ECON 2113 Test 2 Review Homework Problems
The burden of the tax on buyers is
$2.00 per unit
If the price of the good is $14, then producer surplus is
$25, stair graph( price line- price below the price line; than add the price below the price line to get the total)
Rea would be willing to pay as much as $100 per week to have her house cleaned. Jason's opportunity cost of cleaning Rea's house is $55 per week. If Rea pays Jason $80 to clean her house, Rea's producer surplus is
$25; (Jason $80 - his opportunity cost to pay $55= $25)
The amount of tax per unit is
$3
How much tax revenue is collected from the sellers?
$360( it is 14-8= 6 and than 6*60=360)
The equilibrium price in the market before the tax is imposed is
$6 ( it is the price at the first crossing of the supply and demand)
What is the producer surplus are if price is P2?
ACF( all of the area under the price line)
Courtney enjoys bananas, so much that she would be willing to pay more than she now pays. Suppose that Courtney learns from her personal trainer that a banana after a work-out is a good food choice which promotes muscle recovery. This advice causes Courtney to change her tastes such that she values bananas more than before. If the market price is the same as before, then
Courtney's consumer surplus would increase.
As price falls from Pa to Pb, which demand curve is most elastic demand
D1( It is the line that touches the Pb dotted line and it is farthest away.
If the price of Pepsi is $6.90, who buys?
David and Laura ( they both had a WTP of over 6.90)
After tax the producer surplus is the area
J
When the price falls from P1 to P2, which area represents the increase in consumer surplus?
None of the above;
Rea would be willing to pay as much as $100 per week to have her house cleaned. Jason's opportunity cost of cleaning Rea's house is $55 per week. If Rea pays Jason $80 to clean her house, Rea's consumer surplus is
None of the above; $20
The amount of deadweight loss associated with the tax is equal to
None of the above; ABC
The price the seller effectively receive after the tax is imposed is
P1
The equilibrium price before the tax is imposed is
P2
The per-unit burden of the tax on sellers is
P2-P1
The price that buyers effectively pay after the tax is imposed is
P3
Which supply curve represents perfectly inelastic supply
S1 ( it is the one that has a vertical slope)
If the price of corn is $3 per bushel, farmers can sell 10 million bushels. When the price of corn is $4 per bushel, farmers can sell 8 million bushels. Which of the following statements is true?
The demand for corn is price inelastic, and so an increase in the price of corn will increase the total revenue of corn farmers.
Housing shortages caused by rent caused by rent control likely have what effect over time.
The shortage will increase, because the demand for, and supply of, housing are more elastic in the long run.
An efficient allocation of resources requires that
all potential gains from trade among buyers and sellers are being realized.
Economists define producer surplus as the
amount a seller is paid minus the cost of production.
For a price ceiling to be binding, it would have to be set at
any price below $6.00
The following situation isn't very common, however, if there is perfectly elastic demand then
any rise in price above that represented by the demand curve will result in a quantity demanded of zero. Epi= Infinity
Graphically, consumer surplus is represented as the area
below the demand curve and above price.
The price elasticity of demand measures
buyer's responsiveness to change in price of a good.
A legal minimum price at which a good can be sold is
called a price floor
Total Surplus
can be used to measure society's well-being, the sun of consumer and producer surplus, and amounts to value to buyers minus cost to sellers.
In the long run, the quantity supplied of most goods
can respond substantially to change in price.
The term Economists' used for the loss in total surplus after a tax is called
deadweight loss
Another question on the same topic: revenue and elasticities: Jenna makes bracelets. If the demand for bracelets is elastic and Jenna wants to increase her total revenue, she should
decrease the price of her bracelets.
Suppose that technological advance in wheat production leads to a reduction in farmers' total revenue
demand for wheat is inelastic
It's important that you understand the relationship between price elasticity and total revenue. What this in mind, if a price increase leads to an increase in total revenue than we know...
demand is inelastic
Goods that are necessity for life like food and medicine
demand tends to be inelastic.
Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.
false
If a tax is imposed on the buyers of flashlights, then the burden of the tax will fall
on both the buyers and the sellers.
Given that the amount of land in Pitt County is fixed, the total supply of Pitt County land is
perfectly inelastic
If two goods are substitutes, their cross-price elasticity will be
positive
If a tax is placed on a good, then the good's buyers and sellers share the burden
regardless of how the tax is levied
Total revenue
remains unchanged as price increases when demand is unit elastic.
Price elasticity of supply primarily determined by
the ability of seller s to change the amount of the good they produce.
Cross-price elasticity of demand measures how the quantity of one good changes the price of another good changes.
true
How do Economists' measure the gains and losses after a tax is imposed on a good? Economists use the tools of
welfare economics
You were just diagnosed with heart disease. Your doctor prescribed Crestor and there is no generic avaiable yet for Crestor. Therefore,
your demand for Crestor would tend to be inelastic.
Which scenarios is most likely if a tax is imposed on the seller of a good then this will
raise the price paid by buyers and lower the equilibrium quantity.
A binding price ceiling would be the result if the price ceiling were set at
$8 ( it is below the equilibrium price)
If the price of the good is $6, then consumer surplus is
$8, stair graph (price above the price line- the price line; than add the prices above the price line together to get a total)
How is the price elasticity of demand calculated (something that you'll need to know on the next test:)
% change in Qd / % change in price
If the price of good X increases by 4% and there is a 4% decrease in the Qd of good X then the price elasticity of demand for X is:
-1
If the price elasticity of demand for a good is -0.40, then a 1 % increase in price results in a
0.40 % decrease in the Qd.
The amount of tax revenue received by the government is equal to the area
P3 A C P1
The amount of the tax on each unit of the good is
P3-P1
The per unit burden of the tax on buyers is
P3-P2
In the situation of perfectly inelastic demand
quantity demanded stays the same whenever price changes. ( if someone needs 100 vials of insulin to live no matter the cost, they will always need 100 vials of insulin) Epi=0
The price that sellers receive after the tax imposed is
$5
Your income elasticity of demand for ECU women's basketball tickets is 1.50. All else equal, this means that if your income increases by 20 percent, then you will buy
30 percent more basketball tickets
Total revenue when the price is P2 is represented by the area(s)
A+B ( this area shows the connection between P2 and P1 and Q2.
Which area represents consumer surplus at price of P1?
ABD( The area below the demand curve and above the price.)
What is the total surplus area in the market when the price is P1?
B+C( the area that is both below the demand curve and above price and the area that is above the supply curve and below the price. )
Sellers whose cost are less than price are represented by segment
BC ( Supply segment on the downward slope at the equilibrium; line used for shortage)
Suppose that the price elasticity of supply of meatball sandwiches is Es= 2.2. The price elasticity of demand for meatball sandwiches is Ep= -1.6. If there is a $1 tax per meatball sandwich, what do you expect in terms of tax incidence/
Buyers and sellers will share the burden of the tax, however, buyers will pay more of the tax than sellers.
The decrease in consumer and producer surpluses that is not offset by tax revenue is the area
C+F
Buyers who value this good less than price are represented by which line segment?
CE ( Demand segment on the downward slope at the equilibrium; lines used for shortage)
For which of the following goods would demand be most elastic?
Levi's jeans ( Branded, so it would be more responsive to change)
Meredith really likes banana splits, so much that she claims that she would buy one banana split a day regardless of the price. if she is telling the truth,
Meredith's demand for banana splits is perfectly inelastic.
The tax causes consumer surplus to decrease by the area
None of the above
If the market price is $900, the producer surplus in the market is
None of the above, $550
At the market-clearing equilibrium, total surplus is represented by the area
None of the above, A+B+C+D+E+F ( sum of consumer and producer surplus)
The government collects tax revenue that is represented by the area
None of the above, B+D
Shelia buys some yoga pants for $35. If she receives consumer surplus of $20 then this implies that her willingness to pay for the yoga pants is
None of the above, CS= WTP- price; 20= WTP- $35 or WTP= 55
How much tax revenue does this tax produce for the government?
None of the above, it is $600
What is the per unit burden of tax on sellers
None of the above. ($1.00 per unit)
The effective price that buyers pay after tax is imposed is
None of the above. It was $8 for buyers
The price of a pepperoni pizza is $10. Suppose that there is a $1 tax imposed on pepperoni pizza. What do you expect to happen to the price and quantity of pepperoni pizza?
The price pepperoni pizzas will be between $10 and $11 and fewer will be sold.
If the price elasticity of demand for a good is -0.94, then which of the following events is consistent with a 4% decrease in the quantity of the good demanded?
a 4.255 percent increase in the price of the good.
In the situation where demand is inelastic then the
quantity demanded changes proportionately less than price.
The term income elasticity of demand captures how
the quantity demanded changes as consumer income changes.
Denise values the new iPhone at $600. the actual price of the iPhone is $1000. Denise
does not buy the iPhone and she experiences a consumer of $0 on her non-purchase.
If a tax is placed on the buyers of a good, then we expect that the demand curve shifts
downward by the amount of the tax
Should there be a large quantity demanded response to change in price, then economists say that demand is
elastic
In panel(a), with the price floor in effect, there will be
equilibrium in the market ( the price floor is below the equilibrium)
The larger the number (in absolute value) of the price elasticity of demand, the
greater the responsiveness of quantity demanded to a change in price.
A consumer's willingness to pay directly measures
how much a buyer values a good.
What does the price elasticity of supply measure?
how the quantity supplied responds to changes in the price of a good.
Once again, same concept, this time with a graph- if price increases from $10 to $15, total revenue will
increase by $20, so demand must be inelastic in this price range.
If the demand for ECU tickets is elastic, then a decrease in the price of ECU football tickets will
increase total revenue.
Should the price of gasoline increases overnight by $1 per gallon, when will the price elasticity of demand (in absolute value) likely be the highest?
one year after the price increase.
The demand for Chocolate ice cream is likely quite elastic because
other flavors of ice cream are good substitutes for this particular flavor.
Suppose you and your roommate eat three packages of Food lion Mac and Cheese each week. After graduating from ECU, both of you get real jobs and make some real money. You still enjoy Food Lion Mac and Cheese very much and buy even more, however, your roommate now upgrades to Kraft Mac and Cheese(no longer buying the Food Lion brand). Economists would say that the income elasticity of Food Lion Mac and Cheese is:
positive for you and negative for your roommate.
When government imposes a price ceiling or a price floor in a market,
price no longer serves as a rationing device.
Notice a theme yet? Another question about elasticities and revenues...If corn farmers know that the demand for corn is inelastic, and they want to increase their total revenue, what do you recommend?
reduce the number of acres they plant in corn.
If there is a price ceiling in this market at a price of $5.00, the result would be a
shortage of 20 units (price ceiling is binding, so there is a shortage and for the supply/ demand line. At $5.00, it fit 60 and 40; 60-40= 20 units short)
If the government imposes a price ceiling of $2.00 in this market, the result is a
shortage of 50 units of the good. ( At $2.00 the supply and demand line hits 25 and 75; 75-25= 50
What is a price floor?
the minimum legal price.
If demand is elastic then which of the following statements must be true
the percentage change in Qd is larger than the % change in price.
What does it mean if a price control is "binding"?
the price control has an effect in the market.
Should the minimum wage exceed the equilibrium wage then
the quantity supplied of labor will exceed the quantity demanded.
All of the following determine the price elasticity of demand for a good except:
the steepness or flatness of the supply curve for the good.
Efficiency in a market is achieved when
the sum of producer surplus and consumer surplus is maximized.
If the price doubles from $6 to $12, what happens to total revenue
total revenue would increase and demand is inelastic between points C and B.
