ECON TEST 2
Price
A change in what, results in a movement along a supply curve to a different quantity supplied?
Elastic
A price elasticity of supply measurement that is greater than 1 is relatively what?
Inelastic
A price elasticity of supply measurement that is less than 1 is characterized as relatively what?
D
Along a downward sloping, linear demand curve, total revenue is the greatest a) Where demand is normal. b) Where demand is the most inelastic. c) Where demand is the most elastic. d) Where demand is unit-elastic.
True
An excise tax can distort incentives and create missed opportunities for mutually beneficial transactions.
Sellers
Are buyers or sellers impacted more by tax?
Inferior
Are generic Potato chips a normal or inferior good?
Normal
Are vacations a normal or inferior good?
Yes
As a good are generic potato chips neither income-elastic nor income-inelastic?
Income-Elastic
As a good, vacations are what?
Quantity Demanded
As the availability of close substitutes of a good increases, so does the ability of consumers to respond to a price change by altering their what?
Perfectly Elastic
Because farmer Nate will only sell his goats for one price, his supply is what?
Elastic
Because luxury items are not a necessary part of a person's life, they tend to be more what?
Yes
Can excise taxes create an area of deadweight loss between the supply and demand curves?
C
Demand for a luxury item tends to be a) Perfectly inelastic. b) Less elastic. c) More elastic.
C
Demand for an item that uses a large portion of your budget tends to be a) Less elastic. b) Perfectly inelastic. c) More elastic.
A
Determine which statement about the absolute value of the price elasticity of demand is correct. a) The price elasticity of demand for Gain laundry detergent is likely to be greater than the price elasticity of demand for laundry detergent in general. b) The price elasticity of demand for gasoline is less than the price elasticity of demand for cereal because because more people eat cereal than use gasoline. c) The price elasticity of demand for gasoline is greater than the price elasticity of demand for cereal because because more people eat cereal than use gasoline. d) The price elasticity of demand for laundry detergent in general is likely to be greater than the price elasticity of demand for Gain laundry detergent.
No
Does a change in price change the supply?
Yes
Does the equilibrium price depend on who pays the tax?
No
Does the equilibrium quantity depend on who pays the tax?
Yes
Does the group with the more inelastic curve pay most of the tax?
E
Entex and BigSoft are both releasing new gaming consoles at the same time. Assume that consumers value both equally. Each company is deciding what to charge. If they both charge $600, then they will split the market and each earn $500 million. If one firm charges less, then it will capture the market and earn a significantly higher profit, while the other firm will be driven out of the market and earn nothing. If they both charge a low price, each company will earn a small profit. What are the dominant strategies for the two firms? a) Both firms should charge the higher price. b) Entex should charge $600 and BigSoft should charge less. c) Bigsoft should charge $600 and Entex should charge less. d) Neither firm has a dominant strategy. e) Both firms should charge the lower price.
Perfectly Inelastic
If price elasticity of supply is equal to 0 then it is what?
Unit Elastic
If price elasticity of supply is equal to 1 then it is what?
Perfectly Elastic
If price elasticity of supply is equal to infinity it is what?
No
If supply and demand are both inelastic, will the number of transactions decrease a substantial amount due to tax?
Decrease
If supply is relatively elastic, will the decrease in the price sellers receive significantly increase or decrease quantity?
Inelastic
If the absolute value of the price-elasticity demand is between 1 and 0 it is what?
Elastic
If the absolute value of the price-elasticity demand is greater than 1 it is what?
Producers
If the price elasticity of demand is high and the price elasticity of supply is low, the burden of tax fall mainly on who?
Consumers
If the price elasticity of demand is low and the price elasticity of supply is high, the burden of tax fall mainly on who?
B
If the price elasticity of supply for copper wire is 0.290.29, then the price elasticity of supply for copper wire is a) Unit elastic. b) Relatively inelastic. c) Perfectly inelastic. d) Relatively elastic. e) Perfectly elastic.
B
If the price is increased by a law from a market equilibrium value of $5 to a higher value of $6: a) Both producer surplus and consumer surplus will increase. b) Consumer surplus will decrease and there will be some lost surplus. c) Producer surplus will decrease and there will be some lost surplus. d) There will be lost surplus as both producer surplus and consumer surplus decrease.
Elastic
Inexpensive items tend to be less what?
Elastic
Items that are expensive tend to be more what?
Cigarettes
Of apples, beef, butter, and cigarettes... which is the most inelastic?
Consumers
Over long periods of time, who tends to be more responsive to a price change because substitute goods are discovered or behavior is adjusted?
A
Over longer periods of time, demand tends to be a) More elastic. b) Less elastic. c) Perfectly inelastic.
Elastic
Over longer periods of time, demand tends to be more what?
B
Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product increases. Which of the following statements accurately predicts the resulting increase in price? a) The more elastic the supply curve, the greater the price increase. b) The more elastic the supply curve, the smaller the price increase. c) The increase in price is not affected by the elasticity of the supply curve. d) There will be no increase in price if the supply curve is perfectly inelastic.
C
The distance between the demand curve and the price the consumer has to pay for a product is referred to as: a) Market surplus b) Market shortage c) Consumer surplus d) Producer surplus
False
The effect of an excise (or commodity) tax on the equilibrium price is the same regardless of who the tax is levied upon.
Deadweight Loss
The greater the price elasticity of supply and demand, the greater the what?
Larger
The group demonstrating more inelastic behavior have a larger or smaller tax incidence?
Deadweight Loss
The higher the number of transactions that do not take place (compared to the equilibrium quantity), the higher the what?
False
The incidence of a tax is determined by which group (buyers or sellers) must write the check to the government.
C
The price elasticity of supply measures a) The responsiveness of quantity supplied to changes in input prices. b) The responsiveness of quantity supplied to changes in technology. c) The responsiveness of quantity supplied to changes in price. d) A supplier's ability to produce a good in the face of scarcity.
Demand Elasticity
The responsiveness of buyers is measured by what?
DWL Triangle
The width of what represents the quantity of transactions that do not take place?
Perfectly Inelastic
To minimize deadweight loss you want the price elasticity of supply to be what?
True
True or False: An excise tax can distort incentives and create missed opportunities for mutually beneficial transactions.
False
True or False: If the demand for insulin is highly inelastic, then the burden of a tax on insulin will be born almost entirely by sellers.
False
True or False: The incidence of a tax is determined by which group (buyers or sellers) must actually pay the government.
False
True or False: When demand is elastic and supply is inelastic, the burden of a tax falls mainly on consumers.
False
True or False: When demand is inelastic and supply is elastic, the burden of a tax falls mainly on producers.
Perfect Elastic Supply
What can be shown graphically by a horizontal supply curve at a given price?
Excise Tax
What depends on the price elasticities of supply and demand for the product?
Tax Incidence
What describes the degree to which a group is affected by a tax?
Tax Incidence
What does not depend on who officially pays it, or who write the check to the government?
D
What does price elasticity of supply measure? a) How responsive price is to a change in quantity demanded b) How responsive price is to a change in quantity supplied c) How responsive supply is to a change in price d) How responsive quantity supplied is to a change in price
A
What effect will raising the price of SUVs from $21,100 to $29,700 have on car dealers' revenue? a) Revenue will increase. b) Revenue will decrease. c) Revenue will not change.
Deadweight Loss
What includes all the mutually beneficial transactions that do not take place because of the tax's introduction?
Revenue
What increases if the price decreases and demand is elastic?
Revenue
What increases if the price increases and demand is inelastic?
Price Ceiling
What is defined as a legally determined maximum price that sellers may charge?
Price Floor
What is defined as a legally determined minimum price that sellers may receive?
Tax Incidence
What is determined by the relative elasticities of demand and supply?
Revenue
What is inversely related to price changes if demand is inelastic?
Pre-Tax Price
What is known as the price where the supply and demand curves intersect?
Cosmetic
What is more elastic, emergency surgery or cosmetic surgery?
Yearly
What is more elastic, monthly electricity consumption or yearly electricity consumption?
The Wall Street Journal
What is more elastic, the wall street journal or the wall street journal at the airport?
Rent Control
What is one example of a price ceiling?
Perfect Inelasticity
What is shown graphically by a vertical supply curve at a certain quantity?
$400
What is the tax for an item that buyers pay $3,600 for and sellers receive only $3,200 for?
Tax
What leads to buyers paying a higher price and sellers receiving a lower price?
Perfectly Elastic Supply
What means that farmer Nate will supply any amount at one given price?
Elasticity
What measure the responsiveness of quantity demanded to changes in price?
Price Elasticity of Supply
What measures how responsive quantity supplied is to a change in price?
Excise Tax
What will reduce the quantity of the good consumed, creating missed opportunities for mutually beneficial transactions?
Yes
When a good is taxed are both buyers and sellers harmed?
False
When the price elasticity of demand is high and the price elasticity of supply is low, the burden of a tax falls mainly on consumers.
False
When the price elasticity of demand is low and the price elasticity of supply is high, the burden of a tax falls mainly on producers.
B
Which of the following is consistent with the general view of fairness by consumers? a) People leave tips but only if they anticipate returning to the same restaurant again. b) Making donations gives people more utility than if they had kept the money and spent it on themselves. c) In order to part with their money, consumers need to receive something material in return. d) All of the above
A
Which of the following pairs of goods is likely to have a negative cross-price elasticity of demand? a) Pancakes and syrup b) Hot dogs and hamburgers c) Orange juice and grapefruit juice d) Peanuts and cat food
B
Which of the following statements concerning total utility and marginal utility is correct? a) Total utility is the sum of marginal utilities. b) Marginal utility is the sum of total utility. c) Marginal utility is usually larger than total utility. d) Marginal utility is maximized when total utility is zero.
D
Which of the following statements is true? a) In general, if a product has few substitutes it will have an elastic demand. b) The more time that passes the more inelastic the demand for a product becomes. c) The demand curve for a necessity is more elastic than the demand curve for a luxury. d) The more narrowly we define a market, the more elastic the demand for a product will be.
C
Which statement about slope and price elasticity of demand along a linear demand curve is true? a) Both slope and elasticity are constant. b) Both slope and elasticity vary. c) Slope is constant, but elasticity varies. d) Elasticity is constant, but slope varies.
A
Which statement best describes the relationship between elasticity and tax incidence? a) If the demand curve is more elastic than the supply curve, then producers will pay more of the tax. b) If the demand curve is more elastic than the supply curve, then producers will pay less of the tax. c) If the supply curve is more elastic than the demand curve, then producers will pay an equal amount of the tax. d) Tax incidence and elasticity are unrelated.
Yes
Will the deadweight loss triangle have one side that is the same for all of the products?
B
With fewer substitutes, demand tends to be a) Perfectly inelastic. b) Less elastic. c) More elastic.
Elastic
With fewer substitutes, demand tends to be less what?
A
Entex discovers that both firms buy components for the consoles from the same supplier. This supplier sells many parts to Entex. To BigSoft, it sells just one critical component, but it is the only supplier because it owns the patent on it. Entex approaches BigSoft and offers to charge the high price if BigSoft will as well. But if BigSoft breaks the agreement, Entex will tell its supplier that it will pay more for its parts if the supplier completely stops selling to BigSoft. BigSoft knowns from its market research that there is a price Entex could pay that would make it worthwhile to the supplier and that this would drive BigSoft out of the market. Entex would capture the market but make a significantly smaller profit. Assume there is no government regulation preventing this behavior. Entex's offer is an example of a) A credible threat, or promise. b) Odd pricing. c) An empty, or non-credible, threat. d) Price discrimination.
A
Farmer Nate raises goats. When he can sell his goats for $200/goat he will sell any or all of his goats. He never asks for more than $200/goat and he never sells his goats for less than $200/goat. This is an example of a) Perfectly elastic supply b) Perfectly elastic demand c) Perfectly inelastic supply d) Perfectly inelastic demand
A
Fill in the blanks. The change in the quantity demanded of a good that results from _________________, holding all other factors constant, is known as the income effect. a) The effect of a change in price on consumer purchasing power. b) An increase in the usefulness of a product as the number of consumers who use it increases. c) The tendency of people to be unwilling to sell something they own. d) A change in price making the good more or less expensive relative to other goods.
B
If a 5 percent increase in income leads to a 10 percent decrease in quantity demanded for a product this product is a) An income elastic good. b) An inferior good. c) A necessity. d) A luxury good.
Yes
If a tax is paid by consumers can this be offset by a reduction in price?
Yes
If a tax is paid by producers can the value of the tax be passed onto consumers in form of higher prices?
Decrease
If demand is relatively elastic, will the total number of transactions increase or decrease significantly as the price buyers pay goes up because of the tax?
