Econ 210 Test 2 Answers Final

The best good to place a tax on (in terms of revenue generating and efficiency) is

perfectly inelastic

The price elasticity of demand measures how much

quantity demanded responds to a change in price.

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

substitutes

Many dance clubs have 'dance teachers' that can be hired to teach or merely accompany customers on the dance floor. The 'dance teachers' approach customers and make offers. Customers often make counter-offers. This behavior of 'haggling' is

1st degree price discrimination

If the cross-price elasticity between goods A and B is (2.0), a 1% increase in the price of good B will lead to a

2% increase in the demand for good A

If quantity demanded for milk falls by 10% when price increases 5%, we know that the absolute value of the own-price elasticity of milk is

2.0

Universities price discriminate in all types of ways. Something under consideration at VCU is charging Canteen customers $1.99 for a soft drink, or if purchasing two units or more, $1.50 for each soft drink. This type of price discrimination is called

2nd degree price discrimination

The grocery store I shop at offers a 10% discount to senior citizens that show ID. This is

3rd degree price discrimination

Universities price discriminate in all types of ways. One way they do this is through tuition. Commonly, students capable of meeting certain residency requirements are charged a lower tuition than students considered out of state. This type of price discrimination is called

3rd degree price discrimination

The own-price elasticity of demand for insulin is (-0.2). If the price of insulin increases by 20%, what will happen to the quantity of insulin demanded?

4% decrease

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

48 percent increase in the quantity demanded.

When demand is inelastic, an increase in price will cause

an increase in total revenue

Internet providers are best characterized as?

an oligopoly

If the own price elasticity of demand is equal to zero, then

demand is perfectly inelastic, the demand curve is vertical, consumers do not respond at all to changes in price

The demand for Apples is (in comparison to the demand for food in general is)

more elastic than the demand for food in general.

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue? A. 0.3 B. 1.8 C. 1 D. None of the above could be correct

0.3

Which of the following is/are possible way(s) to correct for an external benefit a. A per-unit tax on output b. A per-unit subsidy on output c. Coase Theorem d. All of the above e. Both B and C

(E) per-unit subsidy on output, Coase Theorem

21. Which of the following is a correct statement about the own-price elasticity of demand? A) Demand tends to be more elastic in the long-term than in the short-term. B) Demand tends to be more elastic for goods that comprise a larger share of a consumer's budget. C) Demand tends to be more elastic as more substitutes are available. D) All of the above. E) Only two of the above

(all of the above) A) Demand tends to be more elastic in the long-term than in the short-term. B) Demand tends to be more elastic for goods that comprise a larger share of a consumer's budget. C) Demand tends to be more elastic as more substitutes are available.

A price taker is

A firm in pure or perfect competition, A firm that faces a perfectly elastic demand curve at the market price

A price searcher (also called a price setter) is

A firm; with market power, a firm that must lower price to sell additional units, A firm that faces a downward sloping demand curve

Which of the following could be the cross-price elasticity of demand for two goods that are complements? A. -1.3 B. 1.4 C. 0 D. 0.2

A. -1.3

Which of the following is/are possible way(s) to correct for an external costa. A per-unit tax on output b. Regulate c. Coase Theorem d. All of the above e. Both A and B

All of the above (D) A per-unit tax on output, Regulate, Coase Theorem

Which of the following is true about private goods? a. They can be either rival or non-rival in consumption b. They can have external benefits or external costs c. They must be excludable d. All of the above e. Only B and C

All of the above (D) a. They can be either rival or non-rival in consumption, They can have external benefits or external costs, They must be excludable

Which of the following is best characterized as monopolistic competition? A) Internet providers. B) Local electricity services. C) Indiana corn farmers. D) Retail clothing stores.

Retail clothing stores.

A monopoly position is a guarantee of profitability (T or F)

False

If the cross-price elasticity of demand for good X and good Y is (3.0), we may conclude that

Goods X and Y are substitutes

Which of the following is best characterized as perfect competition? A) Internet providers. B) Retail clothing stores. C) Indiana corn farmers. D) Local electricity services

Indiana corn farmers

A public good is a good that

Is non-rival in consumption, Is available for everyone to consume, whether they pay or not

A one- price monopolist chooses an output at which

Marginal revenue equals marginal cost

To maximize profit, a monopolistically competitive firm will choose an output at which

Marginal revenue equals marginal cost

To maximize profit, a perfectly competitive firm will choose an output at which

Marginal revenue equals marginal cost, Price equals marginal cost, Price equals marginal revenue

If the price elasticity of demand for a good is (-1.0), a 10% increase in the price of this good will cause (in regards to expenditures)

No change in the expenditures on this good

If the demand for Jiffy Peanut Butter is unit-elastic, one may conclude that the absolute value of the price elasticity of demand is a. Less than one and a fall in price will cause expenditures on Jiffy to fall b. Less than one and a fall in price will cause expenditures on Jiffy to rise c. Greater than one and a fall in price will cause expenditures on Jiffy to rise d. Greater than one and a fall in price will cause expenditures on Jiffy to fall e. None of the above

None of the above

If the own price elasticity of demand is equal to negative infinity, then A) demand is perfectly inelastic. B) the demand curve is vertical. C) consumers do not respond at all to changes in price. D) Both b and c. E) None of the above

None of the above

The presence of the free rider is a problem for the funding of

Public goods but not private goods

A Firm in an oligopolistic market structure concerns itself about how other firms in the market respond/react to the choices/decisions it makes (T or F)

True

According to the theory, a firm in perfect competition will lose all of its business if raises price above the market price (T or F)

True

Barriers to entry/exit limit competition (T or F)

True

First degree price discrimination generates a more efficient outcome compared to a price searcher that charges everybody the same price.(T or F)

True

Location (where something is sold) is a possible method to successfully differentiate from competitors (T or F)

True

Resale must be difficult or impossible in order for price discrimination to be a possible option for a firm (T or F)

True

Supply and demand both tend to be more elastic in the long run and more inelastic in the short run (T or F)

True

If the price elasticity of supply for a window manufacturer is 1.5

a 10% increase in the price of windows results in a 15% increase in the quantity of windows supplied.

A cartel is

a. An oligopolistic market structure with collusion among the participants b. Inherently unstable because additional units of production cost less than the additional revenue associated with those units, on an individual firm basis c. In need of some type of monitoring and enforcement mechanism d. An agreement to fix price or limit production among firms in an industry

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. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would

be positive, and your roommate's would be negative

Which of the following statements are true? a. Demand curves are more elastic in the long run compared to the short run b. The longer the price change persists, the greater the change in quantity demanded c. Demand curves are less elastic in the long run compared to the short run

both A and B; a. Demand curves are more elastic in the long run compared to the short run, the longer the price change persists, the greater the change in quantity demanded

Assume that the price elasticity of demand is -0.5 for a certain firm's product. If the firm decreases price, the firm's managers can expect total revenue to

decrease

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

Which of the following is best characterized as an oligopoly? A) market with 4 sellers B) market with 100 sellers C) market with 1 seller D) market with 40 sellers

market with 4 sellers

If an increase in the price of tea decreases the demand for cubed sugar, this indicates that

the two goods are complements.