Econ Exam 2 Practice Test

C

Demand is said to be inelastic if A. buyers respond substantially to changes in the price of the good B. demand shifts only slightly when the price of the good changes C. the quantity demanded changes only slightly when the price of the good changes D. the price of the good responds only slightly to changes in demand

A

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is A. smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax B. bounded by the supply curve, the demand curve, the effective price paid by buyers, and the effective price received by sellers C. a right triangle D. a triangle, but not necessarily a right triangle

D

Inefficiency can be caused in a market by the presence of a. market power. b. externalities. c. imperfectly competitive markets. d. All of the above are correct. A. market power B. externalities C. imperfectly competitive markets D. All of the above are correct

D

Laissez-faire is a French expression which literally means A. to make do B. to get involved C. whatever works D. allow them to do

C

Suppose a tax is levied on the buyers of a good A. then the supply curve shifts upward by the amount of the tax B. then the quantity supplied decreases for all conceivable prices of the good C. this means that the buyers of the good will send tax payments to the government D. his means that the buyers of the good will pay a higher effective price for the good, not that they will send tax payments to the government

D

Suppose the cross-price elasticity of demand between hotdogs and mustard is -2.00. This implies that a 20% increase in the price of hotdogs will cause the quantity of mustard purchased to A. increases 200% B. decreases 200% C. increases 40% D. decreases 40%

B

Suppose the equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. As a result, the government is able to raise $750 per month in tax revenue. We can conclude that the equilibrium quantity of widgets has fallen by A. 25 per month B. 50 per month C. 75 per month D. 100 per month

C

The loss in total surplus resulting from a tax is called a A. deficit B. economic loss C. deadweight loss D. inefficiency

surplus

When looking at an equilibrium demand and supply graph, above a certain equilibrium results in a __________

D

Which of the following statements is not correct? A. A seller would be eager to sell her product at a price higher than her cost B. A seller would refuse to sell her product at a price lower than her cost C. A seller would be indifferent about selling her product at a price equal to her cost D. Since sellers cannot set the price for their product, they must be willing to sell their product at any price

B

A binding price floor in a market is set A. above equilibrium price and causes a shortage B. above equilibrium price and causes a surplus C. below equilibrium price and causes a surplus D. below equilibrium price and causes a shortage

C

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

C

A good will tend to have an inelastic demand if: A. the good has many close substitutes B. the good is a luxury C. the market is defined very broadly D. the time horizon is long

A

A life-saving medicine without any close substitutes will tend to have: A. a small elasticity of demand B. a large elasticity of demand C. a small elasticity of supply D. a large elasticity of supply

D

A linear, downward sloping demand curve is, A. inelastic B. unit elastic C. elastic D. inelastic at some points, and elastic at others

C

A price ceiling will be binding only if it is set a. equal to equilibrium price. b. above equilibrium price. c. below equilibrium price. d. none of the above; a price ceiling is never binding A. equal to equilibrium price B. above equilibrium price C. below equilibrium price D. none of the above; a price ceiling is never binding

B

An increase in the supply of a good will decrease the total revenue producers receive if A. the demand curve is inelastic B. the demand curve is elastic C. the supply curve is inelastic D. the supply curve is elastic

B

Cornflakes and milk are complementary goods. A decrease in the price of corn will A. increase consumer surplus in the market for cornflakes and decrease producer surplus in the market for milk B. increase consumer surplus in the market for cornflakes and increase producer surplus in the market for milk C. decrease consumer surplus in the market for cornflakes and increase producer surplus in the market for milk D. decrease consumer surplus in the market for cornflakes and decrease producer surplus in the market for milk

A

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten year period because A. buyers tend to be much more sensitive to a change in price when given more time to react B. the quantity supplied of gas increases very little in response to an increase in the price of gas C. buyers will have substantially more income over a year period D. buyers tend to be much less sensitive to a change in price when given more time to react.

B

If a 6% increase in income results in a 10% increase in the quantity demanded of pizza, then the income elasticity of demand for pizza A. negative; therefore pizza is an inferior good B. positive; therefore pizza is a normal good C. negative; therefore pizza is a normal good D. positive; therefore pizza is an inferior good

C

If a firm needs to increase its total revenue, the firm should ________ the price if the demand for its product is ________. a.raise, inelastic b.raise, elastic c.drop, elastic d.drop, unit elastic A. raise; inelastic B. raise; elastic C. drop; elastic D. drop; unit elastic

A

If a market is allowed to move freely to its equilibrium price and quantity, then an increase in supply will A. increase consumer surplus B. reduce consumer surplus C. not affect consumer surplus D. increase or decrease consumer surplus or leave consumer surplus unchanged

A

If the government allowed a free market for transplant organs (such as kidneys) to exist, A. the shortage of organs would be eliminated and there would be no surplus of organs B. the shortage of organs would be eliminated, but a surplus of organs would develop C. the shortage of organs would persist D. the overall well-being of society would remain unchanged

B

If the government imposes a price ceiling of $12 in this market, the result would be A. shortage of 20 B. surplus of 20 C. neither a surplus nor a shortage D. surplus of 10

A

Inefficiency exists in an economy when a good is a. not being consumed by buyers who value it most highly. b. not distributed fairly among buyers. c. not produced because buyers do not value it very highly. d. being produced with less than all available resources. A. not being consumed by buyers who value it most highly B. not distributed fairly among buyers C. not produced because buyers do not value it very highly D. being produced with less than all available resources

B

Moving production from a high-cost producer to a low-cost producer will a. lower total surplus. b. raise total surplus. c. lower producer surplus. d. raise producer surplus but lower consumer surplus. A. lower total surplus B. raise total surplus C. lower producer surplus D. raise producer surplus but lower consumer surplus

C

One of the basic principles of economics is that markets are usually a good way to organize economic activity. This principle is explained by the study of A. factor markets B. energy markets C. welfare economics D. labor economics

D

One result of a tax, irrespective of whether the tax is placed on the buyers or the sellers, is that the A. size of the market is unchanged B. price the seller effectively receives is higher C. supply curve for the good shifts upward by the amount of the tax D. tax reduces the welfare of both buyers and sellers

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 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 knife to sharpen her producer surplus is: A. $1.00 B. $0.25 C. $1.75 D, $0.50

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, Kendra's willingness to pay was $95, and Kristen's willingness to pay was $80. Which of the following statements is correct? A. Having bought the cell phone, Kristen is better off than she would have been had she not bought it. B. For the three individuals together, consumer surplus amounts to $35 C. The fact that all 3 individuals paid $80 for the same type of cell phone indicates that each one placed the same value on that cell phone. D. 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 of been a buyer.

C

Suppose a tax of $3 per unit is imposed on a good. The supply curve and the demand curve are straight lines. The tax decreases consumer surplus by $3,900 and it decreases producer surplus by $3,000. The tax generates tax revenue of $6,000. From this information it follows that the tax decreased the equilibrium quantity of the good A. from 2,000 to 1,500 B. from 2,400 to 2,000 C. from 2,600 to 2,000 D. from 3,000 to 2,400

B

Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by $3,000 and it decreases producer surplus by $4,400. The dead weight loss of the tax is A. 400 B. 600 C. 200 D. 1,200

C

Suppose the price of Twinkies decrease from $1.45 to $1.25 and, as a result the quantity demanded increases from 2,000 to 2,200. Using the midpoint method the price elasticity of demand for Twinkies is the give price range is A. $1.55 B. $1.00 C. $0.64 D. $2.00

B

Suppose the same supply and demand curves apply, and a tax of the same amount per unit as shown here is imposed. Now, however, the sellers of the good, rather than the buyers, are required to pay the tax to the government. Now, relative to the case depicted in the figure, A. burden on buyers is larger, burden on sellers is smaller B. burden on buyers and sellers is the same C. burden on buyers is smaller, burden on sellers is larger D. cannot be determined without more information.

C

The ability of firms to enter and exit a market over time means that, in the long run, A. the demand curve is more elastic B. the demand curve is less elastic C. the supply curve is more elastic D. the supply curve is less elastic

A

The discovery of a new hybrid wheat would increase the supply of wheat. As a result, wheat farmers would realize an increase in total revenue if A. the demand of wheat is elastic B. the supply of wheat is inelastic C. the demand of wheat is inelastic D. the supply of wheat is elastic

A

The price elasticity of demand tends to be more elastic: a.at points further up and to the left along the demand curve. b.at points further down and to the right along the demand curve. c.when the demand curve becomes steeper. d.when the demand curve becomes steeper A. at points further up and to the left along the demand curve B. at points further down and to the right along the demand curve C. when the demand curve becomes steeper D. when the demand curve is vertical

B

What effect will an increase in the price have on total revenue if demand is elastic? A. Total revenue will increase B. Total revenue will decrease C. Total revenue will first decrease then increase D. Total revenue will remain unchanged

A

When a good is taxed, a. both buyers and sellers of the good are made worse off A. both buyers and sellers of the good are made worse off B. only buyers are made worse off, because they ultimately bear the burden of the tax C. only sellers are made worse off, because the government holds them responsible for sending in the tax payments D. neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and services that would otherwise not be provided in a market economy

C

When a tax is placed on the buyers of a product, a result is that A. buyers effectively pay less than before and sellers effectively receive less than before B. buyers effectively pay less than before and sellers effectively receive more than before C. buyers effectively pay more than before and sellers effectively receive less than before. D. buyers effectively pay more than before and sellers effectively receive more than before

shortage

When looking at an equilibrium demand and supply graph, below a certain equilibrium results in a ____________

C

When policymakers set prices by legal decree, they A. are usually following the advice of mainstream economists B. are usually improving the organization of economic activity. C. are obscuring the signals that normally guide the allocation of society's resources D. are demonstrating a willingness to sacrifice equity for the sake of a gain in efficiency

A

When, in a particular market, the law of demand and the law of supply both apply, the imposition of a binding price ceiling in that market causes quantity demanded to be A. greater than quantity supplied B. less than quantity supplied C. equal to quantity supplied D. Any of the above is possible

C

Which of the following equations is not valid A. Total Surplus = value to buyers - amount paid by buyers + amount received by seller - cost of sellers B. Consumer Surplus = value to buyers - amount paid by buyers C. Total Surplus = value to sellers - cost to sellers D. Producer Surplus = amount received by sellers - cost to sellers