Macroeconomics Exam 2

During the last two days, Chad purchased a latte from two different stores. The following below shows Chad's willingness to pay on each day and his consumer surplus from each purchase.

$0.50 less than the amount he paid on the first day

The vertical distance between points A and B represents a tax in the market. ​ Refer to Figure 8-2. The imposition of the tax causes the quantity sold to

$10

Refer to Figure 7-5. If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what is the producer surplus?

$2,500

The vertical distance between points A and B represents a tax in the market. ​ Refer to Figure 8-2. The per-unit burden of the tax on buyers is

$2.50

Billie Jo values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $425. Billie Jo's willingness to pay for the dishwasher is

$500

Allen tutors in his spare time for extra income. Buyers of his service are willing to pay $40 per hour for as many hours Allen is willing to tutor. On a particular day, he is willing to tutor the first hour for $10, the second hour for $18, the third hour for $28, and the fourth hour for $40. Assume Allen is rational in deciding how many hours to tutor. His producer surplus is

$64

The minimum wage was instituted to ensure workers

... a minimally adequate standard of living

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 [%change of Q/%change of P]x100

The vertical distance between points A and B represents a tax in the market. ​ Refer to Figure 8-2. The loss of consumer surplus associated with some buyers dropping out of the market as a result of the tax is

53

Refer to Figure 9-1. In the absence of trade, the equilibrium price of coffee in Guatemala is

90

Refer to Table 7-2.Who experiences the largest loss of consumer surplus when the price of the good increases from $20 to $22?

All three buyers experience the same loss of consumer surplus.

Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to

Both existing customers who get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices.

Under rent control, bribery is a potential mechanism to

Bring the total price of an apartment cause to calibrate price

If the cross-price elasticity of two goods is negative, then the two goods are

Complements

What happens to consumer surplus in the cell phone market if cell phones are normal goods and buyers of cell phones experience an increase in income?

Consumer Surplus Decreases Consumer Surplus Remains Unchanged.

Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Refer to Scenario 8-1. If Ernesto cleans Erin's house for $90, Ernesto's producer surplus is

Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline.

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

Flatter the demand curve will be

If the demand for donuts is elastic, then a decrease in the price of donuts will

Increase total revenue of donut sellers

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is

Inelastic

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?

It decreases

Kate is a personal trainer whose client William pays $80 per hour-long session. William values this service at $100 per hour, while the opportunity cost of Kate's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. After the tax, what is likely to happen in the market for personal training?

Kate and William will agree to a new price somewhere between $85 and $100.

The vertical distance between points A and B represents a tax in the market. ​ Refer to Figure 8-2. The loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is

Latch

One disadvantage of government subsidies over price controls is that subsidies

Make higher taxes necessary

Denmark is an importer of computer chips, taking the world price of $12 per chip as given. Suppose Denmark imposes a $5 tariff on chips. Which of the following outcomes is possible?

More Danish-‐‑produced chips are sold in Denmark.

The burden of a luxury tax usually falls

More on middle class

If a tax is levied on the sellers of flour, then

Not shift

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

Positive, The good is a normal good.

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

Price Elasticity of Demand= [(Q2-Q1)/[(Q2+Q1)/2]/[(P2-P1)/[(P2+P1)/2]=2.33

Producer surplus directly measures

Producer welfare

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the

Quantity demand of toothpaste decreases and quantity of toothpaste that want to increase.

Refer to Table 7-3. If you have a ticket that you sell to the group in an auction, what will be the selling price?

Slightly more than $50

In the housing market, supply and demand are

Supply and demand housing market

Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frame levied on picture frames will increase the price paid by buyers of picture frames by

Tax budget between buyers and sellers.

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of

The availability of close substitutes in determining the price elasticity of demand.

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?

The effective price received by sellers is $0.40 per bottle less than it was before the tax.

The "unfair-competition" argument might be cited by an American who believes that

The french government's subsidies to french farmers justify restriction on American imports of french agriculture products

Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?

The response of buyers and sellers to a change in the price of bananas is strong.

You receive a paycheck from your employer, and your pay stub indicates that $300 was deducted to pay the FICA (Social Security/Medicare) tax. Which of the following statements is correct?

Your employer is required by law to pay $400 to match the $400 deducted from your check.

The term tax incidence refers to

adequate standard of living

Suppose D1 represents the demand curve for paperback novels, D2 represents the demand curve for gasoline, and S1 is representative of the supply curve for paperback novels as well as the supply curve for gasoline. After the imposition of the $2 tax on paperback novels and on gasoline, the

buyers of gas bear a higher burden of the $2 tax than buyers of books

A tax on the buyers of cameras encourages

buyers to demand a smaller quantity at every price.

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

consumer does not purchase the good

A tax of $0.25 is imposed on each bag of potato chips that is sold. The tax decreases producer surplus by $600 per day, generates tax revenue of $1,220 per day, and decreases the equilibrium quantity of potato chips by 120 bags per day. The tax

creates a deadweight loss of $15 per day.

Steak and chicken are substitutes. A sharp reduction in the supply of steak would

decrease consumer surplus in the market for steak and increase producer surplus in the market for chicken

Demand is said to be inelastic if

demand is elastic, the reduction in the quantity demanded is so great that it more than offsets the increase in the price. ... the quantity supplied responds substantially to changes in the price. Supply of a good is said to be inelastic if. the quantity supplied responds only slightly to changes in the price.

When a country allows trade and becomes an exporter of a good, which of the following is not a consequence?

domestic producers gain and domestic consumers lose.

Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the

eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year

The demand for grape-flavored Hubba Bubba bubble gum is likely

elastic because there are many close substitutes for grape-flavored Hubba Bubba.

The world price of a ton of steel is $1,000. Before Russia allowed trade in steel, the price of a ton of steel there was $650. Once Russia allowed trade in steel with other countries, Russia began

exporting steel and the price per ton increased to $1000.

The world price of a ton of steel is $650. Before Russia allowed trade in steel, the price of a ton of steel there was $1,000. Once Russia allowed trade in steel with other countries, Russia began

exporting steel and the price per ton increased to $1000.

If the labor supply curve is very elastic, a tax on labor

has a large deadweight loss

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

increase, and the quantity sold in the market will increase

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

market quantity supplied does not change when the price changes

Goods with many close substitutes tend to have

more elastic demand because it is easier for consumers to switch from that good to others.

A payroll tax is a

percentage withheld from an employee's pay by an employer who pays it to the government on the employee's behalf.

The size of a tax and the deadweight loss that results from the tax are

positively related.

Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus

producer surplus, smaller than the loss of consumer surplus. Suppose that the equilibrium price in the market for widgets is $5.

A tax levied on the sellers of a good shifts the

regardless of how the tax is levied

When the nation of Duxembourg allows trade and becomes an importer of software,

residents of Econoland who produce televisions become better off; residents of Econoland who buy televisions become worse off; and the economic well-being of Econoland rises.

When the nation of Worldova allows trade and becomes an exporter of silk,

residents of Worldova who produce silk become better off; residents of Worldova who buy silk become worse off; and the economic well-being of Worldova rises.

The price elasticity of demand measures

sensitivity of the quantity demanded to changes in the price. Demand is inelastic if it does not respond much to price changes, and elastic if demand changes a lot when the price changes.

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

the buyers will bear a greater burden of the tax then the sellers

When a tax is imposed on the buyers of a good, the demand curve shifts

the demand curve shifts down by the amount of the tax

Which of the following is not a commonly-advanced argument for trade restrictions?

the efficiency argument

Which of the following quantities decrease in response to a tax on a good?

the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good

Refer to Figure 6-13. How is the burden of the tax shared between buyers and sellers? Buyers bear

two-thirds of the burden, and sellers bear one-third of the burden.

The Earned Income Tax Credit, a government program that supplements the incomes of low-wage workers, is an example of a

wage subsidy

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would

yours would be positive and your roommate's would be negative.

If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is

zero