Test 2

A tax on the sellers of coffee mugs

Decreases the size of the coffee mug market

A $3 tax levied on the buyers of shoes will cause the

Demand curve for shoes to shift down by $3

If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of demand is

-2

If the price elasticity of demand for a good is -0.4, then a 10 percent increase in price results in a

4% decrease in the quantity demanded

Rent control laws dictate

A maximum rent that landlords may charge tenants

Suppose buyers of tequila are required to send $1 to the government for every bottle of tequila they buy. Further, suppose this tax causes the effective price received by sellers of tequila to fall by $0.80 per bottle. Which of the following statements is correct?

A. 80% of the burden of the tax falls on sellers B. This tax causes the demand curve for tequila to shift downward by $1.00 at each quantity of tequila C. The price paid by buyers is $0.20 per bottle more than it was before the tax. D. All of the above

The price elasticity of demand for a good measures the willingness of

Consumers to buy less of the good as price rises

You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of a bakery. The first step you would take would be to

Determine the price elasticity of demand for the bakerys products

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

Elastic and equal to -6

To determine whether a good is considered normal or inferior, one could examine the value of the

Income elasticity of demand for that good

If the price elasticity of supply is 0.8, and price increased by 5%, quantity supplied would

Increase by 4%

If the government levies a $1000 tax per boat on sellers of boats, then the price paid by buyers of boats would

Increase by less than $1000

Assume that a 4% decrease in income results in a 6% increase in the quantity demanded of a good. The income elasticity of demand for the good is.

Negative, and the good is an inferior good

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?

One year after the price increase

Danita rescues dogs from her local animal shelter. When Danitas income rises by 7%, her quantity demanded of dog biscuits increases by 12%. For Danita, the income elasticity of demand for dog biscuits is

Positive, and dog biscuits are a normal good.

When government imposes a price ceiling or a price floor on a market,

Price no longer serves as a rationing device

In the case of perfectly inelastic demand

Quantity demanded stays the same whenever price changes

If a non binding price ceiling is imposed on a market then the

Quantity sold in the market will stay the same

The local bakery makes such great cinnamon tolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should

Raise the price of the cinnamon rolls

Suppose that corn farmers want to increase their total revenue. Knowing that the demand for corn is inelastic, corn farmers should

Reduce the number of acres on which they plant corn

A $0.10 tax levied on the sellers of chocolate bars will cause the

Supply curve for chocolate bars to shift up bu $0.10

A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct?

The answer depends on the price elasticity of demand.

Which of the following is likely to have the most price inelastic demand

Toothpaste

Price controls are usually enacted

When policymakers believe that the market price of a good or service is unfair to buyers or sellers

When demand is elastic, an increase in price will cause

a decrease in total revenue.

If the demand for apples is elastic, then an increase in the price of apples will

decrease total revenue of apple sellers

If the government wants to reduce smoking, it should impose a tax on

either buyers or sellers

The price elasticity of demand for eggs

is computed as the percentage change in quantity demanded of eggs divided by the percentage change in price of eggs

When a tax is placed on the sellers of a product, buyers pay

more, and sellers receive less than they did before the tax

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these 2 goods to be

positive

The price elasticity of supply measures how responsive

sellers are to a change in price

For a good that is a luxury, demand

tends to be elastic

For which of the following goods is the income elasticity of demand likely the lowest?

water