ECON TEST 2

Last year, Tess bought five handbags when her income was $54,000. This year, her income is $60,000, and she purchased seven handbags. Holding other factors constant and using the midpoint method, it follows that Tess's income elasticity of demand is about a. 3.17, and Tess regards handbags as inferior goods. b. 3.17, and Tess regards handbags as normal goods. c. 0.32, and Tess regards handbags as inferior goods. d. 0.32, and Tess regards handbags as normal goods. Hide Feedback

b. 3.17, and Tess regards handbags as normal goods.

The failure of markets to adequately protect the environment can be viewed either as a problem of a. externalities or as a problem of private goods. b. externalities or as a problem of common resources. c. club goods or as a problem that arises when the quantity of excludable goods exceeds the socially-efficient quantity. d. the overprovision of public goods or as a problem of the underprovision of private goods.

b. externalities or as a problem of common resources.

Scenario 11-1 Becca is a single mother of two young children who spend their days at a daycare center while Becca goes to work. The daycare center closes at 5:30. If parents do not pick up their children at or before 5:30, the daycare center charges a late fee of $5 per child for every 10 minutes the parent is late. Refer to Scenario 11-1. Due to traffic, Becca expects to be 20 minutes late to pick up her children. Which of the following most accurately describes the set of prices that she would be willing to pay for a variable toll road that would get her to the daycare center on time? a. Any price less than $20 b. Any price less than $30 c. Becca would not be willing to pay out of pocket to avoid traffic. d. Any price less than $25

a. Any price less than $20

Because public goods are a. excludable, people do not have an incentive to be free riders. b. not excludable, people have an incentive to be free riders. c. excludable, people have an incentive to be free riders. d. not excludable, people do not have an incentive to be free riders.

b. not excludable, people have an incentive to be free riders.

If a 15% increase in price for a good results in a 20 percent decrease in quantity demanded, the price elasticity of demand is a. 1.25. b. 1.60. c. 1.33. d. 0.75.

c. 1.33

Which of the following goods is rival and excludable? a. An uncongested toll road b. A congested nontoll road c. A congested toll road d. An uncongested nontoll road

c. A congested toll road

Which of the following is not a characteristic of a public good? a. It is not diminished or depreciated as additional people consume the good. b. Its benefits cannot be withheld from anyone. c. Because it is a free good, there is no opportunity cost. d. It is not excludable.

c. Because it is a free good, there is no opportunity cost.

Which of the following is NOT a way of internalizing technology spillovers? a. Patent protection b. Subsidies c. Taxes d. Industrial policy

c. Taxes

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

c. a smaller quantity of the good is bought and sold.

Rent control a. is the most efficient way to allocate scarce housing resources. b. serves as an example of how a social problem can be alleviated or even solved by government policies. c. serves as an example of a price ceiling. d. is regarded by most economists as an efficient way of helping the poor.

c. serves as an example of a price ceiling

Which of the following was not a reason OPEC failed to keep the price of oil high? a. Consumers replaced old inefficient cars with newer efficient ones. b. Over the long run, producers of oil outside of OPEC responded to higher prices by increasing oil exploration and by building new extraction capacity. c. Consumers responded to higher prices with greater conservation. d. The agreement OPEC members signed allowed each country to produce as much oil as each wanted.

d. The agreement OPEC members signed allowed each country to produce as much oil as each wanted.

The demand for grape-flavored Hubba Bubba bubble gum is likely a. inelastic because the market is broadly defined. b. elastic because the market is broadly defined. c. inelastic because there are many close substitutes for grape-flavored Hubba Bubba . d. elastic because there are many close substitutes for grape-flavored Hubba Bubba.

d. elastic because there are many close substitutes for grape-flavored Hubba Bubba.

In the housing market, supply and demand are a. more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the short run than in the long run. b. more elastic in the short run than in the long run, and so rent control leads to a larger shortage of apartments in the short run than in the long run. c. more elastic in the short run than in the long run, and so rent control leads to a larger shortage of apartments in the long run than in the short run. d. more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.

d. more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.

The U.S. military defends Jacob from foreign conflict. The fact that Jacob enjoys this protection does not detract from other Americans' enjoyment of it. For this reason, we say that national defense is a. rival in consumption. b. excludable. c. not excludable. d. not rival in consumption. Hide Feedback

d. not rival in consumption.

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is a. unit elastic. b. perfectly inelastic. c. elastic. d. inelastic.

inelastic