Econ 202
Refer to Figure 2. Which of the following price floors would be binding in this market?
$10
Refer to Figure 7-7. What is the consumer surplus if the price is $100? a. $2,500 b. $5,000 c. $10,000 d. $20,000
$2,500
If bread costs $1 per pound and meat costs $4 per pound, a consumer whose marginal utility of meat equals 80 utils per pound is maximizing utility only if the marginal utility per pound of bread equals
20 utils
12. Figure 5-4 shows the demand schedule for hockey pucks. What is the price elasticity of demand when the price changes from $4 per puck to $5 per puck?
3
Midpoint formula
Q1-Q0/Q0+Q1 _________ 2 _______________________ (P1-P0)/P0+P1 ________ 2
A price floor will be binding only if it is set
above the equilibrium price.
For which of the following categories of goods is demand likely to be the most price elastic?
automobiles
On a graph, consumer surplus is represented by the area
below the demand curve and above price.
A tax affects
buyers, sellers, and the government.
A binding price ceiling
causes a shortage and is set at a price below the equilibrium price.
Which of the following tools help us evaluate how taxes affect economic well-being?
consumer surplus, producer surplus, tax revenue, deadweight loss
The percent change in the quantity of one commodity demanded divided by the percent change in the price of another commodity is the
cross-price elasticity of demand
A tax on the sellers of coffee mugs
decreases the size of the coffee mug market
cross-price elasticity of demand
defined as the percentage change in quantity demanded of good A from a 1% change in the price of good B
A tax levied on the buyers of a good shifts the
demand curve downward (or to the left).
If the percentage change in quantity demanded divided by the percentage change in price equals 1, then
demand is a unit elastic
when a one-percent change in price is accompanied by a larger percent change in quantity demanded
demand is elastic
When a tax is imposed on a good, the
equilibrium quantity of the good always decreases.
For a normal good, quantity demanded
increases as income rises, so the income elasticity of demand is positive
Consumer surplus
is measured using the demand curve for a product.
If the income elasticity of demand for a good is -2.5, then
it is an inferior good, and its demand curve will shift to the left if buyers' incomes increase
The price elasticity of demand is important to firms because
it shows how price changes affect total expenditures on the goods they sell
If diminishing marginal utility holds, and a person consumes less of a good, then all else being equal
marginal utility will rise
suboptions
more options more elastic
Lin is maximizing total utility while consuming food and clothing. Her marginal utilities of food and clothing are 50 utils and 25 utils, respectively. If clothing is priced at $10 per unit, the price of a unit of food
must equal $20
if demand is unitary elastic, a price decrease results in
no change in total seller's total revenue
Refer to Figure 2. If the government imposes a price ceiling of $8 on this market, then there will be
no shortage.
Refer to Figure 2. If the government imposes a price floor of $6 on this market, then there will be
no surplus
Refer to Figure 1. A binding price ceiling is shown in
panel (b) only.
Things that make reservation prices different
peer behavior biological needs perceived needs
The cross-price elasticity of demand between butter and margarine is most likely
positive, since the goods are substitutes
In measuring the sensitivity of demand, the
price elasticity refers to movements along the demand curve; income and cross-price elasticities refer to shifts of the entire demand curve
law of diminishing marginal utility
tendency for additional utility gained from consuming an additional unit to decrease as consumption increases.
Welfare economics is the study of how
the allocation of resources affects economic well-being.
consumer surplus is...
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.
If a price ceiling is not binding, then
the equilibrium price is below the price ceiling.
The price elasticity of demand is
the percentage change in quantity demanded divided by the percentage change in price
if demand is elastic, then
the percentage change in quantity demanded is larger in absolute value than the percentage change in price
If the price of food falls by 10 percent and the quantity sold increases by 5 percent, then the price elasticity of demand in that range equals
the percentage change in quantity demanded is smaller in absolute value than the percentage change in price
Refer to Figure 4. Suppose the same supply and demand curves apply, and a tax of the same amount per unit as shown here is imposed. Now, however, the buyers of the good, rather than the sellers, are required to pay the tax to the government. After the buyers pay the tax, relative to the case depicted in the figure, the burden on buyers will be
the same, and the burden on sellers will be the same.
utility
the satisfaction people derive from consumption
If a price ceiling is not binding, then
there will be a surplus in the market.
If the cross-price elasticity of demand is positive, then the
two goods are substitutes
perfectly inelastic demand
zero price elasticity, elasticity of demand
Refer to Figure 4. Sellers pay how much of the tax per unit?
$0.50
Refer to Figure 4. Buyers pay how much of the tax per unit?
$1.50
Refer to Figure 4. The effective price sellers receive after the tax is imposed is
$3
Refer to Figure 4. The equilibrium price in the market before the tax is imposed is a. $3.50.
$3.50
Bob purchases a book, and his consumer surplus is $3. If Bob is willing to pay $8 for the book, then the price of the book must be
$5
Refer to Figure 4. The price paid by buyers after the tax is imposed is
$5
1. A family on a trip budgets $800 for sit-down restaurant meals and fast food. The family can buy 16 restaurant meals if they don't buy any fast food. What is the price of a restaurant meal for the family?
$50
Refer to Figure 2. Which of the following price ceilings would be binding in this market?
$6
Refer to Figure 3. The per-unit burden of the tax on sellers is
$6
Refer to Figure 3 above. If the government imposes a price floor of $110 in this market, then consumer surplus will decrease by
$600
Refer to Figure 3. The per-unit burden of the tax on buyers is
$8
8. Figure 5-1 shows the prices of two services offered by Earl's Barber Shop and the resulting quantities demanded by customers. In this example, the price elasticity of demand for haircuts (using the midpoint formula) is
1.8
If the price elasticity of demand for Cheer detergent is 3.0, then a
12 percent drop in price leads to a 36 percent rise in the quantity demanded
Figure 6-6 shows the total utility that Jerry would receive from consuming different numbers of apples per week. What is Jerry's marginal utility from consuming the second apple after he already consumed the first one?
14
9. Figure 5-1 shows the prices of two services offered by Earl's Barber Shop and the resulting quantities demanded by customers. In this example, the price elasticity of demand for haircuts (using the standard formula) is
2.25
Figure 6-6 shows the total utility that Jerry receives from consuming different numbers of apples per week. What is his marginal utility from the fourth apple ?
6
Refer to Figure 2. Which of the following statements is not correct?
A price ceiling set at $9 would result in a shortage.
Refer to Figure 2. Which of the following statements is correct?
A price floor set at $11 would result in a surplus.
The law of demand is defined by....
MARGINAL UTILITY
If a consumer allocates her income between two goods, x and y, then she will be in equilibrium when
MUx/Px = MUy/Py and all of her income is spent
Reservation price
Maximum price you'd pay for a good
Which of the following is not a function of prices in a market system?
Prices ensure an equal distribution of goods and services among consumers.
Which of the following most clearly illustrates the law of diminishing marginal utility?
The additional satisfaction from consuming a good falls as more of the good is consumed.
Refer to Figure 4. As the figure is drawn, who sends the tax payment to the government?
The sellers send the tax payment.
What happens to the total surplus in a market when the government imposes a tax?
Total surplus is unaffected by the tax.
A price ceiling is
a legal maximum on the price at which a good can be 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.
If a binding price floor is imposed on the video game market, then
a surplus of video games will develop
produce surplus equation
b*h ______ 2
marginal utility equation
change in utility ______________________ change in consumption
the cost of a good...
extends beyond its monetary cost
11. In Figure 5-3, the price elasticity of demand between points T and U is the same as between points V and W.
false
If MUx/Px is less than MUy/Py, then the consumer should consume more of X and less of Y.
false, the consumer should consume more of y
A utility-maximizing consumer will choose a collection of goods
for which the marginal utility divided by the price is the same or each good
If E cross is > 0
goods A and B are substitutes.
If E cross is < 0
goods a and b are complements
If demand is price elastic, a decrease in seller's total revenue would result from a(n)
increase in price
perfectly elastic demand
infinite price, elasticity of demand
In response to a shortage caused by the imposition of a binding price ceiling on a market,
price will no longer be the mechanism that rations scarce resources, long lines of buyers may develop, and sellers could ration the good or service according to their own personal biases.
When a tax is levied on a good, the buyers and sellers of the good share the burden,
regardless of how the tax is levied.
The price elasticity of demand measures the
responsiveness of quantity demanded to a change in a good's price
When a tax is placed on a product, the price paid by buyers
rises, and the price received by sellers falls.
marginal utility
the additional utility
Cost
value that the seller must give up to produce a good
Substitution effect
when the price of a good goes up, substitutes for that good goes up, substitutes for that good are relatively more attractive.
In a market, the marginal buyer is the buyer
who would be the first to leave the market if the price were any higher.
The maximum price that a buyer will pay for a good is called
willingness to pay.
Refer to Figure 3. The effective price that sellers receive after the tax is imposed is
$10.
Refer to Figure 3. The amount of the tax per unit is
$14.
Refer to Figure 4. The amount of the tax per unit is
$2
Refer to Figure 3. The price that buyers pay after the tax is imposed is
$24
Refer to Figure 3 above. At the equilibrium price, consumer surplus is
$800
In Figure 5-3, the price elasticity of demand equals __________ between points T and U and equals __________ between points V and W.
0.33; 1.86
Figure 5-1 shows the prices of two services offered by Earl's Barber Shop and the resulting quantities demanded by customers. In this example, the price elasticity of demand for manicures (using the midpoint formula) is
1
3 types of elasticity of demand
1. Pre elasticity of demand 2. Income elasticity of demand 3. cross elasticity of demand
Figure 6-7 shows the marginal utilities Kate receives from buying hamburgers and frozen pizzas, assuming she buys only these two goods. Each hamburger sells for $5 and each pizza sells for $4. What is her marginal utility per dollar spent on the fourth hamburger?
3
Figure 6-7 shows the marginal utilities Kate receives from buying hamburgers and frozen pizzas, assuming she buys only these two goods. Each hamburger sells for $5 and each pizza sells for $4. What is her marginal utility per dollar spent on the second pizza?
4
Which of the following statements is correct?
Buyers always want to pay less and sellers always want to be paid more.
Refer to Table 1. If the price of the product is $130, then who would be willing to purchase the product?
Calvin and Sam
Refer to 1. If the price of the product is $110, then who would be willing to purchase the product?
Calvin, Sam, and Andrew
marginal utility
Change in utility/change in consumption
Income effect
Changes in price affect the buyers' purchasing power
price elasticity equation
E= (% change in quantity demanded/percentage change in price)
20. for which of the following types of goods would demand be
Good with many substitutes
Px*X+Py*Y=.....
Income
A legal maximum on the price at which a good can be sold is called a price
ceiling.
To fully understand how taxes affect economic well-being, we must compare the
price paid by buyers to the price received by sellers.
If a tax is levied on the sellers of a product, then the supply curve will
shift up.
A tax levied on the sellers of a good shifts the
supply curve upward (or to the left).
The government's benefit from a tax can be measured by
tax revenue.
If E income is > 0
the good is a normal good
13. Figure 5-4 shows the demand schedule for hockey pucks. What is the price elasticity of demand when the price changes from $2 per puck to $1 per puck (using the midpoint formula)?
0.33
2. A family on a trip budgets $800 for restaurant meals and fast food. The family can buy 16 restaurant meals if they don't buy any fast food. What is the price of a fast-food meal for the family?
Impossible to tell
Figure 6-6 shows the total utility that Jerry would receive from consuming several different quantities of apples per week. What can be said about Jerry's utility schedule for apples?
It conforms to the law of diminishing marginal utility.
For which of the following items is demand likely to be the most price elastic?
Tide liquid laundry detergent
Budget share
large share, more elastic
if E income is < 0
the good is an inferior good
