Econ Exam 2

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective, a) a smaller quantity of the good is bought and sold. b) a smaller quantity of the good is demanded. c) a larger quantity of the good is supplied. d) the price rises above the previous equilibrium.

(A) a smaller quantity of the good is bought and sold.

Suppose that in a particular market, the supply curve is highly elastic and the demand curve is highly inelastic. If a tax is imposed in this market, then the a) buyers will bear a greater burden of the tax than the sellers. b) sellers will bear a greater burden of the tax than the buyers. c) buyers and sellers are likely to share the burden of the tax equally. d) buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information.

(A) buyers will bear a greater burden of the tax than the sellers.

If the government levies a $5 tax per ticket on buyers of NFL game tickets, then the price paid by buyers of NFL game tickets would a) increase by less than $5. b) increase by exactly $5. c) increase by more than $5. d) decrease by an indeterminate amount.

(A) increase by less than $5

The tax burden will fall most heavily on buyers of the good when the demand curve a) is relatively steep, and the supply curve is relatively flat. b) is relatively flat, and the supply curve is relatively steep. c) and the supply curve are both relatively flat. d) and the supply curve are both relatively steep.

(A) is relatively steep, and the supply curve is relatively flat.

If the government removes a $2 tax on buyers of cigars and imposes the same $2 tax on sellers of cigars, then the price paid by buyers will a) not change, and the price received by sellers will not change. b) not change, and the price received by sellers will decrease. c) decrease, and the price received by sellers will not change. d) decrease, and the price received by sellers will decrease.

(A) not change, and the price received by sellers will not change.

When a binding price ceiling is imposed on a market, a) price no longer serves as a rationing device

(A) price no longer serves as a rationing device

A tax imposed on the buyers of a good will raise the a) price paid by buyers and lower the equilibrium quantity. b) price paid by buyers and raise the equilibrium quantity. c) effective price received by sellers and lower the equilibrium quantity. d) effective price received by sellers and raise the equilibrium quantity.

(A) price paid by buyers and lower the equilibrium quantity

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

If a price floor is not binding, then a) the equilibrium price is above the price floor. b) the equilibrium price is below the price floor. c) there will be a surplus in the market. d) there will be a shortage in the market.

(A) the equilibrium price is above the price floor

A good will have a more inelastic demand, the a) greater the availability of close substitutes. b) broader the definition of the market. c) longer the period of time. d) more it is regarded as a luxury.

(B) broader the definition of the market

A tax on the buyers of cameras encourages a) sellers to supply a smaller quantity at every price. b) buyers to demand a smaller quantity at every price. c) sellers to supply a larger quantity at every price. d) Both a) and b) are correct.

(B) buyers to demand a smaller quantity at every price

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it a) maximizes both the total revenue for firms and the quantity supplied of the product. b) maximizes the combined welfare of buyers and sellers. c) minimizes costs and maximizes output. d) minimizes the level of welfare payments.

(B) maximizes the combined welfare of buyers and sellers.

Total revenue will be at its largest value on a linear demand curve at the a) top of the curve, where prices are highest. b) midpoint of the curve. c) low end of the curve, where quantity demanded is highest. d) None of the above is correct.

(B) midpoint of the curve

When a tax is placed on the sellers of a product, buyers pay a) more, and sellers receive more than they did before the tax. b) more, and sellers receive less than they did before the tax. c) less, and sellers receive more than they did before the tax. d) less, and sellers receive less than they did before the tax.

(B) more, and sellers receive less than they did before the tax.

Suppose that in a particular market, the demand curve is highly elastic, and the supply curve is highly inelastic. If a tax is imposed in this market, then the a) buyers will bear a greater burden of the tax than the sellers. b) sellers will bear a greater burden of the tax than the buyers. c) buyers and sellers are likely to share the burden of the tax equally. d) buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information.

(B) sellers will bear a greater burden of the tax than the buyers.

Price controls are usually enacted a) as a means of raising revenue for public purposes b) when policymakers believe that the market price of a good or service is unfair to buyers or sellers c) when policymakers tax a good d) All of the above are correct

(B) when policymakers believe that the market price of a good or service is unfair to buyers or sellers

The marginal seller is the seller who a) cannot compete with the other sellers in the market. b) would leave the market first if the price were any lower. c) can produce at the lowest cost. d) has the largest producer surplus.

(B) would leave the market first if the price were any lower.

If the price elasticity of supply is 1.5, and a price increase led to a 1.8% increase in quantity supplied, then the price increase is about a) 0.67%. b) 0.83%. c) 1.20%. d) 2.70%.

(C) 1.20%

In which of the following situations would supply be the most elastic? a) An auto parts manufacturer is operating at capacity. b) A real estate developer in Boston is looking to build condos on the waterfront. c) A furniture manufacturer is operating its factory 8 hours per day. d) A hotel has all of its rooms booked for each night of the next 3 months.

(C) A furniture manufacturer is operating its factory 8 hours per day.

A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact? a) Supply curves are steeper over long periods of time than over short periods of time. b) Buyers of goods tend to be more responsive to price changes over long periods of time than over short periods of time. c) The number of firms in a market tends to be more variable over long periods of time than over short periods of time. d) Firms prefer to change their prices in the short run rather than in the long run.

(C) The number of firms in a market tends to be more variable over long periods of time than over short periods of time.

Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result, a) the demand for treadmills will increase. b) the supply of treadmills will decrease. c) a shortage of treadmills will develop. d) All of the above are correct.

(C) a shortage of treadmills will develop

If a binding price floor is imposed on the market for eBooks, then a) the demand for eBooks will decrease. b) the supply of eBooks will increase. c) a surplus of eBooks will develop. d) All of the above are correct.

(C) a surplus of eBooks will develop

Which of the following causes the price paid by buyers to be different than the price received by sellers? a) a binding price floor b) a binding price ceiling c) a tax on the good d) All of the above are correct.

(C) a tax on the good

If the government removes a tax on a good, then the price paid by buyers will a) increase, and the price received by sellers will increase. b) increase, and the price received by sellers will decrease. c) decrease, and the price received by sellers will increase. d) decrease, and the price received by sellers will decrease.

(C) decrease, and the price received by sellers will increase

If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would a) increase by more than $1,000. b) increase by exactly $1,000. c) increase by less than $1,000. d) decrease by an indeterminate amount.

(C) increase by less than $1,000

A tax on sellers will shift the a) demand curve upward by the amount of the tax. b) demand curve downward by the amount of the tax. c) supply curve upward by the amount of the tax. d) supply curve downward by the amount of the tax.

(C) supply curve upward by the amount of the tax

We can say that the allocation of resources is efficient if a) producer surplus is maximized. b) consumer surplus is maximized. c) total surplus is maximized. d) sellers' costs are minimized.

(C) total surplus is maximized

Total surplus a) can be used to measure a market's efficiency. b) is the sum of consumer and producer surplus. c) is the value to buyers minus the cost to sellers. d) All of the above are correct.

(D) All of the above are correct

When a binding price floor is imposed on a market, a) price no longer serves as a rationing device. b) the quantity supplied at the price floor exceeds the quantity that would have been supplied without the price floor. c) only some sellers benefit. d) All of the above are correct.

(D) All of the above are correct

Which of the following is not a function of prices in a market system? a) Prices have the crucial job of balancing supply and demand. b) Prices send signals to buyers and sellers to help them make rational economic decisions. c) Prices coordinate economic activity. d) Prices ensure an equal distribution of goods and services among consumers.

(D) Prices ensure an equal distribution of goods and services among consumers.

Total surplus is represented by the area a) under the demand curve and above the price. b) above the supply curve and up to the price. c) under the supply curve and up to the price. d) between the demand and supply curves up to the point of equilibrium.

(D) between the demand and supply curves up to the point of equilibrium.

When a tax is levied on sellers of tea, a) the well-being of both sellers and buyers of tea is unaffected. b) sellers of tea are made worse off, and the well-being of buyers is unaffected. c) sellers of tea are made worse off, and buyers of tea are made better off. d) both sellers and buyers of tea are made worse off.

(D) both sellers and buyers of tea are made worse off

In general, elasticity is a measure of a) the extent to which advances in technology are adopted by producers. b) the extent to which a market is competitive. c) how firms' profits respond to changes in market prices. d) how much buyers and sellers respond to changes in market conditions.

(D) how much buyers and sellers respond to changes in market conditions.

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest? a) immediately after the price increase b) one month after the price increase c) three months after the price increase d) one year after the price increase

(D) one year after the price increase

Ina market, the marginal buyer is the buyer a) whose willingness to pay is higher than that of all other buyers and potential buyers. b) whose willingness to pay is lower than that of all other buyers and potential buyers. c) who is willing to buy exactly one unit of the good. d) who would be the first to leave the market if the price were any higher.

(D) who would be the first to leave the market if the price were any higher.