Econ Exam 2 Study Guide Questions
Refer to Table 7-9. The equilibrium market price for 10 piano lessons is $400. What is the total producer surplus in the market?
$400
Refer to Figure 13-5. Which of the following statements is correct?
Average variable cost is declining for quantities less than B because marginal cost is lower than average variable cost.
If marginal cost is rising,
Marginal product must be falling
Refer to Figure 6-12. Suppose a tax of $5 per unit is imposed on this market. Which of the following is correct?
Sellers will bear more of the burden of the tax than buyers will.
Refer to Figure 6-4. In graph (b), there will be
a surplus.
Moving production from a high-cost producer to a low-cost producer will
raise total surplus.
Refer to Figure 8-2. The loss of producer surplus as a result of the tax is
$3 (Homework 7)
Cost is a measure of the
seller's willingness to sell.
Consider the market for gasoline. Buyers
would lobby for a price ceiling, whereas sellers would lobby for a price floor.
If the cost of producing sofas decreases causing the price of sofas to decrease, consumer surplus in the sofa market will
Increase
Refer to Figure 8-1. Suppose the government imposes a tax of P'-P'''. The area measured by L + M + Y represents
producer surplus before the tax. (Homework 7)
Refer to Table 13-7. What is the value of B?
$100 (Homework 9)
Refer to Table 13-7. What is the value of C?
$100 (Homework 9)
Refer to Figure 7-2. At the equilibrium price, consumer surplus is
$800
Refer to Table 13-9. The average variable cost of producing 240 units is
$0.19 (Homework 9)
Refer to Figure 8-2. The per-unit burden of the tax on sellers is
$2 (Homework 7)
Refer to Figure 8-2. Producer surplus without the tax is
$4, and producer surplus with the tax is $1. (Homework 7)
Refer to Figure 8-2. The loss of consumer surplus as a result of the tax is
$4.50 (Homework 7)
Which of the following explains why long-run average total cost at first decreases as output increases?
Gains from specialization of inputs
Refer to Figure 8-5. Which of the following combinations will maximize the deadweight loss from a tax?
Supply2 and Demand2 (Homework 7)
If the labor supply curve is very elastic, a tax on labor
has a large deadweight loss.
Refer to Figure 6-2. The price ceiling
makes it necessary for sellers to ration the good using a mechanism other than price.
Marcus sells 300 candy bars at $0.50 each. His total costs are $125. His profits are
$25
Which of the following statements is correct?
Assuming that implicit costs are positive, accounting profit is greater than economic profit.
The average fixed cost curve
always declines with increased levels of output.
If a tax shifts the demand curve downward, we can infer that the tax was levied on
buyers of the good.
A tax affects
buyers, sellers, and the government.
If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the
consumer does not purchase the good
Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J represents
consumer surplus after the tax. (Homework 7)
If the government removes a binding price ceiling from a market, then the price paid by buyers will
increase, and the quantity sold in the market will increase.
If the size of a tax increases, tax revenue
may increase, decrease, or remain the same.
The burden of a luxury tax usually falls
more on the middle class than on the rich.
Producer surplus is
the amount a seller is paid minus the cost of production.
Producer surplus directly measures
the well-being of sellers.
Refer to Figure 13-1. As the number of workers increases,
total output increases at an increasing rate (Homework 9)
Figure 13-6 The following figure depicts average total cost functions for a firm that produces automobiles. Refer to Figure 13-6. Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory?
ATC(A) (Homework 9)
Refer to Table 7-2. Who experiences the largest loss of consumer surplus when the price of the good increases from $20 to $22?
All three buyers experience the same loss of consumer surplus.
Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. How much will buyers pay per unit after the tax is imposed?
Between $5 and $7
Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. What will be the new equilibrium quantity in this market?
Between 60 units and 100 units
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 statements regarding a Laffer curve is the most plausible?
Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate.
Scenario 8-2 Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28. Refer to Scenario 8-2. Assume Roland is required to pay a tax of $3 each time he mows a lawn. Which of the following results is most likely?
Roland and Karla still can engage in a mutually-agreeable trade.
Refer to Figure 7-5. If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what is the producer surplus?
$2,500
Scenario 8-1 Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Refer to Scenario 8-1. If Ernesto cleans Erin's house for $90, Ernesto's producer surplus is
$20
A good will have a more inelastic demand, the
broader the definition of the market
In the long run,
inputs that were fixed in the short run become variable.
Refer to Figure 5-3. Using the midpoint method, between prices of $20 and $30, price elasticity of demand is about
0.33
Skip's Sealcoating Service increased its total monthly revenue from $12,000 to $13,500 when it raised the price of driveway repairs from $600 to $750. The price elasticity of demand for Skip's Sealcoating Service is
0.47
Refer to Figure 6-1. A binding price ceiling is shown in
graph (b) only.
Refer to Figure 6-8. When the price ceiling is enforced in this market, and the supply curve for gasoline shifts from S1 to S2, the resulting quantity of gasoline that is bought and sold is
less than Q3.
Refer to Figure 6-2. The price ceiling causes quantity
demanded to exceed quantity supplied by 90 units.
A $1.50 tax levied on the buyers of pomegranate juice will shift the demand curve
downward by exactly $1.50.
Refer to Figure 5-2. The section of the demand curve from A to B represents the
elastic section of the demand curve. (above the midpoint)
Scenario 5-2 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 percent. Refer to Scenario 5-2. The change in equilibrium price will be
greater in the aged cheddar cheese market than in the bread market.
Scenario 8-1 Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Refer to Scenario 8-1. If Erin pays Ernesto $90 to clean her house, Erin's consumer surplus is
$10
Refer to Table 13-7. What is the value of E?
$100 (Homework 9)
Refer to Table 7-8. If the sellers bid against each other for the right to sell the good to a consumer, then the good will sell for
$100 or slightly less.
Figure 6-10 The vertical distance between points A and B represents the tax in the market. Refer to Figure 6-10. The amount of the tax per unit is
$14
Refer to Table 13-7. What is the value of F?
$150 (Homework 9)
Kelly has decided to start his own business giving sailing lessons. To purchase equipment for the business, Kelly withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is Kelly's annual opportunity cost of the financial capital that has been invested in the business?
$170
Refer to Figure 8-2. The loss of producer surplus for those sellers of the good who continue to sell it after the tax is imposed is
$2 (Homework 7)
Cindy's Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is
$500
Table 6-1The 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. Refer to Table 6-1. How many units of the good are purchased after the imposition of the price floor?
5
Refer to Table 7-7. If the price is $1,l50, who would be willing to supply the product?
Carlos, Dianne, and Evaline
Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then
Dallas's consumer surplus would increase.
Refer to Table 13-9. The marginal products of hiring additional workers are
Decreasing (Homework 9)
Refer to Figure 8-8. Which graph correctly illustrates the relationship between the size of a tax and the size of the deadweight loss associated with the tax?
Graph a (Homework 7)
Refer to Table 13-9. For the firm whose production function and costs are specified in the table, its average-variable-cost curve is
Increasing (Homework 9)
Refer to Figure 8-1. Suppose the government imposes a tax of P'-P'''. Total surplus after the tax is measured by the area
J + K + L + M. (Homework 7)
Refer to Figure 7-5. If the demand curve is D and the supply curve shifts from S' to S, what is the change in producer surplus?
Producer surplus increases by $1,875.
Refer to Figure 7-5. If the supply curve is S and the demand curve shifts from D to D', what is the change in producer surplus?
Producer surplus increases by $3,125
Refer to Table 13-5. The Wooden Chair Factory experiences diminishing marginal product of labor with the addition of which worker?
The sixth worker (Homework 9)
Refer to Table 13-9. For the firm whose production function and costs are specified in the table, its average-total-cost curve is
U-Shaped
Refer to Figure 8-5. Graph (a) and Graph (b) each illustrate a $4 tax placed on a market. In comparison to Graph (a), Graph (b) illustrates which of the following statements?
When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic. (Homework 7)
Refer to Figure 5-4. Total revenue when the price is P1 is represented by
areas B + D.
A firm produces 400 units of output at a total cost of $1,200. If total variable costs are $1,000,
average fixed cost is 50 cents
Average total cost is very high when a small amount of output is produced because
average fixed cost is high.
Marginal cost is equal to average total cost when
average total cost is at its minimum.
Figure 13-6 The following figure depicts average total cost functions for a firm that produces automobiles. Refer to Figure 13-6. At levels of output between M and N, the firm experiences
constant returns to scale.
Refer to Figure 8-1. Suppose the government imposes a tax of P'' - P. The area measured by J + K + I represents
consumer surplus before the tax. (Homework 7)
Refer to Figure 7-1. Area C represents the
consumer surplus to new consumers who enter the market when the price falls from P2 to P1.
Justin builds fences for a living. Justin's out-of-pocket expenses (for wood, paint, etc.) plus the value that he places on his own time amount to his
cost of building fences.
Refer to Table 13-9. For the firm whose production function and costs are specified in the table, its total-cost curve is
increasing at an increasing rate. (Homework 9)
Refer to Figure 5-4. If rectangle D is larger than rectangle A, then which of the following is not correct?
An increase in price from P1 to P2 will cause an increase in total revenue.
Kate is a personal trainer whose client William pays $80 per hour-long session. William values this service at $100 per hour, while the opportunity cost of Kate's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. After the tax, what is likely to happen in the market for personal training?
Kate and William will agree to a new price somewhere between $85 and $100.
Refer to Figure 13-3. Which of the following can be inferred from the figure above?
Marginal product is increasing at low level of output and decreasing at high level of output. (Homework 9)
Which of the following events would increase producer surplus?
Sellers' costs stay the same and the price of the good increases.
Refer to Table 7-3. If you have a ticket that you sell to the group in an auction, what will be the selling price?
Slightly more than $50
Refer to Figure 8-2. The imposition of the tax causes the price received by sellers to
decrease by $2. (Homework 7)
A manufacturer produces 400 units when the market price is $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
Refer to Table 13-9. What is the marginal product of the third worker?
60 Units (Homework 9)
Refer to Figure 13-5. The efficient scale of production occurs at which quantity?
C (Homework 9)
Scenario 8-1 Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Refer to Scenario 8-1. Assume Erin is required to pay a tax of $40 when she hires someone to clean her house for a week. Which of the following is correct?
Erin will now clean her own house.
Refer to Figure 6-15. In which market will the majority of the tax burden fall on buyers?
The market shown in graph (b)
If a firm produces nothing, which of the following costs will be zero?
Variable cost
Refer to Table 13-9. The average total cost of producing 240 units is
$0.32 (Homework 9)
Refer to Figure 8-2. The loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is
$1 (Homework 7)
Brady Industries has average variable costs of $1 and average total costs of $3 when it produces 500 units of output. The firm's total fixed costs equal
$1,000
Refer to Table 7-7. Suppose each of the five sellers can supply at most one unit of the good. The market quantity supplied is exactly 2 if the price is
$1,050
Refer to Figure 8-2. The loss of consumer surplus associated with some buyers dropping out of the market as a result of the tax is
$1.50 (Homework 7)
Refer to Figure 8-2. Total surplus without the tax is
$10, and total surplus with the tax is $7.50. (Homework 7)
For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is
$2,250.
Refer to Figure 7-5. If the supply curve is S and the demand curve shifts from D to D', what is the increase in producer surplus to existing producers?
$2,500
Refer to Figure 8-2. The amount of deadweight loss as a result of the tax is
$2.50 (Homework 7)
Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is
$250
Refer to Table 7-3. If you have two (essentially) identical tickets that you sell to the group in an auction, assuming that each person can only buy one ticket, which of the following is closest to the selling price for each ticket?
$26
Refer to Figure 8-2. The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is
$3 (Homework 7)
Refer to Figure 8-2. The per-unit burden of the tax on buyers is
$3 (Homework)
At Nick's Bakery, the cost to make a cheese danish is $1.50 per danish. As a result of selling 10 danishes, Nick experiences a producer surplus in the amount of $20. Nick must be selling his danishes for
$3.50 each.
Refer to Table 7-7. If the market price is $1,000, the producer surplus in the market is
$300
Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that the average total cost when 5 units of output are produced is $30, and the marginal cost of the sixth unit of output is $60. What is the average total cost when six units are produced?
$35
Refer to Figure 8-2. The amount of tax revenue received by the government is
$5 (Homework 7)
Refer to Figure 8-2. The amount of the tax on each unit of the good is
$5 (Homework 7)
Refer to Table 13-7. What is the value of A?
$50 (Homework 9)
Refer to Table 13-7. What is the value of D?
$50 (Homework 9)
Billie Jo values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $425. Billie Jo's willingness to pay for the dishwasher is
$500
Refer to Table 13-5. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of chairs produced. What is the total daily cost of producing at a rate of 55 chairs per hour if the factory operates 8 hours per day?
$520 (Homework 9)
Refer to Figure 8-2. Consumer surplus without the tax is
$6, and consumer surplus with the tax is $1.50. (Homework 7)
Refer to Figure 7-2. If the government imposes a price floor of $110 in this market, then consumer surplus will decrease by
$600
Refer to Figure 7-5. If the supply curve is S and the demand curve shifts from D to D', what is the increase in producer surplus due to new producers entering the market?
$625
Refer to Figure 7-5. If the supply curve is S', the demand curve is D, and the equilibrium price is $150, what is the producer surplus?
$625
Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book?
$8
Refer to Table 7-10. You want to hire a professional photographer to take pictures of your family. The table shows the costs of the four potential sellers in the local photography market. Which of the following graphs represents the market supply curve?
(see graph from hw 6)
Refer to Table 13-5. Assume the Wooden Chair Factory currently employs 5 workers. What is the marginal product of labor when the factory adds a 6th worker?
15 chairs per hour (Homework 9)
Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired. The firm is able to produce 181 units of output per day when 16 workers are hired, holding other inputs fixed. The marginal product of the 16th worker is
16 units of output.
Refer to Table 13-3. At which number of workers does diminishing marginal product begin?
2 (Homework 9)
Kristi and Rebecca sell lemonade on the corner for $0.50 per cup. It costs them $0.10 to make each cup. On a certain day, their producer surplus is $20. How many cups did Kristi and Rebecca sell?
50
Refer to Table 13-3. The marginal product of the second worker is
80 Units (Homework 9)
Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?
A 13.33 percent increase in the price of the good
Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?
A is a luxury and B is a necessity.
Refer to Figure 7-6. When the price is P2, producer surplus is
A+B+C
Refer to Figure 7-1. When the price is P1, consumer surplus is
A+B+C.
Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in interest next year. If Bev hadn't opened her own business, she would have earned a salary of $25,000. In her first year, Bev's revenues were $30,000, and she spent $1,000 on materials and supplies. Which of the following statements is correct?
Bev's economic profit is $3,700.
Which tools allow economists to determine if the allocation of resources determined by free markets is desirable?
Consumer and producer surplus
All else equal, what happens to consumer surplus if the price of a good increases?
Consumer surplus decreases
Suppose there is an early freeze in California that reduces the size of the lemon crop. As the price of lemons rises, what happens to consumer surplus in the market for lemons?
Consumer surplus decreases
Figure 6-14 Suppose the government imposes a $2 tax on this market. Refer to Figure 6-14. The buyers will bear the highest share of the tax burden compared to sellers if the demand is
D2, and the supply is S2.
The distinction between efficiency and equality can be described as follows:
Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.
Which of the following is true when the price of a good or service rises?
Some buyers exit the market.
For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?
The cost of the steel that is used in producing automobiles
On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?
The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.
The decrease in total surplus that results from a market distortion, such as a tax, is called a
a deadweight weight loss.
Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will
be shared by the buyers and sellers of fast-food French fries but not necessarily equally.
Refer to Figure 7-6. Suppose producer surplus is larger than C but smaller than A+B+C. The price of the good must be
between P1 and P2.
Refer to Figure 6-5. A government-imposed price of $12 in this market is an example of a
binding price floor that creates a surplus.
Henry is willing to pay 45 cents, and Janine is willing to pay 55 cents, for 1 pound of bananas. When the price of bananas falls from 50 cents a pound to 40 cents a pound,
both Janine and Henry experience an increase in consumer surplus.
When a good is taxed,
both buyers and sellers of the good are made worse off.
Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to
both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices.
Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I + Y represents the
deadweight loss due to the tax. (Homework 7)
Refer to Figure 8-2. The imposition of the tax causes the quantity sold to
decrease by 1 unit. (Homework 7)
Refer to Figure 7-6. When the price falls from P2 to P1, producer surplus
decreases by an amount equal to A+B.
Refer to Figure 7-1. When the price rises from P1 to P2, consumer surplus
decreases by an amount equal to B+C.
The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate
decreases, and producer surplus decreases.
A drought in California destroys many red grapes causing the prices of both red grapes and red wine to rise. As a result, the consumer surplus in the market for red grapes
decreases, and the consumer surplus in the market for red wine decreases.
As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba's Bubble Gum Company encounters
diminishing marginal product.
Scenario 13-4 If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. Refer to Scenario 13-4. Farmer Brown's production function exhibits
diminishing marginal product.
In the long run a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits
economies of scale because average total cost is falling as output rises.
Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the
eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year.
When a tax is imposed on a good, the
equilibrium quantity of the good always decreases.
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.
Refer to Table 7-5. You are selling extra tickets to the Midwest Regional Sweet 16 game in the men's NCAA basketball tournament. The table shows the willingness to pay of the four potential buyers in the market for a ticket to the game. Which of the following graphs represents the market demand curve?
graph starts at 500 and ends at 4
In the short run, a firm that produces and sells house paint can adjust
how many workers to hire.
Refer to Figure 8-2. The imposition of the tax causes the price paid by buyers to
increase by $3. (Homework 7)
When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will
increase tax revenue and decrease the deadweight loss.
Scenario 13-4 If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. Refer to Scenario 13-4. Farmer Brown's total-cost curve is
increasing at an increasing rate.
The deadweight loss from a tax per unit of good will be smallest in a market with
inelastic supply and inelastic demand.
Firms may experience diseconomies of scale when
large management structures are bureaucratic and inefficient.
Average total cost is increasing whenever
marginal cost is greater than average total cost.
As a result of a decrease in price,
new buyers enter the market, increasing consumer surplus.
The size of a tax and the deadweight loss that results from the tax are
positively related.
Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by M represents
producer surplus after the tax. (Homework 7)
A tax on a good
raises the price that buyers pay and lowers the price that sellers receive.
When a tax is levied on a good, the buyers and sellers of the good share the burden,
regardless of how the tax is levied.
A supply curve can be used to measure producer surplus because it reflects
sellers' costs.
Refer to Figure 8-1. Suppose the government imposes a tax of P'-P'''. The area measured by K + L represents
tax revenue. (Homework 7)
Refer to Figure 7-6. Area A represents
the increase in producer surplus to those producers already in the market when the price increases from P1 to P2.
Taxes on labor taxes may distort labor markets greatly if
the number of hours many part-time workers want to work is very sensitive to the wage rate.
If a firm uses labor to produce output, the firm's production function depicts the relationship between
the number of workers and the quantity of output.
If the demand for donuts is elastic, then a decrease in the price of donuts will
increase total revenue of donut sellers.
Refer to Figure 5-3. At a price of $70 per unit, sellers' total revenue equals
$1,050
Figure 6-10 The vertical distance between points A and B represents the tax in the market. Refer to Figure 6-10. The price that buyers pay after the tax is imposed is
$24
Refer to Table 7-2. If there is only one unit of the good and if the buyers bid against each other for the right to purchase it, then the good will sell for
$35 or slightly more.
Refer to Figure 6-13. What is the amount of the tax per unit?
$4
Refer to Figure 5-3. The maximum value of total revenue corresponds to a price of
$50
Figure 6-10 The vertical distance between points A and B represents the tax in the market. Refer to Figure 6-10. The per-unit burden of the tax on buyers is
$8
Refer to Figure 6-13. 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. After paying the tax, Acme receives how much?
$8.00
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.
If the price elasticity of supply is 1.5, and a price increase led to a 1.8 percent increase in quantity supplied, then the price increase is about
1.20 percent.
Refer to Figure 5-7. Using the midpoint method, what is the price elasticity of supply between point B and point C?
1.44
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 percent, then the quantity supplied of cheese will increase by
9 percent in the short run and 21 percent in the long run.
Refer to Figure 6-7. Which of the following statements is not correct?
A government-imposed price of $10 would be a binding price ceiling if market demand is either Demand A or Demand B.
For which pairs of goods is the cross-price elasticity most likely to be positive?
Pens and pencils
Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct?
The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve.
Which of the following is likely to have the most price elastic demand?
Tommy Hilfiger jeans
Which of the following is likely to have the most price inelastic demand?
Toothpaste
Refer to Figure 6-5. Which of the following statements is not correct?
When the price is $6, there is a surplus of 8 units.
A price ceiling is
a legal maximum on the price at which a good can be sold.
A price floor is
a legal minimum on the price at which a good can be sold.
Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result,
a shortage of treadmills will develop.
Refer to Figure 6-8. When the price ceiling is enforced 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.
A decrease in supply will cause the largest increase in price when
both supply and demand are inelastic.
Under rent control, bribery is a potential mechanism to
bring the total price of an apartment (including the bribe) closer to the equilibrium price.
Suppose that in a particular market, the supply curve is highly elastic and the demand curve is highly inelastic. If a tax is imposed in this market, then the
buyers will bear a greater burden of the tax than the sellers.
Scenario 5-2 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 percent. Refer to Scenario 5-2. The equilibrium price will
decrease in both the aged cheddar cheese and bread markets.
A tax on the sellers of coffee will increase the price of coffee paid by buyers,
decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.
Marcus says that he would smoke one pack of cigarettes each day regardless of the price. If he is telling the truth, Marcus's
demand for cigarettes is perfectly inelastic.
When small changes in price lead to infinite changes in quantity demanded, demand is perfectly
elastic, and the demand curve will be horizontal.
Refer to Figure 5-1. Between point A and point B on the graph, demand is
elastic, but not perfectly elastic.
Figure 6-14 Suppose the government imposes a $2 tax on this market. Refer to Figure 6-14. Suppose D1 represents the demand curve for gasoline in both the short run and long run, S1 represents the supply curve for gasoline in the short run, and S2 represents the supply curve for gasoline in the long run. After the imposition of the $2 tax, the price paid by buyers will be
higher in the long run than in the short run.
Refer to Figure 5-7. If, holding the supply curve fixed, there were an increase in demand that caused the equilibrium price to increase from $6 to $7, then sellers' total revenue would
increase
Refer to Figure 5-2. If the price decreases in the region of the demand curve between points A and B, we can expect total revenue to
increase.
In the housing market, supply and demand are
more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.
Refer to Figure 6-7. If the government imposes a price ceiling at $6, it would be
nonbinding if market demand is Demand A and binding if market demand is Demand B
Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is
positive, and the good is a normal good.
Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, the
quantity demanded of physicals increases, and the quantity supplied of physicals decreases.
Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the
quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases.
If a nonbinding price floor is imposed on a market, then the
quantity sold in the market will stay the same.
Refer to Figure 6-9. In this market, a minimum wage of $7.00 creates a labor
surplus of 4,000 worker hours.
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.
Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,
the equilibrium quantity decreases, and the equilibrium price is unchanged.
You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that
the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.
Income elasticity of demand measures how
the quantity demanded changes as consumer income changes.
Refer to Figure 6-13. 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.
Jerome says that he will spend exactly $25 each month on new apps for his mobile device, regardless of the price of apps. Jerome's demand for apps is
unit elastic.
Suppose that when the price of good X increases from $800 to $850, the quantity demanded of good Y increases from 65 to 70. Using the midpoint method, the cross-price elasticity of demand is about
1.2, and X and Y are substitutes.
Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase total revenue?
4
Which of the following is not correct?
A minimum wage would be binding for workers with high skills and much experience.
Refer to Figure 6-9. In this market, a minimum wage of $7.00 is
binding and creates unemployment.
Refer to Figure 6-3. A government-imposed price of $24 in this market is an example of a
binding price floor that creates a surplus.
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.
The price elasticity of supply measures how much
the quantity supplied responds to changes in the price of the good.
Refer to Table 5-3. Using the midpoint method, the income elasticity of demand for good Y is
−2.33, and good Y is an inferior good.
Table 6-1The 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. Refer to Table 6-1. Following the imposition of a price floor $2 above the equilibrium price, irate buyers convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price floor. The resulting market price is
$3
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. Using the midpoint method, 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.
If a 25 percent change in price results in a 40 percent change in quantity supplied, then the price elasticity of supply is about
1.60, and supply is elastic.
Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is
2.33
Refer to Figure 6-8. In 1973, OPEC restricted supply and U.S. government regulations limited the price oil companies could charge for gasoline. Which of the following statements best relates the figure to the events that occurred in the United States in the 1970s?
Buyers of gasoline paid a price of P1 before 1973; they paid a price of P2 after OPEC increased the price of crude oil in 1973, and there was a shortage of gasoline at that price.
If the cross-price elasticity of two goods is negative, then the two goods are
Complements
Which of the following statements is valid when the market supply curve is vertical?
Market quantity supplied does not change when the price changes.
Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. Which of the following is correct?
One-half of the burden of the tax will fall on buyers, and one-half of the burden of the tax will fall on sellers.
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.
Figure 6-14 Suppose the government imposes a $2 tax on this market. Refer to Figure 6-14. Suppose D1 represents the demand curve for paperback novels, D2 represents the demand curve for gasoline, and S1 is representative of the supply curve for paperback novels as well as the supply curve for gasoline. After the imposition of the $2 tax on paperback novels and on gasoline, the
buyers of gasoline bear a higher burden of the $2 tax than buyers of paperback novels.
Suppose that a tax is placed on books. If the buyers pay the majority of the tax, then we know that the
demand is more inelastic than the supply.
Scenario 5-2 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 percent. Refer to Scenario 5-2. The equilibrium quantity will
decrease in both the aged cheddar cheese and bread markets.
The supply of a good will be more elastic, the
longer the time period being considered.
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.
When a tax is placed on the sellers of a product, buyers pay
more, and sellers receive less than they did before the tax.
If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in
the same price and higher total revenue from marijuana sales.
Refer to Figure 6-13. How is the burden of the tax shared between buyers and sellers? Buyers bear
three-fourths of the burden, and sellers bear one-fourth of the burden.