Microeconomics Exam Three Review

If a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about a. 1.33, and supply is elastic. b. 0.75, and supply is inelastic. c. 1.33, and supply is inelastic. d. 0.75, and supply is elastic.

a. 1.33, and supply is elastic.

A $1 per unit tax levied on consumers of a good is equivalent to a. A $1 per unit tax levied on producers of the good. b. A $1 per unit subsidy paid to producers of the good. c. A price floor that raises the good's price by $1 per unit. d. A price ceiling that raises the good's price by $1 per unit.

a. A $1 per unit tax levied on producers of the good.

A life-saving medicine without any close substitutes will tend to have a. A small elasticity of demand. b. A large elasticity of demand. c. A small elasticity of supply. d. A large elasticity of supply.

a. A small elasticity of demand.

Demand is elastic if the price elasticity of demand is a. Greater than 1. b. Less than 1. c. Equal to 1. d. Equal to 0.

a. Greater than 1.

A tax burden falls more heavily on the side of the market that a. Is more inelastic. b. Is less inelastic. c. Has a fewer number of participants. d. Is closer to unit elastic.

a. Is more inelastic.

When studying how some event or policy affects a market, elasticity provides information on the a. Magnitude of the effect on the market. b. Number of market participants who are directly affected by the event or policy. c. Equity effects on the market by identifying the winners and losers. d. Speed of adjustment of the market in response to the event or policy.

a. Magnitude of the effect on the market.

A tax imposed on the sellers of a good will a. Raise the price buyers pay and lower the effective price sellers receive. b. Lower both the price buyers pay and the effective price sellers receive. c. Raise both the price buyers pay and the effective price sellers receive. d. Lower the price buyers pay and raise the effective price sellers receive.

a. Raise the price buyers pay and lower the effective price sellers receive.

As we move downward and to the right along a linear, downward-slope demand curve a. Slope remains constant but elasticity changes. b. Slope changes but elasticity remains constant. c. Both slope and elasticity remain constant. d. Both slope and elasticity change.

a. Slope remains constant but elasticity changes.

A $0.10 tax levied on the sellers of chocolate bars will cause the a. Supply curve for chocolate bars to shift up by $0.10. b. Demand curve for chocolate bars to shift up by $0.10. c. Demand curve for chocolate bars to shift down by $0.10. d. Supply curve for chocolate bars to shift down by $0.10.

a. Supply curve for chocolate bars to shift up by $0.10.

An increase in the supply of a good will decrease the total revenue producers receive if a. The demand curve is inelastic. b. The demand curve is elastic. c. The supply curve is inelastic. d. The supply curve is elastic.

a. The demand curve is inelastic.

Which of the following would increase quantity supplied, decrease quantity demanded, and increase the price that consumers pay? a. The imposition of a binding price floor b. The removal of a binding price floor c. The passage of a tax levied on producers d. The repeal of a tax levied on producers

a. The imposition of a binding price floor

A binding price ceiling causes a shortage in the market. a. True b. False

a. True

The price of a good rises from $8 to $12, and the quantity demanded falls from 110 to 90 units. Calculated with the midpoint method, the elasticity is a. 1/5. b. 1/2. c. 2. d. 5.

b. 1/2.

A $1.50 tax was levied on the buyers of pomegranate juice will shift the demand curve a. Upward by less than $1.50. b. Downward by exactly $1.50. c. Upward by exactly $1.50. d. Downward by less than $1.50.

b. Downward by exactly $1.50.

A tax imposed on the buyers of a good will lower the a. Effective price received by sellers and raise the equilibrium quantity. b. Effective price received by sellers and lower the equilibrium quantity. c. Price paid by buyers and raise the equilibrium quantity. d. Price paid by buyers and lower the equilibrium quantity.

b. Effective price received by sellers and lower the equilibrium quantity.

A binding price floor causes quantity supplied to be less than quantity demanded. a. True b. False

b. False

8. A binding price ceiling (i) Causes a surplus. (ii) Causes a shortage. (iii) Is set at a price above the equilibrium price. (iv) Is set at a price below the equilibrium price. a. (ii) only b. (i) and (iii) only c. (ii) and (iv) only d. (iv) only

c. (ii) and (iv) only

If a binding price floor is imposed on the market for eBooks, then a. The demand for eBooks will decrease. b. The supply for eBooks will increase. c. A surplus of eBooks will develop. d. All of the above are correct.

c. A surplus of eBooks will develop.

A price floor is binding when it is set a. Below the equilibrium price, causing a shortage. b. Below the equilibrium price, causing a surplus. c. Above the equilibrium price, causing a surplus. d. Above the equilibrium price, causing a shortage.

c. Above the equilibrium price, causing a surplus.

As price elasticity of supply increases, the supply curve a. Shifts to the right. b. Becomes downward sloping. c. Becomes flatter. d. Becomes steeper.

c. Becomes flatter.

For which of the following goods is the income elasticity of demand likely highest? a. Doctor's visits b. Hamburgers c. Boats d. Natural gas

c. Boats

If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the a. Price elasticity of demand is elastic. b. Income elasticity of demand is positive. c. Income elasticity of demand is negative. d. Cross-price elasticity of demand is negative.

c. Income elasticity of demand is negative.

In a market with a binding price ceiling, an increase in the ceiling will __________ the quantity supplied, __________ the quantity demanded, and reduce the __________. a. Increase, decrease, surplus b. Decrease, increase, surplus c. Increase, decrease, shortage d. Decrease, increase, shortage

c. Increase, decrease, shortage

If two goods are substitutes, their cross-price elasticity will be a. Zero. b. Negative. c. Positive. d. Equal to the difference between the income elasticities of demand for the two goods.

c. Positive.

When consumers face rising gasoline prices, they typically a. Increase their quantity demanded in the short run but reduce their quantity demanded in the long run. b. Do not reduce their quantity demanded in the short run or the long run. c. Reduce their quantity demanded more in the long run than in the short run. d. Reduce their quantity demanded more in the short run than in the long run.

c. Reduce their quantity demanded more in the long run than in the short run.

The ability of firms to enter and exit a market over time means that, in the long run, a. The demand curve is more elastic. b. The demand curve is less elastic. c. The supply curve is more elastic. d. The supply curve is less elastic.

c. The supply curve is more elastic.

The price of coffee rose sharply last month, while the quantity sold remained the same. Each of five people suggests an explanation: Tom: Demand increased, but supply was perfectly inelastic. Dick: Demand increased, but it was perfectly inelastic. Harry: Demand increased, but supply decreased at the same time. Larry: Supply decreased, but demand was unit elastic. Mary: Supply decreased, but demand was perfectly inelastic. Who could possibly be right? a. Tom, Dick, and Harry b. Tom, Dick, and Mary c. Tom, Harry, and Mary d. Dick, Harry, and Larry e. Dick, Harry, and Mary

c. Tom, Harry, and Mary

14. A binding price floor (i) Causes a surplus. (ii) Causes a shortage. (iii) Is set at a price above the equilibrium price. (iv) Is set at a price below the equilibrium price. a. (iii) only b. (ii) and (iv) only c. (i) only d. (i) and (iii) only

d. (i) and (iii) only

A bakery would be willing to supply 500 bagels per day at a price of $0.50 each. At a price of $0.80, the bakery would be willing to supply 1,100 bagels. Using the midpoint method, the price elasticity of supply for bagels is about a. 0.77. b. 1.24. c. 0.62. d. 1.63.

d. 1.63.

When the government imposes a binding price floor, it causes a. The supply curve to shift to the left. b. The demand curve to shift to the right. c. A shortage of the good to develop. d. A surplus of the good to develop.

d. A surplus of the good to develop.

If a binding price ceiling is imposed on the baby formula market, then a. The quantity of baby formula demanded will increase. b. The quantity of baby formula supplied will decrease. c. A shortage of baby formula will develop. d. All of the above are correct.

d. All of the above are correct.

A price ceiling is binding when it is set a. Above the equilibrium price, causing a shortage. b. Above the equilibrium price, causing a surplus. c. Below the equilibrium price, causing a surplus. d. Below the equilibrium price, causing a shortage.

d. Below the equilibrium price, causing a shortage.

How does the concept of elasticity allow us to improve upon our understanding of supply and demand? a. Without elasticity, it is very difficult to assess the degree of competition within a market. b. Without elasticity, we would not be able to address the direction in which price is likely to move in response to a surplus or a shortage. c. Elasticity provides us with a better rationale for statements such as "an increase in x will lead to a decrease in y" than we would have in the absence of the elasticity concept. d. Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept.

d. Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept.

A linear, downward-sloping demand curve is a. Inelastic. b. Unit elastic. c. Elastic. d. Inelastic at some points, and elastic at others.

d. Inelastic at some points, and elastic at others.

Danita rescues dogs from her local animal shelter. When Danita's income rises by 7 percent, her quantity demanded of dog biscuits increases by 12 percent. For Danita, the income elasticity of demand for dog biscuits is a. Negative, and dog biscuits are a normal good. b. Positive, and dog biscuits are an inferior good. c. Negative, and dog biscuits are an inferior good. d. Positive, and dog biscuits are a normal good.

d. Positive, and dog biscuits are a normal good.

When a good is taxed, the burden of the tax falls mainly on consumers if a. The tax is levied on consumers. b. The tax is levied on producers. c. Supply is inelastic, and demand is elastic. d. Supply is elastic, and demand is inelastic.

d. Supply is elastic, and demand is inelastic.

If sellers do not adjust their quantities supplied at all in response to a change in price, a. Supply is perfectly elastic. b. The time period under consideration must be very long. c. Advances in technology must be prevalent. d. Supply is perfectly inelastic.

d. Supply is perfectly inelastic.

A key determinant of the price elasticity of supply is a. How responsive buyers are to changes in seller's prices. b. The slope of the demand curve. c. The ability of sellers to change the price of the good they produce. d. The ability of sellers to change the moment of the good they produce.

d. The ability of sellers to change the moment of the good they produce.

Which of the following would increase quantity supplied, increase quantity demanded, and decrease the price that consumers pay? a. The imposition of a binding price floor b. The removal of a binding price floor c. The passage of a tax levied on producers d. The repeal of a tax levied on producers

d. The repeal of a tax levied on producers