Econ 224 exam 1

Which of the following would cause the demand curve to shift from Demand B to Demand C in the market for DVDs in the United States?

a decrease in the price of DVD players

If toast and butter are complements, then which of the following would increase the demand for toast?

a decrease in the price of butter

Which of the following events would unambiguously cause a decrease in the equilibrium price of cotton shirts?

a decrease in the price of wool shirts and a decrease in the price of raw cotton

Which of the following would cause the supply curve to shift from Supply A to Supply C in the market for winter coats?

a decrease in the price of zippers and snaps

If the government removes a tax on a good, then the price paid by buyers will

decrease, and the price received by sellers will increase

Ryan says that he would buy one cup of coffee every day regardless of the price. If he is telling the truth, Ryan's

demand for coffee is perfectly inelastic

The unique point at which the supply and demand curves intersect is called

equilibrium

At the equilibrium price, the quantity of the good that buyers are willing and able to buy

exactly equals the quantity that sellers are willing and able to sell

Demand is elastic if the price elasticity of demand is

greater than 1

The greater the price elasticity of demand, the

greater the responsiveness of quantity demanded to a change in price

A movement downward and to the right along a demand curve is called a(n)

increase in quantity demanded.

Warrensburg is a small college town in Missouri. At the end of August each year, the market demand for fast food in Warrensburg

increases

Equilibrium quantity must increase when demand

increases and supply does not change, when demand does not change and supply increases, and when both demand and supply increase.

Two goods are complements when a decrease in the price of one good

increases the demand for the other good

You love peanut butter. You hear on the news that 50 percent of the peanut crop in the South has been wiped out by drought and that this will cause the price of peanuts to double by the end of the year. As a result, your demand for peanut butter

increases today

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

inelastic

The price elasticity of demand for eggs

is computed as the percentage change in quantity demanded of eggs divided by the percentage change in price of eggs

Most labor economists believe that the supply of labor is

less elastic than the demand, and, therefore, workers bear most of the burden of the payroll tax

Elasticity of demand is closely related to the slope of the demand curve. The less responsive buyers are to a change in price, the

steeper the demand curve will be

Matthew bakes apple pies that he sells at the local farmer's market. If the price of apples increases, the

supply curve for Matthew's pies will decrease

Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms,

supply is more elastic at low levels of output and less elastic at high levels of output

Suppose the government imposes a 20-cent tax on the sellers of artificially-sweetened beverages. The tax would shift

supply, raising the equilibrium price and lowering the equilibrium quantity in the market for artificially-sweetened beverages

A binding price floor (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price.

(i) and (iii) only

Suppose good X has a positive income elasticity of demand. This implies that good X could be (i) a normal good. (ii) a necessity. (iii) an inferior good. (iv) a luxury

(i), (ii), and (iv) only

A binding price ceiling (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price.

(ii) and (iv) only

If macaroni and cheese is an inferior good, what would happen to the equilibrium price and quantity of macaroni and cheese if consumers' incomes rise?

Both the equilibrium price and quantity would decrease

If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos rises?

Both the equilibrium price and quantity would increase

Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk?

Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling

Recent forest fires in the western states are expected to cause the price of lumber to rise in the next six months. As a result, we can expect the supply of lumber to

Fall now

Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?

Lower the price to increase total revenue

If the government passes a law requiring sellers of mopeds to send $200 to the government for every moped they sell, then..true or false a. the supply curve for mopeds shifts downward by $200. b. sellers of mopeds receive $200 less per mopeds than they were receiving before the tax. c. buyers of mopeds are unaffected by the tax.

None of the above

New cars are normal goods. What will happen to the equilibrium price of new cars if the price of gasoline rises, the price of steel falls, public transportation becomes cheaper and more comfortable, auto-workers accept lower wages, and automobile insurance becomes more expensive?

Price will fall

New oak tables are normal goods. What would happen to the equilibrium price and quantity in the market for oak tables if the price of maple tables rises, the price of oak wood rises, more buyers enter the market for oak tables, and the price of the glue used in the production of the new oak tables increased?

Price will rise, and the effect on quantity is ambiguous

Which of these statements does not apply to market economies?

Prices ensure that anyone who wants a product can get it

Which of the following statements about the price elasticity of demand is correct?

a. The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases. b. Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. c. Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y

A price floor is

a. a legal minimum on the price at which a good can be sold. b. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor. c. a source of inefficiency in a market.

The incidence of a tax falls more heavily on

a. consumers than producers if demand is more inelastic than supply. b. producers than consumers if supply is more inelastic than demand. c. consumers than producers if supply is more elastic than demand.

If a surplus exists in a market, then we know that the actual price is

above the equilibrium price, and quantity supplied is greater than quantity demanded

A supply curve slopes upward because

an increase in price gives producers an incentive to supply a larger quantity

When a tax is placed on the buyers of cell phones, the size of the cell phone market

and the effective price received by sellers both decrease

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would

be positive, and your roommate's would be negative

If a seller in a competitive market chooses to charge more than the going price, then

buyers will make purchases from other sellers

In the long run, the quantity supplied of most goods

can respond substantially to a change in price

Price ceilings and price floors that are binding

cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price

Suppose that when income rises, the demand curve for doctor's visits shifts to the right. In this case, we know doctor's visits are

normal goods

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be

positive

Danita rescues dogs from her local animal shelter. When Danita's income rises by 7 percent, her quantity demanded of dog biscuits increases by 12 percent. For Danita, the income elasticity of demand for dog biscuits is

positive, and dog biscuits are a normal good

In a competitive market free of government regulation,

price adjusts until quantity demanded equals quantity supplied

When a shortage exists in a market, sellers

raise price, which decreases quantity demanded and increases quantity supplied until the shortage is eliminated

If Miguel expects to earn a higher income next month, he may choose to

save less now and spend more of his current income on goods and services

A monopoly is a market with one

seller, and that seller sets the price

If, at the current price, there is a surplus of a good, then

sellers are producing more than buyers wish to buy

When quantity supplied decreases at every possible price, we know that the supply curve has

shifted to the left

Suppose that Juan Carlos is filling out a survey that he received in the mail. The survey asks him what he would do if the price of his favorite toothpaste increased. Juan Carlos reports that he would switch to a different brand. The survey asks what he would do if the price of all toothpastes increased. Juan Carlos reports that he must use toothpaste, so he would have to adjust his spending elsewhere. These examples illustrate the importance of

the definition of a market in determining the price elasticity of demand

The term tax incidence refers to

the distribution of the tax burden between buyers and sellers

Which of the following is not a determinant of the demand for a particular good?

the prices of the inputs used to produce the good

Cross-price elasticity of demand measures how

the quantity demanded of one good changes in response to a change in the price of another good

The price elasticity of supply measures how much

the quantity supplied responds to changes in the price of the good

If a price ceiling is not binding, then

there will be no effect on the market price or quantity sold

Who gets scarce resources in a market economy?

whoever is willing and able to pay the price

The federal government is concerned about obesity in the United States. Congress is considering two plans. One will ban the production and sale of "junk food." The other will increase nutrition-education programs and include substantial advertising campaigns to encourage healthy eating habits. The junk-food ban program

will reduce the quantity of junk food sold and raise the price. The education program will reduce the quantity of junk food sold and lower the price