SDSU ECON 102 - FINAL EXAM SP18 (HILMER) PT. 2

In general, elasticity is a measure of

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

Which tools help us evaluate how taxes affect economic well-being?

i. Consumer Surplus ii. Producer Surplus iii. Tax Revenue iv. deadweight loss

Demand is said to be elastic if

the quantity demanded changes only slightly when the price of the good changes

Formula for Elasticity Demand

% Change in QT. // % Change in Price * %CHANGEinQT on top

Suppose that Honduras opens its markets to international trade. As a result, the domestic price of coffee decreases. We can conclude that: A. Honduras has a comparative advantage in the production of coffee. B. Honduras has begun to import coffee into the country. C. the price of coffee in Honduras prior to the opening of trade was lower than the world price. D. Honduras should specialize in the production of coffee.

B. Honduras has begun to import coffee into the country

Suppose that Iceland goes from being an isolated country to being an exporter of coats. As a result, A. consumer surplus increases for consumers of coats in Iceland. B. producer surplus increases for producers of coats in Iceland. C. total surplus remains unchanged in the coat market in Iceland. D. it is reasonable to infer that other countries have a comparative advantage over Iceland in coat production.

B. Producer surplus increases for producers of coats in Iceland

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct? A. The flatter supply curve represents a supply that is inelastic relative to the supply represented by the steeper supply curve. B. The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve. C. Given two prices with which to calculate the price elasticity of supply, that elasticity would be the same for both curves. D. A decrease in demand will increase total revenue if the steeper supply curve is relevant, while a decrease in demand will decrease total revenue if the flatter supply cure is relevant.

B. The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve.

Total surplus in a market will increase when the government A. imposes a tax on that market. B. imposes a binding price floor on that market. C. removes a binding price ceiling from that market. D. None of the above is correct

C. removes a binding price ceiling from that market.

In which of the following cases is it most likely that an increase in the size of a tax will decrease tax revenue? A. The price elasticity of demand is small, and the price elasticity of supply is large. B. The price elasticity of demand is large, and the price elasticity of supply is small. C. The price elasticity of demand and the price elasticity of supply are both small. D. The price elasticity of demand and the price elasticity of supply are both large.

D. The price elasticity of demand and the price elasticity of supply are both large.

Elastic

Ed HIGH > 1

Inelastic

Ed LOW < 1

Calculate Percent Change w. MIDPOINT METHOD

Large Val. - Small Val. // (LG. Val + SML vl.) // 2 x 100%

Price Ceiling

Legal maximum on the price of a good/service (i.e rent control)

Price Floor

Legal minimum on the price of a good/service (i.e minimum wage)

Binding

Market can NOT go to equilibrium

Non-Binding

Market is not affected, and CAN go to equilibrium

The price of a that prevails in a world market is called the

World Price