ECON exam #2

If total surplus is $240 and consumer surplus is

$160, then the price of the good is $100

When a tax is placed on the sellers of a product, the

A. Size of the market decreases B. effective price received by sellers decreases, and the price paid by buyers increases C. Supply of the product decreases

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

Dallas's consumer surplus would increase

Why was OPEC unable to maintain high oil prices in the long run?

Demand and supply are both elastic in the long run compared to the short run.

Minimum-wage laws dictate

a minimum wage that firms must pay workers

Which of the following would not interfere with market equilibria?

a non-binding price floor

Consumer surplus in a market can be represented by the

area below the demand curve and above the price.

Refer to Table 6-2. A price floor set at $20 will

be binding and will result in a surplus of 125 units

Suppose a tax of $5 per unit is imposed on this market. What will be the new equilibrium quantity in this market?

between 25 units and 50 units

Total surplus is represented by the area

between the demand and supply curves up to the point of equilibrium

The price ceiling

causes a shortage of 85 units

The price elasticity of demand for a good measures the willingness of

consumers to buy less of the good as price rises

If a tax is levied on the sellers of a product, then there will be a(n)

decrease in quantity demanded

an increase in price from $15 to $20 would

decrease total revenue by $500

There are very few, if any, good substitutes for motor oil. Therefore, the

demand for motor oil would tend to be inelastic

You have just been hired as a business consultant to determine what pricing policy would be appropriate to increase the total revenue of a bakery. The first step you would take would be to

determine the price elasticity of demand for the bakery's products

An increase in price increases consumer surplus.

false (decrease)

If the price of gasoline rises, when is the price elasticity of demand likely to be the highest?

one year after the price increase

If a change in the price of a good results in no change in total revenue, then

the demand for the good must be unit elastic.

Refer to Figure 5-14. Over which range is the supply curve in this figure the most elastic?

$16 to $40

Cameron visits a sporting goods store to buy a new set of golf clubs. He is willing to pay $750 for the clubs but buys them on sale for $575. Cameron's consumer surplus from the purchase is

$175

Refer to Figure 6-24. Andrew is a buyer of the good. Taking the tax into account, how much does Andrew effectively pay to acquire one unit of the good?

$24

If Martin sells a shirt for $40, and his producer surplus from the sale is $8, his cost must have been

$32

Which of the following price floors would be binding in this market?

$6 above the equilibrium price

Refer to Figure 6-4. A government-imposed price of $6 in this market could be an example of a (i)binding price ceiling.(ii)non-binding price ceiling.(iii)binding price floor.(iv)non-binding price floor.

(i) and (iv) only

Buyers of a good bear the larger share of the tax burden when the (i) supply is more elastic than the demand for the product. (ii) demand in more elastic than the supply for the product. (iii) tax is placed on the sellers of the product. (iv) tax is placed on the buyers of the product.

(i) only

Sellers of a good bear the larger share of the tax burden when a tax is placed on a product for which the (i) supply is more elastic than the demand. (ii) demand in more elastic than the supply. (iii) tax is placed on the sellers of the product. (iv) tax is placed on the buyers of the product.

(ii) only

Refer to Table 6-1. Suppose the government imposes a price floor of $30 on this market. What will be the size of the surplus in this market?

0

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue?

0.65

If a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about

1.33 and supply is elastic

Suppose the price elasticity of supply for minivans is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for minivans causes the price of minivans to increase by 5%, then the quantity supplied of minivans will increase by about

1.5% in the short run and 6% in the long run

Ray buys a new tractor for $118,000. He receives consumer surplus of $13,000 on his purchase. Ray's willingness to pay is

131,000

If the price elasticity of supply is 1.2, and a price increase led to a 5% increase in quantity supplied, then the price increase is about

4.2% (see equation)

If the price elasticity of demand for a good is 5, then a 10 percent increase in price results in a

50 percent decrease in the quantity demanded.

When a tax is placed on the buyers of a product, the

A. size of the market decreases. B. effective price received by sellers decreases, and the price paid by buyers increases. C. demand for the product decreases. All of the above are correct.

Consumer surplus is equal to the

Value to buyers - Amount paid by buyers.

If the price elasticity of supply for a window manufacturer is 1.5,

a 10% increase in the price of windows results in a 15% increase in the quantity of windows supplied

Refer to Figure 6-4. A government-imposed price floor of $12 in this market results in

a surplus of 4 units

If a binding price floor is imposed on the market for eBooks, then

a surplus of eBooks will develop

Which of the following will cause an increase in consumer surplus?

a technological improvement in the production of the good

To say that a price ceiling is binding is to say that the price ceiling

all above is correct results in a shortage is set below the equilibrium price causes quantity demand to exceed quantity supplied

a binding minimum wage

alters both the quantity demanded and quantity supplied of labor.

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

elastic and equal to 6 (see equation)

The section of the demand curve from A to B represents the

elastic section of the demand curve

Demand is said to have unit elasticity if the price elasticity of demand is

equal to 1

A price ceiling set above the equilibrium price causes quantity demanded to exceed quantity supplied.

false

If the government imposes a binding price floor in a market, then the consumer surplus in that market will increase.

false (decrease)

Suppose the demand for peanuts increases. What will happen to producer surplus in the market for peanuts?

increases

goods with many close substitutes tend to have

more elastic demands

If the government passes a law requiring sellers of mopeds to send $200 to the government for every moped they sell, then

none of the above A. the supply curve for mopeds shifts downward by $200. B. sellers of mopeds receive $200 less per moped than they were receiving before the tax. C. buyers of mopeds are unaffected by the tax.

Demand is said to be inelastic if the

quantity demanded changes proportionately less than price

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the

quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases.

The price elasticity of supply measures how responsive

sellers are to a change in price

As we move downward and to the right along a linear, downward-sloping demand curve,

slope remains constant but elasticity changes

If the United States changed its laws to allow for the legal sale of a kidney, which of the following is least likely to occur?

the allocation of kidneys would be fair

For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

the good is a neccessity

Refer to Figure 6-30. In which market will the majority of the tax burden fall on sellers?

the market shown in panel a

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

there are many close substitutes for this good

Which of the following is likely to have the most price inelastic demand?

toothpaste

Consumer surplus measures the benefit to buyers of participating in a market.

true

If the government removes a binding price ceiling in a market, then the producer surplus in that market will increase.

true

If demand is price inelastic, then when price rises, total revenue

will rise