econ unit 2 part 1

Suppose the small country of Aronow imports 40,000kg of bananas. The global price of bananas is $0.50 per kg. The government of Aronow collects tariff revenues of $4,000 from banana imports. Which of the following is true? A The consumers in Aronow pay a price of $0.60 per kg of bananas. B The domestic production of bananas in Aronow would increase with the removal of the tariff. C The deadweight loss in the market for bananas in Aronow would increase with the removal of the tariff. D The removal of the tariff would cause domestic consumer surplus in the market for bananas in Aronow to increase but by less than the decrease in domestic producer surplus. E Aronow's total tariff revenue collected in the banana market would be maximized if the per-unit tariff were equal to the difference between its autarky price and the world price.

A - The consumers in Aronow pay a price of $0.60 per kg of bananas.

Which of the following policies would result in an increase in the quantity supplied of a good in a market? A Providing a per-unit subsidy to sellers B Levying a per-unit tax on sellers C Imposing a binding price floor D Imposing a nonbinding price floor E Imposing a binding price ceiling

C - Imposing a binding price floor

Assume that the market for a good is in equilibrium at a price of $20 and a quantity of 100 units. After the government imposes a $5 per-unit excise tax on the good, the price that buyers pay for the good increases by $3. Which of the following are possible values for the government tax revenue and deadweight loss in the market? A Tax revenue is $200, deadweight loss $0 B Tax revenue is $300, deadweight loss $0 C Tax revenue is $300, deadweight loss $100 D Tax revenue is $500, deadweight loss $200 E Tax revenue is $500, deadweight loss $300

C - Tax revenue is $300, deadweight loss $100

Which of the following explains why the supply curve is upward sloping? A At a higher price, consumers are willing to buy more of the good. B At a lower price, consumers are able to buy more of the good. C Producers receive subsidies as they increase production. D At a higher quantity, producers are more able to control the market price. E At a higher price, producers are more able to cover the higher marginal cost associated with increasing production.

E - At a higher price, producers are more able to cover the higher marginal cost associated with increasing production.

In which of the following cases would government intervention in a market result in an increase in the quantity sold? A Setting a price ceiling above the equilibrium price B Setting a price ceiling below the equilibrium price C Setting a price floor above the equilibrium price D Levying a per-unit tax on producers E Providing producers of a product with a per unit subsidy

E - Providing producers of a product with a per unit subsidy

Consider the market for arugula, a normal good. Which of the following changes would result in an increase in both the equilibrium price and the equilibrium quantity of arugula? A A decrease in consumer income B An increase in the price of salad dressing, a complement C A decrease in the price of radicchio, a substitute D An increase in the price of water irrigation for arugula farms E An increase in population

E - an increase in population

Which of the following correctly describes the income effect associated with the law of demand?

If the price of a normal good decreases, the purchasing power of a consumer's income increases and therefore consumers will be willing and able to purchase more of the good.

A firm estimates that the absolute value of the price elasticity of demand for its signature sandwich is 2. If the firm increases its sandwich price by 10 percent, what will happen to the quantity demanded?

It will decrease by 20 percent

An increase in the price of good X causes buyers to want to buy more of good Y. Which of the following explains the resulting change in the market?

The demand curve for good Y will shift to the right because the goods are substitutes.

A change in which of the following causes a movement along a given demand curve for a normal good?

The price of the good

The market for tomatoes is in equilibrium at the price of $10, and quantity of 50 tomatoes. If consumer surplus is $400 and total surplus is $650, what is the producer surplus in the tomato market and why?

The producer surplus is $250 , because the total surplus less what consumers receive must go to producers.

Suppose the price elasticity of supply for gasoline in the short run is estimated to be 0.4. Due to an unexpected surge in the demand for gasoline, the price of gasoline increases by 20 percent. As a result, the quantity supplied of gasoline will

increase by 8 percent

A 10 percent increase in the price of a good results in a 4 percent increase in total revenue. From this information, it can be concluded that the demand over this range of prices

is inelastic

Which of the following would cause the supply of good X to become more elastic? A Greater availability of substitutes for good X B Increased prices of inputs required to produce good X C The ability to easily reallocate inputs to production of good X D A short time frame for making production decisions E More elastic demand for good X

C - The ability to easily reallocate inputs to production of good X

The market supply curve for a product is derived from the individual firm supply curves by

summing the quantities each producer sells at each possible price

Which of the following will occur as a result of a decrease in the prices of the inputs used to produce a good? A The quantity supplied would increase at each possible price for the good. B The price of the good would increase for any given quantity supplied. C The quantity supplied would increase as the price of the good increased. D The quantity supplied would increase as the price of the good decreased. E The price of the good would increase as the quantity supplied decreased.

A - The quantity supplied would increase at each possible price for the good

Assume that the market for a good is characterized by a downward-sloping demand curve and an upward-sloping supply curve. Suppose that there is an improvement in technology for producing the good. Which of the following would occur? A The impact on total consumer surplus would be indeterminate, because of the offsetting impact of the changes in equilibrium price and quantity. B The change in equilibrium price would cause total producer surplus to increase. C The total surplus (the sum of consumer and producer surpluses) in the market would increase. D The demand curve would shift right in response to an increase in the equilibrium price. E The supply curve would shift up resulting in an increase in the equilibrium price and the total producer surplus.

C - The total surplus (the sum of consumer and producer surpluses) in the market would increase.

At the current prices of goods X and Y, the quantity demanded of good X is 10 units, and the quantity demanded of good Y is 5 units. The cross-price elasticity of demand between goods X and Y is 0.6. A 10 percent increase in the price of good Y will result in which of the following? A A 0.5 percent decrease in the quantity demanded of good Y. B A 3 percent increase in the quantity demanded of good Y. C A 1 percent increase in the quantity demanded of good X. D A 6 percent increase in the quantity demanded of good X. E A 60 percent increase in the quantity demanded of good X.

D - A 6 percent increase in the quantity demanded of good X.

Which of the following will initially result from an increase in the market demand for a good? A There will be a matching increase in supply. B There will be a decrease in quantity supplied. C The equilibrium price will decrease. D There will be a temporary shortage at the original equilibrium price. E Total producer surplus in the market will decrease. Answer D

D - There will be a temporary shortage at the original equilibrium price

Whether a good is inferior or normal is based on the sign of the income elasticity -

with a positive sign indicating that the good is a normal good and a negative sign indicating that the good is an inferior good.