Econ 202 Test 2 Review

When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is

elastic

Suppose the cross-price elasticity of demand between hot dogs and mustard is -2.00. This implies that a 20 percent increase in the price of hot dogs will cause the quantity of mustard purchased to

fall by 40 percent.

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

flatter the demand curve will be.

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

increase by 6%.

If the demand for donuts is elastic, then a decrease in the price of donuts will

increase total revenue of donut sellers.

Over time, housing shortages caused by rent control

increase, because the demand for and supply of housing are more elastic in the long run.

If a tax is levied on the sellers of a product, then the supply curve will

shift up.

As we move downward and to the right along a linear, downward-sloping demand curve,

slope remains constant but elasticity changes.

When a supply curve is relatively flat,

supply is relatively elastic.

For a good that is a luxury, demand

tends to be elastic.

A key determinant of the price elasticity of supply is

the ability of sellers to change the amount of the good they produce.

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. 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.

If a tax is imposed on a market with inelastic demand and elastic supply, then

buyers will bear most of the burden of the tax.

The price elasticity of demand measures

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

In the market for oil in the short run, demand

and supply are both inelastic.

If a tax is levied on the sellers of a product, then the demand curve will

not shift.

Frequently, in the short run, the quantity supplied of a good is

not very responsive to price changes.

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

pens and pencils

Which of the following statements is correct concerning the burden of a tax imposed on take-out food?

Buyers and sellers share the burden of the tax.

Which of the following could be the cross-price elasticity of demand for two goods that are complements?

-1.3

Last year, Carolyn bought 6 pairs of earrings when her income was $40,000. This year, her income is $52,000, and she purchased 7 pairs of earrings. Holding other factors constant, it follows that Carolyn's income elasticity of demand is about

0.59, and Carolyn regards earrings as a normal good.

Suppose the price of potato chips decreases from $1.45 to $1.25 and, as a result, the quantity of potato chips demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for potato chips in the given price range is

0.64

Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is

1

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about

1.43, and an increase in the price will cause hotels' total revenue to decrease.

A manufacturer produces 400 units when the market price of $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about

2.2

If the price elasticity of demand for a good is -10, then a 4 percent increase in price results in a

40 percent decrease in the quantity demanded.

Which of the following statements is correct?

The demand for flat-screen computer monitors is more elastic than the demand for monitors in general. B. The demand for grandfather clocks is more elastic than the demand for clocks in general. C. The demand for cardboard is more elastic over a long period of time than over a short period of time.

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

The elasticity of supply approaches infinity.

If the price elasticity of demand for a good is 0.8, then which of the following events is consistent with a 4 percent decrease in the quantity of the good demanded?

a 5 percent increase in the price of the good

A price floor will be binding only if it is set

above the equilibrium price

A shortage results when a

binding price ceiling is imposed on a market.

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.

A tax on the sellers of coffee mugs

decreases the size of the coffee mug market.

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

diamond earrings

A $0.50 tax levied on the buyers of pomegranate juice will shift the demand curve

downward by exactly $0.50.

The difference between slope and elasticity is that slope

is a ratio of two changes, and elasticity is a ratio of two percentage changes.

The price elasticity of demand for eggs

is computed as the percentage change in quantity demanded of eggs divided by the percentage change in price of eggs.

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.

Suppose that the demand for lava lamps is elastic, and the supply of lava lamps is inelastic. A tax of $2 per lamp levied on lava lamps will increase the price paid by buyers of lava lamps by

less than $1

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.

Goods with many close substitutes tend to have

more elastic demands.

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

more, and sellers receive less than they did before the tax.

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

negative, and the good is an inferior good.

If the government removes a $1 tax on sellers of gasoline and imposes the same $1 tax on buyers of gasoline, then the price paid by buyers will

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

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be

positive

In a competitive market free of government regulation,

price adjusts until quantity demanded equals quantity supplied.

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

quantity sold in the market will stay the same.

Suppose the government imposes a 20-cent tax on the sellers of iced tea. Which of the following is not correct? The tax would

raise the equilibrium price by 20 cents.

If soybean farmers know that the demand for soybeans is price inelastic, in order to increase their total revenues they should

reduce the number of acres they plant to decrease their output.

When consumers face rising gasoline prices, they typically

reduce their quantity demanded more in the long run than in the short run.

A tax on the sellers of cameras encourages

sellers to supply a smaller quantity at every price.

The term tax incidence refers to

the distribution of the tax burden between buyers and sellers.

If a price ceiling is not binding, then

the equilibrium price is below the price ceiling.

Cross-price elasticity of demand measures how

the quantity demanded of one good changes in response to a change in the price of another good.

If the minimum wage exceeds the equilibrium wage, then

the quantity supplied of labor will exceed the quantity demanded.

If sellers do not adjust their quantity supplied at all in response to a change in price, the price elasticity of supply is

zero, and the supply curve is vertical.