Elasticity & Taxation Practice Econ 102

A price floor is

-A legal minimum on the price at which a good can be sold -often imposed when sellers of a good are successful in their attempts to convince the government the market outcome is unfair w/o it - a source of inefficiency in a market

For a good that is a luxury, demand

tends to be elastic

Income elasticity of demand measures

the quantity demanded changes as consumer income changes

The incidence (burden) falls more heavily on

-consumers than producers if demand is more inelastic than supply - producers than consumers if supply is more inelastic than demand -consumers than producers if supply is more elastic than demand.

The demand for Godiva mint chocolates is likely quite elastic because

-many close substitutes -this type of chocolate is viewed as a luxury -market is narrowly defined

Price controls are usually enacted

When policy makers believe that the market price of a good or service is unfair to buyers or sellers

For a particular good, a 10% increase in price causes a 3% decrease in quantity demanded. Which of the following statements is likely to be true? a. relevant time horizon is short b. the good is a luxury c. the market for the good is narrowly defined d. many close subsitutes

a. relevant time horizon is short

Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is

assuming the demand for university education is inelastic

When a tax is levied on sellers of tea,

both sellers and buyers of tea are made worse off

Demand is said to be elastic if...

buyers respond substantially to changes in the price of the good

The price elasticity of demand measures...

buyers' responsiveness to a change in the price of a good

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

c. tax on the good

Which of the follow is NOT correct? a. the economy contains manny labor markets for different types of workers b. the impact of the minimum wage depends on the skill and experience c. the minimum wage is binding for workers with high skills and much experience d. the minimum wage is not binding when the equilibrium wage is above the minimum wage

c. the minimum wage is binding for workers with high skills and much experience

A tax on the sellers of coffee will increase the price of coffee paid by buyers...

decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee

Other things equal, the demand for a good tends to be more inelastic, the

fewer the available substitutes

Rent control

is an example of a price ceiling

Demand is elastic if the price elasticity of demand...

is greater than 1

When studying how some event or policy affects a market, elasticity provides information on the

magnitude of the effect on the market

When consumers face rising gasoline prices, they typically...

reduce their quantity demanded more in the long run than in the short run

A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct?

the answer depends on the price elasticity of demand

If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then the

the demand for that good is inelastic