Micro Economics Exam 2

Kelly is willing to pay $5.20 for a gallon of gasoline. The price of gasoline at her local gas station is $3.80. If she purchases ten gallons of gasoline, then Kelly's consumer surplus is

$14

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using midpoint method, the price of elasticity of demand for tortilla chips in the given price range is

$2.20

Mark purchases a book for $6, and his consumer surplus is $2. How much is mark willing to pay for the book

$8

Tyler purchases 5 pounds of hot dogs per month when his monthly income is $2,000 and 4 pounds of hot dogs per month when his monthly income is $2,200. Tyler's income elasticity of demand for hot dogs is

-2.33, and hot dogs are an inferior good

Suppose that when the price of good X increase from $800 to $850, the quantity demanded of good Y increases from 65 to 70. Using the midpoint method, the cross price elasticity of demand is about

1.2 and X and Y are substitute

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

2.33

Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to midpoint method, the government should have reduced smoking by

40%

A demand curve reflects each of the following except

Ability of buyers to obtain the quantity they desire

When a buyer's willingness to pay for a good is equal to the price of the good, the

Buyer is indifferent between buying the good and not buying it

If demand price is inelastic, then

Buyers do not respond much to a change in price

Suppose you are in charge of setting prices at a local ice cream shop. The business needs to increase its total revenue, and your job is on the line. You evaluate the data and determine that the price elasticity of demand for ice cream at your shop is 1.8. You should

Decrease the price of ice cream

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

Demand for motor oil will tend to be inelastic

When the price of an eBook is $15.00, the quantity demanded is 400 eBooks per day. When the price falls to $10.00, the quantity demanded increases to 700. Given this information and using the midpoint method, we know that the demand for eBooks is

Elastic

Advocates for minimum wage

Emphasize the low annual incomes of those who work for the minimum wage

Elasticity is the measure of

How much buyers and sellers respond to changes in market conditions

If the government removes a binding price ceiling from a market, then the price received by sellers will

Increase, and the quantity sold in the market will increase

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it

Maximizes the combined welfare of buyers and sellers

In a competitive market free of government regulation,

Price adjusts until quantity demanded equals quantity supplied

Demand is said to be inelastic if the

Quantity demanded changes proportionally less than price

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor,

Quantity demanded decreases Quantity supplied increases There is a surplus

If nonbinding ceiling is imposed on a market, then the

Quantity sold in the market will stay the same

When consumer face rising gasoline prices, they typically

Reduce their quality demanded more in the long run than in the short run

Using midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good

The quantity of the good demanded decreases by 0.2 percent

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

The steepness or flatness of the supply curve for this good

Suppose gasoline increases drastically this month. Lola commutes 100 miles to work each weekday, so she chooses to drive less on the weekdays

The time horizon in determining the price elasticity of demand

For a particular good, a 5 percent increase in price causes a 15 percent decrease in quantity demanded. Which of the following statements is most likely applicable for thus good

There are many substitutes for this good

Suppose the government has imposed a price floor on cellular phones. Which of the following events could transform the price floor from one that is binding to one that is not binding

Traditional landline phones become more expensive

Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called

Willingness to pay

Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result,

a shortage of treadmills will develop

A surplus results when a

binding price floor is imposed on a market

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

ceiling

When the price of chai tea lattes is $5, Maxine buys 20 per month. When the price is $4, she buys 30 per month, Maxine's demand for chai tea lattes is

elastic, and her demand curve would be relatively flat

An increase in price causes an increase in total revenue when demand is

inelastic

The price elasticity of demand for mobile phones

will be lower if consumers perceive mobile phones to be a necessity