Microeconomics Exam 1 Practice

(Figure: Soda Market) After the imposition of a per-unit tax on production, consumers pay $5.00 per unit and producers receive $4.95 per unit. What is the value of the per unit tax?

$0.05

(Figure: Soda Market) After the imposition of a per-unit tax on production, consumers pay $5.00 per unit and producers receive $4.30. What is the value of the per unit tax?

$0.70

(Figure: Gains From Trade) Refer to the Figure. What are the unexploited gains from trade at the free market equilibrium?

$1,000

(Figure: Tax on Sellers) in the diagram, buyers pay ________ without the tax and _______________ with the tax.

$4;$7

(Figure: Good X) From the figure, the maximum price that consumers are willing to pay for____ units of good X is ____ per unit.

36;$4

suppose there is an increase in demand in a market and no charge in the supply. What will happen to the market equilibrium price and quantity?

Equilibrium price will rise; equilibrium quantity will rise.

T or F: The flatter the demand curve, the less is the elasticity of demand.

False

T/F: If the equilibrium price is achieved, all willing demanders become buyers.

False

T/F: The price elasticity of demand concept applies only when the price of a good increases

False

For each of the following changes, determine whether there will be a change in supply (i.e., a shift of the supply curve) or a change in quantity supplied(i.e., no shift of the supply curve). I. change in the resource cost. II. change in the producer expectations. III. change in the price of the good. IV. change in technology. V. the number of sellers.

I.) Supply II.) Supply III.) Quantity IV.) Supply V.) Supply

Total revenue is:

Price x quantity

Imagine a free market in which quantity supplied is 50 units and quantity demanded is 40 units at the current price. The market is experiencing a(n):

Surplus

A market can be described by the equilibrium Qd=100-P and Qs=-20+P. Calculate the equilibrium price and quantity in this market.

The equilibrium price is $50 and the equilibrium quantity is 30 units (???)

T/F: An increase in income increases the demand for normal goods.

True

T/F: Whether an increase in price leads to an increase or decrease in total revenue depends on elasticity of supply.

True

A perfectly inelastic supply curve is a :

Vertical line indicating that a very large increase in price will increase the quantity supplied

Which of the following choices contain only factors that can cause the supply curve to shift to the right?

a rise in technology, a fall in the cost of production, a fall in taxes on output

A good with an absolute value of the price elasticity of demand of 0.5 has:

an inelastic demand

If the income elasticity of demand of a good is negative, we can conclude that the good is:

an inferior good

(Figure: Good X) From the figure, which statement is TRUE?

at a price of $6 per unit, consumers are willing and able to purchase 26 units of good X

A tax on the seller of a product:

causes the supply curve for the product to shift to the left.

As the price of a good increases:

demand for that good will decrease

When the price of a good increases, demand for the good will:

depend on corresponding change in supply.

To be efficient, the revenue from taxation must provide goods that have benefits that _____ the deadweight loss caused by the taxation itself.

exceed

Nobel prize-winning economist Gary Becker Suggested prohibited drugs should be legalized and then taxed. This would _________ the seller's cost and ____________ government revenue.

increase;increase

When the government subsidizes by building roadways, the demand for gasoline:

increases

Demand for a specific brand ______ demand for the corresponding product category.

is more elastic than

A change in which factor would shift the supply curve?

production technology

Imagine a free market in which quantity supplied is 40 units and quantity demanded is 50 units at the current price. the market is experiencing a(n):

shortage

For a given set of supply and demand curve, the horizontal location of the tax wedge depends on:

the amount of the tax

T/F: If a rising price leads to falling revenues, the demand is elastic.

true

T/F: There is a positive relationship between price and quantity supplied.

true

T/F: Whether buyers or sellers bear the majority of the tax burden depends on who initially imposed the tax.

true

If the supply of a good is very elastic, then any increase in demand for the good will have a:

very small impact on the price of the good