ECON 201 Learning Celebration 2

Suppose a binding price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia. What will be the likely effect on the market for sparkling wine in Vinyardia? 1. Quantity demanded will decrease, quantity supplied will increase, and a shortage will result. 2. Quantity demanded will increase, quantity supplied will decrease, and a surplus will result. 3. Quantity demanded will decrease, quantity supplied will increase, and a surplus will result. 4. Quantity demanded will increase, quantity supplied will decrease, and a shortage will result.

Quantity demanded will decrease, quantity supplied will increase, and a surplus will result.

Which of the following is not a result of imposing a rent ceiling? 1. Some consumer surplus is converted to producer surplus. 2. The marginal benefit of the last apartment rented is greater than the marginal cost of supplying it. 3. There is an increase in the quantity of apartments demanded. 4. There is a reduction in the quantity of apartments supplied.

Some consumer surplus is converted to producer surplus.

Graph - floors

1,2 ,3 - CS 4,5,6 - PS With floor - benefit seller 3,5, - excess loss 1 - cs 2,4,6,- ps 2 gets transferred

If a consumer receives 22 units of marginal utility for consuming the first can of soda, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is 1. 57 utils 2. 35 utils. 3. unknown as more information is needed to determine the answer. 4. 15 utils.

1. 57 utils

Which of the following describes how a positive externality affects a competitive market? 1. The externality causes a difference between the private benefit from consumption and the social benefit. 2. The externality causes a difference between the social cost of production and the social cost of consumption. 3. The externality causes a difference between the private benefit from production and the social cost of production. 4. The externality causes quantity demanded to exceed quantity supplied.

1. The externality causes a difference between the private benefit from consumption and the social benefit.

Carolyn spends her income on popular magazines and music CDs. If the price of a CD is four times the price of a magazine and if Carolyn is maximizing her utility, she buys 1. both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased. 2. four times as many CDs as magazines. 3. four times as many magazines as CDs. 4. both goods until the marginal utility of the last magazine purchased is four times the marginal utility of the last CD purchased.

1. both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased.

Economists usually assume that people act in a rational, self-interested way. In explaining how consumers make choices this means that economists believe 1. consumers make choices that will leave them as satisfied as possible given their incomes, tastes, and the prices of goods and services available to them. 2. consumers will always buy goods and services at the lowest possible prices. 3. consumers will spend their incomes and time on activities that benefit themselves as much as possible, without regard to the welfare of others. 4. consumers spend their incomes to order to accumulate the most goods and services.

1. consumers make choices that will leave them as satisfied as possible given their incomes, tastes, and the prices of goods and services available to them.

If the marginal benefit of reducing emissions of some air pollutant is greater than the marginal cost, 1. further reductions will make society better off. 2. private businesses, rather the consumers, should be made to pay for the cost of further reductions. 3. economic efficiency will be achieved when emissions are reduced to zero. 4. the marginal benefit will rise and the marginal cost will fall as further reductions are made.

1. further reductions will make society better off.

It is difficult for a private market to provide the economically efficient quantity of a public good because 1. individual preferences are not revealed in the market for the good. 2. it is too expensive to produce the necessary amount of the good. 3. by law governments cannot use cost-benefit analysis to determine this quantity. 4. public goods produce positive and negative externalities.

1. individual preferences are not revealed in the market for the good.

The income effect of an increase in the price of salmon refers to the relative price effect—salmon is more expensive compared to other types of fish—which causes the consumer to buy less salmon. 1. refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant. 2. is the change in the demand for salmon when income increases. 3. is the change in the demand for other types of fish, say trout, that results 4. from a decrease in purchasing power.

1. refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant.

The substitution effect of an increase in the price of Raisin Bran refers to 1. the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, causes consumers to buy less Raisin Bran. 2. the result that consumers will now switch to a substitute good such as Cheerios, and the demand curve for Raisin Bran shifts to the left. 3. the fact that the higher price of Raisin Bran lowers consumer's purchasing power, holding money income constant. 4. the decrease in the demand for Raisin Bran when its price rises.

1. the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, causes consumers to buy less Raisin Bran.

A network externality occurs when 1. the usefulness of a good is affected by how many other people use the good. 2. there is production cost savings from being networked with suppliers. 3 .the usefulness of a good is affected by celebrities who use the good. 4. there is production cost savings from being networked with buyers.

1. the usefulness of a good is affected by how many other people use the good.

One difference between the demand for a private good and that for a public good is that 1. with a private good, each consumer chooses the quantity she wants to consume but with a public good, everyone consumes the same quantity. 2. the marginal benefit from consuming the last unit of a public good always exceeds the marginal benefit from consuming the last unit of a private good because there are externalities in the consumption of the public good. 3. with a private good, each consumer receives different amounts of benefit from consuming the product but with a public good, every consumer realizes the same amount of benefit from consuming the product. 4. with a private good, each consumer chooses the quantity she wants to consume but with a public good, each consumer chooses the price she is willing to pay for a fixed quantity.

1. with a private good, each consumer chooses the quantity she wants to consume but with a public good, everyone consumes the same quantity.

A product is considered to be nonexcludable if 1. you cannot keep those who did not pay for the item from enjoying its benefits. 2. it is jointly owned by all members of a community. 3. you can keep those who did not pay for the item from enjoying its benefits. 4. your consumption of the product reduces the quantity available for others to consume.

1. you cannot keep those who did not pay for the item from enjoying its benefits.

The figure below depicts a typical JMU student's demand for cheeseburgers at Jack Browns. Suppose Jack Browns offers a special: you can eat as many cheeseburgers as you would like for a fixed fee. What is the most amount of money a JMU student would be willing to pay?

100

The figure shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month, which reduced the number of apartments available to 200. What is the value of the deadweight loss after the imposition of the ceiling?

100,000 (ps6)

The figure shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month, which reduced the number of apartments available to 200. What is the value of the portion of producer surplus transferred to consumers as a result of the rent ceiling?

100,000 (ps6)

The figure above shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month, which reduced the number of apartments available to 200. Suppose apartment owners ignore the law and rent this quantity for the highest rent they can get. What is the highest add-on fee landlords can charge?

1000 (ps6)

Vito, the owner of Vito's Italian restaurant, asks for your advice. He currently sells 1,000 pizzas per month at a price of $12 per pizza. You estimate that the price elasticity of demand for pizza is -0.5. If he increases the price to $15, how much additional revenue would he earn?

1125

Vito, the owner of Vito's Italian restaurant, asks for your advice. He currently sells 1,000 pizzas per month at a price of $12 per pizza. You estimate that the price elasticity of demand for pizza is -0.5. How much revenue does Vito earn?

12000

Vito, the owner of Vito's Italian restaurant, asks for your advice. He currently sells 1,000 pizzas per month at a price of $12 per pizza. You estimate that the price elasticity of demand for pizza is -0.5. If he increases the price to $15, how much revenue would Vito earn?

13125

This problem is similar to the last four but I am asking for all four steps in one question. Vito, the owner of Vito's Italian restaurant, asks for your advice. He currently sells 1,000 pizzas per month at a price of $12 per pizza. You estimate that the price elasticity of demand for pizza is -2. By how much would Vito's total revenue change if he cuts the price from $12 to $9. Make sure that you include the negative sign if total revenue falls.

1500

Consider the following hypothetical scenarios: A: You are about to purchase a pair of jeans for $175 and a t-shirt for $45. The sales attendant at the store tells you that the pair of jeans you wish to buy is on sale for $160 at another store, located about a 20-minute drive away. B: You are about to purchase a pair of jeans for $175 and a t-shirt for $45. The sales attendant at the store tells you that the t-shirt you wish to buy is on sale for $30 at another store, located about a 20-minute drive away. Based on standard economic theory, under which scenario would you make the 20-minute trip to the other store? 1. only scenario A because the pair of jeans is a very expensive item and $15 saving is quite substantial 2. in neither scenario because a $15 savings is never worth a 20-minute trip 3. only scenario B because a $15 saving amounts to a substantial discount (about 33 percent) 4. in either scenario if I think a $15 savings is worth the 20-minute trip

4. in either scenario if I think a $15 savings is worth the 20-minute trip

If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she 1. wants to consume more bandanas and fewer ankle socks. 2. wants to consume more ankle socks and fewer bandanas. 3. is maximizing total utility and does not want to change her consumption of ankle socks or bandanas. 4. wants to consume less of both ankle sock and bandanas.

2. wants to consume more ankle socks and fewer bandanas.

The figure shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month, which reduced the number of apartments available to 200. What is the value of consumer surplus after the imposition of the ceiling?

250,000 (ps6)

If you burn your trash in the backyard in spite of regulations against it, then you are 1. saving landfill space and creating a social benefit. 2. acting economically irrational and creating a social cost. 3. avoiding the private costs associated with disposing your trash some other way and creating a social cost. 3. acting rationally and creating a positive externality.

3. avoiding the private costs associated with disposing your trash some other way and creating a social cost.

If the marginal utility Ida Mae receives from eating chicken wings is negative then 1. Ida Mae definitely does not like chicken wings. 2. her total utility has risen, but by less from the last chicken wing than from the next to last chicken wing. 3. her total utility from eating chicken wings has fallen. 4. her total utility from eating chicken wings is negative as well.

3. her total utility from eating chicken wings has fallen.

Which of the following is a source of market failure? 1. unforeseen circumstances which leads to the bankruptcy of many firms 2. an inequitable income distribution 3. a lack of government intervention in a market 4. incomplete property rights or inability to enforce property rights

4. incomplete property rights or inability to enforce property rights

An advantage of Microsoft Windows is its compatibility with the widest range of hardware and software. The dominance of Windows is self-reinforcing: hardware and software manufacturers ensure that their products are compatible with Windows in order to have access to the large number of Windows users. Which situation best describes this scenario? 1. economies of scale 2. endorsement effects 3. endowment effects 4. network externalities

4. network externalities

Many economists do not believe that network externalities lock consumers into the use of products that have technology inferior to other, similar products. These economists believe that 1. the government will prevent products with inferior technology from being sold to consumers. 2. there is no good evidence that switching costs exist. 3. in practice, the gains from using a superior technology exceed the losses consumers incur from switching costs. 4. consumers are always rational.

3. in practice, the gains from using a superior technology exceed the losses consumers incur from switching costs.

Which of the following is an example of a common resource? 1. catfish in a private pond in Mississippi 2. public health care services in the United States 3. sea otters in the coastal waters of the Pacific Ocean 4. impounded dogs in a dog pound

3. sea otters in the coastal waters of the Pacific Ocean

The tragedy of the commons was avoided in the Middle Ages by 1. selling common grounds to individuals. 2. the government which imposed a tax for the use of the commons. 3. social pressure to uphold traditionally accepted limits on family use of the commons. 4. the local police who monitored entry into the commons.

3. social pressure to uphold traditionally accepted limits on family use of the commons.

Quantity of Soup (cups)Total UtilityQuantity of SandwichesTotal The table above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods. If Keira maximizes her utility, how many units of each good should she buy? 1. 1 cup of soup and 5 sandwiches 2. 4 cups of soup and 3.5 sandwiches 3. 6 cups of soup and 2 sandwiches 4. 3 cups of soup and 4 sandwiches

4. 3 cups of soup and 4 sandwiches

Which of the following is likely to occur as the result of the law of diminishing marginal utility? 1. Hudson enjoyed his second slice of pizza more than his first. 2. Sabine's utility from her first granola bar is greater than Rachel's utility from her second granola bar. 3. Petra's utility from her second apple was less than her satisfaction from her first orange. 4. Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant.

4. Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant.

Negative externalities and the tragedy of the commons are problems that have a common source. What is this common source? 1. self-interest motives of producers and consumers 2. a lack of competition 3. a lack of concern for human rights 4. a lack of clearly defined and enforced property rights

4. a lack of clearly defined and enforced property rights

The observation that people tend to value something more highly when they own it than when they don't is called the 1. path-dependent effect. 2. wealth effect. 3. endorsement effect. 4. endowment effect.

4. endowment effect.

Consider a situation in which a utility company emits high levels of sulfur dioxide and the company is not liable for the damages its pollution causes. According to the Coase theorem, government action is ________ to achieve an ________ amount of pollution. 1. necessary; equitable 2. necessary; efficient 3. not necessary; equitable 4. not necessary; efficient

4. not necessary; efficient

The order of the letters along the rows of computer keyboards could be changed to allow users to type faster, but this would inconvenience the vast majority of people who learned to type with the current keyboard layout. The costs of switching to a new layout make this change unlikely. This is an example of 1. how consumers sometimes do not behave rationally. 2. how the elasticity of demand for typewriters has been affected by externalities. 3. how social influences overwhelm the substitution effect of a price change. 4. path dependency.

4. path dependency.

Applying Coase's theorem, if the cost to you from having the airplane seat in front of you reclined is ________ the benefit to the reclining passenger, you should ________. 1. greater than; request a payment from the reclining passenger 2. less than; make a payment to the reclining passenger 3. less than; request a payment from the reclining passenger 4. greater than; make a payment to the reclining passenger

4. greater than; make a payment to the reclining passenger

While politicians and the general public often favor a "command-and-control" approach to the reduction of greenhouse gases, many economists favor market-based policies because they 1. completely eliminate negative externalities. 2. convert all negative externalities into positive externalities. 3. eliminate the need for government involvement in all pollution regulation. 4. rely on economic incentives rather than on administrative rules.

4. rely on economic incentives rather than on administrative rules.

A positive externality causes 1. the marginal social benefit to be less than the marginal private cost at the market equilibrium. 2. the marginal private benefit to exceed the marginal social cost at the market equilibrium. 3. the marginal social benefit to be equal to the marginal private cost at the market equilibrium. 4. the marginal social benefit to exceed the marginal private cost at the market equilibrium.

4. the marginal social benefit to exceed the marginal private cost at the market equilibrium.

Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400. Krueger found that (a) 94 percent of those surveyed would not have paid $3,000 for their tickets, and (b) 92 percent of those surveyed would not have sold their tickets for $3,000. These results are an example of 1. the law of demand. 2. the tendency for consumers to account for monetary costs but to ignore sunk costs. 3. consumers placing a high value on a product because it makes them appear to be fashionable. 4. the tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay if they did not already own it.

4. the tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay if they did not already own it.

The figure below depicts a typical JMU student's demand for cheeseburgers. x=10, y=$20 How much consumer surplus would the student receive if the price of a cheese burger was $6? (y=6, x=7)

49 (with margain 0)

The figure shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month, which reduced the number of apartments available to 200. What is the value of producer surplus after the imposition of the ceiling?

50,000 (ps6)

The Harrisonburg city government is considering imposing rent ceilings. Currently, one bedroom apartments rent for $1,200 per month, and there are 5,000 units rented. Assume that the price elasticity of demand is -0.20 and the price elasticity of supply is +1.2. How many apartments are demanded if the government imposes a price ceiling of $900? Keep track of your answer.

5250

The figure below depicts a typical JMU student's demand for women's basketball games. How much consumer surplus would the student receive if they had to pay $25 for a ticket?

60

Vito, the owner of Vito's Italian restaurant, asks for your advice. He currently sells 1,000 pizzas per month at a price of $12 per pizza. You estimate that the price elasticity of demand for pizza is -0.5. How many pizzas will he sell if he increases the price to $15?

875

The price of a ticket to a JMU football game is $40. At that price JMU sells 12,000 tickets. Assume the price elasticity of demand is -0.2. How much additional revenue would JMU earn if they increased the ticket price to $50.

90,000

Studies show that the income elasticity of demand for Ramen noodles is -0.44. What does this mean? 1. A 1 percent increase in income leads to a 0.44 percent increase in Ramen noodle consumption. 2. A 1 percent decrease in the price of Ramen noodles leads to a 0.44 percent increase in Ramen noodle consumption. 3. A 1 percent increase in income leads to a 0.44 percent decrease in Ramen noodle consumption. 4. Ramen noodles are a relatively inelastic good.

A 1 percent increase in income leads to a 0.44 percent decrease in Ramen noodle consumption.

price ceiling

A legal maximum on the price at which a good can be sold (under equilibrium)

price floor

A legal minimum on the price at which a good can be sold (over equilibrium)

Elasticity

A measure of how much one economic variable responds to changes in another economic variable.

In the economic sense, almost everything is scarce. ________ of a good or service occurs when the quantity demanded is greater than the quantity supplied at the current market price. 1. An overstock 2. Scarcity 3. A shortage 4. A surplus

A shortage

Suppose that in Canada the government places a $1,500 tax on the buyers of new snowmobiles. After the purchase of a new snowmobile, a buyer must pay the government $1,500. How would the imposition of the tax on buyers be illustrated in a graph? 1. The tax will shift the supply curve up by $1,500. 2. The tax will shift the demand curve up by $1,500. 3. The tax will shift the demand curve down by $1,500. 4. The tax will shift both the demand and supply curves down by $1,500.

The tax will shift the demand curve down by $1,500.

In recent years, a number of cities have enacted taxes on soda and other sweetened beverages. If the policy goal of these city governments is to reduce health care costs and and insurance rates for taxpayers by reducing the total amount of soda and sweetened beverages consumed, this would be most successful if the price elasticity of demand for these sweetened beverages is 1. inelastic. 2. unit elastic. 3. perfectly inelastic. 4. elastic.

elastic.

If you expect the economy is going to experience a boom and average income in the economy will rise in the foreseeable future, the type of firm that would be able to increase its sales if your expectations are met is 1. one that sells a price-inelastic good. 2. one that sells a luxury good. 3. one that sells an inferior good. 4. one that sells a necessity good.

one that sells a luxury good.

At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week. When he raised his price to $12 per dozen, he still sold 40 dozen per week. Based on this information, the demand for his tamales is 1. perfectly elastic. 2. unit elastic. 3. inelastic. 4. perfectly inelastic.

perfectly inelastic.

Tax on item

producer bottom, consumer top (boxes)

When there are few close substitutes available for a good, demand tends to be 1. perfectly elastic. 2. perfectly inelastic. 3. relatively elastic. 4. relatively inelastic.

relatively inelastic.

When Congress passed a law that imposed a tax designed to fund its Social Security and Medicare programs it wanted employers and workers to share the burden of the tax equally. Most economists who have studied the incidence of the tax have concluded 1. the tax rate should be greater for high-income workers than for low-income workers. 2. the tax is not high enough to cover the future costs of Social Security and Medicare. 3. the burden of the tax falls almost entirely on workers. 4. the tax on employers is too high because it reduces the employment of low-skilled workers.

the burden of the tax falls almost entirely on workers.

When demand is elastic, a fall in price causes total revenue to rise because 1. the increase in quantity sold is large enough to offset the lower price. 2. the demand curve shifts. 3. the percentage increase in quantity demanded is less than the percentage fall in price. 4. when price falls, quantity sold increases so total revenue automatically rises.

the increase in quantity sold is large enough to offset the lower price.

If the market for a product is broadly defined, then 1. there are many substitutes for the product and the demand for the product is relatively elastic. 2. the good has many complements. 3. the expenditure on the good is likely to make up a large share of one's budget. 4. there are few substitutes for the product and the demand for the product is relatively inelastic.

there are few substitutes for the product and the demand for the product is relatively inelastic.

Consider a demand curve that has a constant elasticity value of 0. What happens to quantity demanded and total revenue when price increases? 1. The quantity demanded does not change but total revenue increases. 2. The quantity demanded does not change but total revenue decreases. 3. The quantity demanded and total revenue remain the same. 4. The quantity demanded and total revenue fall to zero.

The quantity demanded does not change but total revenue increases.

PED =

% change D / % change P

%changeS =

%changeP x PES

PES =

%changeS / %changeP

The figure above shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month, which reduced the number of apartments available to 200. Suppose apartment owners ignore the law and rent this quantity for the highest rent they can get. What is the highest rent they can get per month?

2,000 (ps6)

Suppose Joe is maximizing total utility within his budget constraint. If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be 1. 500 units of utility. 2. 80 units of utility. 3. 100 units of utility. 4. 2,000 units of utility.

2. 80 units of utility.

For steak and cheese sandwiches and grilled chicken sandwiches, the table contains the values of the marginal utility (MU) and marginal utility per dollar (MU/P) for Billy. Billy has $14 to spend on steak and cheese sandwiches and grilled chicken sandwiches. Assume Billy maximizes his utility. Which of the statements is correct? 1. Billy will buy 2 steak and cheese and 3 grilled chicken. He will enjoy a total utility of 48 utiils. 2. Billy will buy 2 steak and cheese and 3 grilled chicken. He will enjoy a total utility of 142 utiils. 3. Billy will buy 4 steak and cheese and 5 grilled chicken. He will enjoy a total utility of 196 utiils. 4. Billy will buy 3 steak and cheese and 4 grilled chicken. He will enjoy a total utility of 178 utiils.

2. Billy will buy 2 steak and cheese and 3 grilled chicken. He will enjoy a total utility of 142 utiils.

Marv Pilson has $50 worth of groceries in a shopping cart at his local Shop 'n Save. Assume that the marginal utility per dollar of the liter bottles of soft drink in Marv's cart equals 50. The marginal utility per dollar of the boxes of cereal in Marv's cart equals 20. Marv has only $50 to spend, but has not yet paid for his groceries. How can Marv increase his total utility without spending more than $50? 1. Marv should buy more boxes of cereal and fewer bottles of soft drink. 2. Marv should buy fewer boxes of cereal and more bottles of soft drink. 3. Marv should substitute his favorite soft drink or the cereal in his cart for generic brands that have lower prices. 4. Marv should buy fewer boxes of cereal and fewer bottles of soft drink. He can then spend more on other items.

2. Marv should buy fewer boxes of cereal and more bottles of soft drink.

Health clubs typically experience an increase in one-year memberships in January, but many new customers cancel their memberships before the end of the year. Which of the following is the best explanation for this behavior? 1. Some people fail to treat their membership fees as sunk costs. 2. Some people are overly optimistic about their future behavior. 3. Some health club members suffer minor injuries that prevent them from working out. 4. Some members receive utility from activities they believe are popular.

2. Some people are overly optimistic about their future behavior.

Which of the following must be present to reach a private solution to an externality problem? 1. A majority of the parties affected by the externality must agree to a solution. 2. The transactions costs to negotiate a solution must be relatively low. 3. The government must approve the solution for it to be a legal solution. 4. The total number of people, creators of the problem and those affected, must be relatively large to justify negotiating a solution.

2. The transactions costs to negotiate a solution must be relatively low.

Which of the following does not explain why consumers buy products that many other consumers are already buying? 1. the satisfaction people derive by being viewed as "fashionable" 2. differences in tastes and preferences 3. network externalities 4 .cost-effective way to gather information about a product

2. differences in tastes and preferences

Private solutions to the problem of externalities are most likely when 1. transactions costs are low and the number of bargaining parties is large. 2. transactions costs are low and the number of bargaining parties is small. 3. government actively encourages these solutions. 4. transactions costs are low and the monetary damages to third parties are high.

2. transactions costs are low and the number of bargaining parties is small.

If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the second candy bar is 1. 25 utils. 2. unknown as more information is needed to determine the answer. 3. 5 utils. 4. 20 utils.

2. unknown as more information is needed to determine the answer.

To affect the market outcome, a price ceiling 1. must be set below the equilibrium price. 2. must be set below the legal price. 3. must be set below the illicit market price. 4. must be set below the price floor.

must be set below the equilibrium price.

Tax on thing like labor

Consumer bottom, producer top (boxes)

Inelastic

Describes demand that is not very sensitive to a change in price

Seth is a competitive body builder. He says he has to have his 12-oz package of protein powder to "feed his muscles" every day. On the basis of this information, what can you conclude about his price elasticity of demand for protein powder? 1. The price elasticity coefficient is 1. 2. It is perfectly inelastic. 3. It is perfectly elastic. 4. It is elastic.

It is perfectly inelastic.

The price elasticity of demand for bread is estimated at -0.40. What happens to sales revenue if the price of bread rises? 1. It rises. 2. It falls. 3. It drops to zero. 4. It stays the same.

It rises.

Graphs - Ceilings C. Tax Revenue D. Consumer Burden E. Producer Burden F. Excess Burden

Graphs - Ceilings C. L x W of the top box D. the top rectangle of the top box E. the bottom rectangle of the top box F. 3 and 5

Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true? 1. It is perfectly elastic at very high prices and perfectly inelastic at very low prices. 2. It is inelastic at high prices and elastic at low prices. 3. It is elastic at the highest prices and inelastic at the lowest prices. 4. It is unit elastic throughout the demand curve.

It is elastic at the highest prices and inelastic at the lowest prices.

Economists have shown that the burden of a tax is the same whether the tax is collected from the buyer or the seller. Why, then, are gasoline and cigarette taxes imposed on sellers? 1. The Equal Protection Clause of the U.S. Constitution prohibits the government from imposing taxes like these on buyers. 2. It is more difficult for buyers to keep track of their purchases, and for the government to verify that the right of amount of tax revenue is collected. 3. Sellers are more honest than buyers. 4. The demand for both gasoline and cigarettes is very elastic.

It is more difficult for buyers to keep track of their purchases, and for the government to verify that the right of amount of tax revenue is collected.

TR2 =

P x Q

% change Q =

PED x %changeP

Which of the following is not a consequence of minimum wage laws? 1. Some workers benefit when the minimum wage is increased. 2. Employers will be reluctant to offer low-skilled workers jobs with training. 3. Low-skilled workers are hurt because minimum wage reduces the number of jobs providing low-skilled workers with training. 4. Producers have an incentive to offer workers non-wage benefits such as health care benefits and convenient working hours rather than a higher wage.

Producers have an incentive to offer workers non-wage benefits such as health care benefits and convenient working hours rather than a higher wage.

Q1=

Q (1+(PED x %changeP)

Q2 =

Q1 + (%changeQ x Q1)

Additional Rev =

TR2 - TR1

Which of the following statements is true? 1. Total revenue will equal zero when the demand for a product is unit elastic. 2. When a firm lowers its price its total revenue may either increase or decrease. 3. Whenever a firm raises its price its total revenue will increase. 4. Whenever a firm increases its quantity sold its revenue will increase.

When a firm lowers its price its total revenue may either increase or decrease.

Which of the following products comes closest to having a perfectly inelastic demand? 1. cholesterol medication in general 2. iPhones 3. gasoline 4. bus rides

cholesterol medication in general

Price gouging, or large increases in the prices of essential goods during an emergency, is illegal in 34 states. In the very short run when it is not possible to produce more of the good, the price increase is a result of ________ and results in a ________ of the good. 1. an increase in supply; surplus 2. an increase in demand; shortage 3. an increase in demand; surplus 4. a decrease in supply; shortage

an increase in demand; shortage

Which of the following goods would have the most inelastic demand? 1. luxury cars 2. big screen TVs 3. bread 4. ski vacations

bread

The government proposes a tax on imported champagne. Buyers will bear the entire burden of the tax if the 1. demand curve for imported champagne is vertical. 2. supply curve for imported champagne is vertical. 3. demand curve for imported champagne is horizontal. 4. demand curve is downward sloping and the supply curve is upward sloping.

demand curve for imported champagne is vertical.

elastic

describes demand that is very sensitive to a change in price

According to an article in the Wall Street Journal, unlike airlines, even elite hotels don't have sophisticated systems that can react quickly to changes in demand. Even if they could, many hoteliers say people don't respond that much to lower rates. "We've tested this, cutting our rates by $50 [per night], and we didn't see an appreciable response in occupancy," says Jim Schultenover, a vice president for Ritz-Carlton.Source: Jesse Drucker, "In Times of Belt-Tightening, We Seek Reasonable Rates," Wall Street Journal, April 6, 2001.Based on the information above, the demand for hotel rooms is 1. unit elastic. 2. inelastic. 3. perfectly elastic. 4. elastic.

inelastic.

Opera Estate Girls' School is considering increasing its tuition to raise revenue. If the school believes that raising tuition will increase revenue it is assuming that the demand for attending the school is 1. perfectly elastic. 2. elastic. 3. unit elastic. 4. inelastic.

inelastic.

Economists are reluctant to state that price controls are desirable or undesirable because 1. economists are reluctant to conduct positive analysis of price controls. 2. it is impossible to evaluate the impact on quantity demanded and quantity supplied as a result of price controls. 3. whether the gains from the winners exceed the losses from the losers is not strictly an economic question. 4. sometimes price controls result in increases in economic efficiency and sometimes they result in decreases in economic efficiency.

whether the gains from the winners exceed the losses from the losers is not strictly an economic question.

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded 1. will decrease by 5 percent. 2. will increase by 45 percent. 3. will decrease by 45 percent. 4. will increase by 5 percent.

will decrease by 45 percent.