Chapter 5

A firm increases price and total revenues increase. From this we can conclude that its demand:

is price inelastic

Home heating gas tends to have ____ demand because _____.

inelastic; people do not have time to adjust their consumption patterns

When moving down along a straight-line demand curve:

the elasticity of demand changes from elastic to inelastic.

(Figure: Interpreting Price Changes) Using the graph, if the price for shoes increases from $40 to $80 (from point d to point b), the net revenue lost, or gained, would be:

$200 net loss.

(Figure: Determining Tax Burdens) In the graph, the original market price is $4. The graph depicts a tax of ______ with a corresponding deadweight loss of ______.

$3; $75

(Figure: Impact of Tax on Market Equilibrium) In the graph, how much is the deadweight loss created by the tax?

$60

Which of the following is the price elasticity of demand if price increases by 100% and quantity demanded decreases by 50%?

0.5

When the price of good decreases from $10 to $8, the quantity supplied of it decreases from 80 to 65. The price elasticity of supply is:

0.93

As the price of bananas fell from $0.60 to $0.40 per pound, the quantity demanded rose from 300 pounds of bananas bought to 500 pounds. The price elasticity of demand (using the midpoint method) is:

1.25

If a product's price rises by 6%, and its quantity demanded falls by 8%, then its elasticity is calculated to be:

1.33

If the price of a product falls by 15%, and the quantity supplied falls by 25%, the elasticity of supply is:

1.67

Elastic supply could be indicated by a value of:

1.7

A grocery store announced a 50% decrease in the price of local honey. Sales increased by 200%. The price elasticity of honey is:

4

Which of the following events is a long-run adjustment for a university?

A new science building is constructed

(Figure: Determining Consumer and Producer Surplus) In the graph, producer surplus is shown by area:

ABD

(Figure: Determining Consumer and Producer Surplus) In the graph, consumer surplus is shown by area:

BCD

The price of gold increases by 200%. If the price elasticity of demand of gold is 0.4, what will happen in the market?

Gold sales will decrease by 80%.

When there are many substitutes for a product and there is a price increase for the product, what happens to total revenue?

It decreases.

(Figure: Determining Elasticity of Supply) The graph has four supply curves. Which curve is infinitely elastic?

S4

If a store deals in a good that has a unitary elastic demand, what would be the net results on their total revenue of an increase in price?

There would be would be zero, so no change in total revenue.

Which of the following is the BEST example of a loss leader?

a gas station selling hot dogs well below market value to bring in customers

Inelastic supply curves:

always cross the quantity axis.

If demand is inelastic, the tax burden falls primarily on the _____ and deadweight loss is _____.

buyer; small

A tax on a product:

creates a difference between the price paid by the buyer and the price received by the seller.

(Figure: Interpreting Short-Run Supply Curves) In the graph, which of the curves would be MOST likely to depict a supply curve in the short run?

curve a

Moving down a straight-line demand curve, price elasticity of demand:

decreases.

An excise tax _____ consumer surplus and _____ producer surplus.

decreases; decreases

If a product's price rises by 6%, and its quantity demanded falls by 8%, then we can say that demand for this product is:

elastic

If the price of a product falls by 15%, and the quantity supplied falls by 25%, we can say that the elasticity of supply is

elastic.

Products with many close substitutes tend to have _____ demand, and products considered to be luxury goods tend to have ____ demand.

elastic; elastic

If supply is perfectly inelastic and demand is relatively elastic, the burden of an excise tax:

falls entirely on producers.

Alvaro pays $40 in tax on a $120 item. Nurul pays $80 on a $240 item. We can conclude that this tax is a:

flat tax.

An elastic supply curve that is linear is relatively ______ and crosses the ______ axis.

flat; price

Which of the following is likely to have the lowest price elasticity?

gasoline

Perfectly elastic demand is BEST represented by drawing a(n):

horizontal demand curve.

Based on sales history, a retailer calculates that EY for Gummycrumbs is -0.8. Now, due to a recession, incomes in the market area are down 10%. Based on this, it can be estimated that Gummycrumb sales will:

increase by 8%.

An excise tax of $2 is placed on a jar of honey. Honey producers end up bearing only $0.40. The demand curve for honey is:

inelastic.

In which period can firms decide to leave an industry?

long run

The price elasticity of supply is the greatest in the:

long run.

For a given supply curve, the more elastic is demand, the _____ the tax burden will be on consumers and the deadweight loss will be _____.

lower; larger

In general, the flatter the supply curve is, the:

more elastic is supply.

In general, the longer the period given to producers, the:

more elastic is the supply curve.

If the income elasticity of demand for tea is 0.50, tea is a:

normal good.

Suppose the demand for toxic waste disposal is very elastic. The government imposes an excise tax on toxic waste disposal. Who will pay the greater share of such a tax?

owners of toxic waste disposal companies

(Figure; Interpreting Elasticity of Supply) How would you describe supply as shown in the graph?

perfectly elastic

Price is $1 and total revenue is $200. If price increases to $2 and total revenue increases to $400, you know that the demand for the product is:

perfectly inelastic.

The short run is defined as a period in which:

plant size is fixed but labor is variable.

Assume that Vitamin Water and Gatorade are substitutes. Their cross elasticity of demand is:

positive

The ratio of percentage change in quantity demanded to percentage change in price is called:

price elasticity of demand.

Raising prices _____ total revenue for a product with inelastic demand, and _____ total revenue for a product with elastic demand.

raises; lowers

A poultry rancher discovered what when she increased the price of organic eggs from $0.75 to $1.00 per dozen, the sales of her eggs fell from 300 dozen per week to 200 dozen per week. If she wants to increase her total revenue from egg sales, she should:

reduce the price of eggs back to $0.75.

A tax in which the percentage of income tax rises as income falls is known as a:

regressive tax

Mara pays $5 in tax on a $200 item. Vilnis pays $7 on a $300 item. We can conclude that this tax is a:

regressive tax

Subira earns $125,000 a year and pays $20,000 in a certain tax. Qamar earns $75,000 a year and pays $15,000 in the same tax. We can conclude that this tax is a:

regressive tax.

Suppose the demand for toxic waste disposal is very elastic. The government imposes an excise tax on waste disposal. The deadweight loss associated with the production of toxic waste disposal will be:

relatively large

A progressive tax is a tax that:

rises in percentage of income as income increases.

Which of the following is NOT a determinant of elasticity?

sales tax rate placed on the item

In general, the burden of taxes falls more on the _____ if demand for the product taxed is elastic, and falls more on the _____ if demand is inelastic.

seller; buyer

If the cross elasticity of demand for good A with respect to good B is 2.3, then good A is a(n):

substitute for good B.

The primary determinant of the elasticity of supply is:

time

Which of the following might be considered a primary determinant of price elasticity of supply?

time available to make changes to manufacturing plants

If a firm sells a product that has a perfectly inelastic demand curve, then, if price doubles, it can be expected that:

total revenue will double.

If the price of a product whose demand is elastic goes up:

total revenue will fall.

A gas station owner in a large city learned in his microeconomics class that buyers are relatively unresponsive to changes in the price of gasoline. If, based on that assumption, he increases the price of gas at his station:

total revenue will increase

"Tax incidence" is defined as:

who bears the burden of a federal or local tax.