Econ Exam 2

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

$6.00

Refer to Figure 6-22. The price that buyers pay after the tax is imposed is a. $5. b. $6. c. $7. d. $8.

$8

Refer to Figure 6-18. Buyers pay how much of the tax per unit? a. $1. b. $1.50. c. $2.50. d. $3.50.

A. $1

Refer to Figure 6-22. The burden of the tax on sellers is a. $1 per unit. b. $1.50 per unit. c. $2 per unit. d. $3 per unit.

A. $1 per unit.

Refer to Figure 1. At the equilibrium price, total surplus is a. $100 b. $50. c. $200 d. $150

A. $100

Adrian produces nails at a cost of $200 per ton. If he sells the nails for $350 per ton, his producer surplus per ton is a. $150. b. $200. c. $350. d. $550.

A. $150

Refer to Table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome? a. $2 b. $3 c. $9 d. $10

A. $2

Refer to Figure 7-5. At the equilibrium price, producer surplus is a. $200. b. $400. c. $450. d. $900.

A. $200

Refer to Figure 7-5. If the government imposes a price floor of $70 in this market, then producer surplus will be a. $200. b. $75. c. $450. d. $900.

A. $200

Refer to Figure 6-19. How much tax revenue does this tax produce for the government? a. $24 b. $30 c. $32 d. $56

A. $24

Refer to Figure 6-23. The per-unit burden of the tax is a. $4 for buyers and $6 for sellers. b. $5 for buyers and $5 for sellers. c. $6 for buyers and $4 for sellers. d. $10 for buyers and $0 for sellers.

A. $4 for buyers and $6 for sellers.

Refer to Figure 7-18. At the equilibrium price, consumer surplus is a. $480. b. $640. c. $1,120. d. $1,280.

A. $480

Refer to Figure 6-22. The effective price that sellers receive after the tax is imposed is a. $5. b. $6. c. $7. d. $8.

A. $5

Sophie values a stainless steel refrigerator for her new house at $3,500, but she succeeds in buying one for $3,000. Sophie's consumer surplus is a. $500. b. $3,000. c. $3,500. d. $6,500.

A. $500.

Refer to Figure 7-18. If the government imposes a price floor of $8, producer surplus will be a. $640. b. $160. c. $320. d. $480

A. $640

Refer to Figure 10-8. What is the equilibrium price in this market? a. $8 b. Between $8 and $10 c. $10 d. More than $10

A. $8

Refer to Figure 6-23. The effective price received by sellers after the tax is imposed is a. $8. b. $10. c. $14. d. $18.

A. $8

Refer to Figure 6-6. Which of the following price ceilings would be binding in this market? a. $8 b. $10 c. $12 d. $14

A. $8

Refer to Figure 6-17. Acme, Inc. is a seller of the good. Acme sells a unit of the good to a buyer and then pays the tax on that unit to the government. Acme is left with how much money? a. $8.00 b. $9.00 c. $10.50 d. $12.00

A. $8.00

If the price elasticity of demand for tuna is 0.7, then a 1.5% increase in the price of tuna will decrease the quantity demanded of tuna by a. 1.05%, and tuna sellers' total revenue will increase as a result. b. 1.05%, and tuna sellers' total revenue will decrease as a result. c. 2.14%, and tuna sellers' total revenue will increase as a result. d. 2.14%, and tuna sellers' total revenue will decrease as a result.

A. 1.05%, and the tuna sellers total revenue will increase as a result

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about a. 1.43, and an increase in the price will cause hotels' total revenue to decrease. b. 1.43, and an increase in the price will cause hotels' total revenue to increase. c. 0.70, and an increase in the price will cause hotels' total revenue to decrease. d. 0.70, and an increase in the price will cause hotels' total revenue to increase.

A. 1.43, and an increase in the price will cause hotels' total revenue to decrease.

Refer to Table 10-3. The socially optimal quantity of output is a. 3 units. b. 2 units. c. 5 units. d. 6 units

A. 3 units

Refer to Table 10-4. The market equilibrium quantity of output is a. 3 units. b. 2 units. c. 5 units. d. 6 units.

A. 3 units

Refer to Figure 5-14. Along which of these segments of the supply curve is supply most elastic? a. AB b. CD c. DH d. GH

A. AB

Refer to Figure 5-14. Along which of these segments of the supply curve is supply least elastic? a. GH b. CD c. AC d. AB

A. GH

Refer to Figure 7-18. If the government imposes a price ceiling of $22, consumer surplus will change by a. It will not change.. b. $480. c. $160. d. $80.

A. It will not change

Ryan owns a dog whose barking annoys Ryan's neighbor Jane. Suppose that the benefit of owning the dog is worth $700 to Ryan and that Jane bears a cost of $500 from the barking. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct? a. Ryan pays Jane $600 for her inconvenience. b. Jane pays Ryan $400 to give the dog to his parents who live on an isolated farm. c. Jane pays Ryan $550 to give the dog to his parents who live on an isolated farm. d. The current situation is efficient.

A. Ryan pays Jane $600 for her inconvenience.

Which of the following is not correct? a. Taxes levied on sellers and taxes levied on buyers are not equivalent. b. A tax places a wedge between the price that buyers pay and the price that sellers receive. c. The wedge between the buyers' price and the sellers' price is the same, regardless of whether the tax is levied on buyers or sellers. d. In the new after-tax equilibrium, buyers and sellers share the burden of the tax.

A. Taxes levied on sellers and taxes levied on buyers are not equivalent.

Refer to Figure 6-22. As the figure is drawn, who sends the tax payment to the government? a. The buyers send the tax payment. b. The sellers send the tax payment. c. A portion of the tax payment is sent by the buyers, and the remaining portion is sent by the sellers. d. The question of who sends the tax payment cannot be determined from the figure.

A. The buyers send the tax payment.

Refer to Figure 2. Which of the following statements is correct? a. The market is in equilibrium at Q3. b. At Q2, the cost to sellers exceeds the value to buyers. c. At Q4, the value to buyers is more than the cost to sellers. d. At Q2, the market is producing too much output.

A. The market is in equilibrium at Q3.

For which of the following goods is the income elasticity of demand likely lowest? a. water b. sapphire pendant necklaces c. filet mignon steaks d. fresh fruit

A. Water

Refer to Figure 4. The social optimum can be reached if a. a subsidy of $36 is applied to each unit of the good. b. a subsidy of $23 is applied to each unit of the good. c. a tax of $23 is applied to each unit of the good. d. a tax of $15 is applied to each unit of the good.

A. a subsidy of $36 is applied to each unit of the good.

When a tax is placed on the buyers of cell phones, the size of the cell phone market a. and the effective price received by sellers both decrease. b. decreases, but the effective price received by sellers increases. c. increases, but the effective price received by sellers decreases. d. and the effective price received by sellers both increase.

A. and the effective price received by sellers both decrease.

Consumer surplus in a market can be represented by the a. area below the demand curve and above the price. b. distance from the demand curve to the horizontal axis. c. distance from the demand curve to the vertical axis. d. area below the demand curve and above the horizontal axis.

A. area below the demand curve and above the price.

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. decrease by less than $500.

A tax on the buyers of cereal will increase the price of cereal paid by buyers, a. decrease the effective price of cereal received by sellers, and decrease the equilibrium quantity of cereal. b. decrease the effective price of cereal received by sellers, and increase the equilibrium quantity of cereal. c. increase the effective price of cereal received by sellers, and decrease the equilibrium quantity of cereal. d. increase the effective price of cereal received by sellers, and increase the equilibrium quantity of cereal.

A. decrease the effective price of cereal received by sellers, and decrease the equilibrium quantity of cereal.

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the a. demand curve for toothpaste shifts to the left. b. supply curve for toothpaste shifts to the right. c. quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases. d. quantity supplied of toothpaste stays the same

A. demand curve for toothpaste shifts to the left.

Suppose that a tax is placed on books. If the buyers pay the majority of the tax, then we know that the a. demand is more inelastic than the supply. b. supply is more inelastic than the demand. c. government has required that buyers remit the tax payments. d. government has required that sellers remit the tax payments

A. demand is more inelastic than the supply.

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will a. give sellers the incentive to account for the external effects of their actions. b. increase demand. c. increase the amount of the commodity exchanged in market equilibrium. d. restrict the producers' ability to take the costs of the externality into account when deciding how much to supply.

A. give sellers the incentive to account for the external effects of their actions.

Externalities tend to cause markets to be a. inefficient. b. unequal. c. unnecessary. d. overwhelmed.

A. inefficient

Refer to Figure 1. If the government imposes a price floor of $6in this market, then producer surplus will decrease by a. It will not change. b. $42. c. $24 d. $30.

A. it will not change

Suppose that the demand for lava lamps is elastic, and the supply of lava lamps is inelastic. A tax of $2 per lamp levied on lava lamps will increase the price paid by buyers of lava lamps by a. less than $1. b. $1. c. between $1 and $2. d. $2.

A. less than $1

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is a. negative, and the good is an inferior good. b. negative, and the good is a normal good. c. positive, and the good is an inferior good. d. positive, and the good is a normal good.

A. negative, and the good is an inferior good.

. Refer to Figure 6-6. If the government imposes a price ceiling of $12 on this market, then there will be a. no shortage. b. a shortage of 10 units. c. a shortage of 20 units. d. a shortage of 40 units.

A. no shortage

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be a. positive. b. negative. c. either positive or negative. It depends whether A and B are normal goods or inferior goods. d. either positive or negative. It depends whether the current price level is on the elastic or inelastic portion of the demand curve.

A. positive

If a tax is levied on the sellers of a product, then the supply curve will a. shift up. b. shift down. c. become flatter. d. not shift.

A. shift up

If the cross-price elasticity of two goods is positive, then the two goods are a. substitutes. b. complements. c. normal goods. d. inferior goods.

A. substitues

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called a. transaction costs. b. corrective costs. c. input costs. d. private costs.

A. transaction costs

Refer to Figure 6-23. The amount of the tax per unit is a. $4. b. $5. c. $6. d. $10.

D. $10

Refer to Figure 6-18. Sellers pay how much of the tax per unit? a. $1.00. b. $1.50. c. $2.50. d. $3.50.

B. $1.50

Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are a. $1.90 and 38 units, respectively. b. $1.80 and 35 units, respectively. c. $1.60 and 42 units, respectively. d. $1.35 and 58 units, respectively.

B. $1.80 and 35 units, respectively.

Refer to Figure 6-18. How much tax revenue does this tax generate for the government? a. $75 b. $125 c. $175 d. $300

B. $125

Refer to Figure 3. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, what price will the firm charge per unit of plastic? a. $3 b. $3.50 c. $5 d. $8

B. $3.50

Refer to Figure 6-18. The effective price sellers receive after the tax is imposed is a. $2.50. b. $3.50. c. $5.00. d. $6.00.

B. $3.50

Refer to Figure 7-5. At the equilibrium price, consumer surplus is a. $200. b. $300. c. $500. d. $600

B. $300

Refer to Figure 7-5. If the government imposes a price ceiling of $120 in this market, then consumer surplus will be a. $75. b. $300. c. $500. d. $600.

B. $300

Refer to Figure 6-19. The effective price received by sellers after the tax is imposed is a. $3. b. $4. c. $5. d. $7.

B. $4

Refer to Figure 1. If the government imposes a price floor of $16 in this market, then consumer surplus will decrease by a. It will not change. b. $42. c. $24 d. $30.

B. $42

Refer to Figure 1. At the equilibrium price, consumer surplus is a. $100 b. $50. c. $200 d. $150.

B. $50

Refer to Figure 1. If the government imposes a price ceiling of $12 in this market, then producer surplus will be a. $100 b. $50. c. $200 d. $150

B. $50

Refer to Figure 1. If the government imposes a price ceiling of $16 in this market, then consumer surplus will be a. $100 b. $50. c. $200 d. $150.

B. $50

Refer to Figure 6-23. How much tax revenue does this tax produce for the government? a. $480 b. $600 c. $800 d. $1120

B. $600

Refer to Figure 7-18. At the equilibrium price, producer surplus is a. $480. b. $640. c. $1,120. d. $1,280.

B. $640

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

B. (ii) only

Sellers of a good bear the larger share of the tax burden when a tax is placed on a product for which the (i) supply is more elastic than the demand. (ii) demand in more elastic than the supply. (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 (iv) only d. (ii) and (iii) only

B. (ii) only

A nonbinding 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. a. (i) only b. (iii) only c. (i) and (iii) only d. (ii) and (iv) only

B. (iii) only

nonbinding 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. a. (i) only b. (iii) only c. (i) and (iii) only d. (ii) and (iv) only

B. (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. a. (ii) only b. (iv) only c. (i) and (iii) only d. (ii) and (iv) only

B. (iv) only

A nonbinding 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. a. (iii) only b. (iv) only c. (i) and (iii) only d. (ii) and (iv) only

B. (iv) only

How is the burden of a tax divided? (i) When the tax is levied on the sellers, the sellers bear a higher proportion of the tax burden. (ii) When the tax is levied on the buyers, the buyers bear a higher proportion of the tax burden. (iii) Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear an equal proportion of the tax burden. (iv) Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear some proportion of the tax burden. a. (i) and (ii) only b. (iv) only c. (i), (ii), and (iii) only d. (i), (ii), and (iv) only

B. (iv) only

Refer to Table 5-6. Using the midpoint method, the income elasticity of demand for good Y is a. 2.33, and good Y is a normal good. b. -2.33, and good Y is an inferior good. c. -0.43, and good Y is a normal good. d. -0.43, and good Y is an inferior good

B. -2.33, and good Y is an inferior good.

Tyler purchases 5 pounds of hot dogs per month when his monthly income is $2,000 and 4 pounds of hot dogs per month when his monthly income is $2,200. Tyler's income elasticity of demand for hot dogs is a. 2.33, and hot dogs are a normal good. b. -2.33, and hot dogs are an inferior good. c. 0.43, and hot dogs are a normal good. d. -0.43, and hot dogs are an inferior good.

B. -2.33, and hot dogs are an inferior good.

Last year, Carolyn bought 6 pairs of earrings when her income was $40,000. This year, her income is $52,000, and she purchased 7 pairs of earrings. Holding other factors constant, it follows that Carolyn's income elasticity of demand is about a. 0.59, and Carolyn regards earrings as an inferior good. b. 0.59, and Carolyn regards earrings as a normal good. c. 1.7, and Carolyn regards earrings as an inferior good. d. 1.7, and Carolyn regards earrings as a normal good.

B. 0.59, and Carolyn regards earrings as a normal good.

If the price elasticity of supply is 0.2, and a price increase led to a 3% increase in quantity supplied, then the price increase is about a. 0.07%. b. 0.60%. c. 6%. d. 15%.

B. 0.60%

Refer to Figure 10-10. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, how much plastic will be produced? a. 130 units b. 160 units c. 120 units d. 280 units

B. 160 units

Refer to Table 10-1. What is the socially-optimal quantity of output in this market? a. 1 unit b. 2 units c. 3 units d. 4 units

B. 2 units

Refer to Table 10-3. The market equilibrium quantity of output is a. 3 units. b. 2 units. c. 5 units. d. 6 units

B. 2 units

Refer to Table 10-4. The Socially optimal equilibrium quantity of output is a. 3 units. b. 2 units. c. 5 units. d. 6 units

B. 2 units

Refer to Table 10-1. What is the equilibrium quantity of output in the market? a. 2 units b. 3 units c. 4 units d. 5 units

B. 3 units

Refer to Table 10-2. What is the equilibrium quantity of output in this market? a. 3 units b. 4 units c. 5 units d. 6 units

B. 4 units

Refer to Figure 4. The socially optimal quantity of output is a. 58 units. b. 73 units. c. between 73 and 94 units. d. 94 units.

B. 73 units

Refer to Figure 7-23. Which of the following statements is correct? a. The market is in equilibrium at Q1. b. At Q2, the value to buyers exceeds the cost to sellers. c. At Q4, the value to buyers is more than the cost to sellers. d. At Q3, the market is producing too much output.

B. At Q2, the value to buyers exceeds the cost to sellers.

Refer to Table 7-2. Which of the following is not true? a. At a price of $9.00, no buyer is willing to purchase Vanilla Coke. b. At a price of $5.50, Megan is indifferent between buying a case of Vanilla Coke and not buying one. c. At a price of $4.00, total consumer surplus in the market will be $9.00. d. All of the above are correct.

B. At a price of $5.50, Megan is indifferent between buying a case of Vanilla Coke and not buying one.

If the cross-price elasticity of two goods is negative, then the two goods are a. necessities. b. complements. c. normal goods. d. inferior goods.

B. Complements

For which of the following goods is the income elasticity of demand likely highest? a. water b. diamonds c. hamburgers d. housing

B. Diamonds

Mary and Cathy are roommates. Mary assigns a $30 value to smoking cigarettes. Cathy values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem? a. Cathy offers Mary $20 not to smoke. Mary accepts and does not smoke. b. Mary pays Cathy $16 so that Mary can smoke. c. Mary pays Cathy $14 so that Mary can smoke. d. Cathy offers Mary $15 not to smoke. Mary accepts and does not smoke.

B. Mary pays Cathy $16 so that Mary can smoke.

Nick owns a dog whose barking annoys Nick's neighbor Jane. Nick receives personal benefit from owning the dog, and Jane bears a cost of Nick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct? a. If Nick's benefit exceeds Jane's cost, government intervention is necessary. b. Nick will pay to keep his dog if his benefit exceeds Jane's cost. c. If Jane's cost exceeds Nick's benefit, Nick will pay Jane to keep his dog. d. If Jane has the legal right to peace and quiet, no further transactions will be mutually beneficial.

B. Nick will pay to keep his dog if his benefit exceeds Jane's cost.

Which of the following is true when the price of a good or service rises? a. Buyers who were already buying the good or service are better off. b. Some buyers exit the market. c. The total consumer surplus in the market increases. d. The total value of purchases before and after the price change is the same.

B. Some buyers exit the market.

Which of the following statements is correct? a. Taxes are more difficult to administer than regulations. b. Taxes provide incentives for firms to adopt new methods to reduce negative externalities. c. Command-and-control policies provide incentives for private decisionmakers to solve their problems on their own. d. Corrective taxes distort incentives.

B. Taxes provide incentives for firms to adopt new methods to reduce negative externalities.

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? a. There are many close substitutes for this good. b. The good is a necessity. c. The market for the good is narrowly defined. d. The relevant time horizon is long.

B. The good is a necessity

If a nonbinding price floor is imposed on a market, then the a. quantity sold in the market will decrease. b. quantity sold in the market will stay the same. c. price in the market will increase. d. price in the market will decrease.

B. quantity sold in the market will stay the same.

For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. There are many substitutes for this good. b. The good is a necessity. c. The market for the good is narrowly defined. d. The relevant time horizon is long.

B. The good is a necessity.

Refer to Figure 6-18. As the figure is drawn, who sends the tax payment to the government? a. The buyers send the tax payment. b. The sellers send the tax payment. c. A portion of the tax payment is sent by the buyers, and the remaining portion is sent by the sellers. d. The question of who sends the tax payment cannot be determined from the graph.

B. The sellers send the tax payment.

Refer to Figure 6-4. Which of the following statements is not correct? a. When the price is $10, quantity supplied equals quantity demanded. b. When the price is $6, there is a surplus of 8 units. c. When the price is $12, there is a surplus of 4 units. d. When the price is $16, quantity supplied exceeds quantity demanded by 12 units.

B. When the price is $6, there is a surplus of 8 units.

A price floor 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.

B. above the equilibrium price.

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would a. be negative, and your roommate's would be positive. b. be positive, and your roommate's would be negative. c. be zero, and your roommate's would approach infinity. d. approach infinity, and your roommate's would be zero.

B. be positive, and your roommate's would be negative.

On a graph, consumer surplus is represented by the area a. between the demand and supply curves. b. below the demand curve and above price. c. below the price and above the supply curve. d. below the demand curve and to the right of equilibrium price

B. below the demand curve and above price.

Refer to Figure 4. Each additional unit of the good that is produced yields an external a. benefit of $15. b. benefit of $36. c. cost of $15. d. cost of $36

B. benefit of $36.

Refer to Figure 6-13. In this market, a minimum wage of $7.25 is a. binding and creates a labor shortage. b. binding and creates unemployment. c. nonbinding and creates a labor shortage. d. nonbinding and creates neither a labor shortage nor unemployment.

B. binding and creates unemployment.

Which of the following require firms to pay to pollute? (i) corrective taxes (ii) tradable pollution permits (iii) pollution regulations a. (i) only b. both (i) and (ii) c. (iii) only d. both (ii) and (iii)

B. both (i) and (ii)

A tax on the sellers of coffee mugs a. increases the size of the coffee mug market. b. decreases the size of the coffee mug market. c. has no effect on the size of the coffee mug market. d. may increase, decrease, or have no effect on the size of the coffee mug market.

B. decreases the size of the coffee mug market.

Rayan tunes pianos. If the demand for piano-tuning services is elastic, Rayan could increase his total revenue by a. increasing the price of his piano-tuning services. b. decreasing the price of his piano-tuning services. c. leaving the price of his piano-tuning services unchanged. d. None of the above is correct.

B. decreasing the price of his piano-tuning services.

A tax on buyers will shift the a. demand curve upward by the amount of the tax. b. demand curve downward by the amount of the tax. c. supply curve upward by the amount of the tax. d. supply curve downward by the amount of the tax.

B. demand curve downward by the amount of the tax.

When a tax is imposed on the buyers of a good, the demand curve shifts a. upward by the amount of the tax. b. downward by the amount of the tax. c. upward by less than the amount of the tax. d. downward by less than the amount of the tax.

B. downward by the amount of the tax.

Suppose the cross-price elasticity of demand between hot dogs and mustard is -2.00. This implies that a 20 percent increase in the price of hot dogs will cause the quantity of mustard purchased to a. fall by 200 percent. b. fall by 40 percent. c. rise by 200 percent. d. rise by 40 percent.

B. fall by 40 percent

Refer to Table 10-4. In order to reach the social optimum, the government could a. impose a tax of $7 per unit on plastics. b. impose a tax of $5 per unit on plastics. c. impose a subsidy of $7 per unit on plastics. d. impose a subsidy of $5 per unit on plastics.

B. impose a tax of $5 per unit on plastics.

Refer to Figure 10-10. In order to reach the social optimum, the government could a. impose a tax of $2 per unit on plastics. b. impose a tax of $6 per unit on plastics. c. impose a subsidy of $2 per unit on plastics. d. impose a subsidy of $6 per unit on plastics.

B. impose a tax of $6 per unit on plastics.

When a tax is placed on the buyers of a product, buyers pay a. more and sellers receive more than they did before the tax. b. more and sellers receive less than they did before the tax. c. less and sellers receive more than they did before the tax. d. less and sellers receive less than they did before the tax

B. more and sellers receive less than they did before the tax.

When a tax is placed on the buyers of a product, buyers pay a. more and sellers receive more than they did before the tax. b. more and sellers receive less than they did before the tax. c. less and sellers receive more than they did before the tax. d. less and sellers receive less than they did before the tax.

B. more and sellers receive less than they did before the tax.

Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates a. positive externalities. b. negative externalities. c. no externalities. d. no equilibrium in the market.

B. negative externalities.

. If a nonbinding price floor is imposed on a market, then the a. quantity sold in the market will decrease. b. quantity sold in the market will stay the same. c. price in the market will increase. d. price in the market will decrease.

B. quantity sold in the market will stay the same.

Suppose the government imposes a 20-cent tax on the sellers of iced tea. Which of the following is not correct? The tax would a. shift the supply curve upward by 20 cents. b. raise the equilibrium price by 20 cents. c. reduce the equilibrium quantity. d. discourage market activity

B. raise the equilibrium price by 20 cents.

Suppose the government imposes a 20-cent tax on the sellers of iced tea. Which of the following is not correct? The tax would a. shift the supply curve upward by 20 cents. b. raise the equilibrium price by 20 cents. c. reduce the equilibrium quantity. d. discourage market activity.

B. raise the equilibrium price by 20 cents.

A tax imposed on the buyers 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

B. raise the price buyers pay and lower the effective price sellers receive.

Positive externalities a. result in a larger than efficient equilibrium quantity. b. result in smaller than efficient equilibrium quantity. c. result in an efficient equilibrium quantity. d. can be internalized with a corrective tax

B. result in smaller than efficient equilibrium quantity.

A seller is willing to sell a product only if the seller receives a price that is at least as great as the a. seller's producer surplus. b. seller's cost of production. c. seller's profit. d. average willingness to pay of buyers of the product.

B. seller's cost of production.

Suppose that in a particular market, the demand curve is highly elastic, and the supply curve is highly inelastic. If a tax is imposed in this market, then the a. buyers will bear a greater burden of the tax than the sellers. b. sellers will bear a greater burden of the tax than the buyers. c. buyers and sellers are likely to share the burden of the tax equally. d. buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information

B. sellers will bear a greater burden of the tax than the buyers.

Suppose that in a particular market, the demand curve is highly elastic, and the supply curve is highly inelastic. If a tax is imposed in this market, then the a. buyers will bear a greater burden of the tax than the sellers. b. sellers will bear a greater burden of the tax than the buyers. c. buyers and sellers are likely to share the burden of the tax equally. d. buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information.

B. sellers will bear a greater burden of the tax than the buyers.

If a tax is imposed on a market with inelastic supply and elastic demand, then a. buyers will bear most of the burden of the tax. b. sellers will bear most of the burden of the tax. c. the burden of the tax will be shared equally between buyers and sellers. d. it is impossible to determine how the burden of the tax will be shared.

B. sellers will bear most of the burden of the tax.

A $0.10 tax levied on the sellers of chocolate bars will cause the a. supply curve for chocolate bars to shift down by $0.10. b. supply curve for chocolate bars to shift up by $0.10. c. demand curve for chocolate bars to shift down by $0.10. d. demand curve for chocolate bars to shift up by $0.10

B. supply curve for chocolate bars to shift up by $0.10.

A $0.10 tax levied on the sellers of chocolate bars will cause the a. supply curve for chocolate bars to shift down by $0.10. b. supply curve for chocolate bars to shift up by $0.10. c. demand curve for chocolate bars to shift down by $0.10. d. demand curve for chocolate bars to shift up by $0.10.

B. supply curve for chocolate bars to shift up by $0.10.

For a good that is a luxury, demand a. tends to be inelastic. b. tends to be elastic. c. has unit elasticity. d. cannot be represented by a demand curve in the usual way.

B. tends to be elastic

Refer to Figure 10-11. The graph represents a market in which a. there is no externality. b. there is a positive externality. c. there is a negative externality. d. The answer cannot be determined from inspection of the graph

B. there is a positive externality.

Refer to Table 10-3. The table represents a market in which a. there is no externality. b. there is a positive externality. c. there is a negative externality. d. The answer cannot be determined from inspection of the table.

B. there is a positive externality.

The Coase theorem suggests that private markets may not be able to solve the problem of externalities a. if the government does not become involved in the process. b. when the number of interested parties is large and bargaining costs are high. c. if the firm in the market is a monopoly. d. if some people benefit from the externality

B. when the number of interested parties is large and bargaining costs are high

Refer to Figure 7-18. At the equilibrium price, total surplus is a. $480. b. $640. c. $1,120. d. $1,280

C. $1,280

Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are a. $1.90 and 38 units, respectively. b. $1.80 and 35 units, respectively. c. $1.60 and 42 units, respectively. d. $1.35 and 58 units, respectively.

C. $1.60 and 42 units, respectively.

Refer to Figure 7-18. If the government imposes a price floor of $22, consumer surplus will be a. $90. b. $480. c. $120. d. $240.

C. $120

Refer to Figure 7-5. If the government imposes a price ceiling of $70 in this market, then producer surplus will decrease by a. $50. b. $125. c. $150. d. $200.

C. $150

Refer to Figure 6-22. The burden of the tax on buyers is a. $1 per unit. b. $1.50 per unit. c. $2 per unit. d. $3 per unit.

C. $2 per unit

Refer to Figure 6-18. The amount of the tax per unit is a. $1. b. $1.50. c. $2.50. d. $3.50.

C. $2.50

Refer to Figure 7-5. If the government imposes a price floor of $120 in this market, then consumer surplus will decrease by a. $75. b. $125. c. $225. d. $300.

C. $225

Refer to Figure 6-20. Andrew is a buyer of the good. Taking the tax into account, ho much does Andrew effectively pay to acquire one unit of the good? a. $16 b. $18 c. $24 d. $26

C. $24

Billie Jo values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $425. Billie Jo's willingness to pay for the dishwasher is a. $150. b. $425. c. $500. d. $850.

C. $500

Refer to Figure 6-20. The per-unit burden of the tax on buyers of the good is a. $2. b. $4. c. $6. d. $8.

C. $6

Refer to Table 10-2. How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output? a. $3 b. $5 c. $7 d. $9

C. $7

John lives in an apartment building and gets a $700 benefit from playing his stereo. Mary, who lives next door to John and often loses sleep due to the music coming from John's stereo, bears a $1,000 cost from the noise. At which of the following offers from Mary could both Mary and John benefit from the silencing of John's stereo? a. $200 b. $600 c. $900 d. $1,100

C. $900

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. (i) and (iv) only

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. (i) and (iv) only

If the price elasticity of supply is 1.5, and a price increase led to a 1.8% increase in quantity supplied, then the price increase is about a. 0.67%. b. 0.83%. c. 1.20%. d. 2.70%

C. 1.20%

Charles purchases 20 basketball tickets per year when his annual income is $50,000 and 25 basketball tickets when his annual income is $60,000. Charles's income elasticity of demand for basketball ticket is a. 0.82, and basketball tickets are a normal good. b. 0.82, and basketball tickets are an inferior good. c. 1.22, and basketball tickets are a normal good. d. 1.22, and basketball tickets are an inferior good.

C. 1.22, and basketball tickets are a normal good.

If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about a. 0.63, and supply is elastic. b. 0.63, and supply is inelastic. c. 1.60, and supply is elastic. d. 1.60, and supply is inelastic.

C. 1.60, and supply is elastic.

A bakery would be willing to supply 500 donuts per day at a price of $0.50 each. At a price of $0.80, the bakery would be willing to supply 1,100 donuts. Using the midpoint method, the price elasticity of supply for donuts is about a. 0.62, and supply is elastic. b. 0.62, and supply is inelastic. c. 1.63, and supply is elastic. d. 1.63, and supply is inelastic.

C. 1.63, and supply is elastic

Refer to Figure 10-8. What is the socially-optimal quantity of output in this market? a. 8 units b. Between 8 and 10 units c. 10 units d. More than 10 units

C. 10 units

. Refer to Figure 10-10. Suppose that the production of plastic creates a social cost which is depicted in the graph above. What is the socially optimal quantity of plastic? a. 130 units b. 160 units c. 120 units d. 280 units

C. 120 Units

If the price elasticity of demand for a good is 1, then a 3 percent decrease in price results in a a. 0.1 percent increase in the quantity demanded. b. 1 percent increase in the quantity demanded. c. 3 percent increase in the quantity demanded. d. 4 percent increase in the quantity demanded.

C. 3 percent increase in the quantity demanded

Rayan's income elasticity of demand for steak dinners is 1.50. All else equal, this means that if his income increases by 20 percent, he will buy a. 150 percent more steak dinners. b. 50 percent more steak dinners. c. 30 percent more steak dinners. d. 20 percent more steak dinners.

C. 30 percent more steak dinners

Reta's income elasticity of demand for steak dinners is 1.50. All else equal, this means that if her income increases by 20 percent, she will buy a. 150 percent more steak dinners. b. 50 percent more steak dinners. c. 30 percent more steak dinners. d. 20 percent more steak dinners

C. 30 percent more steak dinners.

Refer to Table 1. The market equilibrium quantity of output is a. 3 units. b. 4 units. c. 5 units. d. 6 units.

C. 5 units

Refer to Table 10-2. What is the socially-optimal level of output in this market? a. 3 units b. 4 units c. 5 units d. 6 units

C. 5 units

Refer to Table 10-2. What is the socially-optimal price in this market? a. 3 units b. 4 units c. 5 units d. 6 units

C. 5 units

Refer to Figure 3. Suppose that the production of plastic creates a social cost which is depicted in the graph above. What is the socially optimal quantity of plastic? a. 200 units b. 450 units c. 500 units d. 650 units

C. 500 units

Refer to Figure 2. Which of the following statements is correct? a. The market is in equilibrium at Q1. b. At Q2, the cost to sellers exceeds the value to buyers. c. At Q4, the value to buyers is less than the cost to sellers. d. At Q3, the market is producing too much output.

C. At Q4, the value to buyers is less than the cost to sellers.

Refer to Figure 7-23. Which of the following statements is correct? a. The market is in equilibrium at Q1. b. At Q2, the cost to sellers exceeds the value to buyers. c. At Q4, the value to buyers is less than the cost to sellers. d. At Q3, the market is producing too much output.

C. At Q4, the value to buyers is less than the cost to sellers.

Refer to Figure 7-3. Which area represents consumer surplus at a price of P1? a. ABD b. ACG c. BCDF d. DFG

C. BCDF

Refer to Figure 7-3. When the price falls from P1 to P2, which area represents the increase in consumer surplus to existing buyers? a. ABD b. ACG c. BCFD d. DFG

C. BCFD

Which of the following statements is correct concerning the burden of a tax imposed on take-out food? a. Buyers bear the entire burden of the tax. b. Sellers bear the entire burden of the tax. c. Buyers and sellers share the burden of the tax. d. We have to know whether it is the buyers or the sellers that are required to pay the tax to the government in order to make this determination.

C. Buyers and sellers share the burden of the tax.

Sally's cat causes Mike to sneeze. Sally values her cat's companionship at $300 per year. The cost to Mike of tissues and her allergy medication is $350 per year. Based on the Coase theorem, a. Sally should pay Mike $400 so that she may keep her cat. b. Sally should pay Mike $350 for tissues and allergy medication. c. Mike should pay Sally $325 to give away her cat. d. Mike should move

C. Mike should pay Sally $325 to give away her cat.

Refer to Table 10-1. Which of the following statements is correct? a. If the external benefit per unit of output were $0 instead of $2, then the socially efficient quantity of output would be 4 units. b. A tax of $4 per unit would enable this market to move from the equilibrium quantity of output to the socially optimal level of output. c. Taking the external cost into account, total surplus declines when the 3rd unit of output is produced and consumed. d. The market for flu shots is a market to which the concepts in this table apply very well.

C. Taking the external cost into account, total surplus declines when the 3rd unit of output is produced and consumed.

Suppose that flu shots create a positive externality equal to $12 per shot. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question.

C. The equilibrium quantity is less than the socially optimal quantity.

Refer to Table 1. Which of the following policies would move the market from the market equilibrium to the socially optimal equilibrium? a. a tax of $2 per unit of output b. a subsidy of $2 per unit of output c. a tax of $7 per unit of output d. a subsidy of $7 per unit of output

C. a tax of $7 per unit of output

Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is a. ignoring the law of demand. b. assuming that the demand for university education is elastic. c. assuming that the demand for university education is inelastic. d. assuming that the supply of university education is elastic.

C. assuming that the demand for university education is inelastic.

Internalizing a positive externality will cause the demand curve to a. shift to the right. b. shift to the left. c. become more elastic. d. remain unchanged.

C. become more elastic

Suppose that the demand for digital cameras is elastic, and the supply of digital cameras is inelastic. A tax of $20 per camera levied on digital cameras will decrease the effective price received by sellers of digital cameras by a. less than $10. b. $10. c. between $10 and $20. d. $20.

C. between $10 and $20.

If a tax is levied on the buyers of dog food, then a. buyers will bear the entire burden of the tax. b. sellers will bear the entire burden of the tax. c. buyers and sellers will share the burden of the tax. d. the government will bear the entire burden of the tax.

C. buyers and sellers will share the burden of the tax.

The supply curve for a product reflects the a. willingness to pay of the marginal buyer. b. quantity buyers will ultimately purchase of the product. c. cost to sellers of producing the product. d. seller's profit from producing the product

C. cost to sellers of producing the product.

A $0.50 tax levied on the buyers of pomegranate juice will shift the demand curve a. upward by exactly $0.50. b. upward by less than $0.50. c. downward by exactly $0.50. d. downward by less than $0.50.

C. downward by exactly $0.50.

. If sellers respond to very small changes in price by adjusting their quantity supplied by extremely large amounts, the price elasticity of supply approaches a. zero, and the supply curve is horizontal. b. zero, and the supply curve is vertical. c. infinity, and the supply curve is horizontal. d. infinity, and the supply curve is vertical.

C. infinity, and the supply curve is horizontal.

5. Chad is willing to pay $5.00 to get his first cup of morning latté. He buys a cup from a vendor selling latté for $3.75 per cup. Chad's consumer surplus is a. $8.75. b. $5.00. c. $3.75. d. $1.25.

D. $1.25

Refer to Figure 10-8. If the government wanted to subsidize this market to achieve the socially-optimal level of output, how large would the subsidy need to be? a. less than $2 b. $2 c. more than $2 d. The size of the subsidy cannot be determined from the figure.

C. more than $2

Last year, Joan bought 50 pounds of hamburger when her household's income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. All else constant, Joan's income elasticity of demand for hamburger is a. positive, so Joan considers hamburger to be an inferior good. b. positive, so Joan considers hamburger to be a normal good and a necessity. c. negative, so Joan considers hamburger to be an inferior good. d. negative, so Joan considers hamburger to be a normal good but not a necessity.

C. negative, so Joan considers hamburger to be an inferior good.

For which pairs of goods is the cross-price elasticity most likely to be positive? a. peanut butter and jelly b. bicycle frames and bicycle tires c. pens and pencils d. college textbooks and iPods

C. pens and pencils

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is a. negative, and the good is an inferior good. b. negative, and the good is a normal good. c. positive, and the good is a normal good. d. positive, and the good is an inferior good

C. positive, and the good is a normal good.

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should a. lower the price of the cinnamon rolls. b. leave the price of the cinnamon rolls unchanged. c. raise the price of the cinnamon rolls. d. reduce costs.

C. raise the price of cinnamon rolls

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because a. social costs equal private costs at the private market solution. b. private costs exceed social costs at the private market solution. c. social costs exceed private costs at the private market solution. d. they internalize externalities.

C. social costs exceed private costs at the private market solution.

If a change in the price of a good results in no change in total revenue, then a. the demand for the good must be elastic. b. the demand for the good must be inelastic. c. the demand for the good must be unit elastic. d. buyers must not respond very much to a change in price.

C. the demand for the good must be unit elastic.

Refer to Figure 6-18. Suppose the same supply and demand curves apply, and a tax of the same amount per unit as shown here is imposed. Now, however, the buyers of the good, rather than the sellers, are required to pay the tax to the government. After the buyers pay the tax, relative to the case depicted in the figure, the burden on buyers will be a. larger, and the burden on sellers will be smaller. b. smaller, and the burden on sellers will be larger. c. the same, and the burden on sellers will be the same. d. The relative burdens in the two cases cannot be determined without further information

C. the same, and the burden on sellers will be the same.

Refer to Table 10-4. The table represents a market in which a. there is no externality. b. there is a positive externality. c. there is a negative externality. d. The answer cannot be determined from inspection of the table.

C. there is a negative externality.

Refer to Figure 6-19. For every unit of the good that is sold, sellers are required to send a. one dollar to the government, and buyers are required to send two dollars to the government. b. two dollars to the government, and buyers are required to send one dollar to the government. c. three dollars to the government, and buyers are required to send nothing to the government. d. nothing to the government, and buyers are required to send two dollars to the government.

C. three dollars to the government, and buyers are required to send nothing to the government.

Economists typically measure efficiency using a. the price paid by buyers. b. the quantity supplied by sellers. c. total surplus. d. profits to firms.

C. total surplus

We can say that the allocation of resources is efficient if a. producer surplus is maximized. b. consumer surplus is maximized. c. total surplus is maximized

C. total surplus is maximized

Refer to Table 10-3. What amount of subsidy per unit of output would move the market from the equilibrium level of output to the socially optimal level of output? Page 12 of 14 a. $2 b. $3 c. $5 d. $10

D. $10

Refer to Figure 6-6. Which of the following price floors would be binding in this market? a. $6 b. $8 c. $10 d. $12

D. $12

Refer to Figure 6-17. The price that buyers pay after the tax is imposed is a. $8.00. b. $9.00. c. $10.50. d. $12.00.

D. $12.00

Ryan buys a new tractor for $118,000. He receives consumer surplus of $13,000 on his purchase. Ryan's willingness to pay is a. $13,000. b. $105,000. c. $118,000. d. $131,000.

D. $131,000.

Refer to Figure 6-23. The price paid by buyers after the tax is imposed is a. $8. b. $10. c. $14. d. $18.

D. $18

Refer to Figure 5-13. Over which range is the supply curve in this figure the least elastic? a. $16 to $40 b. $40 to $100 c. $100 to $220 d. $220 to $430

D. $220 to $430

Refer to Figure 6-22. The amount of the tax per unit is a. $1. b. $1.50. c. $2. d. $3.

D. $3

Bill created a new software program he is willing to sell for $200. He sells his first copy and enjoys a producer surplus of $150. What is the price paid for the software? a. $50. b. $150. c. $200. d. $350

D. $350

Refer to Figure 6-17. What is the amount of the tax per unit? a. $1 b. $2 c. $3 d. $4

D. $4

Sasha created a new software program she is willing to sell for $300. She sells her first copy and enjoys a producer surplus of $250. What is the price paid for the software? a. $50. b. $250. c. $300. d. $550.

D. $550

Refer to Figure 6-19. The price paid by buyers after the tax is imposed is a. $3. b. $4. c. $5. d. $7.

D. $7

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. (ii) and (iii) only

Sandra purchases 5 pounds of coffee and 10 gallons of milk per month when the price of coffee is $10 per pound. She purchases 6 pounds of coffee and 12 gallons of milk per month when the price of coffee is $8 per pound. Sandra's cross-price elasticity of demand for coffee and milk is a. 0.82, and they are substitutes. b. -0.82, and they are complements. c. 1.22, and they are substitutes. d. -1.22, and they are complements.

D. -1.22, and they are complements.

Refer to Table 5-6. Using the midpoint method, what is the income elasticity of demand for good X? a. -3.5 b. -0.29 c. 0.29 d. 3.5

D. 3.5

If the price elasticity of demand for a good is 10.0, then a 4 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.

D. 40 percent decrease in the quantity demanded.

Refer to Table 10-2. What is the equilibrium price in this market? a. 3 units b. 4 units c. 5 units d. 6 units

D. 6 units

Refer to Figure 10-11. A benevolent social planner would prefer a. a $28 price to any other price. b. 280 units to any other quantity of output. c. a subsidy of $18 per unit to a subsidy of $12 per unit. d. All of the above are correct.

D. All of the above are correct

Refer to Figure 6-2. The price ceiling a. is binding. b. causes a shortage. c. causes the quantity demanded to exceed the quantity supplied. d. All of the above are correct.

D. All of the above are correct

Refer to Figure 6-20. Suppose sellers, rather than buyers, were required to pay this tax (in the same amount per unit as shown in the graph). Relative to the tax on buyers, the tax on sellers would result in a. buyers bearing the same share of the tax burden. b. sellers bearing the same share of the tax burden. c. the same amount of tax revenue for the government. d. All of the above are correct.

D. All of the above are correct

Total surplus a. can be used to measure a market's efficiency. b. is the sum of consumer and producer surplus. c. is the to value to buyers minus the cost to sellers. d. All of the above are correct.

D. All of the above are correct

In which of the following circumstances would a buyer be indifferent about buying a good? a. The amount of consumer surplus the buyer would experience as a result of buying the good is zero. b. The price of the good is equal to the buyer's willingness to pay for the good. c. The price of the good is equal to the value the buyer places on the good. d. All of the above are correct.

D. All of the above are correct.

In which of the following situations will total revenue increase? a. Price elasticity of demand is 1.2, and the price of the good decreases. b. Price elasticity of demand is 0.5, and the price of the good increases. c. Price elasticity of demand is 3.0, and the price of the good decreases. d. All of the above are correct.

D. All of the above are correct.

An externality exists whenever a. the economy cannot benefit from government intervention. b. markets are not able to reach equilibrium. c. a firm sells its product in a foreign market. d. Bobbi engages in an activity that influences the well-being of Rosa and yet Bobbi neither pays nor receives payment for that influence

D. Bobbi engages in an activity that influences the well-being of Rosa and yet Bobbi neither pays nor receives payment for that influence

Which of the following statements is not correct about a market in equilibrium? a. The price determines which buyers and which sellers participate in the market. b. Those buyers who value the good more than the price choose to buy the good. c. Those sellers whose costs are less than the price choose to produce and sell the good. d. Consumer surplus will be equal to producer surplus.

D. Consumer surplus will be equal to producer surplus.

Refer to Figure 7-3. When the price falls from P1 to P2, which area represents the increase in consumer surplus to new buyers entering the market? a. ABD b. ACG c. BCDF d. DFG

D. DFG

For which of the following goods is the income elasticity of demand likely lowest? a. subscriptions to premium movie channels through the local cable television provider b. hi-definition DVD players c. champagne d. housing

D. Housing

Which of the following statements is not correct? a. Private markets tend to over-produce products with negative externalities. b. Private markets tend to under-produce products with positive externalities. c. Private parties can bargain to efficient outcomes even in the presence of externalities. d. Private parties are usually more successful in achieving efficient outcomes than government policies

D. Private parties are usually more successful in achieving efficient outcomes than government policies

A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct? a. Both the mayor and city manager would be correct if demand were price elastic. b. Both the mayor and city manager would be correct if demand were price inelastic. c. The mayor would be correct if demand were price elastic; the city manager would be correct if demand were price inelastic. d. The mayor would be correct if demand were price inelastic; the city manager would be correct if demand were price elastic.

D. The mayor would be correct if demand were price inelastic; the city manager would be correct if demand were price elastic.

Refer to Figure 6-19. Which of the following is correct? a. One-fourth of the burden of the tax falls on buyers, and three-fourths of the burden of the tax falls on sellers. b. One-third of the burden of the tax falls on buyers, and two-thirds of the burden of the tax falls on sellers. c. One-half of the burden of the tax falls on buyers, and one-half of the burden of the tax falls on sellers. d. Two-thirds of the burden of the tax falls on buyers, and one-third of the burden of the tax falls on sellers.

D. Two-thirds of the burden of the tax falls on buyers, and one-third of the burden of the tax falls on sellers.

If the price elasticity of demand for a good is 0.8, then which of the following events is consistent with a 4 percent decrease in the quantity of the good demanded? a. a 0.2 percent increase in the price of the good b. a 3.2 percent increase in the price of the good c. a 4.8 percent increase in the price of the good d. a 5 percent increase in the price of the good

D. a 5 percent increase in the price of the good

Refer to Figure 6-6. If the government imposes a price floor of $14 on this market, then there will be a. no surplus. b. a surplus of 20 units. c. a surplus of 30 units. d. a surplus of 40 units.

D. a surplus of 40 units

Negative externalities occur when one person's actions a. cause another person to lose money in a stock market transaction. b. cause his or her employer to lose business. c. reveal his or her preference for foreign-produced goods. d. adversely affect the well-being of a bystander who is not a party to the action.

D. adversely affect the well-being of a bystander who is not a party to the action.

Altering incentives so that people take account of the external effects of their actions a. is called internalizing the externality. b. can be done by imposing a corrective tax. c. is the role of government in markets with externalities. d. all of the above.

D. all of the above.

For which of the following goods is the income elasticity of demand likely highest? a. natural gas b. doctor's visits c. hamburgers d. boats

D. boats

When a tax is levied on sellers of tea, a. the well-being of both sellers and buyers of tea is unaffected. b. sellers of tea are made worse off, and the well-being of buyers is unaffected. c. sellers of tea are made worse off, and buyers of tea are made better off. d. both sellers and buyers of tea are made worse off.

D. both sellers and buyers of tea are made worse off.

When a tax is placed on the buyers of lemonade, the a. sellers bear the entire burden of the tax. b. buyers bear the entire burden of the tax. c. burden of the tax will be always be equally divided between the buyers and the sellers. d. burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal

D. burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal

When a tax is placed on the buyers of lemonade, the a. sellers bear the entire burden of the tax. b. buyers bear the entire burden of the tax. c. burden of the tax will be always be equally divided between the buyers and the sellers. d. burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

D. burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

Demand is said to be price elastic if a. the price of the good responds substantially to changes in demand. b. demand shifts substantially when income or the expected future price of the good changes. c. buyers do not respond much to changes in the price of the good. d. buyers respond substantially to changes in the price of the good.

D. buyers respond substantially to changes in the price of the good.

The cross-price elasticity of demand can tell us whether goods are a. normal or inferior. b. elastic or inelastic. c. luxuries or necessities. d. complements or substitutes

D. complements and substitutes

Refer to Figure 6-2. The price ceiling causes quantity a. supplied to exceed quantity demanded by 45 units. b. supplied to exceed quantity demanded by 85 units. c. demanded to exceed quantity supplied by 45 units. d. demanded to exceed quantity supplied by 85 units.

D. demanded to exceed quantity supplied by 85 units.

Which of the following is likely to have the most price elastic demand? a. dental floss b. milk c. salt d. diamond earrings

D. diamond earrings

Suppose the government imposes a 50-cent tax on the sellers of packets of chewing gum. The tax would a. shift the supply curve upward by less than 50 cents. b. raise the equilibrium price by 50 cents. c. create a 50-cent tax burden each for buyers and sellers. d. discourage market activity

D. discourage market activity

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. elastic, since the price elasticity of supply is equal to 1.1.

For which of the following types of goods would the income elasticity of demand be positive and relatively large? a. all inferior goods b. all normal goods c. goods for which there are many complements d. luxuries

D. luxuries

For which of the following types of goods would the income elasticity of demand be positive and relatively large? a. all inferior goods b. all normal goods c. goods for which there are many complements d. luxuries

D. luxuries

Consumer surplus a. is the amount a buyer pays for a good minus the amount the buyer is willing to pay for it. b. is represented on a supply-demand graph by the area below the price and above the demand curve. c. measures the benefit sellers receive from participating in a market. d. measures the benefit buyers receive from participating in a market.

D. measures the benefit buyers receive from participating in a market.

Refer to Figure 6-13. In this market, a minimum wage of $2.75 creates a labor a. shortage of 2,250 workers. b. shortage of 4,500 workers. c. surplus of 2,250 workers. d. neither a labor shortage nor surplus.

D. neither a labor shortage nor surplus.

Refer to Figure 6-13. In this market, a minimum wage of $2.75 is a. binding and creates a labor shortage. b. binding and creates unemployment. c. nonbinding and creates a labor shortage. d. nonbinding and creates neither a labor shortage nor unemployment.

D. nonbinding and creates neither a labor shortage nor unemployment.

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest? a. immediately after the price increase b. one month after the price increase c. three months after the price increase d. one year after the price increase

D. one year after the price increase

The demand for Godiva pumpkin truffles is likely quite elastic because a. truffles melt easily. b. this particular type of chocolate is viewed as a necessity by many chocolate lovers. c. the market is broadly defined. d. other types of chocolate are good substitutes for this particular flavor.

D. other types of chocolate are good substitutes for this particular flavor.

Ryan rescues dogs from his local animal shelter. When Ryan's income rises by 7 percent, his quantity demanded of dog biscuits increases by 12 percent. For Ryan, the income elasticity of demand for dog biscuits is a. negative, and dog biscuits are a normal good. b. negative, and dog biscuits are an inferior good. c. positive, and dog biscuits are an inferior good. d. positive, and dog biscuits are a normal good.

D. positive, and dog biscuits are a normal good.

Total revenue a. always increases as price increases. b. increases as price increases, as long as demand is elastic. c. decreases as price increases, as long as demand is inelastic. d. remains unchanged as price increases when demand is unit elastic

D. remains unchanged as price increases when demand is unit elastic

Refer to Figure 6-13. 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. surplus of 4,500 workers.

For a particular good, a 2 percent increase in price causes a 12 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 luxury. c. The market for the good is broadly defined. d. The relevant time horizon is short.

b. The good is a luxury