Micro: Test 2
uppose that at a price of €30 per month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its price to €40 per month, the number of subscribers will fall to 20,000. At which of the following prices does Small Town Cablevision earn the greatest total revenue?
$30 per month
If consumers always spend 15 percent of their income on food, then the income elasticity of demand for food is
1.00
Suppose that at a price of €30 per month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its price to €40 per month, the number of subscribers will fall to 20,000. Using the midpoint method for calculating the elasticity, what is the price elasticity of demand for cable TV in Small Town?
1.4
Which of the following statements is true if the government places a price ceiling on petrol at €1.50 per litre and the equilibrium price is €1.00 per litre?
A significant increase in the demand for petrol could cause the price ceiling to become a binding constraint.b.A significant increase in the sup
Which of the following workers would be most likely to find it more difficult to get a job after a rise in the minimum wage rate?
A teenage worker with few qualifications.
A price ceiling set below the equilibrium price causes a surplus.
False
A price floor in a market always creates a surplus in that market.
False
A €10 tax on football boots will always raise the price that the buyers pay for football boots by €10.
False
An advance in technology that shifts the market supply curve to the right always increases total revenue received by producers.
False
Consumer surplus is the buyer's willingness to pay minus the seller's cost.
False
Free markets are efficient because they allocate output to buyers who have a willingness to pay that is below the price.
False
If a demand curve is linear, the price elasticity of demand is constant along it.
False
If the cross-price elasticity of demand between two goods is positive, the goods are likely to be complements.
False
If the equilibrium price of petrol is €1.00 per litre and the government places a price ceiling on petrol of €1.50 per litre, the result will be a shortage of petrol.
False
If the quantity demanded of a good is sensitive to a change in the price of that good, demand is said to be price inelastic.
False
If your willingness to pay for a hamburger is €3.00 and the price is €2.00, your consumer surplus is €5.00.
False
Producer surplus is a measure of the unsold inventories of suppliers in a market.
False
Producing more of a product always adds to total surplus.
False
The demand for a necessity such as petrol tends to be elastic.
False
The demand for aspirin over one month should be more elastic than the demand for aspirin over one year.
False
The government can choose to place the burden of a tax on the buyers in a market by collecting the tax from the buyers rather than the sellers.
False
The minimum wage helps all teenagers because they receive higher wages than they would otherwise.
False
The price elasticity of demand is defined as the percentage change in the price of that good divided by the percentage change in quantity demanded of that good.
False
Total surplus is the seller's cost minus the buyer's willingness to pay.
False
When we use the model of supply and demand to analyse a tax collected from the buyers, we shift the demand curve upward by the size of the tax.
False
Which of the following statements about the burden of a tax is correct?
The distribution of the burden of a tax is determined by the relative elasticities of supply and demand and is not determined by legislation.
Which of the following would cause a demand curve for a good to be price inelastic?
The good is a necessity.
Suppose the equilibrium price for apartments is €500 per month and the government imposes rent controls of €250. Which of the following is unlikely to occur as a result of the rent controls?
The quality of apartments will improve.
Which of the following statements about a binding price ceiling is true?
The shortage created by the price ceiling is greater in the long run than in the short run.
A 10 per cent increase in the minimum wage is more likely to raise unemployment among teenage workers than among mid-career professional workers
True
A price ceiling that is not a binding constraint today could cause a shortage in the future if demand were to increase and raise the equilibrium price above the fixed price ceiling.
True
A price floor set above the equilibrium price is a binding constraint.
True
A tax collected from buyers has an equivalent impact to a same size tax collected from sellers.
True
A tax creates a tax wedge between a buyer and a seller. This causes the price paid by the buyer to rise, the price received by the seller to fall, and the quantity sold to fall.
True
Consumer surplus is a good measure of buyers' benefits if buyers are rational.
True
Cost to the seller includes the opportunity cost of the seller's time.
True
Equilibrium in a competitive market maximizes total surplus.
True
Externalities are side effects, such as pollution, that are not taken into account by the buyers and sellers in a market.
True
If medicine is a necessity, the burden of a tax on medicine will probably fall more heavily on the buyers of medicine.
True
If the demand curve in a market is stationary, consumer surplus decreases when the price in that market increases.
True
If the demand for a good is price inelastic, an increase in its price will increase total revenue in that market.
True
If the income elasticity of demand for a bus ride is negative, then a bus ride is an inferior good.
True
If the price elasticity of supply for blue jeans is 1.3, an increase in the price of blue jeans of 10 percent would increase the quantity supplied of blue jeans by 13 percent.
True
Producer surplus is the area above the supply curve and below the price.
True
The demand for tyres should be more inelastic than the demand for Michelin brand tyres.
True
The height of the supply curve is the marginal seller's cost.
True
The income elasticity of demand for luxury items, such as diamonds, tends to be large (greater than 1).
True
The major advantage of allowing free markets to allocate resources is that the outcome of the allocation is efficient.
True
The price elasticity of supply tends to be more inelastic as the firm's production facility reaches maximum capacity.
True
The shortage of housing caused by a binding rent control is likely to be more severe in the long run when compared to the short run.
True
The supply of cars for this week is likely to be more price inelastic than the supply of cars for this year.
True
The two main types of market failure are market power and externalities.
True
The ultimate burden of a tax falls most heavily on the side of the market that is less elastic.
True
Using the midpoint method to calculate elasticity, if an increase in the price of pencils from €0.10 to €0.20 reduces the quantity demanded from 1000 pencils to 500 pencils, then the demand for pencils is unit price elastic.
True
Suppose there are three identical vases available to be purchased. Buyer 1 is willing to pay €30 for one, buyer 2 is willing to pay €25 for one, and buyer 3 is willing to pay €20 for one. If the price is €25, how many vases will be sold and what is the value of consumer surplus in this market?
Two vases will be sold and consumer surplus is €5.
A binding price ceiling creates
a shortage.
Producer surplus is the area
above the supply curve and below the price.
In general, if a benevolent social planner wanted to maximize the total benefits received by buyers and sellers in a market, the planner should
allow the market to seek equilibrium on its own.
Which of the following takes place when a tax is placed a good?
an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold
If the income elasticity of demand for a good is negative, it must be
an inferior good
If a producer has market power (can influence the price of the product in the market) then free market solutions
are inefficient.
Consumer surplus is the area
below the demand curve and above the price.
Total surplus is the area
below the demand curve and above the supply curve.
If the cross-price elasticity between two goods is negative, the two goods are likely to be
compliments
An increase in the price of a good along a stationary demand curve
decreases consumer surplus.
Within the supply and demand model, a tax collected from the buyers of a good shifts the
demand curve downward by the size of the tax per unit.
The burden of a tax falls more heavily on the sellers in a market when
demand is elastic and supply is inelastic.
The burden of a tax falls more heavily on the buyers in a market when
demand is inelastic and supply is elastic.
A decrease in supply (shift to the left) will increase total revenue in that market if
demand is price inelastic.
If consumers think that there are very few substitutes for a good, then
demand would tend to be price inelastic.
If demand is linear (a straight line), then price elasticity of demand is
elastic in the upper portion and inelastic in the lower portion.
For which of the following products would the burden of a tax likely fall more heavily on the sellers?
entertainment
A tax placed on a good that is a necessity for consumers will likely generate a tax burden that
falls more heavily on buyers.
If buyers are rational and there is no market failure,
free market solutions are efficient and free market solutions maximize total surplus.
An increase in the price of a good along a stationary supply curve
increases producer surplus.
Adam Smith's "invisible hand" concept suggests that a competitive market outcome
maximizes total surplus.
A buyer's willingness to pay is that buyer's
maximum amount they are willing to pay for a good.
If supply is price inelastic, the value of the price elasticity of supply must be
none of the above
A tax of €1.00 per litre on petrol
places a tax wedge of €1.00 between the price the buyers pay and the price the sellers receive.
If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is
price elastic
If there is excess capacity in a production facility, it is likely that the firm's supply curve is
price elastic
In general, a flatter demand curve is more likely to be
price elastic.
In general, a steeper supply curve is more likely to be
price inelastic.
Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to
reduce total revenue to farmers as a whole because the demand for food is inelastic.
A price floor
sets a legal minimum on the price at which a good can be sold.
Within the supply and demand model, a tax collected from the sellers of a good shifts the
supply curve upward by the size of the tax per unit.
If a benevolent social planner chooses to produce more than the equilibrium quantity of a good, then
the cost of production on the last unit produced exceeds the value placed on it by buyers
The seller's cost of production is
the minimum amount the seller is willing to accept for a good.
Which of the following is an example of a price floor?
the minimum wage
The price elasticity of demand is defined as
the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good.
If a supply curve for a good is price elastic, then
the quantity supplied is sensitive to changes in the price of that good.
Which side of the market is more likely to lobby government for a price floor?
the sellers
When a tax is collected from the buyers in a market,
the tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers.
If a benevolent social planner chooses to produce less than the equilibrium quantity of a good, then
the value placed on the last unit of production by buyers exceeds the cost of production.
The demand for which of the following is likely to be the most price inelastic?
transportation
If an increase in the price of a good has no impact on the total revenue in that market, demand must be
unit price elastic.
For a price ceiling to be a binding constraint on the market, the government must set it
below the equilibrium price.
The surplus caused by a binding price floor will be greatest if
both supply and demand are elastic.
If a fisherman must sell all of his daily catch before it spoils for whatever price he is offered, once the fish are caught the fisherman's price elasticity of supply for fresh fish is
zero
If a buyer's willingness to pay for a new Honda is €20,000 and she is able to actually buy it for €18,000, her consumer surplus is
€2,000.
