Exam 2

Refer to Figure 6-9. In this market, a minimum wage of $7.00 creates a labor

c. surplus of 4,000 worker hours.

Refer to Figure 6-10 . The price that buyers pay after the tax is imposed is

$24

Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?

Lower the price to increase total revenue.

Which of the following is likely to have the most price elastic demand?

Tommy Hilfiger jeans

Refer to Table 7-7 . If the market price is $1,000, the producer surplus in the market is

a. $300.

Refer to Figure 5-1. Between point A and point B on the graph, demand is

elastic, but not perfectly elastic.

The supply of a good will be more elastic, the

longer the time period being considered

Refer to Figure 5-3At a price of $70 per unit, sellers' total revenue equals

$1,050

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is

0.67, and an increase in price will result in an increase in total revenue for good A.

If a 15% increase in price for a good results in a 20 percent decrease in quantity demanded, the price elasticity of demand is

1.33

If a 25 percent change in price results in a 40 percent change in quantity supplied, then the price elasticity of supply is about

1.60, and supply is elastic.

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

2.33.

Which of the following statements is valid when the market supply curve is vertical?

Market quantity supplied does not change when the price changes.

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?

One year after the price increase

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct?

The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve.

Refer to Figure 6-10 . The per-unit burden of the tax on buyers is

a. $8.

When a tax is placed on the buyers of lemonade, the

a. burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

Refer to Figure 7-6. When the price falls from P2 to P1, producer surplus

a. decreases by an amount equal to A+B.

If the government removes a binding price ceiling from a market, then the price paid by buyers will

a. increase, and the quantity sold in the market will increase.

If a nonbinding price floor is imposed on a market, then the

a. quantity sold in the market will stay the same.

We can say that the allocation of resources is efficient if

a. total surplus is maximized.

If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the

b. consumer does not purchase the good.

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

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

In the market for apartments, rent control causes the quantity supplied

b. to fall and quantity demanded to rise.

Refer to Figure 7-2. If the government imposes a price floor of $110 in this market, then consumer surplus will decrease by

c. $600.

Suppose there is an early freeze in California that reduces the size of the lemon crop. As the price of lemons rises, what happens to consumer surplus in the market for lemons?

c. Consumer surplus decreases.

Refer to Figure 6-5. Which of the following statements is not correct?

c. When the price is $6, there is a surplus of 8 units.

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

c. buyers will bear a greater burden of the tax than the sellers.

Refer to Figure 7-1 . Area C represents the

consumer surplus to new consumers who enter the market when the price falls from P2 to P1.

Refer to Figure 7-9. At equilibrium, total surplus is represented by the area

d. A+B+C+D+H+F.

Refer to Figure 7-1 . When the price is P 1 , consumer surplus is

d. A+B+C.

Refer to Figure 6-2. The price ceiling causes quantity

d. demanded to exceed quantity supplied by 90 units.

In general, a flatter demand curve is more likely to be

price elastic.

Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,

the equilibrium quantity decreases, and the equilibrium price is unchanged.

Demand is said to be inelastic if

the quantity demanded changes only slightly when the price of the good changes.