Econ Test 2 Quizzes
Fill in the blanks: When the government taxes an activity, resources such as labor, machines, and bank lending will tend to gravitate _________the activity that is taxed and will tend to gravitate ________ activity that is not taxed.
away from; toward
After more employers allow employees to telecommute, will the demand curve for cars be more elastic or more inelastic?
more elastic
During the Middle Ages, the African city of Taghaza quarried salt in 200-pound blocks to be sent to the salt market in Timbuktu, in present-day Mali. Travelers report that Taghazans used salt instead of wood to construct buildings. Compared with other towns without big salt mines, was the demand for wood more elastic or more inelastic in Taghaza?
more elastic
If a new process for manufacturing diamonds is created, will the supply curve for diamonds become more elastic or more inelastic?
more elastic
If a larger share of oil output is required to make plastic, will the supply curve for plastic become more elastic or more inelastic?
more inelastic
If pesticides and fertilizers are banned, will the supply curve for food become more elastic or more inelastic?
more inelastic
Which of the following jobs is attempting to correct for an externality?
homeowner association
The long-run elasticity of oil demand has been estimated at -0.5. Would a 10% rise in oil prices increase or decrease total revenues to oil producers?
increase
Harry is lucky enough to get a rent-controlled apartment for $300 per month. The market rent on such an apartment is $3,000 per month. Harry himself values the apartment at $2,000 per month, and he'd be quite happy with a regular, $2,000 per month New York apartment. If he stays in the apartment, how much consumer surplus does he enjoy?
$1700 per month
The long-run elasticity of oil demand has been estimated at -0.5. If the price of oil rises by 10%, how much will the quantity of oil demanded fall?
5%
How does a free market eliminate a shortage?
By letting the price rise
Junk food has been criticized for being unhealthy and too cheap, enticing the poor to adopt unhealthy lifestyles. Suppose that the state of Oklakansas imposes a tax on junk food. For the tax to actually deter people from eating junk food, should junk food demand be elastic or inelastic?
Elastic
Decades ago, Washington, DC, a geographically small city, wanted to raise more revenue by increasing the gas tax. Washington, DC shares borders with Maryland and Virginia, and it's very easy to cross the borders between these states. How elastic is the demand for gasoline sold at stations within Washington, DC? In other words, if the price of gas in DC rises, but the price in Maryland and Virginia stays the same, will gasoline sales at DC stations fall a little, or will they fall a lot?"
Elastic- gasoline sales would fall a lot
If the Oklakansas government wants to strongly discourage people from eating junk food, when will it need to set a higher tax rate: When junk food demand is elastic or when it is inelastic?
Inelastic
One way governments have tried to collect taxes from the wealthy is through the use of luxury taxes, which are exactly what they sound like: taxes on goods that are considered luxuries, like jewelry or expensive cars and real estate. What is true about the demand for luxuries?
It is elastic
Suppose that Maria is willing to pay $40 for a haircut, and her stylist Juan is willing to accept as little as $25 for a haircut. If a previous $5 tax increases to $20, will the haircut transaction still happen?
No
Consider jewelry. Is a luxury tax more likely to hurt the buyers of jewelry, or the sellers of jewelry?
The sellers
Immigration is a fact of life in the United States. This will lead to a big boost in the labor supply. What field would you rather be in?
a field where the demand for your kind of labor is elastic
Given your answer on the previous question, how much revenue did it raise when it increased its gasoline tax?
a little revenue
If DC, Maryland, and Virginia all agreed to raise their gas tax simultaneously, how much revenue could the gas tax raise? Note: These states have heavily populated borders with each other, but they don't have any heavily populated borders with other states
a lot of revenue
We saw that a gun buyback program was unlikely to work in Washington, D.C. If the entire United States ran a gun buyback program, would that be better at reducing gun ownership or worse? Hint: Is the supply of guns at a national level more elastic or more inelastic?
better
If he illegally subleases his apartment to Sally on the black market for $2,500 per month and instead rents a $2,000 apartment, is he better off or worse off than if he obeyed the law?
better off
For which of the following two goods is demand more likely to be inelastic?
demand for fruit
For which of the following two goods is demand more likely to be elastic?
demand for gas at a specific location
In a rent-controlled apartment, a landlord will likely do which of the following more often:
discriminate more against applicants
Henry Ford famously mass-produced cars at the beginning of the twentieth century, starting Ford Motor Company. He made millions because mass production made cars cheap to make, and he passed some of the savings to the consumer in the form of a low price. Cars became a common sight in the United States thereafter. Keeping total revenue and its relationship with price in mind, do you expect the demand for cars to be elastic or inelastic given the story of Henry Ford?
elastic
The benefit your neighbor receives from hearing you play your pleasant music
external benefit
The extra safety your neighbor might experience because criminals tend to stay away from neighborhoods that have a lot of burglar alarms
external benefit
The annoyance of your neighbor because she doesn't like your achingly conventional music
external cost
The crime that is more likely to occur to your neighbor once a criminal sees a "Protected by alarm" sticker on your window.
external cost
Fill in the blanks: As long as supply and demand curves have their normal shape (the demand curve has a negative slope while supply curves have appositive slope), if there is a tax, the equilibrium quantity must _______ and the price that sellers receive must _______.
fall;fall
As long as supply and demand curves have their normal shape (the demand curves have a negative slope while supply curves have a positive slope), if there is a tax, the equilibrium quantity must _______ and the price that buyers pay must _______.
fall;rise
If a government decides to make health insurance affordable by requiring all health insurance companies to cut their prices by 30%, what will probably happen to the number of people covered by health insurance?
fewer people will be covered because health insurance companies will supply less.
What does it mean that elasticity equals escape? (This is worth remembering: Elasticity is one of the toughest ideas for most economics students.)
it is easy for market participants escape to another market if they have elastic demand or supply
Business leaders often say that there is a "shortage" of skilled workers, and so they argue that immigrants need to be brought in to do these jobs. For example, an AP article entitled "New York farmers fear a shortage of skilled workers," pointing out that a special U.S. visa program, the H-2A program, "allows employers to hire foreign workers temporarily if they show that they were not able to find U.S. workers for the jobs." (Source: Thompson, Carolyn. May 13, 2008. N.Y. farmers fear a shortage of skilled workers Associated Press.) How do unregulated markets cure a "labor shortage" when there are no immigrants to boost the labor supply?
let the price of labor increase
Some people with diabetes absolutely need to take insulin on a regular basis to survive. Pharmaceutical companies that make insulin could find a lot of other ways to make some money. If the U.S. government imposes a tax on insulin producers of $10 per cc of insulin, payable every month to the U.S. Treasury, who will bear most of the burden of the tax?
people with diabetes
Suppose instead that because of government corruption, the insulin manufacturers convince the U.S. government to pay the insulin makers $10 per cc of insulin, payable every month from the U.S. Treasury. Who will get most of the benefit of this subsidy?
people with diabetes
A review of the jargon: Is rent control a "price ceiling" or a "price floor?"
price ceiling
The pleasure you receive from listening to your iTunes download
private benefit
The safety you enjoy as a result of having the security system
private benefit
The price you pay for a security system for your home
private cost
The price you pay for an iTunes download
private cost
With these price controls on bread, would you expect bread quality to rise or fall
quality falls
If the government forced all bread manufacturers to sell their products at a "fair price" that was half the current, free-market price, what would happen to the quantity supplied of bread?
quantity supplied decreases
Which of the two goods is more likely to be elastically supplied?
supply of apples over the next decade
Which of the two goods is more likely to be elastically supplied?
supply of breakfast cereal (more specific)
Which of the two goods is more likely to be elastically supplied?
supply of computers
Which of the two goods is more likely to be elastically supplied?
supply of construction workers in houston, tx (specific city)
The competitive market equilibrium maximizes gains from trade. Taxes and subsidies, by altering the market outcome, reduce the gains from trade. Does this happen primarily because of the impact of taxes and subsidies on prices, or the impact of taxes and subsidies on quantities?
the impact on quantities
Suppose that drug addicts pay for their addiction by stealing: So the higher the total revenue of the illegal drug industry, the higher the amount of theft. If a government crackdown on drug suppliers leads to a higher price of drugs, what will happen to the amount of stealing if the demand for drugs is inelastic?
the overall amount of stealing would decrease
If the elasticity of demand for spring break packages to Cancun is -5, and if you notice that this year in Cancun the quantity of packages demanded increased by 10%, then what happened to the price of Cancun vacation packages?
the price fell by 2%
If the elasticity of demand for college textbooks is -0.1, and the price of textbooks increases by 20%, how much will the quantity demanded change, and in what direction?
the quantity demanded decreases by 2%
Fill in the blanks: When the government subsidizes an activity, resources such as labor, machines, and bank lending will tend to gravitate __________ the activity that is subsidized and will tend to gravitate ___________ activity that is not subsidized.
toward; away from