Microeconomics Unit 2 Review

Which of the following is true in the market for a certain product if producers consistently are willing to sell more at the going price than consumers are willing to buy?

There is a price floor on the product.

To alleviate a financial crisis, a university increases student fees. This action will increase university revenues if the price elasticity of demand for university education is

inelastic

If a 5 percent wage increase in a particular labor market results in a 10 percent decrease in employment, the demand for labor is

relatively elastic

Which of the following is true in the elastic range of a firm's demand curve?

A decrease in price will likely lead to an increase in total revenue.

Assume that the demand for a certain good is perfectly inelastic and the supply curve of the good is upward sloping. Which of the following occurs in the market for the good if the price of an input used to produce the good increases?

A decrease in the supply and an increase in the equilibrium price

An increase in which of the following will most likely result in a long-run surplus of a product?

A price is set by law above the equilibrium price

If a normal good is produced in a competitive market, which of the following combination of events could cause the price of the good to increase and the quantity to decrease?

An increase in the average income of consumers and an increase in the price of a variable input

Assume that apple juice and grape juice are substitutes. Which of the following will cause an increase in the quantity of apple juice supplied?

An increase in the price of apple juice

Which of the following will decrease the demand for beef?

An increase in the price of potatoes, if potatoes and beef are complementary goods

Assume that a monopolist is producing in the inelastic portion of its demand curve. Which of the following will occur if the monopolist decreases its price?

Both total revenue and profits will decrease.

If the increase in the price of one good decreases the demand for another, then the two goods are

Complementary goods

If a price ceiling is set at P1, which of the following areas represent the resulting consumer surplus, producer surplus, and deadweight loss?

Consumer surplus: f+g+i Producer surplus: k Deadweight Loss: h+j

If the market demand for a good is inelastic and the supply is elastic, which of the following is true when there is an increase in sales tax?

Consumers will bear most of the burden of the tax.

The demand curve for a normal good slopes down for which of the following reasons? 1. An increase in the price of the good induces consumers to purchase substitute products. 2. An increase in the price of the goods reduces consumers' purchasing power. 3. An increase in the price of the good increases consumers' utility from consuming that good.

D) I and II only

Assume that the original supply and demand curves of a commodity are S and D, respectively. Also assume that the government imposes an excise tax (per unit tax) of t dollars on the commodity, which shifts the supply curve to S1.. The deadweight loss created by the tax is equal to

GKI

On the basis of the graph above, which of the following statements concerning changes in the demand for and supply of tomatoes is correct?

If the demand increases while the supply decreases, the price of tomatoes will definitely increase.

Which of the following situations best illustrates the law of demand?

In the past several months, as the price of compact disc players has decreased, the quantity of compact disc players sold has increased

The total amount of tax collected by the government is equal to

P1GIP2

A decrease in raw material prices will change the equilibrium price and quantity in a market in which of the following ways?

Price Decrease Quantity Increase

Assume that both the supply of and the demand for a good are relatively price elastic. The imposition of a per-unit excise tax on the sale of the good would cause the equilibrium price and quantity to change in which of the following ways?

Price Increase Quantity Decrease

The graph above illustrates the labor market for teenage workers. The current minimum wage for all workers is W1. If Congress introduces a sub-minimum wage, W2 that applies only to teenagers, what is the most likely effect on teenage employment?

Teenage employment will increase because firms will want to hire more teenagers at W2 than at W1.

Assume a consumer finds that his total expenditure on compact discs stays the same after the price of compact discs declines. Which of the following is true for this price change?

The consumer's demand for compact discs is unit price elastic.

Which of the following bears the total tax burden?

The consumers and the producers each bear a part of it.

Which of the following would cause the equilibrium price of good X to increase?

The price of an essential input in the production of good X increases.

If the government imposes a tax on the production of cars, which of the following will occur in the market for cars?

The supply curve will shift to the right.

Which of the following situations would necessarily lead to an increase in the price of peaches?

The wage paid to peach farm workers rises at the same time that medical researchers find that eating peaches reduces the chances of a person's developing cancer.

If the demand for potatoes increases whenever a person's income increases, then potatoes are an example of

a normal good

The supply curve for automobiles will shift to the left in response to

an increase in wages in the automobile industry

A decrease in the supply of oranges raised the price of oranges in the market. The substitution effect of the price increase will motivate consumers to

increase the quantity of other fruits demanded and decrease the quantity of oranges demanded

If a store raises its prices by 20 percent and its total revenue increases by 10 percent, the demand it faces in this price range must be

inelastic