Microeconomics Test 2 Prep
Which of the following will cause an increase in producer surplus?
The price of a substitute increases
If an allocation of resources is efficient, then
all potential gains from trade among buyers are sellers are being realized.
When a tax is placed on the sellers of cell phones, the size of the cell phone market
and the effective price received by sellers both decrease.
When large changes in price lead to no changes in quantity demanded, demand is perfectly
inelastic, and the demand curve will be vertical
Tomato sauce and spaghetti noodles are complementary goods. A decrease in the price of tomatoes will
increase consumer surplus in the market for tomato sauce and increase producer surplus in the market for spaghetti noodles
When the demand for a good increases and the supply of the good remains unchanged, consumer surplus
increases?
When OPEC raised the price of crude oil in the 1970s, it caused the what?
supply of gasoline to decrease
Income elasticity of demand measures how
the quantity demanded changes as consumer income changes.
Demand is said to be inelastic if
the quantity demanded changes only slightly when the price of the good changes.
The price elasticity of supply measures how much
the quantity supplied responds to changes in the price of the good.
Efficiency in a market is achieved when
the sum of producer surplus and consumer surplus is maximized.
Consider the market for gasoline. Buyers
would lobby for a price ceiling, whereas sellers would lobby for a price floor.
Which of the following is true when the price of a good or service falls?
More buyers enter the market.
Refer to Figure 6-10 . The price that buyers pay after the tax is imposed is
$8
Refer to Table 6-1. Following the imposition of a price floor $2 above the equilibrium price, irate buyers convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price floor. The resulting market price is
$3
Which of the following will cause an increase in consumer surplus?
A technological improvement in the production of the good
Which of the following is likely to have the most price inelastic demand?
Athletic shoes
What happens to consumer surplus in the cell phone market if cell phones are normal goods and income of the cell phone buyers rises?
Consumer surplus may increase, decrease, or remain unchanged.
Which of the following causes a surplus of a good?
Binding price floor
A decrease in supply will cause the largest increase in price when
Both supply and demand are inelastic
Which tools allow economists to determine if the allocation of resources determined by free markets is desirable?
Consumer and producer surplus
if a consumer places a value of $14 on a particular good and the price of the good is 12 then the
Consumer enjoys consumer surplus if he or she buys the good
The surgeon general announces that eating chocolate increases tooth decay as a result the equilibrium price of chocolate
Decreases and producer surplus decreases
The distinction between efficiency and equality can be described as follows:
Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.
Two drivers Erik and Adam Each drive up to a gas station
Erik's demand is perfectly elastic Adam's demand is unit elastic
The goal of rent control is to
Help the poor by making a housing affordable
Which of the following is not a result of rent control
Higher quality housing
Which of the following is likely to have the most price elastic demand?
Häagen-Dazs® vanilla bean ice cream
to say that a price ceiling is nonbinding is to say
It is set above the equilibrium price
If the price of milk rises, when is the price elasticity of demand likely to be the highest?
One year after the price increase
Suppose the equilibrium price of a stick of deodorant is 4
Quantity demanded of deodorant decreases and the quantity of deodorant firms want to supply increases
Which of the following is correct?
Rent control is an example of a price ceiling, and the minimum wage is an example of a price floor.
Which of the following causes the price paid by buyers to be different than the price received by sellers?
Tax on the good
Which of the following is not correct?
Taxes levied on sellers and taxes levied on buyers are not equivalent.
Which of the following is not a determinant of the price elasticity of demand for a good.
The flatness of a supply curve
Refer to Figure 6-15 . In which market will the majority of the tax burden fall on buyers?
The market shown in graph B
A price floor is
a legal minimum on the price at which a good can be sold.
A decrease in supply will cause the largest increase in price when
both supply and demand are inelastic.
Under rent control, bribery is a potential mechanism to
bring the total price of an apartment (including the bribe) closer to the equilibrium price.
A good will have a more inelastic demand
broader the definition of the market
A good will have a more inelastic demand, the
broader the definition of the market.
When a tax is placed on the buyers of lemonade, the
burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.
Demand is said to be price elastic if
buyers respond substantially to changes in the price of the good.
The price elasticity of demand measures
buyers' responsiveness to a change in the price of a good.
Price ceilings and price floors that are binding
cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price.
when the demand of a good increases and supply of the good remains unchanged
consumer surplus may increase decrease or remain unchanged
if the cost of producing tables increases causing the price of tables to increase consumer surplus in the table market will
decreases
The price paid by buyers in a market will decrease if the government
decreases a tax on the good sold in that market.
Cadence says that she would smoke one pack of cigarettes each day regardless of the price. If she is telling the truth, Cadence's
demand for cigarettes is perfectly inelastic.
If the government wants to reduce the burning of fossil fuels, it should impose a tax on
either buyers or sellers of gasoline.
The demand for grape flavored Hubba Bubba bubble gum is likely
elastic because there are many close substitutes for grape-flavored Hubba Bubba.
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.
To say that a price ceiling is nonbinding is to say that the price ceiling
is set above the equilibrium price.
Most labor economists believe that the supply of labor is
less elastic, and therefore workers bear most of the burden of the payroll tax
The supply of a good will be more elastic, the
longer the time period being considered.
Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market
may increase decrease or remain unchanged
Motor oil and gasoline are complements. If the price of motor oil increases, consumer surplus in the gasoline market
may increase, decrease, or remain unchanged.
When a tax is placed on the sellers of a product, buyers pay
more, and sellers receive less than they did before the tax.
As a result of a decrease in price,
new buyers enter the market, increasing consumer surplus
A technological improvement in the production of the good
raise total surplus.
Cost is a measure of the
seller's willingness to sell
A supply curve can be used to measure producer surplus because it reflects
sellers' costs.
Rent control
serves as an example of a price ceiling.
For a good that is a luxury, demand
tends to be elastic
producer surplus
the amount a seller is paid minus the cost of production
The term tax incidence refers to
the distribution of the tax burden between buyers and sellers
Suppose the market demand curve for a good passes through the point (quantity demanded = 100, price = $25). If there are five buyers in the market, then
the marginal buyer's willingness to pay for the 100th unit of the good is $25.
Producer surplus directly measures
the well-being of sellers
If a price floor is not binding, then
there will be no effect on the market price or quantity sold.
A key determinant of the price elasticity of supply is the
time horizon
A seller's opportunity cost measures the
value of everything she must give up to produce a good