Economics Review

Refer to Figure 6-21. 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.

The maximum price that a buyer will pay for a good is called

willingness to pay

Which of the following is not an example of a public policy?

equilibrium laws

If the price of gasoline rises, when is the price elasticity of demand likely to be the highest? a. immediately after the price increases 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

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

salt

If a tax i leveled on the buyers of a product, then the supply curve will

shift up

Refer to Table 7-1. If price of the product is $135, then the total consumer surplus is a. $-50. b. $-35. c. $15. d. $150.

c. $15.

The price elasticity of demand for bread a. is computed as the percentage change in quantity demanded of bread divided by the percentage change in price of bread. b. depends, in part, on the availability of close substitutes for bread. c. reflects the many economic, social, and psychological forces that influence consumers' tastes for bread. d. All of the above are correct.

d. All of the above are correct.

How does the concept of elasticity allow us to improve upon our understanding of supply and demand? a. Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept. b. Elasticity provides us with a better rationale for statements such as "an increase in x will lead to a decrease in y" than we would have in the absence of the elasticity concept. c. Without elasticity, we would not be able to address the direction in which price is likely to move in response to a surplus or a shortage. d. Without elasticity, it is very difficult to assess the degree of competition within a market.

a. Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept.

Refer to Figure 6-21. How is the burden of the tax shared between buyers and sellers? Buyers bear a. three-fourths of the burden, and sellers bear one-fourth of the burden. b. two-thirds of the burden, and sellers bear one-third of the burden. c. one-half of the burden, and sellers bear one-half of the burden. d. one-fourth of the burden, and sellers bear three-fourths of the burden.

a. three-fourths of the burden, and sellers bear one-fourth of the burden.

Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is

assuming that the demand for university education is inelastic

Refer to Table 5-2. Using the midpoint method, if the price falls from $100 to $50, the absolute value of the price elasticity of demand is a. 0.31. b. 0.46. c. 1.25. d. 2.17

b. 0.46.

Refer to Table 5-2. Using the midpoint method, if the price falls from $200 to $150, the absolute value of the price elasticity of demand is a. 5.3. b. 2.8. c. 0.8. d. 0.36.

b. 2.8.

Total revenue will be at its largest value on a linear demand curve at the a. top of the curve, where prices are highest. b. midpoint of the curve. c. low end of the curve, where quantity demanded is highest. d. None of the above is correct.

b. midpoint of the curve.

the smaller the price elasticity of demand, the a. more likely the product is a luxury. b. smaller the responsiveness of quantity demanded to a change in price. c. more substitutes the product has. d. greater the responsiveness of quantity demanded to a change in price.

b. smaller the responsiveness of quantity demanded to a change in price

Refer to Figure 6-21. In the after-tax equilibrium, how much revenue does the government collect from the tax on this good? a. $210 b. $345 c. $420 d. $480

c. $420

Refer to Figure 5-1. Between point A and point B, price elasticity of demand is equal to a. 0.33. b. 0.67. c. 1.5 d. 2.67.

c. 1.5

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it a. maximizes costs of the seller. b. maximizes tax revenue for the government. c. maximizes the combined welfare of buyers and sellers. d. minimizes the expenditure of buyers.

c. maximizes the combined welfare of buyers and sellers.

Refer to Figure 5-14. 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 6-21. What is the amount of the tax per unit? a. $1 b. $2 c. $3 d. $4

d. $4

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue? a. 0 b. 0.4 c. 1 d. 4

d. 4

Which of the following is not a function of prices in a market system? a. Prices have the crucial job of balancing supply and demand. b. Prices send signals to buyers and sellers to help them make rational economic decisions. c. Prices coordinate economic activity. d. Prices ensure an equal distribution of goods and services among consumers.

d. Prices ensure an equal distribution of goods and services among consumers.

Refer to Table 5-2. Using the midpoint method, if the price falls from $200 to $150, the price elasticity of demand is a. zero. b. unit elastic. c. inelastic. d. elastic.

d. elastic.

If the government removes a binding price ceiling from a market, then the price received by sellers will a. decrease, and the quantity sold in the market will decrease. b. decrease, and the quantity sold in the market will increase. c. increase, and the quantity sold in the market will decrease. d. increase, and the quantity sold in the market will increase.

d. increase, and the quantity sold in the market will increase.

Suppose that gasoline prices increase dramatically this month. Lola commutes 100 miles to work each weekday. Over the next few months, Lola drives less on the weekends to try to save money. Within the year, she sells her home and purchases one only 10 miles from her place of employment. These examples illustrate the importance of a. the availability of substitutes in determining the price elasticity of demand. b. a necessity versus a luxury in determining the price elasticity of demand. c. the definition of a market in determining the price elasticity of demand. d. the time horizon in determining the price elasticity of demand.

d. the time horizon in determining the price elasticity of demand.

A tax imposed on the buyers of a good will raise the

price paid by buyers and lower the equilibrium quantity

If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then the

demand for the good is said to be inelastic

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly

elastic, and the demand curve will be horizontal

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.

Elasticity is a. a measure of how much buyers and sellers respond to changes in market conditions. b. the study of how the allocation of resources affects economic well-being. c. the maximum amount that a buyer will pay for a good. d. the value of everything a seller must give up to produce a good

a. a measure of how much buyers and sellers respond to changes in market conditions.

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the a. demand for ice cream cones in this price range is elastic. b. demand for ice cream cones in this price range is inelastic. c. demand for ice cream cones in this price range is unit elastic. d. price elasticity of demand for ice cream cones in this price range is 0

a. demand for ice cream cones in this price range is elastic

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 a. inelastic. b. elastic. c. unit elastic. d. perfectly inelastic

a. inelastic

Goods with many close substitutes tend to have a. more elastic demands. b. less elastic demands. c. price elasticities of demand that are unit elastic. d. income elasticities of demand that are negative

a. more elastic demands.

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of a. the availability of close substitutes in determining the price elasticity of demand. b. a necessity versus a luxury in determining the price elasticity of demand. c. the definition of a market in determining the price elasticity of demand. d. the time horizon in determining the price elasticity of demand.

a. the availability of close substitutes in determining the price elasticity of demand.

Refer to Table 7-1. If the price of the product is $122, then the total consumer surplus is a. $28. b. $41. c. $43. d. $405.

b. $41.

Refer to Table 7-1. If the price of the product is $130, then who would be willing to purchase the product? a. Calvin b. Calvin and Sam c. Calvin, Sam, and Andrew d. Calvin, Sam, Andrew, and Lori

b. Calvin and Sam

Refer to Table 7-1. If the market price is $105, a. Calvin's consumer surplus is $45 and total consumer surplus is $85. b. Sam's consumer surplus is $30 and total consumer surplus is $90. c. Andrew's consumer surplus is $15 and total consumer surplus is $67.50. d. Lori's consumer surplus is $2 and total consumer surplus is $100.

b. Sam's consumer surplus is $30 and total consumer surplus is $90.

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding? a. Improvements in production technology reduce the costs of producing laptop computers. b. The number of firms selling laptop computers decreases. c. Consumers' income decreases, and laptop computers are a normal good. d. The number of consumers buying laptop computers decreases.

b. The number of firms selling laptop computers decreases.

Refer to Table 5-2. Using the midpoint method, if the price falls from $100 to $50, the price elasticity of demand is a. zero. b. inelastic. c. unit elastic. d. elastic.

b. inelastic.

To say that a price ceiling is nonbinding is to say that the price ceiling a. results in a surplus. b. is set above the equilibrium price. c. causes quantity demanded to exceed quantity supplied. d. All of the above are correct.

b. is set above the equilibrium price.

When studying how some event or policy affects a market, elasticity provides information on the a. equity effects on the market by identifying the winners and losers. b. magnitude of the effect on the market. c. speed of adjustment of the market in response to the event or policy. d. number of market participants who are directly affected by the event or policy.

b. magnitude of the effect on the market

A price ceiling will be binding only if it is set

below the equilibrium price

Demand is said to be price elastic if

buyers respond substantially to changes in the price of the good

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good

When demand is unit elastic, price elasticity of demand equals a. 1, and total revenue and price move in the same direction. b. 1, and total revenue and price move in opposite directions. c. 1, and total revenue does not change when price changes. d. 0, and total revenue does not change when price changes.

c. 1, and total revenue does not change when price changes.

Refer to Table 5-2. Using the midpoint method, if the price falls from $150 to $100, the absolute value of the price elasticity of demand is a. 0.4. b. 0.9. c. 1.1. d. 2.

c. 1.1.

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is a. 0.35. b. 0.43. c. 2.33. d. 2.89.

c. 2.33.

Which of the following statements about the consumers' responses to rising gasoline prices is correct? a. About 10 percent of the long-run reduction in quantity demanded arises because people drive less and about 90 percent arises because they switch to more fuel-efficient cars. b. About 90 percent of the long-run reduction in quantity demanded arises because people drive less and about 10 percent arises because they switch to more fuel-efficient cars. c. About half of the long-run reduction in quantity demanded arises because people drive less and about half arises because they switch to more fuel-efficient cars. d. Because gasoline is a necessity, consumers do not decrease their quantity demanded in either the short run or the long run.

c. About half of the long-run reduction in quantity demanded arises because people drive less and about half arises because they switch to more fuel-efficient cars.

Refer to Figure 5-19. Which of the following statements is not correct? a. Supply curve A is perfectly inelastic. b. Supply curve B is perfectly elastic. c. Supply curve C is unit elastic. d. Supply curve D is more elastic than supply curve C.

c. Supply curve C is unit elastic.

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because a. buyers tend to be much less sensitive to a change in price when given more time to react. b. buyers tend to be much more sensitive to a change in price when given more time to react. c. buyers will have substantially more real income over a ten-year period. d. the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline.

c. buyers tend to be much more sensitive to a change in price when given more time to react

Consumer surplus a. is closely related to the supply curve for a product. b. is represented by a rectangle on a supply-demand graph when the demand curve is a straight, downward- sloping line. c. is measured using the demand curve for a product. d. does not reflect economic well-being in most markets.

c. is measured using the demand curve for a product.

The minimum wage, if it is binding, raises the incomes of a. no workers. b. only those workers who cannot find jobs. c. only those workers whose jobs would pay less than the minimum wage if it didn't exist. d. all workers.

c. only those workers whose jobs would pay less than the minimum wage if it didn't exist.

The value of the price elasticity of demand for a good will be relatively large when a. there are no good substitutes available for the good. b. the time period in question is relatively short. c. the good is a luxury rather than a necessity. d. All of the above are correct.

c. the good is a luxury rather than a necessity.

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

ceiling

Suppose buyers of vodka are required to send $5.00 to the government for every bottle of vodka they buy. Further, suppose this tax causes the effective price received by sellers of vodka to fall by $3.00 per bottle. Which of the following statements is correct? a. This tax causes the demand curve for vodka to shift downward by $5.00 at each quantity of vodka. b. The price paid by buyers is $2.00 per bottle more than it was before the tax. c. Sixty percent of the burden of the tax falls on sellers. d. All of the above are correct.

d. All of the above are correct.

Which of the following statements about the price elasticity of demand is correct? a. The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases. b. Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. c. Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y. d. All of the above are correct

d. All of the above are correct.

Which of the following statements about the price elasticity of demand is correct? a. The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases. b. Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. c. Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y. d. All of the above are correct.

d. All of the above are correct.

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

demand for motor oil would tend to be inelastic

In general, elasticity is a measure of

how much buyers and sellers respond to changes in market conditions

The presence of a price control in a market for a good or service usually is an indication that

policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers

Welfare economics is the study of how

the allocation of resources affects economic well-being

Which of the following is not a determinant of the price elasticity of demand for a good?

the definition of the market for the good

Which of the following statements is correct?

-The demand for the flat-screen computer monitors is more elastic than the demand for monitors in general -The demand for grandfather clocks is more elastic than the demand for clocks in general -The demand for cardboard is more elastic over a long period of time than over a short period of time

A binding minimum wage tends to

-cause a labor surplus -cause unemployment -have the greatest impact in the market for teenage labor

A 10 percent increase in gasoline prices reduces gasoline consumption by about

2.5 percent after one year and 6 percent after five years.

In which of these instances is demand said to be perfectly inelastic?

A decrease in price of 2% causes an increase in quantity demanded of 0%

Refer to Table 5-3. Using the midpoint method, in which range is demand most elastic? a. $0 to $3 b. $3 to $6 c. $9 to 12 d. $12 to $15

a. $0 to $3

Refer to Figure 5-14. Over which range is the supply curve in this figure the most elastic? a. $16 to $40 b. $40 to $100 c. $100 to $220 d. $220 to $430

a. $16 to $40

Refer to Figure 6-21. 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

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue? a. 0.3 b. 1 c. 1.8 d. None of the above could be correct.

a. 0.3

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market?

a smaller quantity of the good is bought and sold

On a graph, consumer surplus is represented by the area

below the demand curve and above the price

To say that a price ceiling is binding is to say that the price ceiling

causes quantity demanded to exceed quantity supplied

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.

The midpoint method is used to compute elasticity because it

gives the same answer regardless of the direction of change

Demand is elastic if the price elasticity of demand is

greater than 1

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it

maximizes the combined welfare of buyers and sellers

In a free, competitive market, what is the rationing mechanism?

price