Econ 2

(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of demand (using the midpoint formula) between $2.50 and $2.25?

19

(Figure: The Market for Hamburgers) Look at the figure The Market for Hamburgers. If the market is originally in equilibrium and the government imposes an excise tax of $0.80 per unit of the good sold, consumer surplus will be reduced by:

$175

Total revenue is:

b. the price of a good times the quantity of the good that is sold. Correct

(Table: Market for Pizza) Look at the table Market for Pizza and use the midpoint method. The price elasticity of demand for pizza between $14 and $12 per pizza when income is $1,000 per month is:

1

(Figure: The Marginal Benefit Curve) Look at the figure The Marginal Benefit Curve. The total benefit of mowing six lawns is approximately:

c. $154. Correct

(Figure: The Shrimp Market) Look at the figure The Shrimp Market. If the government wants to limit shrimp sales to 250 pounds, it can impose a _____ excise tax on sellers, and the total tax revenue generated will be _____.

c. $10; $2,500

(Table: Marginal Cost of Sweatshirts) Look at the table Marginal Cost of Sweatshirts. The marginal cost of the fifth sweatshirt is:

a. $17. Correct

When the price of chocolate-covered peanuts decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. If the price is $1.10, total revenue is _____, and if the price is $0.95, total revenue is _____.

a. $209; $204.25 Correct

After earning your BA, you have to decide whether to take a job that will pay you $45,000 per year or spend an additional two years earning an MBA. If you decide to pursue the graduate degree, your annual expenses for tuition, books, board, and lodging will be $32,000. You have been offered a scholarship for $10,000 per year, but to pay the remaining $22,000 per year, you would have to cash in savings bonds from your grandparents that have been earning $500 in interest per year. The annual opportunity cost of earning your MBA is:

a. $67,500. Correct

(Figure and Table: The Market for Taxi Rides) Look at the figure and table The Market for Taxi Rides. If the government imposes an excise tax of $1 per ride (causing the supply curve to shift upward by that amount), then the government will collect tax revenues of _____. However, the tax will cause a _____ deadweight loss to society.

a. $9 million; $0.5 million Correct

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____, and demand is described as _____.

a. 0.2; inelastic Correct

Suppose at $10 the quantity demanded is 100. When the price falls to $8, the quantity demanded increases to 130. The price elasticity of demand between $10 and $8, by the midpoint method, is approximately:

a. 1.17. Correct

If the estimated price elasticity of demand for foreign travel is 4:

a. a 20% decrease in the price of foreign travel will increase quantity demanded by 80%. Correct

Use of the midpoint method to calculate the price elasticity of demand eliminates the problem of computing:

a. different elasticities, depending on whether price decreases or increases. Correct

Economic profit is:

a. less than accounting profit if implicit costs exist. Correct

An excise tax that the government collects from the producers of a good:

a. shifts the supply curve upward. Correct

(Figure: The Market for Productivity Apps) Look at the figure The Market for Productivity Apps. If the government imposes a tax of $1 in this market, consumers will pay _____ more per app and purchase _____ fewer apps.

c. $0.50; 5 Correct

(Table: Marginal and Total Benefit) Look at the table Marginal and Total Benefit. Sed is deciding how many football games he wants to attend this year. His marginal benefit from increasing the number of games that he attends from two to three is:

b. 30. Correct

If a good is a necessity with few substitutes, then demand will tend to:

b. be more price-inelastic. Correct

The income elasticity of demand for eggs has been estimated to be 0.57. If income grows by 5% in a period, all other things unchanged, demand will:

b. increase by about 2.9%. Correct

(Table: Marginal Cost of Sweatshirts) Look at the table Marginal Cost of Sweatshirts. The marginal cost of producing sweatshirts is an example of ______ marginal costs.

b. increasing Correct

Excise taxes that raise the most revenue and cause the least deadweight loss are likely to be levied on goods for which demand is _____ and supply is _____.

b. inelastic; inelastic Correct

If the marginal benefit received from consuming a good is less than the marginal cost of production:

b. society's well-being can be improved if production decreases. Correct

Tax incidence refers to:

b. who really pays the tax. Correct

A linear demand curve has:

both elastic and inelastic price elasticities of demand. Correct

Rather than put the $100,000 that his grandmother left him in a mutual fund that earns 5% each year, Tommy Wang quit his job, which paid $60,000 per year, and started Wang's Wicker Furniture Store. He rented a showroom for $20,000 for the year, purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising. Instead of using the capital for his own business, he could rent it to a rival firm and earn $5,000 a year. In his first year, his revenue was $150,000. (Scenario: Accounting and Economic Profit) Look at the scenario Accounting and Economic Profit. The accounting profit of Wang's Wicker Furniture Store is:

c. $30,000. Correct

Rather than put the $100,000 that his grandmother left him in a mutual fund that earns 5% each year, Tommy Wang quit his job, which paid $60,000 per year, and started Wang's Wicker Furniture Store. He rented a showroom for $20,000 for the year, purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising. Instead of using the capital for his own business, he could rent it to a rival firm and earn $5,000 a year. In his first year, his revenue was $150,000. (Scenario: Accounting and Economic Profit) Look at the scenario Accounting and Economic Profit. The implicit cost of capital for Wang's Wicker Furniture Store is:

c. $5,000. Correct

(Figure: The Marginal Cost Curve) Look at the figure The Marginal Cost Curve. The total cost of mowing four lawns is approximately:

c. $50.

Which of the following is a "how much" decision?

c. Tim is trying to decide the amount of money to save each month to buy a new car next year. Correct

To maximize her grade in economics, Stacey should study until:

c. her marginal benefit of studying equals her marginal cost of studying. Correct

Suppose the government levies a $4 per month excise tax on cable TV. If the demand for cable TV is relatively (but not perfectly) inelastic and the supply curve is relatively (but not perfectly) elastic, then the price of cable TV will:

c. increase by less than $4.

If the government imposes a $5 excise tax on leather shoes and the price of leather shoes increases by $2:

c. producers are paying more of the tax than are the consumers. Correct

If your purchases of shoes increase from 9 pairs per year to 11 pairs per year when the price of shirts increases from $8 to $12, for you, shoes and shirts are considered:

c. substitute goods.

The implicit cost of capital is:

c. the opportunity cost of capital used by a business. Correct

Profit is the difference between _____ and _____.

c. total revenues; total costs Correct

(Table: Marginal and Total Benefit) Look at the table Marginal and Total Benefit. Sed is deciding how many football games he wants to attend this year. If tickets to each football game cost $10, then he should attend _____ game(s).

d. 5 Correct

Which of the following is an "either-or" decision?

d. Dylan must decide whether to major in economics or finance. Correct

The price elasticity of demand for gasoline in the short run has been estimated to be 0.4. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total revenue from gasoline in the short run, all other things unchanged?

d. Quantity demanded will not change; total revenue will rise. Incorrect

The percentage change in quantity demanded of one good or service divided by the percentage change in the price of a related good or service is the _____ of demand.

d. cross-price elasticity

If the price of chocolate-covered peanuts decreases from $1.15 to $1.05 and the quantity demanded increases from 190 bags to 220 bags, then the price elasticity of demand (by the midpoint method) is:

d. greater than 1. Correct

If demand is elastic, the _____ effect dominates the _____ effect, and a decrease _____ in price will cause total revenue to rise.

d. quantity; price; decrease

The deadweight loss from an excise tax comes about because:

d. the number of transactions in the market is reduced and some mutually beneficial transactions do not take place. Correct

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures:

d. the responsiveness of the quantity change to the price change. Correct

(Figure: Estimating Price Elasticity) Look at the figure Estimating Price Elasticity. Between the two prices, P1 and P2, which demand curve has the lowest price elasticity?

d4

A men's tie store sold an average of 30 ties per day at $5 per tie but sold 50 of the same ties per day at $3 per tie. The price elasticity of demand, by the midpoint method, is:

equal to 1. Correct

A perfectly price-inelastic demand curve is:

vertical