ECO 201 Exam 2
If Chelsea makes $100,000 a year and the income tax rate is 10% for income earned up to $50,000 and 20% for income greater than $50,000, then what is her total tax liability?
$15,000
The price of UK Wildcat's t-shirts at the campus bookstore was increased from $15.00 to $22.50. The quantity demanded fell from 100 t-shirts per week to 60 per week. Determine the elasticity coefficient for UK Wildcats t-shirts.
-5/4
Charles purchases 20 basketball tickets per year when his annual income is $50,000 and 25 basketball tickets when his annual income is $60,000. Charles's income elasticity of demand for basketball ticket is
1.22, and basketball tickets are a normal good and luxurious.
Suppose that at a price of €30 per month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its price to €40 per month, the number of subscribers will fall to 20,000. Using the midpoint method for calculating the elasticity, what is the price elasticity of demand for cable TV in Small Town?
1.4
If the price elasticity of demand for a good is 2.0, then a 5 percent increase in price results in a
10% decrease in the quantity demanded
If income increases by 10% and the demand for Hamburger Helper decreases by 20% then Hamburger Helper is
An inferior good
Assuming that rum from Jamaica, vodka from Russia, and whiskey from Tennessee are all perfect substitutes for Kentucky bourbon, if bourbon suppliers raise their prices, then their total revenue will
DECLINE
At the recent elections, voters in San Francisco, Oakland and nearby Albany Calif. approved Tuesday a penny-per-ounce levy on nonalcoholic drinks with caloric sweeteners affecting everything from cola to sports drinks and ice tea to energy drinks. Since the goal is to promote healthy lifestyle, the tax does not cause deadweight loss. True or False?
False
Mel's Diner is considering offering an "early bird special" to increase revenue, where customers over the age of 65 would receive a discount on their bill, as long as they come in before 6 PM. Mel's Diner assumes senior citizens have an inelastic demand. True or false?
False
The price of apple juice increases from $2.50 to $5.00 and the demand of apple Sauce rises from 500 to 600 units. These are complementary goods.
False
One economist has argued that rent control is "the best way to destroy a city, other than bombing." Why would an economist say this?
He fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.
It is illegal to buy cigarettes in Kentucky and drive to New York and sell them. Why would anyone want to do this?
The excise tax rate for cigarettes is much higher in NY than in KY
Which of the following increases the odds that a good has elastic demand?
The passage of time
If a binding price floor is imposed on the video game market, then the quantity of video games demanded will decrease. True or false.
True
The FDA (the Food and Drug Administration) is heavily involved in government efforts to correct market failures related to imperfect information in markets. True or false.
True
The market for DeBeers diamonds will become more elastic as lab-grown diamonds become indistinguishable from natural diamonds to the naked eye. true or false
True
An example of the benefit principle of taxation is
When travelers pay a toll to cross a bridge.
Which of the following goods or services will most likely have the most elastic demand?
a Southwest Airlines ticket on a Boeing 747 from Lexington to Storrs, Connecticut.
The Adams Family buys 20 Big K Pops, (2-litre bottles of a Kroger brand soft drink), per week. The Adams Family yearly income changed from $20,000 to $30,000 and at the same time they started buying 12 more Big K Pops per week. This tells us that the Adams Family sees Big K Pops as
a normal good
Which of the following would likely have the least elastic supply?
a) BEACH FRONT LAND b) computers c) candles d) furniture
Which of the following is likely to have the most price elastic demand?
a) Vegetables b) Water c) Toilet paper d) FLOWERS
The Laffer Curve shows us that
as the size of the tax increases, tax revenue increases but then eventually starts to decrease
To fully understand how taxes affect economic well-being, we must
compare the reduced welfare of buyers and sellers to the amount of revenue the government raises.
Price ceilings are primarily targeted to help __________, while price floors generally benefit __________.
consumers; producers
A price floor on corn would have the effect of
create a surplus supply when the floor is above the equilibrium price
Elasticity of demand indicates which of the following?
degree of consumer response to a price change
In Kentucky, there is a $.60 tax per pack of cigarettes. The greater the price elasticities of demand and supply for cigarettes in Kentucky, the
greater the deadweight loss from the tax.
Suppose the demand curve for UK basketball tickets is perfectly elastic but the supply curve for UK basketball tickets is not perfectly elastic or perfectly inelastic. If the equilibrium price of UK basketball tickets is initially $2, a downsizing of Rupp arena in the number of seats that causes a decrease in supply will:
have no effect on the equilibrium price.
Among the impacts of the minimum wage is that:
higher costs are imposed on employers, employers substitute other lower cost inputs in place of higher priced labor, higher product prices result because production costs are increased.
After a city imposes a rent control law:
landlords reduce the quantity of apartments offered for rent.
Taxes cause deadweight losses because they
lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government, distort incentives to both buyers and sellers and prevent buyers and sellers from realizing some of the gains from trade.
The supply of a good will be more elastic, the
longer the time period being considered
The demand for mint chip ice cream is more elastic than the demand for candy. Suppose the government levies an equivalent tax on mint chip ice cream and candy. The deadweight loss would be larger in the market for
mint chip ice cream than in the market for candy because the quantity of mint chip ice cream would fall by more than the quantity of candy.
If the government removes a $4 tax on buyers of restaurant meals and imposes the same $4 tax on sellers of restaurant meals, then the price paid by buyers will
not change, and the price received by sellers will not change.
Suggins Restaurant is considering offering and "early bird special", where customers over the age of 65 would receive a discount on their bill, as long as they come in before 6 PM. If they choose to implement this deal, it would be an example of price discrimination or multi-tier pricing. They choose to lower the price for elderly customers most likely because
people over the age of 65 most likely have a more elastic elasticity of demand for restaurant meals because they may be on fixed incomes.
One result of a tax, regardless of whether the tax is placed on the buyers or the sellers of Kentucky bourbon, is that the
tax reduces the welfare of both buyers and sellers.
What happens to the total surplus of Lexington when the city imposes a tax?
total surplus decreases
Suppose that when the price of good X falls from $60 to $48, the quantity demanded of good Y falls from 10 units to 8 units. Using the midpoint method, the cross-price elasticity of demand is
1.0, and X and Y are substitutes
Suppose sellers of gasoline are required to send $0.50 to the government for every gallon of gasoline they sell. Further, suppose this tax causes the price paid by buyers of gasoline to rise by $0.40 per gallon. Which of the following statements is correct?
The demand is relatively inelastic compared to the supply of gasoline
When a good is taxed,
both buyers and sellers of the good are made worse off.
When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will
increase tax revenue and decrease the deadweight loss
