MICRO FINAL EXAM 2 ANSWERS

You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at Wrigley Field. Assume the ticket has no resale value. Willie Nelson is performing on the same night, and his concert is your next best alternative activity. Tickets to see Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see and hear Willie Nelson perform. Assume there are no other costs of seeing either event. Based on this information, at a minimium, How much would you have to valye seeing the cubs play the white sox to accept the ticket and go to the game?

$10

which of the following price ceilings would be binding in this market

$2

the price paid by buyers after the tax is imposed is

$24

anita sharpens knives in her spare time for extra income. buyers of her service are willing to pay $3.50 per knife for as many knives as anita is willing to sharpen. on a particular day she is willing to sharpen the first knife for $2.00, the second knife for $2.50 and the third knife for $3.00 and the fourth knife for $3.50. assume anita is rational in deciding how many knives to sharpen. Her producer surplus

$3.00

suppose the price of the good is $400. then on the first unit of the good that is sold. producer surplus amounts to

$300

the amount of tax per unit is

$6

if tickets sell for $20 each, then what is the total consumer surplus in the market

$75

if a 40% change in price results in 25% change in quantity supplied then the price elasticity of puppy is about

.63 and supply is inelastic

Using the midpoint method, if the price falls from $60 to $40, the absolute value of the price elasticity of demand is

1

if the price elasticity of demand for aluminum foil is 1.45, then a 2.4% decrease in the price of aluminum, foil will increase the quantity demanded by aluminum foil by

3.48% and aluminum foil sellers total revenue will increase as a result

As price falls from Pa to Pb, we could use the three demand curves to calculate three different values of price elasticity of demand. which of the three demand curves would produce the small elasticity?

D3

(T/F) Along the elastic portion of a linear demand curve, total revenue rises as price rises.

F Along the elastic portion of a linear demand curve, total revenue -rises- (falls) as price rises.

(T/F) the lower the price, the lower the consumer surplus, all else is equal

F the lower the price, the -lower- (higher) the consumer surplus, all else is equal

(T/F) who bears the majority depends on whether the tax is placed on the buyers or the sellers

F who bears the majority -depends on- (does not matter) whether the tax is placed on the buyers or the sellers

(T/F) suppose you sell a kayak for $600, but you were willing to sell it for $450. the buyer was willing to pay $650. the toal surplus is $200

T

(T/F) the housing shortages caused by rent control are larger in the long run than in the short run because both the supply of housing and the demand for housing are more elastic in the long run

T

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated. by the aquatic center in order to meet expenses. The mayor advises you to increase of a day pass. The city manager recommends reducing the price of a day pass. You realize that

The mayor thinks demand is inelastic, and the city manager thinks demand is elastic.

which of the following would not interfere with market equilibrium

a non binding price floor

If the government imposes a price floor of $5 on this market then there will be

a surplus of 30 units of the good

if a binding price is imposed on the video game market then

a surplus of video games will develop

when demand is elastic, a decrease in price will cause

an increase in total revenue

consumer surplus in a market can be represented by the a) distance from the demand curve to the horizontal axis b) area below the demand curve and above the horizontal axis c) area below the demand curve and above the price d) distance from the demand curve to the vertical axis

area below the demand curve and above the price

if the government imposes a price floor at $9, it would be

binding if market demand is Demand A and non binding if market demand is Demand B

if demand is price inelastic then

buyers do not respond much to change in price

all else equal what happens to consumer surplus if the price of a good decreases

consumer surplus increases

Which area represents producer surplus when the price is P1?

d) c

Suppose that a tax is placed on books. If the buyers pay the majority of the tax, then we know that the a. demand is more inelastic than the supply. b. supply is more inelastic than the demand. c. government has required that buyers remit the tax payments. d. government has required that sellers remit the tax payments.

demand is more inelastic than the supply

for a good that is a necessity

demand tends to be inelastic

suppose the government imposes a 50 cent tax on the sellers of packets and chewing gum. the tax would a) raise the equilibrium price by 50 cents b) discourage market activity c) create a 50 cent tax burden each for buyers and sellers d) shift the supply curve upward by less than 50 cents

discourage market activity

which of the following is not a result of rent control

higher quality housing

if the price increases from $10 to $15, total revenue will

increase by $20, so demand must be inelastic in this price range.

if the price elasticity of supply is 1.2 and price increased by 5% quantity supplied would

increase by 6%

a tax burden falls more heavily on the side of the market that

is more inelastic

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

luxuries

When a tax is placed on the buyers of a product, buyers pay

more and the sellers receive less than they did before the tax

which of the following expression represents a cross price elasticity of demand

percentage change in quantity demanded of bread divided by percentage change in price of butter

assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. the income elasticity of demand for the good is

positive and the good is a normal good

if the government passes a law requiring buyers of college netbooks to send $5 to the government for every textbook they buy, then a) buyers of the textbook pay $5 more per textbook than they were paying before the tax b) the demand curve for textbooks shifts downward by $5 c) sellers of textbooks are unaffected by the tax d) all the above

the demand curve for textbooks shift downward by $5

one of the basic principles of economics is that markets are usually a good way to organize economic activity. this principle is explained by the study of

welfare economics