Microeconomics exam 2

D

A binding minimum wage tends to A. cause a labor surplus. B. cause unemployment. C. have the greatest impact in the market for teenage labor. D. All of the above are correct.

D

A legal maximum on the price at which a good can be sold is called a price A. floor. B. subsidy. C. support. D. ceiling.

C

A price ceiling will be binding only if it is set A. equal to the equilibrium price. B. above the equilibrium price. C. below the equilibrium price. D. either above or below the equilibrium price.

D

A tariff is a A. limit on how much of a good can be exported. B. limit on how much of a good can be imported. C. tax on an exported good. D. tax on an imported good.

B

A tax imposed on the sellers of a good will A. raise both the price buyers pay and the effective price sellers receive. B. raise the price buyers pay and lower the effective price sellers receive. C. lower the price buyers pay and raise the effective price sellers receive. D. lower both the price buyers pay and the effective price sellers receive.

C

Refer to Figure 7-15. At the equilibrium price, total surplus is A. $150. B. $200. C. $250. D. $300.

D

At a price of $1.00, a local coffee shop is willing to supply 100 cinnamon rolls per day. At a price of $1.20, the coffee shop would be willing to supply 150 cinnamon rolls per day. Using the midpoint method, the price elasticity of supply is about A. 0.45 B. 0.90 C. 1.11 D. 2.20

A

Consumer surplus is equal to the A. Value to buyers - Amount paid by buyers. B. Amount paid by buyers - Costs of sellers. C. Value to buyers - Costs of sellers. D. Value to buyers - Willingness to pay of buyers.

A

Externalities tend to cause markets to be A. inefficient. B. unequal. C. unnecessary. D. overwhelmed.

D

For a particular good, a 10 percent increase in price causes a 15 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? A. There are no close substitutes for this good. B. The good is a necessity. C. The market for the good is broadly defined. D. The relevant time horizon is long.

C

Good news for farming can be bad news for farmers because the A. supply curve for an individual farmer is usually perfectly elastic. B. supply curve for an individual farmer is usually perfectly inelastic. C. demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right decrease total revenues to sellers. D. demand for basic foodstuffs is usually elastic, meaning that factors that shift supply to the right increase total revenues to sellers.

C

Holding all other forces constant, if increasing the price of a good leads to a decrease in total revenue, then the demand for the good must be A. unit elastic. B. inelastic. C. elastic. D. None of the above is correct because a price increase always leads to an increase in total revenue.

C

Honey producers provide a positive externality to orchards because A. the honey producers get more honey. B. the orchard owner frequently gets stung by the honey producer's bees. C. the orchard owner does not have to purchase bees to pollinate his flowers. D. the honey producers have to rent access to the orchard grounds.

A

If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price, A. the country will be an exporter of the good. B. the country will be an importer of the good. C. the country will be neither an exporter nor an importer of the good. D. Additional information is needed about demand to determine whether the country will be an exporter of the good, an importer of the good, or neither.

A

If a price ceiling is not binding, then A. the equilibrium price is above the price ceiling. B. the equilibrium price is below the price ceiling. C. it has no legal enforcement mechanism. D. None of the above is correct because all price ceilings must be binding.

B

If a tax is levied on the sellers of a product, then there will be a(n) A. downward shift of the supply curve. B. upward shift of the supply curve. C. movement up and to the right along the supply curve. D. movement down and to the left along the supply curve.

C

Refer to Figure 7-2. When the price is P1, consumer surplus is A. A. B. A+B. C. A+B+C. D. A+B+D.

D

If a tax shifts the supply curve downward (or to the right), we can infer that the tax was levied on A. buyers of the good. B. sellers of the good. C. both buyers and sellers of the good. D. We cannot infer anything because the shift described is not consistent with a tax.

B

If demand is price inelastic, then when price rises, total revenue A. will fall. B. will rise. C. will remain unchanged. D. may rise, fall, or remain unchanged. More information is need to determine the change in total revenue with certainty.

A

If the demand for textbooks is inelastic, then an increase in the price of textbooks will A. increase total revenue of textbook sellers. B. decrease total revenue of textbook sellers. C. not change total revenue of textbook sellers. D. There is not enough information to answer this question.

A

If the government levies a $500 tax per car on sellers of cars, then the price received by sellers of cars would A. decrease by less than $500. B. decrease by exactly $500. C. decrease by more than $500. D. increase by an indeterminate amount.

A

If the government removes a binding price ceiling from a market, then the price paid by buyers will A. increase, and the quantity sold in the market will increase. B. increase, and the quantity sold in the market will decrease. C. decrease, and the quantity sold in the market will increase. D. decrease, and the quantity sold in the market will decrease.

D

If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a A. 0.4 percent decrease in the quantity demanded. B. 2.5 percent decrease in the quantity demanded. C. 4 percent decrease in the quantity demanded. D. 40 percent decrease in the quantity demanded.

B

If the price elasticity of supply for a good is equal to infinity, then the A. supply curve is vertical. B. supply curve is horizontal. C. supply curve also has a slope equal to infinity. D. quantity supplied is constant regardless of the price.

B 1.2 x 5

If the price elasticity of supply is 1.2, and price increased by 5%, quantity supplied would A. increase by 4.2%. B. increase by 6%. C. decrease by 4.2%. D. decrease by 6%

D

In general, elasticity is a measure of A. the extent to which advances in technology are adopted by producers. B. the extent to which a market is competitive. C. how firms' profits respond to changes in market prices. D. how much buyers and sellers respond to changes in market conditions.

D

In the case of perfectly inelastic demand, A. the change in quantity demanded equals the change in price. B. the percentage change in quantity demanded equals the percentage change in price. C. infinitely-large changes in quantity demanded result from very small changes in the price. D. quantity demanded stays the same whenever price changes.

C

Price controls A. always produce a fair outcome. B. always produce an efficient outcome. C. can generate inequities of their own. D. All of the above are correc

Midpoint formula?

Q2-Q1/P2-P1 X P2+P1/Q2+Q1

D

Refer to Figure 5-1. Between point A and point B on the graph, demand is A. perfectly elastic. B. inelastic. C. unit elastic. D. elastic, but not perfectly elastic.

C (price elasticity means midpoint)

Refer to Figure 5-1. Between point A and point B, price elasticity of demand is equal to A. 0.33. B. 0.67. C. 1.5 D. 2.67.

D

Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between $4 and $6? A. 0.75 B. 1.00 C. 1.20 D. 1.25

A

Refer to Figure 5-2. As price falls from Pa to Pb, which demand curve represents the most elastic demand? A. D1 B. D2 C. D3 D. All of the above are equally elastic

B

Refer to Figure 6-1. A binding price ceiling is shown in A. panel (a) only. B. panel (b) only. C. both panel (a) and panel (b). D. neither panel (a) nor panel (b).

A

Refer to Figure 6-1. The price ceiling shown in panel (a) A. is not binding. B. creates a surplus. C. creates a shortage. D. Both a) and b) are correct.

D

Refer to Figure 6-14. The price that buyers pay after the tax is imposed is A. $8. B. $10. C. $16. D. $24.

C

Refer to Figure 6-15. Suppose a tax of $2 per unit is imposed on this market. What will be the new equilibrium quantity in this market? A. less than 50 units B. 50 units C. between 50 units and 100 units D. greater than 100 units

D (12-8)

Refer to Figure 6-17. What is the amount of the tax per unit? A. $1 B. $2 C. $3 D. $4

D

Refer to Figure 6-18. The price paid by buyers after the tax is imposed is A. $2.50. B. $3.50. C. $5.00. D. $6.00.

D

Refer to Figure 6-4. A government-imposed price of $16 in this market could be an example of a (i) binding price ceiling; (ii) non-binding price ceiling; (iii) binding price floor; (iv) non-binding price floor. A. (i) only B. (ii) only C. (i) and (iv) only D. (ii) and (iii) only

D

Refer to Figure 6-5. If the horizontal line on the graph represents a price ceiling, then the price ceiling is A. binding and creates a surplus of 40 units of the good. B. binding and creates a surplus of 90 units of the good. C. not binding but creates a surplus of 40 units of the good. D. not binding, and there will be no surplus or shortage of the good.

B (200x75x.5)-(150x75x.5)

Refer to Figure 7-9. If the demand curve is D and the supply curve shifts from S' to S, what is the change in producer surplus? A. Producer surplus increases by $625. B. Producer surplus increases by $1,875. C. Producer surplus decreases by $625. D. Producer surplus decreases by $1,875.

C (100x50x.5)

Refer to Figure 7-9. If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what is the producer surplus? A. $625 B. $1,250 C. $2,500 D. $5,000

A

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The tax revenue is measured by the area A. K+L. B. I+Y. C. J+K+L+M. D. I+J+K+L+M+Y.

B

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus after the tax is meas-ured by the area A. I+Y. B. J+K+L+M. C. I+Y+B. D. I+J+K+L+M+Y.

A

Refer to Figure 8-13. Panel (a) and Panel (b) each illustrate a $4 tax placed on a market. In comparison to Panel (a), Panel (b) illustrates which of the following statements? A. When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic. B. When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic. C. When supply is relatively inelastic, the deadweight loss of a tax is smaller than when supply is relatively elastic. D. When supply is relatively elastic, the deadweight loss of a tax is larger than when supply is relatively inelastic.

C

Refer to Figure 8-17. If the government changed the per-unit tax from $5.00 to $7.50, then the price paid by buyers would be $10.50, the price received by sellers would be $3, and the quantity sold in the market would be 0.5 units. Compared to the original tax rate, this higher tax rate would A. increase government revenue and increase the deadweight loss from the tax. B. increase government revenue and decrease the deadweight loss from the tax. C. decrease government revenue and increase the deadweight loss from the tax. D. decrease government revenue and decrease the deadweight loss from the tax.

B

Refer to Figure 8-8. The tax causes consumer surplus to decrease by the area A. A. B. B+C. C. A+B+C. D. A+B+C+D+F

A

Refer to Figure 9-1. The figure illustrates the market for wool in Scotland. When trade is allowed, A. Scotland producers of wool become better off and Scotland consumers of wool become worse off. B. Scotland consumers of wool become better off and Scotland producers of wool become worse off. C. both Scotland producers and consumers of wool become better off. D. both Scotland producers and consumers of wool become worse off.

D

Refer to Figure 9-2. With free trade, producer surplus is A. $80.00. B. $210.00. C. $245.50. D. $472.50.

B (7x70x.5)

Refer to Figure 9-2. Without trade, consumer surplus is A. $210. B. $245. C. $455. D. $490.

A

Refer to Figure 9-20. The figure illustrates the market for rice in Vietnam. Given that Vietnam is a small country, it is apparent from the figure that A. Vietnam will export rice if trade is allowed. B. Vietnam will import rice if trade is allowed. C. Vietnam has nothing to gain either by importing or exporting rice. D. the world price will fall if Vietnam begins to allow its citizens to trade with other countries.

D

Refer to Figure 9-5. With trade, the price of wagons in this country is A. $8, with 70 wagons produced in this country, 20 of which are exported. B. $8, with 90 wagons produced in this country, 50 of which are exported. C. $5, with 40 wagons produced in this country and another 30 wagons imported. D. $5, with 40 wagons produced in this country and another 50 wagons imported.

D

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1? Price elasticity of demand A= 1.3 B= 2.1 A. A is a luxury, and B is a necessity. B. A is a good several years after a price increase, and B is that same good several days after the price increase. C. A is a Kit Kat bar, and B is candy. D. A has fewer substitutes than B.

C

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1? Price elasticity of demand A= 1.3 B= 2.1 A. A is root beer, and B is carbonated beverages. B. A is bicycles, and B is mopeds. C. A is airline tickets in the short run, and B is airline tickets in the long run. D. A is gourmet coffee, and B is dentist's visits

C

Refer to Table 5-2. Using the midpoint method, if the price falls from $60 to $40, the price elasticity of demand is A. zero. B. inelastic. C. unit elastic. D. elastic.

D

Refer to Table 5-5. Using the midpoint method, when income equals $7,500, what is the price elasticity of demand between $16 and $20? A. 0.56 B. 0.75 C. 1.33 D. 1.80

C (60-25)+(50-25)

Refer to Table 7-4. If tickets sell for $25 each, then what is the total consumer surplus in the market? A. $25 B. $35 C. $60 D. $110

A

Refer to Table 7-8. If Evan, Selena, and Angie sell the good, and the resulting producer surplus is $300, then the price must have been A. $200. B. $300. C. $450. D. $600.

B

Rent-control laws dictate A. the exact rent that landlords must charge tenants. B. a maximum rent that landlords may charge tenants. C. a minimum rent that landlords may charge tenants. D. both a minimum rent and a maximum rent that landlords may charge tenants.

A

Ryan says that he would buy one cup of tea every day regardless of the price. If he is telling the truth, Ryan's A. demand for tea is perfectly inelastic. B. price elasticity of demand for tea is 1. C. income elasticity of demand for tea is 0. D. None of the above answers is correct.

B

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 A. raise both price and total revenues. B. lower both price and total revenues. C. raise price and lower total revenues. D. lower price and raise total revenues.

B

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? A. The flatter supply curve represents a supply that is inelastic relative to the supply represented by the steeper supply curve. B. The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve. C. Given two prices with which to calculate the price elasticity of supply, that elasticity would be the same for both curves. D. A decrease in demand will increase total revenue if the steeper supply curve is relevant, while a decrease in demand will decrease total revenue if the flatter supply cure is relevant.

D

Taxes on labor have the effect of encouraging A. workers to work more hours. B. the elderly to postpone retirement. C. second earners within a family to take a job. D. unscrupulous people to take part in the underground economy.

B

The benefit to sellers of participating in a market is measured by the A. amount of taxes collected on sales of the good. B. producer surplus. C. amount sellers receive for their product. D. sellers' willingness to sell.

B

The case of perfectly elastic demand is illustrated by a demand curve that is A. vertical. B. horizontal. C. downward-sloping but relatively steep. D. downward-sloping but relatively flat.

D

The greater the price elasticity of demand, the A. more likely the product is a necessity. B. smaller the responsiveness of quantity demanded to a change in price. C. greater the percentage change in price over the percentage change in quantity demanded. D. greater the responsiveness of quantity demanded to a change in price.

D

The market for corn in Wheatland consists solely of domestic buyers of corn and domestic sellers of corn if A. consumer surplus equals producer surplus in the Wheatland corn market. B. total surplus exceeds consumer surplus in the Wheatland corn market. C. Wheatland permits international trade in corn. D. Wheatland forbids international trade in corn.

B

The maximum price that a buyer will pay for a good is called the A. cost. B. willingness to pay. C. equity. D. efficiency.

A

The price elasticity of demand measures A. buyers' responsiveness to a change in the price of a good. B. the extent to which demand increases as additional buyers enter the market. C. how much more of a good consumers will demand when incomes rise. D. the movement along a supply curve when there is a change in demand.

B

The price elasticity of supply measures how much A. the quantity supplied responds to changes in input prices. B. the quantity supplied responds to changes in the price of the good. C. the price of the good responds to changes in supply. D. sellers respond to changes in technology.

C

The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is considering two po-tential programs: Operation Methbust would increase the number of sheriffs' deputies to search out and de-stroy methamphetamine labs. Operation Say No to Meth would increase the training required of public school teachers so that they could better educate students about the health risks of using meth. Assuming that each program were successful, which of the following statements is correct? A. Both Operation Methbust and Say No would reduce the equilibrium quantity and increase the equilibrium price of meth. B. Both Operation Methbust and Say No would increase the equilibrium quantity and reduce the equilibrium price of meth. C. Both Operation Methbust and Say No would reduce the equilibrium quantity of meth; Operation Methbust would increase the equilibrium price, whereas Say No would reduce the equilibrium price of meth. D. Both Operation Methbust and Say No would reduce the equilibrium price of meth; Operation Methbust would reduce the equilibrium quantity, whereas Say No would increase the equilibrium quantity of meth.

B

To measure the gains and losses from a tax on a good, economists use the tools of A. macroeconomics. B. welfare economics. C. international-trade theory. D. circular-flow analysis.

C

Total surplus is represented by the area below the A. demand curve and above the price. B. price and up to the point of equilibrium. C. demand curve and above the supply curve, up to the equilibrium quantity. D. demand curve and above the horizontal axis, up to the equilibrium quantity.

D

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good? A. The quantity of the good demanded decreases from 250 to 150. B. The quantity of the good demanded decreases from 200 to 100. C. The quantity of the good demanded decreases by 0.05 percent. D. The quantity of the good demanded decreases by 0.2 percent.

D

When a buyer's willingness to pay for a good is equal to the price of the good, the A. buyer's consumer surplus for that good is maximized. B. buyer will buy as much of the good as the buyer's budget allows. C. price of the good exceeds the value that the buyer places on the good. D. buyer is indifferent between buying the good and not buying it.

A

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

C

When a supply curve is relatively flat, the A. sellers are not at all responsive to a change in price. B. equilibrium price changes substantially when the demand for the good changes. C. supply is relatively elastic. D. supply is relatively inelastic.

B

Which of the following equations is valid? A. Consumer surplus = Total surplus - Cost to sellers B. Producer surplus = Total surplus - Consumer surplus C. Total surplus = Value to buyers - Amount paid by buyers D. Total surplus = Amount received by sellers - Cost to sellers

C

Which of the following is an illustration of the market for original paintings by deceased artist Vincent Van Gogh? A. A B. B C. C D. D

D

Which of the following is not an example of a public policy? A. rent-control laws B. minimum-wage laws C. taxes D. equilibrium laws

D

Which of the following would be the most likely result of a binding price ceiling imposed on the market for rental cars? A. frequent rental programs such as "Rent nine times and the tenth rental is free!" B. enhanced maintenance programs to promote the high quality of the cars C. free gasoline given to people as an incentive to a rent a car D. slow replacement of old rental cars with newer ones

A

Willingness to pay A. measures the value that a buyer places on a good. B. is the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept. C. is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept. D. is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.