Econ Test 2

A tax imposed on the sellers of a good will

lower the effective price received by sellers and lower the equilibrium quantity.

For which of the following types of goods would the income elasticity of demand be positive and relatively large?

Luxuries

In which of these cases will the tax burden fall most heavily on sellers of the good?

The demand curve is relatively flat and the supply curve is relatively steep.

Suppose that when the price of corn is $2 per bushel, farmers can sell 10 million bushels. When the price of corn is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true?

The demand for corn is price inelastic, and so an increase in the price of corn will increase the total revenue of corn farmers.

Which of the following statements is valid when supply is perfectly elastic at a price of $4?

The elasticity of supply approaches infinity.

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

There are many close substitutes for this good.

The minimum wage was instituted to ensure workers

a minimally adequate standard of living.

If a binding price ceiling is imposed on the computer market, then

a shortage of computers will develop.

Suppose you are in charge of setting prices at a local sandwich shop. The business needs to increase its total revenue and your job is on the line. If the demand for sandwiches is elastic, you

should decrease the price of sandwiches.

If sellers do not adjust their quantities supplied at all in response to a change in price,

supply is perfectly inelastic.

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

ceiling.

The cross-price elasticity of demand can tell us whether goods are

complements or substitutes.

For a good that is a luxury, demand

tends to be elastic

A surplus exists in a market if

the current price is above its equilibrium price

There are very few, if any, good substitutes for motor oil. Therefore,

the demand for motor oil would tend to be inelastic.

If a price floor is not binding, then

the equilibrium price is above the price floor

If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the

income elasticity of demand is negative.

If goods A and B are complements, then an increase in the price of good A will result in

less of good B being sold.

The supply of a good will be more elastic, the

longer the time period being considered

If the government removes a tax on buyers of a good and imposes the same tax on sellers of the good, then the price paid by buyers will

not change and the price received by sellers will not change.

Frequently, in the short run, the quantity supplied of a good is

not very responsive to price changes.

The price elasticity of demand measures how much

quantity demanded responds to a change in price

A tax imposed on the buyers of a good will

raise the price paid by buyers and lower the equilibrium quantity.

When consumers face rising gasoline prices, they typically

reduce their quantity demanded more in the long run than in the short run

If a tax is levied on the sellers of a product, then the demand curve

will not shift.

If a 40% change in price results in a 25% change in quantity supplied, then the price elasticity of supply is

0.63, and supply is inelastic.

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 amounted to

2%

Alice says that she would buy one banana split a day regardless of the price. If she is telling the truth,

Alice's demand for banana splits is perfectly inelastic.

Which of the following statements is not valid when the market supply curve is vertical?

An increase in market demand will increase the equilibrium quantity.

For which of the following goods is the income elasticity of demand likely highest?

diamonds

If the government wants to reduce smoking, it should impose a tax on

either buyers or sellers of cigarettes

Holding all other forces constant, if decreasing the price of a good leads to an increase in total revenue, then the demand for the good must be

elastic

When quantity demanded responds strongly to changes in price, demand is said to be

elastic

When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is

elastic