ECO Exam 2

Figure 5-4 Refer to Figure 5-4. The section of the demand curve from A to B represents the A. elastic section of the demand curve. B. inelastic section of the demand curve. C. unit elastic section of the demand curve. D. perfectly elastic section of the demand curve.

A

If the price elasticity of demand for a good is 0.2, then a 3 percent decrease in price results in a A. 0.6 percent increase in the quantity demanded. B. 1.5 percent increase in the quantity demanded. C. 2 percent increase in the quantity demanded. D. 6 percent increase in the quantity demanded.

A

Jeff decides that he would pay as much as $1,700 for a new laptop computer. He buys the computer and realizes a consumer surplus of $300. How much did Jeff pay for his computer? A. $1,400. B. $1,700. C. $2,000. D. $2,300.

A

Refer to Table 6-1. Suppose the government imposes a price floor of $30 on this market. What will be the size of the surplus in this market? A. 0 units B. 200 units C. 1800 units D. 2000 units

A

Refer to Table 6-2. A price ceiling set at $5 results in A. 50 units sold. B. 250 units sold. C. 300 units sold. D. 350 units sold.

A

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 $10 each time he mows a lawn. Which of the following results is most likely? A. Karla now will decide to mow her own lawn, and Roland will decide it is no longer in his interest to mow Karla's lawn. B. Karla still is willing to pay Roland to mow her lawn, but Roland will decline her offer. C. Roland still is willing to mow Karla's lawn, but Karla will decide to mow her own lawn. D. Roland and Karla still can engage in a mutually-agreeable trade.

A

When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about A. 0.55. B. 1.83. C. 2. D. 10.

A

Refer to Figure 7-15. When the price is P1, producer surplus is A. A. B. C. C. A+B. D. C+D.

B

Refer to Figure 7-24. At equilibrium, total surplus is A. $36. B. $54. C. $18. D. $108.

B

Refer to Figure 7-8. At the equilibrium price, consumer surplus is A. $1,050. B. $1,225. C. $1,575. D. $2,450.

B

Refer to Figure 8-11. The price labeled as P1 on the vertical axis represents the price A. received by sellers before the tax is imposed. B. received by sellers after the tax is imposed. C. paid by buyers before the tax is imposed. D. paid by buyers after the tax is imposed.

B

Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The tax causes the price paid by buyers to A. increase by $3. B. increase by $2. C. increase by $5. D. decrease by $5.

B

Refer to Figure 8-4. The per-unit burden of the tax on buyers is A. $3. B. $4. C. $5. D. $8.

B

An example of a price floor is A. the regulation of gasoline prices in the U.S. in the 1970s. B. rent control. C. the minimum wage. D. any restriction on price that leads to a shortage.

C

Josh is willing to pay $500 for a set of tire, but he is able to pay $300 at the local tire store. His consumer surplus is A. $800. B. $300. C. $200. D. $500.

C

Refer to Figure 7-3. When the price is P1, consumer surplus is A. A. B. A+B. C. A+B+C. D. A+B+D.

C

Refer to Figure 7-8. If the government imposes a price ceiling of $80 in this market, then, assuming those with the highest willingness to pay purchase the good, consumer surplus will be A. $900. B. $1,200. C. $1,500. D. $1,600.

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.

C

A price floor is A. a legal minimum on the price at which a good can be sold. B. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor. C. a source of inefficiency in a market. D. All of the above are correct.

D

Refer to Figure 6-16. In this market, a minimum wage of $7.25 creates a labor A. shortage of 2,250 workers. B. shortage of 4,500 workers. C. surplus of 2,250 workers. D. surplus of 4,500 workers.

D

Refer to Figure 8-9. The producer surplus without the tax is A. $8,000. B. $3,000. C. $24,000. D. $12,000.

D

The benefit that government receives from a tax is measured by A. deadweight loss. B. consumer surplus. C. tax incidence. D. tax revenue.

D

A key determinant of the price elasticity of supply is the A. time horizon. B. income of consumers. C. price elasticity of demand. D. importance of the good in a consumer's budget.

A

Buyers of a good bear the larger share of the tax burden when the (i) supply is more elastic than the demand for the product. (ii) demand in more elastic than the supply for the product. (iii) tax is placed on the sellers of the product. (iv) tax is placed on the buyers of the product. A. (i) only B. (ii) only C. (i) and (iii) only D. (i) and (iv) only

A

Cameron visits a sporting goods store to buy a new set of golf clubs. He is willing to pay $750 for the clubs but buys them on sale for $575. Cameron's consumer surplus from the purchase is A. $175. B. $575. C. $750. D. $1,325.

A

Demand is said to be unit elastic if quantity demanded A. changes by the same percent as the price. B. changes by a larger percent than the price. C. changes by a smaller percent than the price. D. does not respond to a change in price.

A

Suppose the tax on gasoline is decreased from $0.60 per gallon to $0.40 per gallon. As a result, A. tax revenue necessarily decreases. B. the deadweight loss of the tax necessarily decreases. C. the demand curve for gasoline necessarily becomes steeper. D. the supply curve for gasoline necessarily becomes flatter.

B

Total surplus is A. equal to consumer surplus minus producer surplus. B. equal to the total value to buyers minus the total cost to sellers. C. equal to consumers' willingness to pay plus producers' cost. D. greater than the sum of consumer surplus plus producer surplus.

B

Bob purchases a book, and his consumer surplus is $3. If Bob is willing to pay $8 for the book, then the price of the book must be A. $3. B. $8. C. $5. D. $11.

C

Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed, A. the government collects $28 in tax revenue. B. the deadweight loss amounts to $9. C. consumer surplus decreases by $11. D. producer surplus decreases by $13.

C

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the total surplus? A. $50 B. $30 C. $25 D. $0

D

When a tax is placed on the buyers of a product, the A. size of the market decreases. B. effective price received by sellers decreases, and the price paid by buyers increases. C. demand for the product decreases. D. All of the above are correct.

D

When demand is inelastic, a decrease in price increases total revenue.

False

Who bears the majority of a tax burden depends on whether the tax is placed on the buyers or the sellers. A. True B. False

False

Refer to Figure 6-13. If the government imposes a price floor of $3 on this market, then there will be A. no surplus. B. a surplus of 10 units. C. a surplus of 15 units. D. a surplus of 20 units.

A

Refer to Figure 6-7. For a price ceiling to be binding in this market, it would have to be set at A. any price below $7. B. any price above $3. C. any price below $9. D. any price above $7.

A

Refer to Figure 8-2. Producer surplus without the tax is A. $4, and producer surplus with the tax is $1. B. $4, and producer surplus with the tax is $3. C. $10, and producer surplus with the tax is $1. D. $10, and producer surplus with the tax is $3.

A

If the current allocation of resources in the market for wallpaper is efficient, then it must be the case that A. producer surplus equals consumer surplus in the market for wallpaper. B. the market for wallpaper is in equilibrium. C. on the last unit of wallpaper that was produced and sold, the value to buyers exceeded the cost to sellers. D. All of the above are correct.

B

If the price elasticity of supply is 1.2, and price increased by 10%, quantity supplied would A. increase by 4.2%. B. increase by 12%. C. decrease by 4.2%. D. decrease by 12%.

B

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about A. 0.22. B. 0.67. C. 1.33. D. 1.50.

B

Farm programs that pay farmers not to plant crops on all their land A. hurt farmers by lowering their total revenue and hurt consumers by causing shortages of some food items. B. help farmers by cutting costs, which helps consumers by lowering food prices. C. help farmers by increasing total revenue in the market but hurt consumers by raising food prices. D. help farmers directly since they receive government payments but have no real effects on consumers.

C

If the government removes a tax on a good, then the price paid by buyers will A. increase, and the price received by sellers will increase. B. increase, and the price received by sellers will decrease. C. decrease, and the price received by sellers will increase. D. decrease, and the price received by sellers will decrease.

C

Refer to Figure 6-4. A government-imposed price of $6 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

C

Supply Curve X Supply Curve Y. Supply Curve Z Price $5.00 $7.00 $5.00 $7.00 $5.00 $7.00 Quant. Sup. 200 300 300 400 400 500 ​ Refer to Table 5-10. Using the midpoint method, which of the three supply curves has the most inelastic price elasticity of supply? A. Supply curve X B. Supply curve Y C. Supply curve Z D. There is no difference in the elasticities of the three supply curves.

C

Suppose Lauren, Leslie and Lydia all purchase bulletin boards for their rooms for $15 each. Lauren's willingness to pay was $35, Leslie's willingness to pay was $25, and Lydia's willingness to pay was $30. Total consumer surplus for these three would be A. $15. B. $30. C. $45. D. $90.

C

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? A. The relevant time horizon is short. B. The good is a necessity. C. The market for the good is broadly defined. D. There are many close substitutes for this good.

D

Holding all other factors constant and using the midpoint method, if a candy manufacturer increases production by 20 percent when the market price of candy increases from $0.50 to $0.60, then supply is A. inelastic, since the price elasticity of supply is equal to .91. B. inelastic, since the price elasticity of supply is equal to 1.1. C. elastic, since the price elasticity of supply is equal to 0.91. D. elastic, since the price elasticity of supply is equal to 1.1.

D

Refer to Figure 6-13. Which of the following statements is correct? A. A price ceiling set at $6 would be binding, but a price ceiling set at $4 would not be binding. B. A price floor set at $4 would be binding, but a price ceiling set at $4 would not be binding. C. A price ceiling set at $3.50 would result in a surplus. D. A price floor set at $6.50 would result in a surplus

D

Economists dismiss the idea that lower tax rates can lead to higher tax revenue, because there is a consensus that the relevant elasticities of demand and supply are very low. A. True B. False

False

Taxes affect market participants by increasing the price paid by the buyer and decreasing the price received by the seller. A. True B. False

True