externalities by
increasing taxes or regulation
A demand curve represents a(n)
indirect or inverse relationship between price and quantity demanded.
The largest share of federal government tax receipts is derived from
individual income taxes
Which of the following is NOT an example of a negative externality?
inoculation against disease
What type of relationship does the law of demand demonstrate?
inverse
A demand schedule
is only for a given time period.
When the price of TVs goes up and fewer TVs are purchased, this is representative of the
law of demand
The reason a corporation has retained earnings is to
make investments that will increase the value of the stock
In a proportional income tax system
marginal tax rates are the same regardless of the level of taxable income
By summing the quantities demanded by individuals at each price we obtain the
market demand curve.
U.S. antitrust laws view monopolies as undesirable because
monopolies restrain trade and promote inefficiencies
A tax is sometimes used by government to correct the problems associated with
negative externalities
When costs spill over to third parties, there is a(n)
negative externality
Which of the following will NOT cause a rightward shift in the supply curve?
none of the above
Suppose all prices decrease by 5 percent in the year while the total sales of laptops remain constant. This is
not a violation of the law of demand since the relative price of laptops did not change.
When there is an external cost, the unregulated market
overproduces the good or service
The Social Security program is financed directly from
payroll taxes
According to the law of demand
people buy more of a good when the price falls.
The law of demand is based on the observation that
people buy more of a product when its price falls
Public goods are desired because
people want and value them but the private sector will not make them available
Other things being equal, the relationship between price and quantity supplied is
positive
Market failures
prevent the price system from attaining economic efficiency
According to the law of supply
producers provide less of a good when the price decreases
Assume a family that earns $20,000 pays $1,000 in income taxes, while a family that earns $40,000 pays $3,750 in income taxes. In this situation, the income tax system is
progressive
Jamal earns $160,000 per year and Josephina earns $80,000 per year. If Jamal pays $16,000 in income taxes and Josephina pays $5,000 in income taxes, the income tax system would be
progressive
Suppose you are making $50,000 per year and paying $5,000 per year in income taxes. You get a $10,000 per year raise and your income taxes are now $6,500 per year. Based on this information, the income tax system is
progressive
The federal income tax code of the United States is
progressive
A current concern about Social Security is that
promised benefit payouts are growing more rapidly than likely sources of revenues, indicating a future inability to keep the system operating
The legal system in the United States tends
promote competition
Federal antitrust laws in the United States are intended to
promote competition by prohibiting monopolies
The U.S. antitrust laws
promote competition.
The economic functions of the government deal with
promoting economic efficiency.
The marginal tax rate and the average tax rate are the same under a
proportional income tax system
Public goods are
provided to additional users at no additional cost
In the absence of government
public goods are likely to be under-provided
A government wishing to maximize its tax revenues should
push tax rates up to the point where revenues peak, but raise the tax rate no farther
For a demand schedule, which of the following is held constant?
quality of the good
Reduction or elimination of dividend taxes is designed, in part, to
reduce the double taxation burden on individuals
If the marginal tax rate is less than the average tax rate, the tax system is
regressive
Suppose that in the economy of Boise, Amy earns an income of $50,000 a year and pays $10,000 in income taxes; Bailey earns an income of $25,000 a year and pays $8,000 in income taxes. Based on this information, we could say that Boise's tax system is
regressive
The Social Security tax is considered to be a
regressive tax
The U.S. Social Security tax is an example of a
regressive tax
The "real" price of a good is known as
relative price of the good.
In its most ideal form, a price system allows
resources to move from lower-valued uses to higher-valued uses through voluntary exchange
The earnings that a corporation saves for investment in other productive activities are
retained earnings
Which of the following forms of taxation accounts for the largest share of taxes received by state and local governments?
sales, excise, and gross receipts taxes
A typical capital gain is experienced by
selling stock or a mutual fund
A decrease in demand is represented by a
shift of the demand curve to the left
If more buyers came into the market for a good, we would expect to see the market demand curve
shift outward and to the right.
A demand curve for a normal good
shows the inverse relationship between price and quantity demanded.
Which of the following is NOT a transfer payment?
spending on national defense
Which of the following are complementary goods?
sport utility vehicles and gasoline
Some economists argue that corporate income taxes are typically not paid by firms, but by
stockholders, employees, and consumers
Public education in the United States is
subsidized mainly by state and local governments
Assume the production of a good gives rise to external benefits. The government may increase efficiency by
subsidizing consumption of the good
We observe that people buy less steak and more potatoes when the price of steak relative to potatoes increases. This indicates that steak and potatoes are
substitutes
Graphically, a market demand curve is found by
summing the quantities demanded by all individuals at each price.
In any given market, prices are determined by
supply and demand.
Corporate profits are
taxed twice--once by the corporate tax system and again by personal tax system when they are paid to stockholders as dividends
Which of the following is a determinant of supply?
technology
Private goods are those goods
that can only be consumed by one individual at a time
A demand schedule provides
the alternative quantities demanded for a given time period at different possible prices.
When economists talk about a demand schedule for a product, they mean
the amount of a good that consumers intend to purchase at each price in a set of possible prices in a given time period.
The marginal tax rate can be calculated by which of the following formulas?
the change in taxes due divided by the change in taxable income
The marginal income tax rate is equal to
the change in the tax payment divided by the change in income
A demand curve is a graphical representation of
the demand schedule.
The concept of "demand" in economics refers to
the different quantities of a good or service people will buy at different possible prices.
Tax incidence refers to
the distribution of tax burdens among groups, or who really pays a tax
Which of the following is a benefit of the price system?
the existence of positive externalities
The marginal tax rate shows
the extra tax due on an extra dollar of income
When market failures occur
the government can step in to correct the market failures.
An increase in price will lead to an increase in quantity supplied. This statement is
the law of supply
In a progressive tax system
the marginal tax rate and the average tax rate increase as income levels increase and the marginal tax rate exceeds the average tax rate
If a tax system is progressive, then
the marginal tax rate is greater than the average tax rate as income rises.
Adding the quantities demanded by all consumers at every price will yield
the market demand curve
Suppliers will provide more of a good when
the market price increases
The relative price of a smartphone is
the money price of the smartphone divided by the money price of some other good.
A capital gain is defined as
the positive difference between the sale price and the purchase price of an asset.
According to the above table, a surplus exists when
the price is greater than $3 per unit.
If a demand curve shifts, we know that
the price of the good itself is not a factor.
When the term "price" is used in the law of demand, price refers to
the price of the good relative to the price of another good
The market clearing price is
the price which eliminates excess quantity supplied or excess quantity demanded
A movement along a supply curve is induced by a change in
the product's own price
In economics, the meaning of demand refers to
the quantities of a good that people will buy at various prices.
Suppose that the demand curve for apples is downward sloping and the price per pound decreases from $1.25 to $1.00. We would then expect
the quantity of apples demanded to increase
According to the law of demand, the quantity demanded of a good is related to
the relative price of that good
In the long run, the number of firms in an industry may change. If the number of firms increases, then
the supply curve will shift outward to the right
There will be an increase in supply when
there is an improvement in technology
The purpose of antitrust legislation is
to reduce the power of monopoly
When the price system fails to generate an efficient allocation of resources
too few or too many goods will be produced
For typical goods, supply curves are
upward sloping
The law of supply implies that the supply curve is
upward sloping
According to the law of demand, other things being equal
when the price a good goes down, then people buy more of that good
