Ap Micro unit 2

Which of the following would result in the greatest rightward shift of the demand curve for good J?

Goods J and Y are substitutes since the cross-price elasticity with respect to good Y is positive. Therefore, a 10% increase in the price of good Y will shift the demand for good J to the right by 20%(=% change in price of good Y × cross-price elasticity with respect to good Y =10%×2).

A firm estimates that the absolute value of the price elasticity of demand for its signature sandwich is 2. If the firm increases its sandwich price by 10 percent, what will happen to the quantity demanded?

It will decrease by 20 percent

In which of the following cases would government intervention in a market result in an increase in the quantity sold

Providing producers of a product with a per unit subsidy

Which of the following would cause the supply of good X to become more elastic?

The ability to easily reallocate inputs to production of good X

Assume that the market for a good is in equilibrium at a price of $20 and a quantity of 100 units. After the government imposes a $5 per-unit excise tax on the good, the price that buyers pay for the good increases by $3. Which of the following are possible values for the government tax revenue and deadweight loss in the market?

The answer can be found through the process of elimination. We can rule out Options A and B because there is always a deadweight loss unless either demand or supply is perfectly inelastic. If demand were perfectly inelastic, the buyer price would have increased by the amount of the tax. If supply were perfectly inelastic, the buyer price would not have increased at all. Since buyer price increased by $3 , we know that neither supply nor demand is perfectly inelastic, which rules out Options "A" and "B" . We can also rule out Options "D" and "E" . The tax collected by the government could only be $500 if the equilibrium quantity did not change after the tax was implemented. The only case in which the equilibrium quantity would not change after the tax is implemented is if either demand or supply is perfectly inelastic. But we know that neither demand nor supply is perfectly inelastic. Therefore, the government revenue must increase by something less than $500. The only option in which there is some deadweight loss and the tax revenue collected by the government is less than $500 is Option "C".

Suppose the small country of Aronow imports 40,000kg of bananas. The global price of bananas is $0.50 per kg. The government of Aronow collects tariff revenues of $4,000 from banana imports.

The consumers in Aronow pay a price of $0.60 per kg of bananas.

Which of the following will occur as a result of a decrease in the prices of the inputs used to produce a good?

The quantity supplied would increase at each possible price for the good.

Which of the following is true about the supply curve between the given points?

The supply curve is inelastic, because the percentage change in the price is greater than the percentage change in the quantity supplied.

Assume that the market for a good is characterized by a downward-sloping demand curve and an upward-sloping supply curve. Suppose that there is an improvement in technology for producing the good. Which of the following would occur?

The total surplus (the sum of consumer and producer surpluses) in the market would increase.

Which of the following will initially result from an increase in the market demand for a good?

There will be a temporary shortage at the original equilibrium price.

A 10 percent increase in the price of a good results in a 4 percent increase in total revenue. From this information, it can be concluded that the demand over this range of prices

is inelastic

The market supply curve for a product is derived from the individual firm supply curves by

summing the quantities each producer sells at each possible price

Which of the following policies would result in an increase in the quantity supplied of a good in a market?

Imposing a binding price floor

Which of the following explains why the supply curve is upward sloping?

At a higher price, producers are more able to cover the higher marginal cost associated with increasing production.

At the current prices of goods X and Y, the quantity demanded of good X is 10 units, and the quantity demanded of good Y is 5 units. The cross-price elasticity of demand between goods X and Y is 0.6. A 10 percent increase in the price of good Y will result in which of the following?

Correct. The cross-price elasticity of demand between goods X and Y is 0.6, which is the ratio of the percentage change in the quantity of good X demanded to the percentage change in the price of good Y. This implies that the 10 percent increase in the price of good Y will result in a 6 percent increase in the quantity demanded of good X. This value is obtained by multiplying the cross-price elasticity by the percentage change in the price of good Y. That is, 0.6 times 10 percent equals 6 percent.

Suppose the price elasticity of supply for gasoline in the short run is estimated to be 0.4. Due to an unexpected surge in the demand for gasoline, the price of gasoline increases by 20 percent. As a result, the quantity supplied of gasoline will

Correct. The price elasticity of supply measures the responsiveness of quantity supplied to a change in the price. It is calculated as the ratio of the percentage change in quantity supplied to the percentage in price. Given the value of the elasticity and the percentage change in the price of gasoline, the percentage change in quantity can be obtained by multiplying the elasticity of supply by the percentage in the price. That is, 0.4 times 20 percent, which is equal to 8 percent. Thus, the quantity supplied will increase by 8 percent.

Which of the following correctly describes the income effect associated with the law of demand?

If the price of a normal good decreases, the purchasing power of a consumer's income increases and therefore consumers will be willing and able to purchase more of the good.

An increase in the price of good X causes buyers to want to buy more of good Y. Which of the following explains the resulting change in the market?

The demand curve for good Y will shift to the right because the goods are substitutes.

A change in which of the following causes a movement along a given demand curve for a normal good?

The price of the good