Test 1 Chapters 3, 4, 6, 19, 20
Sandy's Sandwich Sitdown priced its lunch treats at $2.00, they sold 250 per week. When the price was $3.00, they sold 200 per week. Based on this information, the absolute value of the price elasticity of demand for lunch treats is ______ Based on the above calculation, demand for lunch treats is considered to be
0.56 inelastic
Remembering that the price elasticity of demand is evaluated in terms of absolute values, which of the following is an example of an elastic demand?
1.5
We observe a 12 percent decrease in units purchased and a(n) 5 percent increase in price. The price elasticity of demand in terms of absolute values is
2.4
When Jennifer consumes one apple, her total utility is 6 utils. When she consumes two apples, her total utility increases to 10 utils. What is Jennifer's marginal utility from consuming the second apple?
4 utils
Corporate income taxes account for
7 percent of all federal taxes collected and make up about 2 percent of all state and local taxes collected.
Which of the following will cause an outward (rightward) shift in supply?
A technological improvement.
The maximum sales tax rates for selected states, including county and municipal taxes, occur in
Arkansas, Louisiana, and Arizona.
Governments that wish to maximize their tax revenues should always assess a high tax rate.
False
In general, the less organized the market, the lower the transaction costs.
False
What is the relationship between tax rates and tax revenues?
Increasing tax rates will initially increase tax revenues. Eventually an increase in the tax rate will erode the tax base and revenues will decrease.
Why is the price of diamonds usually so much higher than the price of water even though people cannot survive long without water?
Marginal utility, not total utility, determines how much a person is willing to pay for a good.
Which of the following explains the difference between the average tax rate and the marginal tax rate?
The average tax rate uses total income while the marginal tax rate refers to the tax rate of the last dollar earned.
In a market system, how are the terms of exchange established?
The forces underlying supply and demand interact to set a price.
The price of milk increases. Which of the following is not part of the likely chain of events that follows from this price change?
The manufacturers of milking machines lay off some workers
Suppose that at first the price of a pair of shoes is $15 and the price of a t−shirt is $9. Then, the price of a pair of shoes changes to $30 and the price of a t−shirt changes to $21. What has happened the money prices and relative prices of these two goods?
The money price of a pair of shoes and a t−shirt have risen and the relative price of a pair of shoes has fallen while relative price of a t−shirt has risen.
Hospital Room (1 day) (2003) $250 (2005) $275 Hotel Suite (1 night) ( 2003) $350 (2004) $375 Based on the table above which of the following is true?
The money prices of both goods increased, the relative price of hospital rooms increased, and the relative price of hotel suites decreased.
Last year, the price of steak was $4 per pound and the price of salmon was $5 per pound. This year, the price of steak is $6 per pound and the price of salmon is $7 per pound. All other things equal, and assuming that David purchased both items before, what would you expect to happen to his purchases of steak (relative to salmon) this year?
The relative price of steak has increased, so David would be expected to purchase less.
What does the price elasticity of demand measure?
The responsiveness of quantity demanded to a change in the price of a good.
Middlemen specialize in lowering transaction costs.
True
Voluntary exchange refers to an act of trading between individuals that makes both parties to the trade subjectively better off.
True
Which of the following will cause the demand curve to shift?
a change in consumer income
The publication Car and Driver reduces transactions costs for high-performance car buyers
by providing reliable information so that car buyers do not have to spend as much time doing their own research.
Consider in the graph to the right the demand curve for bananas. The movement from point C to A represents a change in
demand
If an analyst has concluded that tax revenues may eventually decline if the tax rate is raised sufficiently, this analyst is using
dynamic tax analysis.
Buyers and sellers receive information about what should be bought and what should be produced
from prices in a market system.
Consider the chewing gum market shown in the graph at right. An increase in the demand for chewing gum will ________ the equilibrium price and _________ the equilibrium quantity.
increase, increase
A firm sells 2 million units of a good when price is $4.00 and 1.8 million units when price is $4.50. The price elasticity of demand is
inelastic.
Voluntary exchange
makes both parties to a trade better off.
The market price people are willing to pay for a unit of a particular commodity is determined by
marginal utility
If a government wants to obtain the maximum tax revenue it should
not assess the highest possible tax rate
The most important tax in the U.S. economy is the
personal income tax, which accounts for 50 percent of all federal revenues.
If total utility is increasing at a decreasing rate, marginal utility is
positive and decreasing
Suppose the federal government replaced the current income tax system with a system that taxed all income at 40%, but the first $35,000 of income was tax exempt. Such a system would be a ________________ tax system.
progressive
Key taxes at the federal level do not include:
property taxes.
The law of demand states that
quantity demanded will fall as price rises, other things being equal.
In a price system,
relative prices change constantly to reflect changes in supply and demand
The corporate income tax in the United States
results in individuals' being doubly taxed on corporate earnings.
Total utility
rises as long as marginal utility is positive. falls as long as marginal utility is negative. is at a maximum when marginal utility is zero. (All)
In a price system, changes in prices
signal to consumers that some goods are relatively more or less scarce.
Other things remaining equal, the law of demand says that higher prices will lead to a
smaller quantity demanded and lower prices to a larger quantity demanded
The federal corporate income tax structure results in double taxation because
stockholders pay taxes on dividends that were already taxed as profits of the corporation.
Suppose the price of apples falls relative to other similar goods, and as a result the quantity of apples demanded increases. This is caused by
substitution effect.
A proportional tax, or flat-rate tax
takes the same percentage of a person's taxable income in tax regardless of their level of income.
Consider the figure to the right. At a price of $5,
the market has reached an equilibrium price.
Price elasticity of demand is defined as
the percentage change in quantity demanded divided by the percentage change in price.
According to the accompanying graph, when the government imposes a price ceiling of $25
the quantity of goods that will be traded is 100.
The law of diminishing marginal utility insures that
the total utility curve will eventually increase at a decreasing rate
At a consumer optimum involving goods A and B, the marginal utility of good A is two times the marginal utility of good B. The price of good B is $4.00. The price of good A is
$8.00.