ECON 101 - Review Questions

The price that buyers pay after the tax is imposed is

$12

What is the amount of the tax per unit?

$4

The maximum value of total revenue corresponds to a price of

$50

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue?

0.3

Suppose a gardener produces both tomatoes and squash in his garden. If he must give up 8 bushels of squash to get 5 bushels of tomatoes, then his opportunity cost of 1 bushel of tomatoes is

1.6 bushels of squash

Lily and Tina are two people who both make jeans and t-shirts. In one month, Lily can make 3 jeans or 18 t-shirts, whereas Tina can make 8 jeans or 24 t-shirts. Given this, we know that the opportunity cost of 1 t-shirt is

1/6 jeans for Lily and 1/3 jeans for Tina.

How is the burden of the tax shared between buyers and sellers? Buyers bear

3/4 of the burden, and sellers bear 1/4 of the burden

For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Allison, Bob, and Charisse are the only three buyers of oranges, and only three oranges can be supplied per day. If the market price of an orange is $0.90, then the market quantity of oranges demanded per day is

4

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue?

4

For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Allison, Bob, and Charisse are the only three buyers of oranges, and only three oranges can be supplied per day. If the market price of an orange is $0.70, then the market quantity of oranges demanded per day is

6

If Rectangular D is larger than Rectangular A, then

All of the above

In response to a shortage caused by the imposition of a binding price ceiling on a market,

All of the above

When the price of a cheese pizza is $20, there are 25 pizzas supplied. When the price of a cheese pizza is $15, there are X pizzas supplied. If the law of supply applies to pizzas, what could X be?

All of the above

Which of the following would increase in response to a decrease in the price of ironing boards?

All of the above

The price elasticity of demand for bread

All of the above are correct

For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Allison, Bob, and Charisse are the only three buyers of oranges, and only three oranges can be supplied per day. Who experiences the largest loss of consumer surplus when the price of an orange increases from $0.70 to $1.40?

Allison

Producer surplus equals

Amount received by sellers - Costs of sellers.

Suppose Spencer and Kate are the only two demanders of lemonade. Each month, Spencer buys six glasses of lemonade when the price is $1.00 per glass, and he buys four glasses when the price is $1.50 per glass. Each month, Kate buys four glasses of lemonade when the price is $1.00 per glass, and she buys two glasses when the price is $1.50 per glass. Which of the following points is on the market demand curve?

B and D only

Total revenue when the price is P1 is represented by the area(s)

B+D

Which of the following events must result in a lower price in the market for Snickers?

Demand for Snickers decrease, and supply of Snickers increase.

Which of the following is correct?

Efficiency deals with the size of the economic pie, and equality deals with how fairly the pie is sliced.

Suppose the number of buyers in a market decreases and a technological advancement occurs also. What would we expect to happen in the market?

Equilibrium price would decrease, but the impact on equilibrium quantity would be ambitious.

Assume that corn is an input in the production of beef, but not in the production of pork. Further, assume beef and pork are substitutes only in consumption (not in production). A decrease in the price of corn will:

Increase the supply of beef and decrease the demand for pork

Suppose Jim and Tom can both produce two goods: baseball bats and hockey sticks. Which of the following is not possible?

Jim has a comparative advantage in the production of baseball bats and in the production of hockey sticks.

Which of the following is correct?

One-third of the burden of the tax falls on buyers, and two-thirds of the burden of the tax falls on sellers.

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?

Price would fall, and the effect on quantity would be ambitious.

Draw a supply curve for tax return preparation software (e.g. TurboTax). What happens to the tax return preparation software if a technological advance allows the software to be produced at a lower cost?

Supply curve shifts to the right

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?

The effective price received by sellers is $0.40 per bottle less than it was before the tax.

Which of the following events could cause an increase in the supply of ceiling fans?

The number of sellers of ceiling fans increase.

ABC Company incurs a cost of 50 cents to produce a dozen eggs, while XYZ Company incurs a cost of 70 cents to produce a dozen eggs. Which of the following price increases would cause both companies to experience an increase in producer surplus?

The price of a dozen eggs increase from 55 cents to 75 cents.

In a given market, how are the equilibrium price and the market-clearing price related?

They're the same price

Which of these statement best represents the law of demand?

When the price of a good decrease, buyers purchase more of the good

Which of the following would cause the supply curve to shift from Supply A to Supply C in the market for beach towels?

a decrease in the price of cotton

Which of the following would cause a movement along the supply curve for cupcakes?

a decrease in the price of cupcakes

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective,

a small quantity of the good is bought and sold

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market?

a smaller quantity of the good is bought and sold

A demand curve reflects each of the following except the

ability of buyer to obtain the quantity they desire.

In a competitive market, the quantity of a product produced and the price of the product are determined by

all buyers and sellers

When we move along a given demand curve

all non-price determinants of demand are held constant.

A supply curve slopes upward because

an increase in price gives producers an incentive to supply a larger quantity

Consumer surplus in a market can be represented by the

area below the demand curve and above the price

Lily purchases a 1967 Dodge for $3,000, planning to restore and sell the car. He restores the car for $9,000. He can sell the car for $10,000 at this point in time. As an alternative, he can spend an additional $3,000 replacing the engine. With a new engine the car would sell for $13,000. Lily should

be indifferent between (I) selling the car now and (II) replacing the engine and then selling it.

If a shortage exists in a market, then we know that the actual price is

below the equilibrium price, and quantity demanded is greater than quantity supplied.

Trade between the US and China

benefit both the US and China

A government-imposed price of $6 in this market could be an example of a

binding price ceiling and non-binding price floor.

A shortage results when a

binding price ceiling is imposed on a market

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.

A binding price floor

causes a surplus and is set at a price above the equilibrium price

If the government levies a $500 tax per car on sellers of cars, then the price received by sellers of cars would

decrease by less than $500.

A tax on the sellers of coffee will increase the price of coffee paid by buyers

decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.

Suppose you are in charge of setting prices at a local ice cream shop. The business needs to increase its total revenue, and your job is on the line. You evaluate the data and determine that the price elasticity of demand for ice cream at your shop is 1.8. You should

decrease the price of ice cream.

If the government removes a binding price ceiling from a market, then the price paid by buyers will

decrease, and the quantity sold in the market will increase.

Total surplus is represented by the area below the

demand curve and above the supply curve, up to the equilibrium quantity.

Which of the following event must cause equilibrium price to fall?

demand decreases and supply increases

The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good,

has an absolute advantage in the production of that good.

A decrease in the price of a good will

increase in quantity demanded

If a good is normal, then an increase in income will result in a(n)

increase in the demand for the good.

If the government levies a $5 tax per ticket on buyers of NFL game tickets, then the price paid by buyers of NFL game tickets would

increased by less than $5

You love peanut butter. You hear on the news that 50 percent of the peanut crop in the South has been wiped out by drought and that this will cause the price of peanuts to double by the end of the year. As a result, your demand for peanut butter

increases today

Holding all other forces constant, if decreasing the price of good leads to a decrease in total revenue, then the demand for the good must be

inelastic

Consumer surplus

is measured using the demand curve for a product.

When demand is inelastic, the price elasticity of demand is

less than 1, and price and total revenue will move in the same direction.

A binding price ceiling is shown in

panel B only

When the price is P1, area C represents

producer surplus

A professor at CSULB spends 11 hours per day giving lectures and writing papers. For the professor, a graph that shows her various possible mixes of output (lectures given per day and papers written per day) is called her

production possibilities frontier

The price elasticity of demand measures how much

quantity demand responds to a change in price

Demand is said to be inelastic of the

quantity demanded change proportionately less than price.

A price elasticity of demand measures how much

quantity demanded responds to a change in price

Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. The following table shows the number of coolers or number of radios each country can produce in one day. Jamaica has an absolute advantage in the production of

radios and Norway has an absolute advantage in the production of coolers.

When consumers face rising gasoline prices, they typically

reduce their quantity demanded more in the long run than in the short run.

The smaller the price elasticity of demand, the

smaller the responsiveness of quantity demanded to a change in price

If sellers expect higher basket prices in the near future, the current

supply of baskets will decrease

For a good that is a luxury, demand

tends to be elastic.

The production possibilities frontier shows

the combinations of outputs that an economy can produce.

A surplus exists in a market if

the current price is above its equilibrium price

Suppose that Juan Carlos is filling out a survey that he received in the mail. The survey asks him what he would do if the price of his favorite toothpaste increased. Juan Carlos reports that he would switch to a different brand. The survey asks what he would do if the price of all toothpastes increased. Juan Carlos reports that he must use toothpaste, so he would have to adjust his spending elsewhere. These examples illustrate the importance of

the definition of a market in determining the price elasticity of demand.

Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result,

the equilibrium price increases, and the equilibrium quantity is unchanged.

If a price floor is not binding, then

the equilibrium price is above the price floor

"Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises." This relationship between price and quantity demanded is referred to as

the law of demand

A university's football stadium is never more than half-full during football games. This indicates

the ticket price is above the equilibrium.

For a lot of students, the largest cost of going to a college is

the wages given up because of attending school.

When the price of a good or service changes,

there is a movement along a given demand curve

For every unit of the good that is sold, sellers are required to send

three dollars to the government, and buyers are required to send nothing to the government.

Another way to think of the marginal seller is the seller who

would leave the market first if the price were any lower.