Econ TEST 1 mcneese

Suppose a university raises its tuition by 10 percent, and as a result the enrollment of students decreases by 2 percent. The absolute value of the price elasticity of demand is _____.

0.2

Suppose a university raises its tuition by 6 percent, and as a result the enrollment of students decreases by 3 percent. The absolute value of the price elasticity of demand is

0.5

If the price elasticity of demand is 0.2, then a 20 percent increase in the price of the good will lead to a _____ in the quantity demanded

4 percent decrease

Which of the following best represents an external benefit?

A homeowner shovels snow from the sidewalks outside their home.

Does a state sales tax function as a progressive, regressive, or proportional source of revenue, and why? ( this is the type your own and the explanation)

A regressive tax system is one in which tax rates fall as incomes rise. A state sales tax is typically a fixed percentage of certain purchases, but individuals with lower incomes spend a larger portion of their income on items that are sales taxed. As incomes rise, a smaller portion of income is spent on these items, and therefore a lower percentage is allocated to sales tax. As a result, a state sales tax functions as a regressive tax.

Fire protection and police protection may be provided more efficiently by the private sector than by the public sector.

False

Figure 4.2) Suppose that point B represents the optimal mix of public and private goods for the society with this production possibilities curve. Which point(s) will reflect what the economy is more likely to produce each year if it produces efficiently? A convex up curve is plotted. The curve starts at a point on the vertical axis at the top left, goes down with increasing steepness, and ends at a point on the x axis at the bottom right. Point E is marked in the first quadrant in the region below the curve. Point F is marked in the first quadrant in the region above the curve. The point of intersection of the curve with the x axis is marked A. Points B, C, and D are marked on the curve. Point B is horizontally to the right of point E. Point C is horizontally to the left of point F. Point D is to the top left of point E.

Points C, D, and E

Which of the following explains what would likely happen if production and consumption of public goods were left to the free market?

Public goods would be underproduced.

A grocery store put salt on sale but found that total revenues fell. This can be explained by which of the following?

The demand for salt is inelastic.

Ceteris paribus, if the subsidies given to corn syrup producers decrease, then we can expect

a decrease in the supply of corn syrup.

A merit good is?

a good or service that society believes everyone is entitled to some minimal quantity of.

Suppose income falls 5 percent in a year, and as a result, housing construction falls from 10 million to 5 million units annually. Based on this information, housing starts are

a normal good

If a price is below equilibrium,?

a shortage will cause the price to rise and the quantity supplied to increase.

Externalities?

are the costs or benefits of market activities that "spill over" onto third parties

Restaurants like to give away free salty peanuts while you wait for your food to encourage you to?

buy more beverages

A proportional tax is one that?

collects the same rate on every dollar of income.

Assume a series of forest fires reduces the supply of lumber, which is an input in the production of wooden bats. Baseballs and wooden bats are complements. If the price of wooden bats increases, we can expect the?

demand for baseballs to decrease

When the percentage change in quantity demanded is less than the percentage change in price, ceteris paribus?

demand is inelastic

A public good is a good or service for which consumption by one person makes consumption by others impossible.

false

Government intervention that fails to improve economic outcomes is known as market failure.?

false

If the elasticity number (E) is less than 1, a price increase will cause total revenue to fall.

false

If two goods are complementary, it means that when the price of one good increases, the demand for the other rises.?

false

The sign on the income elasticity formula will be positive for inferior goods and negative for normal goods.?

false

If Good X has social demand that is less than market demand, then Good X must be a

good with an external cost.

When demand is elastic, the absolute number for price elasticity will be?

greater than 1

If the actual market price were fixed at $15 per unit, then

here would be a surplus of 40 units.

A rightward shift in a demand curve and a leftward shift in a supply curve both result in a?

higher equilibrium price.

Elasticity of supply looks at

how responsive sellers are to a change in price.

When income falls, the demand for an inferior good?

increases

Social demand is equal to?

market demand plus or minus externalities.

Which of the following products will have a more inelastic demand?

medicines

The Front Page Economics article titled "Perceptions of Government Failure" indicates that most survey respondents would say their trust in the federal government's ability to handle domestic problems is best described as

not very much

The market will overproduce goods that have external costs because

producers experience lower costs than society.

Market failure may lead to?

public goods being underproduced

The four specific sources of market failure are

public goods, market power, externalities, and inequity.

The optimal mix of output is the most desirable combination of output attainable with existing

resources, technology, and social values

Income elasticity measures the?

responsiveness of quantity demanded to a percentage change in income.

If the price elasticity of demand for cigarettes is 0.4,?

the demand is inelastic.

If the elasticity of demand is 3, and the price rises by 15 percent, then?

the quantity demanded will fall by 45 percent.

The theory of public choice examines?

the role of self-interest in public decisions.

The goal of the consumer in a market economy is to use their limited income to buy?

the set of goods and services that maximizes the consumer's total utility.

The term opportunity cost refers to

the value of the best foregone alternative.

The central question in determining whether a good is public or private is whether?

those who do not pay for the good can be excluded from its consumption.

If demand is inelastic, a reduction in price will lead to a drop in total revenue.

true

If the price of gasoline rises by 10 percent and new car sales fall by 5 percent, this indicates that these two goods are complementary.

true

Supply is very inelastic if the quantity supplied cannot respond quickly to an increase in price.

true

The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price.

true

There are never shortages or surpluses when the price in a market is equal to the equilibrium price for the market.

true

To reduce our dependence on foreign oil, policy makers must realize that the cross-price elasticity sign for gasoline and fossil fuel-burning cars is negative.

true

Technically the elasticity number is negative because?

when price falls, quantity demanded will rise, but for simplicity, economists take the absolute value of the elasticity number.