microeconomics exam 2

A tax on sellers causes which of the following? (i) a leftward shift of the supply curve (ii) a decrease in quantity sold (iii) an increase in the price buyers pay

(i), (ii), and (iii)

The price of product A is cut by 30%. As a result, the quantity demanded of product B rises by 40%. The cross-price elasticity of demand between product A and product B is _____, and they are _____.

-1.33; complements

The price of a dozen eggs falls from $3 to $2.70. In response to this price change, the quantity supplied of eggs falls from 100,000 dozen eggs to 75,000 dozen eggs. What is the price elasticity of supply for eggs?

2.7

Which of the following is an example of a quantity quota?

A city enforces zoning laws that restrict the number of housing units.

Mary loves avocados and must consume avocados every week, regardless of the price. Which of the following must be true?

Mary has an inelastic demand for avocados.

Which statement is the best definition of the price elasticity of demand?

The ratio of the percent change in quantity demanded to the percent change in price.

Which statement best characterizes the relationship between the elasticity of demand, price, and total revenue?

When demand is elastic and price falls, total revenue rises.

A subsidy is a:

a government payment designed to encourage particular purchases or productive activities.

Which of the following are price floors?

a minimum unit price on alcohol, an agricultural price support

A binding price floor is:

always above the equilibrium price.

The economic burden of a tax is the:

burden created by the change in after-tax prices faced by buyers and sellers.

A subsidy for buyers of a product shifts the:

demand curve to the right.

The cross-price elasticity of demand measures how responsive the:

demand for one good is to a change in the price of another good.

Buyers bear a smaller incidence of the tax when:

demand is more elastic than supply.

When the absolute value of the price elasticity of demand is greater than 1, demand is:

elastic.

A quota will impact the market if the maximum quantity it allows ______ the equilibrium quantity.

falls short of

The statutory burden of a tax is the:

government-designated burden of a tax payment.

When the absolute value of the price elasticity of demand is less than 1, demand is:

inelastic.

If demand is _____, a higher price yields _____ total revenue.

inelastic; higher

When the price elasticity of demand is _____ relative to the price elasticity of supply, then buyers bear _____ of the economic burden of a tax.

large; a smaller share

A quantity regulation is a:

minimum or maximum quantity that can be sold.

Which example best represents perfectly inelastic supply?

original paintings made by Leonardo Da Vinci

The price elasticity of demand for a good with a vertical demand curve is:

perfectly inelastic.

Which of the following are price ceilings?

price controls on prescription drugs, rent control

If an item is a necessity rather than a luxury, its demand curve will be:

relatively steep.

Taking the absolute value of the income elasticity of demand is incorrect because it would:

remove the ability to tell whether the product is an inferior good or a normal good.

Price elasticity of supply measures how responsive:

sellers are to price changes.

You are given data on four products — toothpaste, shampoo, soap, and laundry detergent. The absolute value of the price elasticity of demand for toothpaste is 4. The absolute value of the price elasticity of demand for shampoo is 0.2. The absolute value of the price elasticity of demand for soap is 0.5. The absolute value of the price elasticity of demand for laundry detergent is 2. Which product has the most inelastic demand?

shampoo

Price ceilings create _____ if they are set _____ the equilibrium price

shortages, below

A tax on sellers shifts the:

supply curve to the left.

Sellers bear a smaller incidence of a tax when:

supply is more elastic relative to demand.

Price floors create _____ if they are set _____ the equilibrium price

surpluses, above

Which of the following are quantity regulations?

taxi quotas, health insurance mandates, zoning laws

A price ceiling is:

the maximum price that a seller can charge in a market.

The price of milk at the local grocery store rises by 25%, and the quantity of milk demanded falls by 10%. The absolute value of the price elasticity of demand for milk is _____, and demand is _____.

0.4; inelastic

If income rises by 20% and the quantity demanded of an item rises by 10%, the income elasticity of demand for this item is:

0.5.

The price of gluten-free buns falls by 7%. In response, the quantity supplied of gluten-free buns falls by 3.5%. The price elasticity of supply for gluten-free buns is:

0.5.

The price of milk at the local grocery store is cut by 15%, and the quantity of milk demanded increases by 10% in response. What is the absolute value of the price elasticity of demand for milk?

0.67

The price of cakes rises by 15%. In response, the quantity supplied of cakes rises by 30%. The price elasticity of supply for cakes is:

2.

The price of product C rises by 10%. As a result, the quantity demanded of product D rises by 20%. The cross-price elasticity of demand between product C and product D is _____, and they are _____.

2; substitutes

In 2015, Netflix increased its monthly price for new subscribers by $1. In response, one individual tweeted the following: "So tired of being a college student. Can't wait until I have a stable job and won't have to give up Netflix cause they raised their price by $1". What does this statement indicate about the income elasticity of demand for Netflix?

Netflix is a normal good.

You may have observed that items such as different brands of aspirin, tomato sauce, or gasoline are typically priced the same as each other. This is particularly true when consumers can find these goods in close proximity to each other. For example, prices are often the same at gas stations that are on opposite sides of the street. Prices are also generally the same for products next to each other on the same grocery store shelf.

The aforementioned examples are goods that are likely to be substitutes. You would expect the value of the cross-price elasticity to be large, because the opportunity cost of getting information on price is low.

A binding price floor in a market is removed. Which of the following is likely to occur as a result?

The market price will fall.

When the price elasticity of supply is _____ relative to the price elasticity of demand, then sellers bear _____ of the economic burden of a tax.

large; a smaller share

With fewer substitutes, demand tends to be

less elastic.

Demand for a luxury item tends to be

more elastic.

Demand for an item that uses a large portion of your budget tends to be

more elastic.

Over longer periods of time, demand tends to be

more elastic.

Suppose the price of gasoline rises. As time passes, people adjust to the higher price, and the demand for gasoline becomes:

more elastic.

When the absolute value of the price elasticity of demand is infinite, demand is:

perfectly elastic.