ECON Midterm 2

If the price elasticity of supply is 1.5, and a price increase led to a 3% increase in quantity supplied, then the price increase is about

2.0%

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for tortilla chips in the given price range is

2.20

If the price elasticity of demand for a good is 0.5, then a 5 percent increase in price results in a

2.5 percent decrease in the quantity demanded.

If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a

20 percent decrease in the quantity demanded

If the price elasticity of demand for a good is 0.3, then a 20 percent decrease in price results in a

6 percent increase in the quantity demanded

Demand is inelastic if the price elasticity of demand is

less than 1

Goods with many close substitutes tend to have

more elastic demands

Economists compute the price elasticity of demand as the

percentage change in quantity demanded divided by the percentage change in price.

In a competitive market free of government regulation,

price adjusts until quantity demanded equals quantity supplied.

Which of the following is an implicit cost of production?

rent that could have been earned on a building owned and used by the firm

When a tax is levied on sellers of tea

sellers and buyers of tea both are made worse off.

The price elasticity of supply measures how responsive

sellers are to a change in price

A tax on sellers will

shift the supply curve upwards by the amount of the tax

When a supply curve is relatively flat, the

supply is relatively elastic

For a good that is a luxury, demand

tends to be elastic

The law of diminishing marginal returns states

that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline.

The marginal product of labor is defined as

the additional output that results when one more worker is hired, holding all other resources constant.

When a tax is placed on the sellers of lemonade,

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

Which of the following is an implicit cost of production?

the loss in the value of capital equipment due to wear and tear

The production function shows

the maximum output that can be produced from each possible quantity of inputs.

The imposition of a binding price ceiling on a market causes quantity demanded to be

greater than quantity supplied.

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is

inelastic

When demand is perfectly inelastic, the price elasticity of demand

is zero, and the demand curve is vertical

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that

the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price floor of $250 per physical. As a result of the price floor,

the quantity demanded of physicals decreases and the quantity of physicals doctors want to give increases.

If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in

the same price and higher total revenue from marijuana sales

When a tax is paced on the sellers of cell phones

the size of the cell phone market decreases, but the price paid by buyers increases.

A key determinant of the price elasticity of supply is the

time horizon.

Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because

with shortages and waiting lists, they have no incentive to maintain and improve their property.

Which of the following is likely to have the most price inelastic demand?

cookies

If a 15% increase in price for a good results in a 20% decrease in quantity demanded, the price elasticity of demand is

1.33

A legal maximum on the price at which a good can be sold is called a price

Ceiling

Which of the following statements helps to explain why government drug interdiction increases drug-related crime?

Drug addicts will have an even greater need for quick cash to support their habits.

Which of the following is an example of a long-run adjustment?

Walmart builds another Supercenter.

The price elasticity of demand for a good measures the willingness of

consumers to buy less of the good as price rises.

When demand is elastic, an increase in price will cause

a decrease in total revenue

Which of the following is a factor of production that generally is fixed in the short run?

a factory building

Economists generally believe that rent control is

a highly inefficient way to help the poor raise their standard of living.

Rent-control laws dictate

a maximum rent that landlords may charge tenants.

A price floor is binding when it is set

above the equilibrium price, causing a surplus.

A characteristic of the long run is

all inputs can be varied

A minimum wage that is set above a market's equilibrium wage will result in

an excess supply of labor, that is, unemployment.

Suppose that demand is inelastic within a certain price range. For that price range,

an increase in price would increase total revenue because the decrease in quantity demanded is proportionately less than the increase in price.

A perfectly elastic demand implies that

any rise in price above that represented by the demand curve will result in a quantity demanded of zero.

A price ceiling will be binding only if it is set

below the equilibrium price

If a price ceiling is a binding constraint on a market, then

buyers cannot buy all they want to buy at the price ceiling.

Demand is said to be price elastic if

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