ECON 101 - Midterm 2

A life-saving medicine without any close substitutes will tend to have a. A small price elasticity of demand b. A large price elasticity of demand c. A price elasticity of demand that is equal to me d. A price elasticity of demand that is equal to infinite

a. A small price elasticity of demand

Refer to Figure above. Buyers who value this good more than the equilibrium price are represented by which line segment? a. AC b. CK c. BC d. CH

a. AC

17. Refer to Figure 5. Which area represents producer surplus when the price is P1? a. BCG b. ACH c. ABGD d. DGH

a. BCG

When consumers face rising gasoline prices, they typically a. reduce their quantity demanded more in the long run than in the short run b. reduce their quantity demanded more in the short run than in the long run c. do not reduce their quantity demanded in the short run or the long run d. increase their quantity demanded in the short run but reduce their quantity demanded in the long run

a. reduce their quantity demanded more in the long run than in the short run

As the size of a tax rises, the deadweight loss a. rises, and tax revenue first rises, then falls b. rises as does tax revenue c. falls, and tax revenue first rises, then falls d. falls as does tax revenue

a. rises, and tax revenue first rises, then falls

Refer to Figure 6. The maximum value of total revenue corresponds to a price of a. $20 b. $50 c. $70 d. $100

b. $50

When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is a. 1.14 b. 1 c. 0.25 d. 0.13

b. 1

Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then a. Dallas's consumer surplus would be unaffected b. Dallas's consumer surplus would increase c. Dallas's consumer surplus would decrease d. Dallas would be wise to buy fewer strawberries than before

b. Dallas's consumer surplus would increase

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded? a. a 7.5 increase in the price of the good b. a 13.33 percent increase in the price of the good c. an increase in the price of the good from $7.50 to $10 d. an increase in the price of the good from $10 to $17.50

b. a 13.33 percent increase in the price of the good EOD = % change in quantity demanded divided / Percentage change in price 0.75 = 10 / Percentage change in price Percentage change in price = 10/0.75 = 13.33

15. Total surplus is a. equal to consumer surplus minus producer surplus b. equal to the total value to buyers minus the total cost to sellers c. equal to consumers' willingness to pay plus producers' cost d. greater than the sum of consumer surplus plus producer surplus

b. equal to the total value to buyers minus the total cost to sellers

For a good that is a luxury, demand a. tends to be inelastic b. tends to be elastic c. has unit elasticity d. cannot be represented by a demand curve in the usual way

b. tends to be elastic

Efficiency in a market is achieved when a. a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs b. the sum of producer surplus and consumer surplus is maximized c. all firms are producing the good at the same low cost per unit d. no buyer is willing to pay more than the equilibrium price for any unit of the good

b. the sum of producer surplus and consumer surplus is maximized

Which of the following is correct? a. Consumer surplus refers to a situation in which there are more buyers than sellers in a market b. Producer surplus refers to a situation in which there are more sellers than buyers in a market c. Total surplus is measured as the area below the demand curve and above the supply curve, up to the equilibrium quantity d. All of the above are correct

c. Total surplus is measured as the area below the demand curve and above the supply curve, up to the equilibrium quantity

If a shortage exists in a market, then we know that the actual price is a. above the equilibrium price, and quantity supplied is greater than quantity demanded b. above the equilibrium price, and quantity demanded is greater than quantity supplied c. below the equilibrium price, and quantity demanded is greater than quantity supplied d. below the equilibrium price, and quantity supplied is greater than quantity demanded

c. below the equilibrium price, and quantity demanded is greater than quantity supplied

if the government wants to reduce smoking, it should impose a tax on a. buyers of cigarettes b. sellers of cigarettes c. either buyers or sellers of cigarettes d. whichever side of the market is less elastic

c. either buyers or sellers of cigarettes

A consumer's willingness to pay directly measures a. the extent to which advertising and other external forces have influenced the consumer's preferences b. the cost of a good to the buyer c. how much a buyer values a good d. consumer surplus

c. how much a buyer values a good

The Laffer curve illustrates that a. deadweight loss rises by the square of the increase in a tax b. deadweight loss rises exponentially as a tax increases c. tax revenue first rises, then falls as a tax increases d. Both a) and b) are correct

c. tax revenue first rises, then falls as a tax increases

producer surplus is a. measured using the demand curve for a good b. always a negative number for sellers in a competitive market c. the amount a seller is paid minus the cost of production d. the opportunity cost of production minus the cost of producing goods that go unsold

c. the amount a seller is paid minus the cost of production

when a tax is placed on the buyers of lemonade, the a. sellers bear the entire burden of the tax b. buyers bear the entire burden of the tax c. burden of the tax will be always be equally divided between the buyers and the sellers d. burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal

d.

Which of the following is not true when the price of a good or service falls? a. Buyers who were already buying the good or service are better off b. Some new buyers, who are now willing to buy, enter the market c. The total consumer surplus in the market increases d. The total value of purchases before and after the price change is the same

d. The total value of purchases before and after the price change is the same

14. Refer to Figure 2. If rectangular D is larger than Rectangle A, then a. demand is elastic between prices P1 and P2 b. a decrease in price from P2 to P1 will cause an increase in total revenue c. the magnitude of the percent change in price between P1 and P2 is smaller than the magnitude of the corresponding percent change in quantity demanded d. all of the above are correct

d. all of the above are correct

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, a. the quantity of physicals demanded increases b. there is a shortage of physicals c. the quantity of physicals supplied decreases d. all of the above are correct

d. all of the above are correct

When a tax is placed on the sellers of cell phones, the size of the cell phone market a. and the effective price received by sellers both increase b. increases, but the effective price received by sellers decreases c. decreases, but the effective price received by sellers increases d. and the effective price received by sellers both decrease

d. and the effective price received by sellers both decrease