Econ 2302 Exam 2 Study Guide
A tax levied on the buyers of a good shifts the
demand curve downward (or to the left).
Externalities tend to cause markets to be
inefficient
Which of the following is not a common resource?
national defense
A tax levied on the sellers of a good shifts the
supply curve upward (or to the left)
Consumer surplus is
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
Consumer surplus is
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.
When a country allows trade and becomes an exporter of a good,
the gains of the domestic producers of the good exceed the losses of the domestic consumers of the good
If education produces positive externalities, we would expect
the government to subsidize education
Income elasticity of demand measures how
the quantity demanded changes as consumer income changes
The price elasticity of supply measures how much
the quantity supplied responds to changes in the price of the good.
Total surplus is
the total value of the good to buyers minus the cost to sellers of providing the good
Economists typically measure efficiency using
total surplus.
Price controls are usually enacted
when policymakers believe that the market price of a good or service is unfair to buyers or sellers
Price controls are usually enacted
when policymakers believe that the market price of a good or service is unfair to buyers or sellers.
The price of sugar that prevails in international markets is called the
world price of sugar
Refer to Figure 6-14. The effective price that sellers receive after the tax is imposed is
$10
Refer to Figure 7-15. At the equilibrium price, producer surplus is
$100
Refer to Figure 7-15. At the equilibrium price, consumer surplus is
$150
Refer to Figure 6-14. The price that buyers pay after the tax is imposed is
$24
Refer to Figure 7-15. At the equilibrium price, total surplus is
$250
A binding price floor (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price.
(i) and (iii) only
A binding price floor (i)causes a surplus. (ii)causes a shortage. (iii)is set at a price above the equilibrium price. (iv)is set at a price below the equilibrium price.
(i) and (iii) only
A binding price ceiling (i)causes a surplus. (ii)causes a shortage. (iii)is set at a price above the equilibrium price. (iv)is set at a price below the equilibrium price.
(ii) and (iv) only
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
0.55.
If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a
40 percent decrease in the quantity demanded
If the price elasticity of demand for a good is 10.0, then a 4 percent increase in price results in a
40 percent decrease in the quantity demanded.
Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-2?
A is airline tickets in the short run, and B is airline tickets in the long run.
The price elasticity of demand for bread
All of the above are correct.
When a binding price floor is imposed on a market,
All of the above are correct.
Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus before the tax is measured by the area
I+J+K+L+M+Y.
Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus after the tax is measured by the area
J+K+L+M
For a particular good, a 10 percent increase in price causes a 5 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
The good is a necessity
What happens to the total surplus in a market when the government imposes a tax?
Total surplus decreases
What happens to the total surplus in a market when the government imposes a tax?
Total surplus decreases.
Minimum-wage laws dictate
a minimum wage that firms may pay workers
The price elasticity of demand measures
buyers' responsiveness to a change in the price of a good.
Price ceilings and price floors that are binding
cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price
Patterns of trade among nations are primarily determined by
comparative advantage
If the cross-price elasticity of two goods is negative, then the two goods are
complements
Economists view the fact that Florida grows oranges, Texas pumps oil, and California makes wine as
confirmation of the virtues of free trade
The difference between social cost and private cost is a measure of the
cost of an externality
Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the
deadweight loss due to the tax
Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the
deadweight loss due to the tax.
When a country allows trade and becomes an importer of a good,
domestic producers become worse off, and domestic consumers become better off
Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the
flatter the demand curve will be
A country has a comparative advantage in a product if the world price is
higher than that country's domestic price without trade
A consumer's willingness to pay directly measures
how much a buyer values a good
A consumer's willingness to pay directly measures
how much a buyer values a good.
The imposition of a binding price floor on a market causes quantity demanded to be
less than quantity supplied
Under rent control, tenants can expect
lower rent and lower quality housing
Minimum-wage laws dictate the
lowest price employers may pay for labor
When a tax is placed on the buyers of a product, buyers pay
more and sellers receive less than they did before the tax
Goods with many close substitutes tend to have
more elastic demands
When a tax is placed on the sellers of a product, buyers pay
more, and sellers receive less than they did before the tax.
When policymakers set prices by legal decree, they
obscure the signals that normally guide the allocation of society's resources
If the price of gasoline rises, when is the price elasticity of demand likely to be the highest?
one year after the price increase
The minimum wage is an example of a
price floor
When government imposes a price ceiling or a price floor on a market,
price no longer serves as a rationing device
A tax imposed on the sellers of a good will raise the
price paid by buyers and lower the equilibrium quantity
A tax imposed on the buyers of a good will raise the
price paid by buyers and lower the equilibrium quantity.
Markets do not ensure that the air we breathe is clean because
property rights are not well established for clean air
When the government intervenes in markets with externalities, it does so in order to
protect the interests of bystanders
The price elasticity of demand measures how much
quantity demanded responds to a change in price
A tax imposed on the sellers of a good will
raise the price buyers pay and lower the effective price sellers receive
A seller is willing to sell a product only if the seller receives a price that is at least as great as the
sellers's cost of production
If a tax is levied on the buyers of a product, then the demand curve will
shift down
If a tax is levied on the buyers of a product, then the demand curve will
shift down.
If a tax is levied on the sellers of a product, then the supply curve will
shift up
If a tax is levied on the sellers of a product, then the supply curve will
shift up.
Refer to Figure 6-2. The price ceiling causes a
shortage of 85 units
After a binding price floor becomes effective, a
smaller quantity of the good is bought and sold
A tax on an imported good is called a
tariff
Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by K+L represents
tax revenue
Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by K+L represents
tax revenue.
For a good that is a necessity, demand
tends to be inelastic.
Assume, for the U.S., that the domestic price of pineapples without international trade is lower than the world price of pineapples. This suggests that, in the production of pineapples,
the U.S. has a comparative advantage over other countries and the U.S. will export pineapples
The size of the deadweight loss generated from a tax is affected by the
elasticities of both supply and demand.
A decrease in supply will cause the smallest increase in price when
both supply and demand are elastic
A decrease in supply will cause the largest increase in price when
both supply and demand are inelastic
If a price floor is not binding, then
there will be no effect on the market price or quantity sold
Refer to Figure 5-5. Using the midpoint method, between prices of $12 and $18, price elasticity of demand is
0.33
Refer to Figure 6-2. The price ceiling
All of the above are correct
A price floor is
All of the above are correct.
A price ceiling is
a legal maximum on the price at which a good can be sold.
Rent-control laws dictate
a maximum rent that landlords may charge tenants
When demand is inelastic, an increase in price will cause
an increase in total revenue
On a graph, consumer surplus is represented by the area
below the demand curve and above price.
A price ceiling will be binding only if it is set
below the equilibrium price
Refer to Figure 6-5. If the horizontal line on the graph represents a price floor, then the price floor is
binding and creates a surplus of 90 units of the good
A shortage results when a
binding price ceiling is imposed on a market
Under rent control, bribery is a mechanism to
bring the total price of an apartment (including the bribe) closer to the equilibrium price
When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,
buyers of the good will bear most of the burden of the tax
Because the demand for wheat tends to be inelastic, the development of a new, more productive hybrid wheat would tend to
decrease the total revenue of wheat farmers
If the government removes a binding price floor from a market, then the price paid by buyers will
decrease, and the quantity sold in the market will increase
Good news for farming can be bad news for farmers because the
demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right decrease total revenues to sellers
When studying how some event or policy affects a market, elasticity provides information on the
direction and magnitude of the effect
The demand for Hubba Bubba bubble gum is likely
elastic because there are many close substitutes for Hubba Bubba
In general, elasticity is a measure of
how much buyers and sellers respond to changes in market conditions
In general, elasticity is a measure of
how much buyers and sellers respond to changes in market conditions.
To determine whether a good is considered normal or inferior, one could examine the value of the
income elasticity of demand for that good
To determine whether a good is considered normal or inferior, one could examine the value of the
income elasticity of demand for that good.
If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the
income elasticity of demand is negative.
If the price elasticity of supply is 0.8, and price increased by 5%, quantity supplied would
increase by 4%
If the government removes a binding price ceiling from a market, then the price received by sellers will
increase, and the quantity sold in the market will increase
Over time, housing shortages caused by rent control
increase, because the demand for and supply of housing are more elastic in the long run
An increase in price causes an increase in total revenue when demand is
inelastic
The price elasticity of demand for eggs
is computed as the percentage change in quantity demanded of eggs divided by the percentage change in price of eggs
A key determinant of the price elasticity of supply is the
length of the time period
A key determinant of the price elasticity of supply is the
length of the time period.
If a tax is levied on the sellers of a product, then the demand curve will
not shift
For which pairs of goods is the cross-price elasticity most likely to be negative?
peanut butter and jelly
The presence of a price control in a market for a good or service usually is an indication that
policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers
Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be
positive
Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be
positive.
When a tax is placed on a product, the price paid by buyers
rises, and the price received by sellers falls
A tax levied on the sellers of a good shifts the
supply curve upward (or to the left).
Producer surplus is
the amount a seller is paid minus the cost of production.
The term tax incidence refers to
the distribution of the tax burden between buyers and sellers
If a price ceiling is not binding, then
the equilibrium price is below the price ceiling
The price elasticity of supply measures how much
the quantity supplied responds to changes in the price of the good
Which of the following is not a determinant of the price elasticity of demand for a good?
the steepness or flatness of the supply curve for the good
Total surplus is
the total value of the good to buyers minus the cost to sellers of providing the good.
We can say that the allocation of resources is efficient if
total surplus is maximized