Exam 2 Microeconomics Review

The graph shows the market for books.The market for books initially has no taxes and is in competitive equilibrium. Then a tax of $4 a book is imposed on the buyers of books. What is the tax paid by sellers on a book and what is the tax paid by buyers on a book? The tax paid by the seller is ______________ a book and the tax paid by the buyer is ______________ a book.

$2;$2

The graph shows the market for books.The market for books initially has no taxes and is in competitive equilibrium. Then a tax of $6 a book is imposed on the sellers of books. What is the tax paid by sellers on a book and what is the tax paid by buyers on a book?The tax paid by the seller is ______________ a book and the tax paid by the buyer is ______________ a book.

$3;$3

When the price of a loaf of garlic bread increases by 4 percent, the quantity of lasagna demanded decreases by 2 percent.Calculate the cross elasticity of demand for lasagna with respect to the price of a loaf of garlic bread. (a.) The cross elasticity of demand for lasagna with respect to the price of a loaf of garlic bread is ______________. (b.) Garlic bread and lasagna are ______________.

-0.5 complements

U.S. drivers are ranked as the least sensitive to changes in the price of gasoline. For example, if the price rose from $3 to $4 per gallon and stayed there for a year, then U.S. purchases of gasoline would fall only about 5 percent. Source: Slate, September 27, 2005 (a.) The price elasticity of demand for gasoline is ______________. -Answer to 3 decimal places and do NOT include the negative sign (b.) Does the measurement from part (a.) indicate that the demand for gasoline is elastic, unit elastic, or inelastic?The price elasticity of demand for gasoline is ______________, and a rise in the price of gasoline ______________ total revenue from gasoline sales.

0.175 inelastic; increases

The table gives some data on the supply of roses in a small town. When the price rises from $15 a dozen to $25 a dozen, the elasticity of supply is ______________.

0.80

In 2003, when music downloading first took off, Universal Music slashed the average price of a CD from $21 to $15.The company expected the price cut to boost the quantity of CDs sold by 30 percent, other things remaining the same. (a.) Universal Music's estimate of the price elasticity of demand for CDs was ______________. -Answer to 1 decimal place and do NOT include the negative sign (b.) Given your answer in Q5.15a... If you were making the pricing decision at Universal Music would you cut the price, raise the price, or leave the price unchanged?

0.9 Raise the price to increase total revenue.

The graph shows the market for kumquats.Point 1 marks the original equilibrium price and quantity.The government then decides to subsidize kumquat producers $20 a basket. Point 2 marks the new, post-subsidy equilibrium price and quantity.Point 3 marks the marginal cost at the new equilibrium quantity.Use the image to answer the following question. The total subsidy paid by the government to all kumquat farmers is $ ______________million.

1,200

Rain spoils the strawberry crop, the price of strawberries rises from $4 to $6 a box, and the quantity demanded decreases from 1,000 to 600 boxes a week. Over the price range of $4 to $6 , the price elasticity of demand is ______________. -Answer to 2 decimal places, and do NOT include the negative sign.

1.25 (for calculation subtract quantity 1000-600/1000+600 * 2=0.5 then subtract the price (6-4/6+4) * 2 =0.4 than divide 0.5/.4=1.25) elastic

The figure shows the demand for pens.(a.) The elasticity of demand when the price rises from $6 to $8 a pen is ______________. The demand for pens is elastic at ______________.

1.4 all prices greater than $6 a pen

A 8 percent rise in the price of orange juice decreases the quantity of orange juice demanded by 12 percent and increases the quantity of apple juice demanded by 20 percent. (a.) The price elasticity of demand for orange juice is ______________. -Answer to 1 decimal place and do NOT include the negative sign (b.) The cross elasticity of demand for apple juice with respect to the price of orange juice is ______________.

1.5 2.5

The figure shows the supply curve of lead.Between points A and B, the elasticity of supply is ______________, so the supply of lead is ______________.

1.8; elastic

When income increases by 4 percent and all prices remain the same, the quantity of smartphones demanded increases by 8 percent. The income elasticity of demand of smartphones is ______________.

2

When the price of a gallon of gasoline increases by 5 percent and the price of a bus ride remains unchanged, the quantity of bus rides demanded increases by 10 percent. The cross elasticity of demand of bus rides with respect to gasoline is ______________.

2

When Judy's income increased from $600 to $640 a week, she increased her demand for concert tickets by 15 percent and decreased her demand for bus rides by 5 percent.Calculate Judy's income elasticity of demand for concert tickets. (a.) Judy's income elasticity of demand for concert tickets is ______________. (b.) Judy's income elasticity of demand for bus rides is ______________.

2.33 -0.78

Suppose that the price of a cashmere sweater is $100 and Jean's marginal benefit from a cashmere sweater is $300.If Jean buys 1 cashmere sweater, what is her consumer surplus?Jean's consumer surplus is $ ______________.

200

The table sets out the supply schedule of jeans.Calculate the elasticity of supply when the price rises from $125 to $135 a pair. (a.) The elasticity of supply when the price rises from $125 to $135 a pair is ______________. (b.) The elasticity of supply when the average price is $125 a pair is ______________. (c.) The supply of jeans is ______________.

3.25 3.57 elastic

U.S. coal production in 2016 is 17 percent down on that of 2015. Almost all coal use in the United States is for electricity generation and the price of coal for power plants fell from $2.27 per million Btu in 2015 to $2.17 per million Btu in 2016. The price elasticity of supply of coal is ______________. Is the supply of coal elastic or inelastic?The supply of coal is ______________.

3.8 elastic

The graph shows a labor market with an effective minimum wage. Calculate the potential loss from job search, the firms' surplus, the workers' surplus, and the deadweight loss. (a.) The potential loss from job search is $ ______________ million. (b.) The firms' surplus is $ ______________ million (answer to 1 decimal place) (c.) The workers' surplus is $ ______________ million (answer to 1 decimal place) (d.) The deadweight loss is $ ______________ million.

4 .5 .5 4

It's been two weeks since you ate a burger. You'd be willing to pay $15 to buy a burger. Fortunately, it only costs $10. What is your consumer surplus?

5.0

The graph shows the market for tulips before and after a tax is imposed on tulip suppliers. The original equilibrium is indicated at point 1, and the post-tax equilibrium is identified at point 2. Use the image to answer the following question. (a.) The size of the tax is $______________ (think carefully) (b.) Buyers pay ______________ of the tax, and sellers pay __________________ of the tax

6 4;2

Sara and Zoe are the only people in an economy. The following data tells you about their purchases of soda.Sara bought 3 bottles when the price is $3 a bottle, 4 bottles when the price is $2 a bottle, and 5 bottles when the price was $1 a bottle.Zoe bought no soda when the price was $3 a bottle, 2 bottles when the price is $2 a bottle, and 3 bottles when the price was $1 a bottle.Which statement correctly describes a quantity of soda demand point in the soda market?

6 bottles are demanded when the price is $2 a bottle

Assume a linear demand curve. The demand curve intersects the price axis at $10. The price of the good is $2 and the quantity sold is 20. Calculate the consumer surplus.

80.0

Which of the following statements is an example of elasticity of supply?

A 10 percent fall in the price of turkey with no other change decreases quantity supplied by 12 percent.

Which of the following is an example of a price ceiling (or price cap)?

A regulation requires cable service to be provided for no more than $30 a month.

A manufacturing company has a fixed amount of capital that cannot be increased rapidly. Suppose there is a sudden increase in the price of their product. Their supply curve is _________.

Answer: Both A & C a) inelastic b) elastic c) not very responsive to changes in prices d) responsive to changes in prices e) both A & C f) both B & C

Which of the following statements illustrates a rent ceiling?

Bluestone Properties is permitted to charge a rent of $2,350 for 2-bedroom apartments that would rent for $2,500 in an unregulated market.

Demand is elastic if a price ______ increases total revenue

Cut

How does the elasticity of demand influence the incidence of a tax, the tax revenue, and the deadweight loss? (a.) The greater the elasticity of demand, the ______________ is the amount of the tax paid by sellers and the ______________ is the decrease in the equilibrium quantity. (b.) The greater the elasticity of demand, the ______________ the tax revenue and the ______________ is the deadweight loss.

Greater; Greater smaller; greater

The income elasticity of demand is a measure of the responsiveness of the demand for a good or service to a change in ______________, other things remaining the same.

Income

An increase in supply will do which of the following in a market with an effective price ceiling?

Increase the quantity exchanged in the market.

Which of the following statements describes an elastic demand?

Mary's quantity demanded of milk decreased by 8 percent when the price of milk rose by 5 percent

Which of the following statements describe an inelastic demand?

Megan did not buy too many hockey tickets even though their price dropped by 10 percent

The table gives the demand schedule for hotel rooms. If the price falls from $400 to $250 a night, total revenue _______________. If the price falls from $250 t0 $200 a night, total revenue _______________.

Remains the same; remains the same

The table gives the supply schedules for jet-ski rides by the only suppliers: Rick, Sam, and Tom. The price of a ride is $17.50. What is the producer surplus for each person? The owner with the largest producer surplus is the owner with the ______________. What is the marginal social cost of producing 45 rides a day? -Answer to 2 decimal places. The marginal social cost of producing 45 rides a day is $ ______________.

Rick: 56.25 Sam: 25 Tom: 6.25 lowest marginal cost 20

Which of the following statements is an example of perfectly elastic demand?

Sherry is overwhelmed with buyers of her peaches when she lowers their price by a penny a pound compared to other sellers in the farmers' market

Suppose that the demand for shoes is elastic, but the supply is inelastic. In the market for belts, the demand and the supply of belts are elastic. Assume that everything else is the same and that the increase in costs reduces quantities supplied in each case by the same amount at each price. In which market will a change in the costs of inputs have the greatest effect on the price?

Shoes

All else equal, if a firm increases the price of its good by 5% and it sells 10% fewer units, which of the following is true?

The firm's product has an elastic demand and its revenue decreases.

Which of the following is an example of a price floor?

The government guarantees that potato farmers will receive at least $50 a ton.

The current equilibrium price of a specific type of automobiles is $23,000. An increase of a price ceiling on automobiles from $20,000 to $25,000 will do what to the amount sold in the market and to the price of automobiles?

The price of automobiles will increase and more will be sold.

Elasticity and revenue: If demand is elastic, should a producer raise or lower price if the producer wants to increase total revenues?

The producer should lower prices

Which of the following statements best describes search activity

Tim spends time looking for jobs and sending applications to firms.

Choose the correct statement about value.

Value is what we get, and the price is what we pay.

which of the following statements describes a perfectly inelastic demand?

Walgreens does not find any change in the number of people buying chlorthalidone after a 7 percent rise in its price

Choose the statement that is correct.

When a price is regulated and there is a shortage, search activity increases.

Which is an example of resources being allocated by the command system?

Your manager at McDonalds assigns you to the drive-through window

The demand for plums is unit elastic if​ _____.

a 5 percent rise in the price of plums results in a 5 percent decrease in the quantity of plums demanded

A rent ceiling is ______________.

a government regulation that makes it illegal to charge a rent higher than a specified level

A good with an income elasticity greater than one is ______________.A good with an income elasticity that is positive and less than 1 is ______________.

a normal good that is income elastic; a normal good that is income inelastic

A price floor holds prices above the equilibrium price. If nothing else changes, there will:

always be a surplus.

What does the (positive/negative) sign of the income elasticity tell us about a good?A good with an income elasticity that is negative is ______________.

an inferior good

Spam Sales Rise as Food Costs Soar Sales of Spam are rising as consumers realize that Spam and other lower-cost foods can be substituted for costlier cuts of meat as a way of controlling their already stretched food budgets.AOL Money & Finance, May 28, 2008 Is Spam a normal good or an inferior good? Explain.Spam is ______________ good because ______________. Would the income elasticity of demand for Spam be negative or positive? Explain.The income elasticity of demand for Spam is ______________ because as income falls, the quantity of Spam demanded ______________.

an inferior; as the income available to buy meat decreases, consumers buy more spam negative; increases

Why do we need methods of allocating scarce resources?We need methods of allocating scarce resources ______________.

because resources are scarce and it is not possible to fulfill everyone's wants

Tax incidence is the division of the burden of tax between ______________.

buyers and sellers

What is the total revenue test? The total revenue test is a method of estimating the price elasticity of demand by observing the ________ that results from _______, when all other influences on the quantity sold remain the same (ceteris paribus)

change in total revenue; a change in the price

Demand is unit elastic if a price __________ leaves total revenue unchanged

cut or rise

Elasticity and Revenue: When the price of tomatoes rises from $3 per pound to $4 per pound, the quantity of tomatoes sold decreases from 15 pounds to 10 pounds. Total revenue ______________, and using the total revenue test, we can determine that the demand for tomatoes is ______________.

decreases from $45 to $40; elastic

Rain spoils the strawberry​ crop, the price of strawberries rises from ​$4 to ​$4 a​ box, and the quantity demanded decreases from 1000 to 600 boxes a week. Over this price rang, the demand for strawberries is (inelastic, elastic, or unit elastic)

elastic

When Yvonne' s income increases by 3 percent, her demand for tickets to professional football games increases by 6 percent.Yvonne' s demand for tickets is income ______________. For Yvonne , football tickets are ______________ good.

elastic ; a normal

Demand for a luxury is generally more ________ than demand for a necessity because a luxury has ___________ substitutes

elastic; more

The graph shows the demand curve for coal. The government imposes a sales tax on sellers of coal. It turns out that the buyers end up paying the entire tax. The more ______________ the supply, ______________.

elastic; the larger is the amount of the tax paid by buyers

The graph shows the supply curve of soda. Suppose the government has imposed a sales tax of $2 per case on soda, and the sellers end up paying the entire tax. Given this information, correct complete the sentence below. The more ______________ the demand, ______________.

elastic; the larger is the amount of the tax paid by sellers

(a.) When resources are allocated to the first in line the allocation method is ______________.When resources are allocated by the order of someone in authority, the allocation method is ______________. (b.) When resources are allocated in the way that the most voters choose, the allocation method is ______________.When resources are allocated on the basis of individual attributes, the allocation method is ______________.

first-come, first-served; command system majority rule; personal characteristics

What are the effects of a minimum wage set below the equilibrium wage?A minimum wage set below the equilibrium wage ______________.

has no effect on the equilibrium wage rate or the quantity of labor employed

What is the market supply curve?The market supply curve is the ______________ sum of the individual supply curves. It is formed by adding the ______________.

horizontal; quantities supplied by all the producers at each price

What is the relationship between individual supply and market supply? The market supply curve is the ______________ sum of the individual supply curves. It is formed by adding ______________.

horizontal; the quantities supplied by all the producers at each price

Which of the following is an example of a black market transaction?Annie rents an apartment ______________.

in a rent-controlled city by paying $1,000 for an extra set of keys

Consider a market with an effective price floor. What will happen to the quantity exchanged in the market if demand for the product increases? The quantity exchanged will ______________.

increase

With a sales tax of $2 a ticket, is the market for concert tickets efficient? Explain why or why not: (d.) With the $2 tax, the market for concert tickets is ______________ because ______________.

inefficient; the quantity bought and sold is less than the efficient quantity and a deadweight loss arises

When Mohesha receives an increase in her pay check from $1,800 a month to $2,200 a month, she increases the quantity of hot chocolate that she buys from 19 cups a month to 21 cups a month.Mohesha's demand for hot chocolate is income ______________. For Mohesha, hot chocolate is ______________ good.

inelastic; a normal

Honolulu number 3 in the world for the most unaffordable housing market in urban locations, behind Los Angeles and San Diego and is deemed "severely unaffordable." With significant constraints on the supply of land for residential development, housing inflation has resulted. Source: Hawaii Reporter, September 11, 2007 The supply of housing in Honolulu is ______________. The ______________ elastic the supply of housing, the greater the rise in the price of housing when demand increases.

inelastic; less

The graph shows the supply curve for a vital-for-life drug (i.e. the drug is essential). As such, the demand curve for this drug is perfectly inelastic. Now imagine the government imposes a tax on this drug. Use what you know about taxes and elasticity to correctly complete the sentence. The more ______________ the demand, ______________. Thus, in this market buyers would pay _____________.

inelastic; the larger is the amount of the tax paid by buyers; the whole tax

The more ______________ the supply, ______________.

inelastic; the larger is the amount of the tax paid by sellers

A rent ceiling set above the equilibrium rent ______________.

is ineffective

The supply of apples in the short run will be ______________ than the supply in the long run and ______________ than the supply today.

less elastic; more elastic

Nikita and Greg both need gas to fuel their respective cars. There are RaceTrak gas stations in both Nikita and Greg's towns. However, in Nikita's town there are additional gas station companies aside from RaceTrak, while Greg's town only has RaceTrak gas stations. All else equal, the price of RaceTrak gas rises by 20%, and Nikita decreases his gas purchase from RaceTrak by 30%. Greg is less responsive to the change in RaceTrak gas price because he has fewer substitutes available. We can conclude that Greg's price elasticity of demand for RaceTrak gas is likely...

less than 1.5

A change in demand will cause the equilibrium price to change by ______________ and the equilibrium quantity to change by ______________ with an elastic supply than if supply were inelastic.

less; more

A change in supply will cause the equilibrium price to change by ______________ and the equilibrium quantity to change by ______________ with an elastic demand than if demand were inelastic.

less; more

Consumer surplus is the ______________ of a good in excess of ______________, summed over the quantity bought.

marginal benefit; the price paid for it

A minimum wage creates an inefficient allocation of labor resources because at the quantity of employment ______________.

marginal social benefit exceeds marginal social cost

In the market for blankets, the value of the 20th blanket is the ______________.

maximum price that someone is willing to pay for the 20th blanket

Consumer surplus is ______________.

measured as the marginal benefit (or value) of a good minus the price paid for it, summed over the quantity bought

Ski trips and ski jackets are complements. The cross elasticity of demand for ski trips with respect to the price of a ski jacket must be ______________.

negative

Concerned about the political fallout from rising gas prices, the U.S. government decides to impose a price ceiling on gasoline of $4.00 a gallon.If the equilibrium price of gasoline to $3.00 a gallon, ________. The market for gasoline is __________.

neither a surplus nor a shortage of gasoline emerges and a black market does not emerge; efficient

The price elasticity of demand is calculated by dividing the __________ by the ________

percentage change in the quantity demanded; percentage change in the price

Rice and noodles are substitutes. The cross elasticity of demand for rice with respect to the price of noodles must be ______________.

positive

When a ______________ is applied to a labor market, it is called a minimum wage.

price floor

What does the cross elasticity of demand measure?The cross elasticity of demand is a measure of the responsiveness of the demand for a good to a change in the ______________, other things remaining the same (ceteris paribus).

price of a substitute or complement

Producer surplus is the ______________ a good or service, in excess of the ______________ of producing it, summed over the quantity produced.

price of; marginal cost

Demand is inelastic if a price ________________ increase total revenue

rise

A rent ceiling ______________. Dr. Taylor's note: There are accidentally two correct answers. Just pick one to submit.

set below the equilibrium rent constrains the market forces

(a.) The greater the elasticity of supply, the ______________ is the amount of the tax paid by sellers and the ______________ the decrease in the quantity bought. (b.) The greater the elasticity of supply, the ______________ the tax revenue and the ______________ is the deadweight loss.

smaller; greater smaller; greater

What does the (positive/negative) sign of the cross elasticity of demand tell us about the relationship between two goods? (a.) If the cross elasticity of demand for a T-shirt with respect to the price of a tank top is positive, then T-shirts and tank tops are ______________. (b.) If the cross elasticity of demand for computers with respect to the price of a DVD is negative, then computers and DVDs are ______________.

substitutes complements

The table gives the supply schedules of the only sellers of hot air balloon rides: Xavier, Yasmin, and Zack.What are the minimum prices that Xavier, Yasmin, and Zack are willing to accept to provide 20 rides? Why?The minimum prices that Xavier, Yasmin, and Zack are willing to accept equal ______________.

the marginal cost of producing the rides

In the sleeping bag market, the marginal cost of the 30th sleeping bag is ______________.

the minimum price that producers must receive to induce them to sell the 30th sleeping bag

(a.) Elasticity of supply measures the responsiveness of the quantity supplied to a change in ______________, when all other influences on selling plans remain the same. (b.) The elasticity of supply is calculated by dividing ______________by ______________.

the price of a good the percentage change in the quantity supplied; the percentage change in the price

Define the price elasticity of demand The price elasticity of demand is a units-free measure of the responsiveness of ____________

the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same

When a minimum wage is set above the equilibrium wage rate, ______________.

unemployment increases

If the quantity of dental services demanded increase by 10 percent when the price of dental services falls by 10 percent, is the demand for dental services es inelastic, elastic, or unit elastic? The demand for dental services is ____________

unit elastic

The table gives the demand schedule for hotel rooms Given your answer above, the demand for hotel rooms is ________________ because ______________

unit elastic; a price cut leaves total revenue unchanged. Total revenue never reaches a maximum

The elasticity of supply for a given good is strongly influenced by the time frame. For example... The momentary supply of wheat has an elasticity of supply equal to ______________.The short-run supply of wheat has an elasticity of supply equal to ______________.The long-run supply of wheat has an elasticity of supply equal to ______________.

zero; more than zero but less than infinity; infinity