EXAM 2

Smaller quantity of the good is bought and sold.

After a binding price floor becomes effective, a

Slow replacement of old rental cars with newer ones.

Which of the following would be the most likely result of a binding price ceiling imposed on the market for rental cars?

POSITIVE, and dog biscuits are a NORMAL good.

Danita rescues dogs from her local animal shelter. When danita's income rises by 7 percent, her quantity demanded of dog biscuits increases by 12 percent. For Danita, the income elasticity of demand for dog biscuits is

In a market to buyers and sellers that is not offset by an increase in government revenue.

Dead weight loss measures the loss

Inefficient

Externalities tend to cause markets to be

Cost of building fences.

Justin builds fended for a living. Justin's out of pocket expenses (for wood, paint, etc.) Plus the value that he places on his own time amount to his

1

Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demand. Price elasticity of demand for X is

Cost of externality.

The difference between social cost and private cost is a measure of the

Buyers' responsiveness to a change in the price of a good.

The price elasticity of DEMAND measures

All of the above are correct

Total surplus

-1.3

Which of the following could be the cross-price elasticity of demand for two goods that are complements?

Private markets tend to under supply public goods.

Because of the free rider problems,

NOT excludable, people HAVE an incentive to be free riders.

Because public goods are

Infant-industry argument.

"Owners of firms in young industries should be willing to incur temporary losses if they believed that those firms will be profitable in the long run." This observation helps to explain why many economists are skeptical about the

Cropland has a COMPARATIVE advantage in producing corn.

Assume the nation of Cropland does not trade with the rest of the world. By comparing the world price of corn to the price of corn in Cropland, we can determine whether

(i) and (iii) only

A binding price floor

How much a buyer values a good.

A consumer's willingness to pay directly measures

Receives the benefit of a good but avoids paying for it.

A free rider is a person who

People can be prevented from using it.

A good is excludable if

Ceiling

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

BELOW the equilibrium price.

A price ceiling will be [B]inding only if it is set

Tax on an IMPORTED good

A tariff [I]s a

PRICE paid by buyers and LOWER the equilibrium quantity.

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

Demand curve downward (or to the left)

A tax levied on the BUYERS of a good shifts the

Decreases the size of the coffee mug market.

A tax on the sellers of coffee mugs

Supply curve upward (or to the left)

A taxed levied on the SELLERS of a good shifts the

Is the amount a consumer is willing to pay minus the amount the consumer actually pays.

Consumer surplus

To induce firms to internalize the externality in this market, the government should IMPOSE a tax measured by P2 - P0

Figure 10-14. Which of the following statements is correct?

$200

Figure 7-11. At the equilibrium price, producer surplus is

Dead weight loss due to the tax.

Figure 8-1. Suppose the government imposes a tax of P' - P"'. The area measured by I+Y represents the

Tax revenue

Figure 8-1. Suppose the government imposes a tax of P'- P"". The area measured by K+L represents

The relevant time period is LONG rather than short.

Generally, a firm is more willing and able to increase quantity supplied in response to a price change when

Buyers tend to be much MORE sensitive to a change in price when given more time to react.

Holding all other forces constant, when the price of gasoline rises, the number of gallons demanded would fall substantially over a ten year period because

The country will be an EXPORTER of the good.

If a country allows trade and, for a certain good, the domestic price w/o trade is lower than the world price,

$50

If the government imposes a price ceiling of $70 in this market, then the new producer surplus will be

Decrease by LESS than $500

If the government levies a $500 tax per car on sellers of cars, then the price received by sellers of cars would

40 percent decrease in the quantity demanded.

If the price elasticity of demand for a good is 10.0, then a 4 percent increase in price results in a

15%

If the price elasticity of supply is 0.2, and a price increases led to a 3% increase in quantity supplied, then the price increase is about

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

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 illustrates the importance of

The amount a seller is paid minus the cost of production.

Producer surplus is

Demand for the product is more elastic than the supply of the product.

Seller of a product will bear the larger part of the tax burden, and BUYERS will bear a smaller part of the tax burden, when the

Policy makers BELIEVED that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers.

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

All of the above are correct

The price elasticity of demand for bread

Between the demand and supply curves up to the point of equilibrium.

Total surplus is represented by the area

1.80

Using the midpoint method, when income equals $7500, what is the price elasticity of demand between $16 and $20?

Comparative advantage

What is the fundamental basis for trade among nations?

Domestic producers GAIN and domestics consumers LOSE.

When a country allows trade and becomes an EXPORTER of a [G]ood,

Domestic producers become WORSE OFF, and domestic consumers become BETTER OFF.

When a country allows trade and becomes an IMPORTER of a good,

One person's use of the good diminishes another person's ability to use it.

When a good is rival in consumption,

Buyers of the good will bear most of the burden of the tax.

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

Regardless of how the tax is levied.

When a tax is levied on a good, the buyers and sellers of the good share burden,

RISES, and the price received by sellers FALLS.

When a tax is placed on a product, the price paid by buyers

Protect the interests of bystanders.

When the government intervenes in markets with externalities, it does so in order to

The steepness or flatness of the supply curve for the good.

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