Econ 40 Test #2

Which of the following would most likely cause a shortage of automotive tires throughout the United States? A. A decrease in the minimum wage for automotive workers B. A price ceiling placed on tires C. A price floor placed on tires D. A freeze on the minimum wage for automotive workers

.B. A price ceiling placed on tires

What Determines How Elastic Demand for a Good Is? The price elasticity of demand depends on three factors: (1) The availability of close _________. (2) The proportion of _______ spent on the good. (3) The amount of _______ that has elapsed since the price change.

1. Substitutes 2. Income 3. Time

If you observed the price of a good increase and the quantity exchanged decreasing, it would be most likely caused by a(n) A. A decrease in supply. B. Increase in demand. C. Decrease in demand. D. Increase in supply.

A. A decrease in supply.

Which of the following examples has the most elastic demand? A. When the price of sewing machine drops 10 percent, the demand increases 20 percent. B. When the price of wool yarn increases 5 percent, demand decreases 7 percent. C. When the price of looms drops 12 percent, the demand increases 14 percent. D. When the price of cotton cloth increases 7 percent, demand decreases 10 percent.

A. A. When the price of sewing machine drops 10 percent, the demand increases 20 percent.

In the long run, what effect would an increase in demand for apartments most likely have? A. Construction of new apartments B. Maintenance of steady rental prices C. Neglect of apartment repairs D. Lowering of rental prices

A. Construction of new apartments

When the quantity demanded changes proportionally more than the price changes, the demand is considered to be ______. A. elastic B. inelastic C. unit elastic D. unit inelastic

A. Elastic

Which of the following is the indeterminate variable for HD televisions? A. equilibrium price B. equilibrium quantity C. supply D. demand

A. Equilibrium Price

When the elasticity is greater than 1 (ED>1) - the quantity demanded changes proportionally more than the price changes, then demand is _______.

Elastic

The Clear Springs city council decided to implement a very large tax on everything related to the area's major product, cheese. What will be the most likely result of this high tax rate? A. fewer cheese sales resulting in lower tax revenue B. elimination of deadweight loss due to higher tax revenue C. increased cheese sales resulting in higher tax revenue D. an equal increase in tax revenue and deadweight loss

A. Fewer cheese sales resulting in lower tax revenue.

Sellers compete to sell a surplus by ______ the price. A. Reducing B. Increasing C. Fixing D. Fluctuating

A. Reducing

Which of the following is an accurate statement about supply and demand? A. Supply and demand often shift in the same period of time. B. Supply and demand rarely shift in the same period of time. C. If demand changes, supply will also always change. D. If supply changes, demand will rarely change.

A. Supply and demand often shift in the same period of time.

Which of the following is an accurate statement about controlled rents? A. They are generally well below market rental rates. B. They are generally well above-market rental rates. C. They are generally equal to market rental rates D. They can be either above or below-market rental rates.

A. They are generally well below market rental rates.

The gains and losses associated with government intervention in markets are known as ______. A. welfare effects B. equilibrium points C. marginal costs D. Tax rates

A. Welfare Effects

Which of the following examples shows elastic supply? A. When the price of tricycles increases 6 percent, the supply increases 10 percent. B. When the price of bicycles increases 8 percent, the supply increases 5 percent. C. When the price of motorcycles increases 10 percent, supply increases 10 percent.

A. When the price of tricycles increases 6 percent, the supply increases 10 percent.

Which of the following is an accurate statement about goods? A. Narrowly defined goods tend to be less elastic than broadly defined goods. B. Broadly defined goods tend to be less elastic than narrowly defined goods. C. Basic necessities tend to be highly elastic. D. Items with substitutes tend to be highly inelastic.

B. Broadly defined goods tend to be less elastic than narrowly defined goods.

Which two things happen when market price drops? A. Demand and consumer surplus decrease. B. Demand and consumer surplus increase. C. Demand increases and consumer surplus decreases. D. Demand decreases and consumer surplus increases.

B. Demand and consumer surplus increase.

If demand was relatively inelastic in the short run, but elastic in the long run, a price increase would ___ total revenue in the short run and ___ total revenue in the long run. A. increase; increase B. increase; decrease C. decrease; decrease D. decrease; increase

B. Increase; Decrease

In a "free market," which of the following makes decisions on what to produce? A. The government B. Millions of producers and buyers C. Trade associations D. The 10 largest corporations

B. Millions of producers and buyers

Which two things happen when market price drops? A.Supply and producer surplus increase. B. Supply and producer surplus decrease. C. Supply increases and consumer surplus decreases. D. Supply decreases and consumer surplus increases.

B. Supply and producer surplus decrease

Buyers pay a higher price and sellers receive a lower price as a result of a ______. A. subsidy B. tax C. sale D. surplus

B. Tax

If the equilibrium price of wheat is $3 per bushel and then a price floor of $2.50 per bushel is imposed by the government, A. The price of wheat will decrease. B. There will be no effect on the wheat market. C. There will be a shortage of wheat. D. There will be a surplus of wheat.

B. There will be no effect on the wheat market.

Which of the following is an accurate statement about price floors? A. They usually help to maintain equilibrium. B. They are usually imposed by a government. C. They are usually used to help high-income families. D. They usually cause unintended shortages.

B. They are usually imposed by a government.

A straight-line demand curve with a constant slope will ______ as you move up or down it. A. keep the same elasticity B. change elasticity continuously C. change elasticity rarely D. swing between elastic and inelastic repeatedly

B. change elasticity continuously

If the demand for gasoline is highly inelastic and the supply is highly elastic, and then a tax is imposed on gasoline, it will be paid A. equally by the sellers and buyers of gasoline. B. largely by the buyers of gasoline. C. by the government. D. largely by the sellers of gasoline.

B. largely by the buyers of gasoline.

As a consumer buys more units of a good, the ______. A. marginal value increases B. marginal value decreases C. willingness to pay holds steady D. willingness to pay rises sharply

B. marginal value decreases

If both demand and supply change and the decrease in demand is greater than the increase in supply, ______. A. the equilibrium price and the equilibrium quantity will rise B. the equilibrium price and the equilibrium quantity will fall C. the equilibrium price will rise and the equilibrium quantity will fall D. The equilibrium price will fall and the equilibrium quantity will rise

B. the equilibrium price and the equilibrium quantity will fall

How does the size of a tax influence deadweight loss? A. Only small taxes create deadweight loss. B. Only large taxes create deadweight loss. C. A larger tax creates a larger loss. D. A larger tax creates a smaller loss.

C. A larger tax creates a larger loss.

The unemployment rate for low-income workers reaches an all-time high. Which of the following most likely would cause this situation? A. An indeterminate quantity B. An indeterminate price C. A price floor D. A price ceiling

C. A price floor

The main argument in favor of a minimum wage is that it ______. A. Gives teenagers a decent wage B. Spurs employment C. Allows low-income workers to live better D. Increases competition between businesses

C. Allows low-income workers to live better

Which of the following is true? A. A price ceiling increases the quantity exchanged in the market, but a price floor decreases the quantity exchanged in the market. B. Both price floors and price ceilings increase the quantity exchanged in the market. C. Both price floors and price ceilings reduce the quantity exchanged in the market. D. A price ceiling reduces the quantity exchanged in the market, but a price floor increases the quantity exchanged in the market.

C. Both price floors and price ceilings reduce the quantity exchanged in the market.

Which of the following happens when supply and demand move at the same time? A. Supply will become indeterminate. B. Supply will become predictable. C. One of the variables of price and quantity will become indeterminate. D. Both of the variables of price and quantity will become indeterminate.

C. One of the variables of price and quantity will become indeterminate.

In a condition of ______ supply, an increase in price will not change the quantity supplied. A. unit inelastic B. unit elastic C. perfectly inelastic D. perfectly elastic

C. Perfectly inelastic

Which of the following examples would most likely have the highest number of substitutes? A. food B. shelter C. sports car D. clothing

C. Sports car

If units of output of a product cost more to produce than the market price, producers will ______. A. see a higher profit margin B. see a greater producer surplus C.stop producing it D. produce more of it

C. Stop producing it

If the demand for a product soars, which of the following should be the first step for producers of the product to take? A. Decrease the product's quantity B. Increase the product's quantity C. increase the product's price D. Decrease the product's price

C. increase the product's price

Government subsidizing of farmers ______. A. has been banned in the United States B. ended with the Great Depression C. is practiced worldwide D. is unique to the United States

C. is practiced worldwide

The use of a subsidy leads to ______. A. welfare gains B. maximum efficiency C. deadweight loss D. lower production

C.Deadweight loss

A new manufacturing process speeds up the production of basketball shoes at the same time as the demand for these shoes increases. Considering this, which of the following will become indeterminate? A. amount B. supply C. price D. quantity

C.Price

Who gains when the government buys surplus covered by a tax floor? A. tax payers B. consumers C. producers D.everyone

C.Producers

The monetary difference between the amount a consumer is willing and able to pay for an additional unit of a good and what the consumer actually pays—the market price.

Consumer Surplus

Which of the following examples comes closest to perfectly elastic supply? A. During a popular Broadway show, the price of a ticket surges as supply dwindles to close to zero. B. During a team's pennant race, the price of the team's jersey decreases as supply increases 20 percent. C. During a flood, the price of rowboats increases 5 percent as the supply triples. D. During an influenza epidemic, the price of effective antiviral drugs stays the same as the supply increases 500 percent.

D. During an influenza epidemic, the price of effective antiviral drugs stays the same as the supply increases 500 percent.

A good is ______ if the percentage change in quantity demanded is greater than the percentage change in price. A. unit inelastic B. unit elastic C. inelastic D. elastic

D. Elastic

A price ______ is a legally established minimum price. A. line B. base C. ceiling D. floor

D. Floor

In which of the following ways could firms most likely increase output in the short run? A. Add a large extension to a factory B. Extensively update manufacturing equipment C. Build a new factory D. Hire more workers

D. Hire more workers

What a consumer actually pays for an additional unit of a good is known as ______. A. producer surplus B. wholesale price C. consumer surplus D. market price

D. Market Price

Because of a celebrity endorsement, a producer expects the demand for a soft drink to soar. As a result, the producer increases production. However, the celebrity suffers a scandal, causing the demand for the soft drink to plummet. Considering this, which of the following will become indeterminate? A. Amount B. Cost C. Price D. Quantity

D. Quantity

Which of the following is an accurate statement about price ceilings? A. They usually help to maintain equilibrium. B. They are usually imposed by businesses. C. They are usually used to help high-income families. D. They usually cause unintended shortages.

D. They usually cause unintended shortages.

An increase in demand for a product will eventually cause a ______ price. A. lower indeterminate B. higher indeterminate C. lower equilibrium D. higher equilibrium

D. higher equilibrium

The reduction in both consumer and producer surpluses—it is the net loss of total surplus that results from the misallocation of resources. Gets larger and larger as we move further and further away from the efficient equilibrium output.

Deadweight Loss

When Demand is Price Inelastic: A decrease in price leads to a _______ in total revenue. A increase in price leads to a _______ in total revenue.

Decrease / Increase

When the demand is elastic, a ______ in price leads to a _________ in total revenue because the percentage increase in quantity demanded is greater than the percentage reduction in price.

Decrease / Increase

Price elasticity of demand is defined as the percentage change in quantity _________ divided by the percentage change in _______.

Demanded / Price

When the demand is price inelastic (ED<1), total revenue will vary ________ with a price change. In the inelastic region, when the price falls, the total revenue ____.

Directly Falls

Goods with close substitutes tend to have more _______ demands. Because of the price of such good increases, consumers can easily switch to other now relatively lower-priced substitutes. Goods that are necessities, such as food, have no ready substitutes and, thus, tend to have lower elasticities than do luxury items, such as jewelry.

Elastic

If the quantity demanded is responsive to even a small change in price, we call it _______. Sensitive to a change in price.

Elastic

Supply is usually more ______ in the long run than the short run. Ex: Firms cannot usually change the size of their factory in the short run to produce more or less of a good.

Elastic

Goods with a supply elasticity that is greater than 1 (ES>1) are said to be relatively _______ in supply. Goods with a supply elasticity that is less than 1 (ES<1) are said to be relatively ______in supply. In other words, a 1 percent change in the price of these goods will induce a proportionately smaller change in the quantity supplied.

Elastic / Inelastic

The flatter the demand curve passing through a given point, the more _____ the demand. The steeper the demand curve passing through a given point, the ____ _____ the demand

Elastic / less elastic

if demand is relatively less ______ than supply in the relevant tax region, the largest portion of the tax is paid by the ______. However, if demand is relatively more ______ than supply in the relevant tax region, the largest portion of the tax is paid by the ________.

Elastic/consumer Elastic/producer

A straight-line demand curve with a constant slope will change _______ continuously as you move up or down it. The elasticity of a linear demand curve changes along the length of the curve—from relatively _______ at higher price ranges to relatively _______ at lower price ranges.

Elasticity Elastic/Inelastic

Tells us how much the quantity demanded will change due to a change in the price. How sensitive quantity demanded is to a change in price.

Elasticity of Demand

If the decrease in demand (leftward shift) is greater than the increase in supply (rightward shift), the equilibrium price and the equilibrium quantity will _____. If the increase in supply (rightward shift) is greater than the decrease in demand (leftward shift), the equilibrium price will ____ and the equilibrium quantity will _____.

Fall Fall/Rise

If the consumer is a buyer of several units of a good, the earlier units will have _______ marginal value and, therefore, create more consumer surplus because of marginal willingness to pay ______ as greater quantities are consumed in any period.

Greater Falls

The smaller the proportion of _______ spent on a good, the _____ its elasticity of demand. If the amount spent on a good relative to income is small, then the impact of a change in its price on one's budget will also be small.

Income Lower

Buyers and sellers each benefit by increasing the number of units traded until they reach ________.

Increase Equilibrium

Increase in the Supply Curve As the price equilibrium decreases, the quantity equilibrium will _______. Decrease in the Supply Curve A decrease in the supply curve will cause the price equilibrium to increase and the quantity equilibrium to ________.

Increase / Decrease

When Demand is Price Elastic A decrease in the price leads to a _______ in total revenue. An increase in the price leads to a _______ in total revenue

Increase / Decrease

If even a huge change in price results in only a small change in quantity demanded, then the demand is said to be _______. Ex: Gasoline (has very few substitutes). Quantity demanded is not very responsive to price changes.

Inelastic

If the demand curve is perfectly ________, the quantity demanded is the same, regardless of the price. Examples are insulin and heroin.

Inelastic

When the elasticity is less than 1; the quantity demanded changes proportionally less than the price changes, then demand is _________.

Inelastic

Who bears the burden of the tax on a good: Consumers or producers? Whoever's curve is more ________ bears the tax burden.

Inelastic

If the demand curve is elastic, total revenue will vary _______ with a price change.

Inversely

The cost of producing one more unit of a good.

Marginal Cost

Consumer surplus measures the ____ _____ buyers perceive that they receive, over and above the market price they must pay.

Net gains

When supply and demand move at the same time, we can predict the change in _____ variable (price or quantity), but we are unable to predict the direction of the effect on the other variable with any certainty. The change in the second variable, then, is said to be __________ because it cannot be determined without additional information about the size of the relative shifts in supply and demand

One/Indeterminate

If the curve is _________ ______, the demand curve becomes horizontal. The quantity demanded is extremely responsive to changes in prices.

Perfectly Elastic

In a condition of _______ _______ supply, the price does not change at all. It is the same regardless of the quantity supplied, and the elasticity of supply is infinite. Firms would supply as much as the market wants at the market price or above.

Perfectly Elastic

In a condition of _________ _________ supply, an increase in price will not change the quantity supplied. Famous paintings, such as van Gogh's Starry Night, provide another example: Only one original exists; therefore, only one can be supplied, regardless of price.

Perfectly Inelastic

A legal maximum price is often set for goods deemed important to low-income households, such as housing (set below equilibrium).

Price Ceiling

A legal minimum price, maybe set on wages because wages are the primary source of income for most people (price is set above the equilibrium price).

Price Floor

Involve the use of the power of the state to establish prices different from the equilibrium prices that would otherwise prevail. The motivations vary with the market under consideration.

Price controls

Measures how responsive the quantity sellers are willing and able to sell is to changes in price. Is defined as the percentage change in the quantity supplied divided by the percentage change in price.

Price elasticity of supply

The difference between what a producer pays for a good and the cost of producing one unit of that good. Producers would never knowingly sell a good that is worth more to them than the asking price.

Producer Surplus

In the elastic region of a demand curve, when the price falls the total revenue _____.

Rises

Price ceilings tend to create a _________.

Shortage

Price Floors tend to create a ________.

Surplus

For many goods, the more _____ that people have to adapt to a new price change, the ______ the elasticity of demand

Time Greater

The amount sellers receive for a good or service. The price of the good (P) times the quantity of the good sold (Q):TR=P×Q.

Total Revenue

The elasticity of demand will help predict how changes in the price will impact the _______ _______ earned by the producer for selling the good.

Total Revenue

The sum of the consumer and producer surpluses created. That is, consumers benefit from additional amounts of consumer surplus, and producers benefit from additional amounts of producer surplus.

Total Welfare Gains

Demand with a price elasticity of 1; the percentage change in quantity demanded is equal to the percentage change in price.

Unit Elastic Demand

The gains and losses associated with government intervention in markets.

Welfare Effects