Exam 2
When the price of bananas is $0.60 per pound, the quantity demanded is 200 pounds per day. When the price falls to $0.45 per pound, the quantity demanded increases to 250. Given this information and using the midpoint method, we know that the demand for bananas is
inelastic. Using the midpoint method, the price elasticity of demand is about 0.78, which is less than one indicating inelastic demand. To compute the percent change in quantity, (250-200) / [(250 +200)/2] =0.222. To compute the percent change in price, (0.45-0.60) / [(0.45 +060)/2] = -0.286. Dividing the percent change in quantity by the percent change in price and taking the absolute value yields a price elasticity of demand of about 0.78.
The price elasticity of demand for lightbulbs
is relatively inelastic because there are very few substitutes for lightbulbs. Goods with few close substitutes tend to have less elastic demand because it is more difficult for consumers to switch from that good to another when the price changes.
Due to the relative elasticities of demand and supply, the suppliers of oil are likely to be able to cause a
large change in price in the short run, but only a small change in price in the long run. Because both demand and supply are inelastic in the short run, suppliers of oil are likely to be able to cause a large change in price in the short run. However, because both demand and supply are elastic in the long run, suppliers of oil are likely to be able to cause only a small change in price in the long run.
Taxes cause deadweight losses because they
lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government. distort incentives to both buyers and sellers. prevent buyers and sellers from realizing some of the gains from trade. All of the above are correct.
The deadweight loss from a $1 tax per unit will be larger in a market with a
long amount of time for sellers to adjust to a price change and many close substitutes.
Suppose researchers discover a new shape for cranberry bogs that allow cranberry growers to harvest more cranberries than with the old shape. If the demand for cranberries is relatively inelastic, the discovery will
lower both price and total revenues. The discovery will result in the supply curve shifting to the right. The demand curve for cranberries will not shift. When supply shifts to the right and demand remains constant, the equilibrium price of cranberries decreases and the equilibrium quantity increases. When the price decreases for a good with inelastic demand, total revenue decreases.
.According to resent research discussed in class, the effects of the 2018 trade war on the US economy were
negative, since the benefits for US producers and government revenue were smaller than the losses for US consumers
According to resent research discussed in class, the effects of minimum wages on employment are
negative, small and very different across different workers
A perfectly elastic demand implies that buyers of wheat would
not buy any wheat, at all, with any increase in price above the demand curve. With perfectly elastic demand, any increase in price above that represented by the demand curve will result in a quantity demanded of zero
If the government removes a $4 tax on buyers of restaurant meals and imposes the same $4 tax on sellers of restaurant meals, then the price paid by buyers will
not change, and the price received by sellers will not change.
The free-rider problem causes market failure because
people can receive a benefit without paying for it
Louisa sends candy to the troops overseas. When Louisa's income rises by 3 percent, her quantity demanded of candy increases by 5 percent. For Louisa, the income elasticity of demand for candy is
positive, and candy is a normal good. A normal good is one for which quantity demanded increases as income increases. Normal goods have positive income elasticities.
The percentage change in quantity demanded divided by the percentage change in price computes the
price elasticity of demand. The price elasticity of demand measures the responsiveness of buyers to a change in the price of a good. The price elasticity of demand is computed as the percentage change in quantity demanded divided by the percentage change in price.
Why does the market system often tend to allocate resources well? Because
prices convey information about costs and preferences and provide incentives to buyers and sellers to alter their decisions when costs or preferences change.
A perfectly inelastic demand implies that buyers would
purchase the same amount as before when the price rises by 10%.
The local restaurant makes such great nachos that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should
raise the price of the nachos. When consumers do not respond much to a change in price, they have inelastic demand. When demand is inelastic, price and total revenue move in the same direction so raising the price of nachos will result in higher revenue.
A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will
raise the price, reduce the quantity, increase total revenues, and increase crime. A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will decrease supply while demand remains constant, resulting in a higher price and a reduction in quantity. Because the demand for illegal drugs is inelastic, an increase in the price results in an increase in total revenue. Because buyers of illegal drugs now need to pay a higher price to buy drugs, crime increases.
Given the market for illegal drugs, when the government is successful in reducing the flow of drugs into the United States,
supply shifts to the left, demand is unaffected, and price increases. When the government is successful in reducing the flow of drugs into the United States, supply decreases (shifts to the left), demand is unaffected, and price increases.
You are in charge of increasing revenue for the city's bus service. The mayor advises you to reduce the price of a bus ticket to get more riders, but you think a more prudent approach would be to increase the price of a bus ticket. Your approach is based on the assumption that
the demand for bus tickets is inelastic, and the mayor believes the demand for bus tickets is elastic. When demand is inelastic, higher prices result in higher revenue.
Which of the following variables decrease in response to a tax on a good?
the equilibrium quantity in the market for the good, producer surplus, and the well being of buyers of the good
Markets tend to work well when
the good is not public and there are no externalities in production
A key determinant of the price elasticity of supply is whether
the sellers have a long or short amount of time to adjust to a price change. The key determinant of the price elasticity of supply is the duration of time the sellers have to adjust to a price change.
Efficiency in a market is achieved when
the sum of producer surplus and consumer surplus is maximized.
Marco says that he will spend exactly $100 per month on restaurant meals, regardless of the price of restaurant meals. Marco's demand for restaurant meals is
unit elastic. If Marco spends exactly $100 on restaurant meals, regardless of the price of restaurant meals, the percent change in his quantity demanded will match exactly any percent change in the price, indicating unit elastic demand.
Which of the following is a reason why government agencies subsidize basic research?
unpatentable research receives too little resources from the private market.
Which of the following goods is the best example of a public good?
water that is provided to farms by a cooperatively-owned water district
Suppose Aila and Vika attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that she will bid for a spa weekend at a resort. This maximum is called
willingness to pay.
A concert venue sells 15,000 tickets to a show, regardless of the market price. For this firm, the price elasticity of supply is
zero If all of the tickets sell, regardless of the price, then the sellers have perfectly inelastic supply. With perfectly inelastic supply, elasticity equals zero.
(Income, Qty good X purchased, Qty good Y purchased) ($38000, 16, 4) ($46000, 22, 68) Refer to the Table. Using the midpoint method, the income elasticity of demand for good Y is
-0.44, and good Y is an inferior good. Using the midpoint method, the income elasticity of demand for Good Y is about -0.44 and good Y is an inferior good because the income elasticity is less than zero. To compute the percent change in quantity, (68-74) / [(68 +74)/2] = -0.08. To compute the percent change in income, (46,000-38,000) / [(46,000+38,000)/2] =0.19. Dividing the percent change in quantity by the percent change in income yields an income elasticity of demand of about -0.44.
Matt purchases 4 boxes of spinach and 3 pounds of tomatoes per month when the price of spinach is $1.50 per box. He purchases 5 boxes of spinach and 5 pounds of tomatoes per month when the price of spinach is $1.00 per pound. Using the midpoint method, Matt's cross-price elasticity of demand for spinach and tomatoes is
-1.25, and they are complements. Using the midpoint method, the cross-price elasticity of demand is -1.25 and spinach and tomatoes are complements. To compute the percent change in quantity of good tomatoes, (5-3) / [(5 + 3)/2] = 0.5. To compute the percent change in price of spinach, (1.00-1.50) / [(1.00+1.50)/2] = -0.4. Dividing the percent change in quantity of tomatoes by the percent change in price of spinach yields a cross-price elasticity of demand of -1.25. When two goods have a negative cross-price elasticity, they are complements.
(Price, Revenue) ($15, $420) ($20, $500) ($25, $550) ($30, $570) Refer to the Table. Using the midpoint method, the price elasticity of demand in the price range from $25 to $30 is about
0.80 Using the midpoint approach, the price elasticity of demand is about 0.80 between $25 and $30. To determine the relevant quantities, divide the total revenue by the price. When price is $25 and total revenue is $550, quantity is 22. When price is $30 and total revenue is $570, quantity is 19. To compute the percent change in quantity, (19-22) / [(19 +22)/2] = -0.15. To compute the percent change in price, (30-25) / [(30+25)/2] = 0.18. Dividing the percent change in quantity by the percent change in price and taking the absolute value yields a price elasticity of demand of about 0.80
Suppose that when the price of good X falls from $60 to $48, the quantity demanded of good Y falls from 10 units to 8 units. Using the midpoint method, the cross-price elasticity of demand is
1.0, and X and Y are substitutes. Using the midpoint method, the cross-price elasticity of demand is 1.00 and X and Y are substitutes. To compute the percent change in quantity of good Y, (8-10) / [(8 +10)/2] = -0.22. To compute the percent change in price of good X, (48-60) / [(48+60)/2] = -0.22. Dividing the percent change in quantity of good Y by the percent change in price of good X yields a cross-price elasticity of demand of 1.00. When two goods have a positive cross-price elasticity, they are substitutes.
When the price of a sweater was $40, the store sold 150 sweaters per month. When it raised the price to $50 each, it sold 120 sweaters per month. Using the midpoint method, the price elasticity of demand for sweaters is
1.00 Using the midpoint method, the price elasticity of demand is 1.00, which indicates unit elasticity. To compute the percent change in quantity, (120-150) / [(120 +150)/2] = -0.22. To compute the percent change in price, (50-40) / [(50 +40)/2] =0.22. Dividing the percent change in quantity by the percent change in price and taking the absolute value yields a price elasticity of demand of 1.00.
(Price, Quantity) ($20, 0) ($16, 6) ($12, 12) ($8, 18) ($4, 24) ($0, 30) Refer to the Table. Using the midpoint method, what is the price elasticity of demand when price rises from $8 to $12?
1.00 = unit elastic Using the midpoint approach, the price elasticity of demand is 1.00 between $8 and $12. To compute the percent change in quantity, (12-18) / [(12+18)/2] = -0.40. To compute the percent change in price, (12-8) / [(12+8)/2] = 0.40. Dividing the percent change in quantity by the percent change in price and taking the absolute value yields a price elasticity of demand of 1.00.
At a price of $16.00 per gallon, a hardware store is willing to supply 180 gallons of paint per week. At a price of $20.00, the hardware store is willing to supply 240 gallons per day. Using the midpoint method, the price elasticity of supply is about
1.29 Using the midpoint approach, the price elasticity of demand is about 129. To compute the percent change in quantity, (240-180) / [(240 +180/2] =029. To compute the percent change in price, (20-16) / [(20+16)/2] =022. Dividing the percent change in quantity by the percent change in price yields a price elasticity of demand of about 129.
Tricia's Tea Shop increased its total monthly revenue from $2,520 to $2,750 when it reduced the price of a cup of tea from $3 to $2.50. The price elasticity of demand for Tricia's Tea Shop is
1.47 Without performing any calculations, we know that the price elasticity of demand for Tricia's tea must be elastic because total revenue and price moved in opposite directions. Using the midpoint approach, the price elasticity of demand is about 147 between $3 and $2.50. To determine the relevant quantities, divide the total revenue by the price. When price is $3 and total revenue is $2,520, quantity is 840 When price is $2.50 and total revenue is $2,750, quantity is 1100. To compute the percent change in quantity, (1100-840) / [(1100 +840/2] =027. To compute the percent change in price, (2.50-3) / [(2.50+3)/2] = -0.18. Dividing the percent change in quantity by the percent change in price and taking the absolute value yields a price elasticity of demand of about 147.
Suppose the price of memory foam pillows decreases from $100 to $75 and, as a result, the quantity of memory foam pillows demanded increases from 500 to 800 Using the midpoint method, the price elasticity of demand for memory foam pillows in the given price range is about
1.62 Using the midpoint method, the price elasticity of demand is about 1.62, which indicates elastic demand. To compute the percent change in quantity, (800-500) / [(800 +500)/2] =0.462. To compute the percent change in price, (75-100) / [(75 +100)/2] = -0.286. Dividing the percent change in quantity by the percent change in price and taking the absolute value yields a price elasticity of demand of about 1.62.
Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue?
1.67 A decrease in price results in an increase in revenue when demand is elastic (a price elasticity greater than 1).
If the price elasticity of demand for a good is 2.0, then a 5 percent increase in price results in a
10 percent decrease in the quantity demanded. The price elasticity of demand is the absolute value of the percent change in the quantity demanded divided by the percent change in the price. A 10 percent decrease in the quantity demanded divided by a 5 percent increase in price leads to an absolute value of elasticity equal to 2
Joseph's income elasticity of demand for fried chicken meals is -2. All else equal, this means that if his income increases by 5 percent, he will buy
10 percent fewer fried chicken meals. Joseph's negative income elasticity indicates that he will buy fewer fried chicken meals when his income increases. If income increases by 5, Joseph will by 10 fewer fried chicken meals because -10/5 = -2.
If the price elasticity of supply is 1.8, and a price increase led to a 4 increase in quantity supplied, then the price increase is about
2.22% If the price elasticity of supply is 1.8, a price increase of about 2.22% leads to a 4 increase in quantity supplied (4% /2.22% =1.8).
Suppose the price of tablets increases by 8 percent and producers respond by increasing the quantity supplied by 20 percent. The price elasticity of supply for tablets is
2.5 and producers are very responsive to the price change. Price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. If the price increases by 8 percent and the quantity supplied increases by 20 percent, the price elasticity of supply is (20/8 = 2.5). Because the quantity supplied changes proportionately 2.5 times as much as the price, producers are very responsive to the price change
If the price elasticity of demand for gift wrap is 0.8, then a 5% increase in the price of gift wrap will decrease the quantity demanded of gift wrap by
4%, and gift wrap sellers' total revenue will increase as a result. The quantity demand will decrease by (0.8 x 0.05 = 0.04) 4% when the price elasticity of demand is 0.8 and the price increases by 5%. When demand is inelastic (less than 1), an increase in the price will result in an increase in total revenue because the price increase more than offsets the decrease in quantity demanded.
If the price elasticity of demand for a good is 0.75, then an 8 percent decrease in price results in a
6 percent increase in the quantity demanded. The Law of Demand states that as the price decreases, the quantity demanded increases. The price elasticity of demand is the absolute value of the percent change in the quantity demanded divided by the percent change in the price. A 6 percent increase in the quantity demanded divided by an 8 percent decrease in price leads to an absolute value of elasticity equal to 0.75.
Suppose there is an 18 percent decrease in the price of a good that has a price elasticity of demand of 4. The percent increase in the quantity demanded must be
72 percent. The price elasticity of demand is the absolute value of the percent change in the quantity demanded divided by the percent change in the price. A 72 percent increase in the quantity demanded divided by an 18 percent decrease in price leads to an absolute value of elasticity equal to 4
If the price elasticity of supply is 0.6 and price increases by 15 percent, the quantity supplied will increase by
9% If the price elasticity of supply is 0.6, a price increase of 15 percent leads to a 9 percent increase in quantity supplied (9%/15% = 0.6).
Suppose the government has imposed a price floor on cheese. Which of the following events could transform the price floor from one that is binding to one that is not binding?
A bovine disease affects half of the cow population resulting in a higher price for milk.
In which of these instances is demand said to be perfectly inelastic?
A decrease in price of 6% causes an increase in quantity demanded of 0%. When there is perfectly inelastic demand for a good, there is a 0% change in quantity in response to any price change.
(Good, Price Elasticity of Demand) (A, 1.8) (B, .8) Refer to the Table. Which of the following is consistent with the elasticities given in Table?
A is a good several years after a price increase, and B is that same good several days after the price increase. Goods tend to have more elastic demand over longer time horizons. Good A has relatively elastic demand because the elasticity value is greater than 1, whereas Good B has relatively inelastic demand because the elasticity value is less than 1
(Good, Price Elasticity of Demand) (A, 1.8) (B, .8) Refer to the Table. Which of the following is consistent with the elasticities given in Table?
A is blue jeans, and B is pants. Narrowly defined markets tend to have more elastic demand than broadly defined markets because it is easier to find close substitutes for narrowly defined goods
Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?
As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss falls initially, but eventually it begins to rise.
The statement that "externalities occur because something valuable is unpriced" is true for
Both public goods and common resources
Which of the following is likely to have the most price elastic demand?
Flowers Necessities tend to have inelastic demands, whereas luxuries have elastic demands.
You have responsibility for economic policy in the country of Freedonia. Recently, the neighboring country of Sylvania has cut off all exports of oranges to Freedonia. George, who is one of your advisors, says that the best way to avoid a shortage of oranges is to take no action at all. Charles, another one of your advisors, argues that without a binding price floor, a shortage will certainly develop. Otto, a third advisor, suggests that you should impose a binding price ceiling in order to avoid a shortage of oranges. Which of your three advisors is most likely to have studied economics?
George
Which of the following statements helps to explain why government drug interdiction increases drug-related crime?
Interdiction results in an increase in the amount of money needed to buy the same amount of drugs. One of the reasons why government drug interdiction increases drug-related crime is that by decreasing the supply and driving up the price of drugs, interdiction results in an increase in the amount of money needed to buy the same amount of drugs.
You work as an economist for the local government of Virginia. You get assigned to a cost-benefit analysis project and your manager asks you to recommend different methods to quantify the value of a human life to her. The best method would be:
Look at the risks that people are voluntarily willing to take and how much they are getting paid for taking those risks
Suppose the government decides that 50% of a payroll tax (tax on wages) is paid by firms and 50% is paid by workers. Then is it safe to infer that firms and workers share the burden of the tax equally?
No, the distribution of tax burden depends on the relative elasticities of supply and demand
Which of the following would most likely endanger cow populations?
Not allowing cows to be owned
Authorities are considering two policies targeted at the market for heroin. The first policy would target the distribution and sale of heroin. The second policy would attempt to educate the public about the dangers of using heroin. If the authorities' primary goal were to reduce the revenue to heroin sellers, so as to make participating in the market less enticing, and assuming both policies would be effective, which of the following statements is correct?
The authorities should pursue the second policy because reducing the demand for heroin will decrease the price of heroin, thereby reducing revenue to heroin sellers. The authorities should educate the public about the dangers of using heroin, which will reduce the demand for heroin and reduce the price of heroin. Because the demand is inelastic, a reduction in price causes a decrease in revenue to the sellers.
Suppose that when the price of perfume is $35 per bottle, a firm can sell 1 million bottles. When the price of perfume is $30 per bottle, firms can sell 1.5 million bottles. Which of the following statements is true?
The demand for perfume is price elastic, so a decrease in the price of perfume will increase the total revenue of perfume producers. Using the midpoint approach, the price elasticity of demand is 26 between $35 and $30. To compute the percent change in quantity, (1.5-1) / [(1.5 +1/2] =04. To compute the percent change in price, (30-35) / [(30+35)/2] = -0.15. Dividing the percent change in quantity by the percent change in price and taking the absolute value yields a price elasticity of demand of 26, which is elastic. When demand is elastic, a price decrease leads to an increase in total revenue.
For a particular good, a 15 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
There are no close substitutes for this good. The price elasticity of demand is computed by dividing the percent change in quantity by the percent change in price. For this good, the price elasticity of demand equals 10/15 = 0.67, which is inelastic. Goods with no close substitutes tend to have less elastic demand because it is more difficult for consumers to switch from that good to another.
Which of the following is an example of the Tragedy of the Commons?
Unrestricted, unmetered street parking in a city where it is difficult to find a parking spot
Holding all other factors constant and using the midpoint method, if a manufacturer increases production from 600 to 750 units when price increases by 15 percent, then supply is
elastic, since the price elasticity of supply is equal to 148. Using the midpoint approach, the price elasticity of supply is about 148. To compute the percent change in quantity, (750-600) / [(750 +600/2] =022. Dividing the percent change in quantity by the 15 percent change in price yields a price elasticity of supply of about 148. Because the price elasticity of supply is greater than 1 it is elastic.
In the market for oil in the long run, demand and supply are
elastic, so a shift in supply leads to a small change in price. In the market for oil in the long run, demand and supply are elastic, so a shift in supply leads to a small change in price.
Suppose the cross-price elasticity of demand between pencils and paper is -1.50. This implies that a 10 percent increase in the price of pencils will cause the quantity of paper purchased to
fall by 15 percent. A cross-price elasticity of -1.50 implies that a 10 percent increase in the price of pencils will cause a 15 decrease in the quantity of paper purchased.
When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic, then:
buyers of the good will bear most of the burden of the tax
(Price, Quantity) ($20, 0) ($16, 6) ($12, 12) ($8, 18) ($4, 24) ($0, 30) Refer to the Table. Using the midpoint method, the price elasticity of demand when price rises from $12 to $16 is about
2.33 Using the midpoint approach, the price elasticity of demand is about 2.33 between $12 and $16. To compute the percent change in quantity, (6-12) / [(6 +12)/2] = -0.67. To compute the percent change in price, (16-12) / [(16+12)/2] =0.29. Dividing the percent change in quantity by the percent change in price and taking the absolute value yields a price elasticity of demand of 2.33.
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.
Which of the following is likely to have the most price elastic demand?
Dove® moisturizing body wash Narrowly defined markets tend to have more elastic demand than broadly defined markets because it is easier to find close substitutes for narrowly defined goods.
Which of the following was a reason OPEC failed to keep the price of oil high?
Over the long run, producers of oil outside of OPEC responded to higher prices by expanding their production. One of the reasons that OPEC failed to keep the price of oil high was that the higher prices in the short run induced non-OPEC oil producers to expand their production, thereby increasing the total market supply of oil.
. Olivia owns a dog whose barking annoys her neighbor, Eric. Suppose that the benefit of owning a dog is worth $500 to Olivia and that Eric bears a cost of $400 from the barking. Assuming that Olivia has the legal right to keep a dog, a private market solution to this problem is that
The current situation is efficient.
Which of the following could describe a good for which a decrease in price would decrease revenue?
The good is a necessity. Necessities tend to have inelastic demand. When price decreases for a good with inelastic demand, total revenue decreases.
If the price elasticity of demand for a good is 0.45, then which of the following events is consistent with a 9 percent decrease in the quantity of the good demanded?
a 20 percent increase in the price of the good The price elasticity of demand is the absolute value of the percent change in the quantity demanded divided by the percent change in the price. A 9 percent decrease in the quantity demanded divided by a 20 percent increase in price leads to an absolute value of elasticity equal to 0.45.
If the price elasticity of demand for a good is about 1.3, then which of the following is consistent with a 7 percent increase in the quantity demanded of the good?
a 5.4 percent decrease in the price of the good The Law of Demand states that as the price decreases, the quantity demanded increases. The price elasticity of demand is the absolute value of the percent change in the quantity demanded divided by the percent change in the price. A 7 percent increase in the quantity demanded divided by a 5.4 percent decrease in price leads to an absolute value of elasticity equal to about 1.3.
Compared to 1950 there has been
a 70 percent drop in the number of farmers, but farm output more than doubled. Due to advances in farm technology, there has been a 70 percent drop in the number of farmers, but farm output has more than doubled compared to 1950.
A university offers a free shuttle that becomes uncomfortably crowded at lunch time. The shuttle is an example of
a Tragedy of the Commons
If a company released the patents on some of its inventions, allowing anyone to use them without charge, the patented knowledge would go from being
a club good to a public good
A binding minimum wage
alters both the quantity demanded of labor and the quantity supplied of labor.
Which of the following would likely have the least elastic supply?
beachfront land The price elasticity of supply depends on the flexibility of the sellers to change the amount of the good they produce. It is almost impossible to produce more beachfront land, so it has the least elastic supply of the goods listed.
The price elasticity of demand measures
buyers' responsiveness to a change in the price of a good. The price elasticity of demand measures buyer's responsiveness to a change in the price of a good.
You can determine whether United States will export or import hamburgers (assuming trade is allowed)
by comparing the world price of hamburgers to United States' domestic price of hamburgers.
Supply and demand curves contain important information about
producers' costs and consumers' benefits.
Rent control is an example of a price
ceiling; in cities with rent control mechanisms other than price are used to ration housing.
If the production of plastic clothing hangers creates a negative externality, then the
cost to society is larger than the cost to the hanger manufacturers.
Because the demand for corn tends to be inelastic, the development of a new, pest-resistant strain of corn would tend to
decrease the total revenue of corn farmers. A new, pest-resistant strain of corn increases the amount of corn that can be produced, so the supply curve shifts to the right. The demand curve does not shift. When supply shifts to the right and demand remains constant, the equilibrium price of corn decreases and the equilibrium quantity increases. When the price decreases for a good with inelastic demand, total revenue decreases.
According to resent research discussed in class, the effects of rent controls that took place in San Francisco in 1994 confirmed our theory, since rent controls
decreased the quantity supplied of apartments and increased rents in the long run
The quantity sold in a market will increase if the government
decreases a binding price floor in that market.
The price paid by buyers in a market will decrease if the government
decreases a tax on the good sold in that market.
Katerina teaches harp lessons. If the demand for harp lessons is elastic, Katerina could increase her total revenue by
decreasing the price of her harp lessons. When demand is elastic, reducing the price results in higher total revenue.
If the government wants to reduce smoking, it should impose a tax on
either buyers or sellers of cigarettes
Supply is usually more elastic in the long run than in the short run because
firms cannot easily change the size of their factories over short periods of time. The price elasticity of supply depends on the flexibility of the sellers to change the amount of the good they produce. The longer firms have to adjust to a price change, the more responsive they can be. Over short periods of time, firms cannot easily change the size of their factories or enter industries.
A deadweight loss is a consequence of a tax on a good because the tax
induces buyers to consume less, and sellers to produce less.
In the market for oil in the short run, demand and supply are
inelastic, so a shift in supply leads to a large change in price. In the market for oil in the short run, both demand and supply are inelastic, so a shift in supply leads to a large change in price.
Advocates of antipoverty programs believe that fighting poverty
is an example of the free-rider problem
The price elasticity of supply is computed as the percentage change in
quantity supplied divided by the percentage change in price. The price elasticity of supply measures how much the quantity supplied of a good responds to a change in the price of that good and is computed as the percentage change in quantity supplied divided by the percentage change in price.
Unlike minimum wage laws, wage subsidies
raise the living standards of the working poor without the risk of creating unemployment.
The price elasticity of supply measures how responsive
sellers are to a change in price. The price elasticity of supply measures how responsive sellers are to a change in price.
Which of the following will cause an increase in producer surplus?
the number of buyers in the market increases
