EXAM 2 REVIEW QUESTIONS EC 110

Suppose a good has a positive income elasticity of demand, such as 0.99. This implies the good is A. a normal good. B. a luxury. C. a necessity. D. a complement.

A. a normal good.

What is the shape of the demand curve for a good that has very few substitutes? A. relatively flat B. perfectly horizontal C. relatively vertical D. cannot be determined from the information given above

C. relatively vertical

Suppose the demand for peanuts increases. What will happen to producer surplus in the market for peanuts? A. It increases. B. It decreases. C. It remains unchanged. D. It may increase or decrease depending on the shape of the supply curve.

A. It increases.

Which of the following is NOT correct? A. Taxes levied on sellers and taxes levied on buyers are not equivalent. B. A tax places a wedge between the price the buyer pays and the price that the seller receives. C. The wedge between the buyer's price and the seller's price is the same, regardless of whether the tax is levied on the buyer or seller. D. In the new after-tax equilibrium, buyers and sellers share the burden of the tax.

A. Taxes levied on sellers and taxes levied on buyers are not equivalent.

Economists use the concept of price elasticity of demand to A. measure how much buyers respond to changes in the price of a good B. measure how much sellers respond to changes in the price of a good C. measure how much worse off consumers are when the price of a good increases D. measure how much buyers respond to changes in their incomes

A. measure how much buyers respond to changes in the price of a good

When the price of a Starbucks latte is $5, the quantity demanded is 100 lattes per day. When the price is $7, the quantity demanded is 80 lattes per day. Using the midpoint method, the price elasticity of demand for Starbucks lattes is A. 0.22 B. 0.67 C. 1.33 D. 1.50

B. 0.67

Sheldon loves strawberry Nestle Quik and he would be willing to pay more for the drink mix than he now currently pays. Suppose that Sheldon has a change in his tastes such that he values strawberry Nestle Quik more than before. If the market price is the same as before, then A. Sheldon's consumer surplus would be unaffected. B. Sheldon's consumer surplus would increase. C. Sheldon's consumer surplus would decrease. D. Sheldon would be wise to switch to Ovaltine.

B. Sheldon's consumer surplus would increase.

Erin produces jewelry boxes. If the demand for jewelry boxes is elastic and Erin wants to increase her total revenue, she should A. increase the price of the jewelry boxes B. decrease the price of the jewelry boxes C. not change the price of the jewelry boxes D. none of the above answers is correct

B. decrease the price of the jewelry boxes

If the government levies a $5 tax per tablet computer on buyers of tablet computers, then the price paid by buyers of tablet computers would likely A. increase by more than $5. B. increase by exactly $5. C. increase by less than $5. D. decrease by $5.

B. increase by exactly $5.

Suppose demand is perfectly inelastic and the supply of the good in question decreases. As a result, A. the equilibrium quantity decreases and the equilibrium price is unchanged. B. the equilibrium price increases and the equilibrium quantity is unchanged. C. the equilibrium quantity and the equilibrium are both unchanged. D. the equilibrium quantity decreases and the equilibrium price decreases.

B. the equilibrium price increases and the equilibrium quantity is unchanged.

Suppose a tax is levied on books. If the sellers end up bearing most of the tax burden, we know that the A. demand is more inelastic than supply. B.demand is more elastic than supply. C.government has required that consumers pay the tax, i.e. a sales tax. D.government has required that sellers pay the tax, i.e. an excise tax.

B.demand is more elastic than supply.

Which of the following goods would have the steepest demand curve? A. Ben & Jerry's cookie dough ice cream B. McDonald's Big Mac hamburger C. Chevron gasoline D. Apple iPhone smartphone

C. Chevron gasoline

19. Which of the following is correct? A. The demand for Ralph Lauren clothing is more elastic than the demand for basic clothing. B. The demand for gasoline is less elastic than the demand for tickets to Walk Disney World. C. The demand for Pepsi Cola is more elastic than the demand for milk. D. All of the above statements are correct.

D. All of the above statements are correct.

Which of the following goods would have a relatively large deadweight loss if a tax was levied on that good? A. a gallon of milk B. a gallon of gasoline C. a cup of coffee D. a ticket to a football game

D. a ticket to a football game

An excise tax of $11placed on bicycles will shift the demand curve A. to the left by more than $11 B. to the right by $11 C. to the left by $11 D. not at all, but the supply curve will shift left by $11

D. not at all, but the supply curve will shift left by $11

When the price of a good falls, A. consumer surplus decreases for original buyers because some new buyers will now purchase the product B. producer surplus rises because existing firms gain an extra benefit and new firms will now enter the market C. consumer surplus rises because existing buyers gain an extra benefit and some buyers will now leave the market and not purchase the product D. producer surplus decreases for some firms will now leave the market and those sellers that remain will see their producer surplus decrease

D. producer surplus decreases for some firms will now leave the market and those sellers that remain will see their producer surplus decrease