econ-exam 2 practice questions

Refer to Figure 6-21. The price that buyers pay after the tax is imposed is

$12.00.

Refer to Figure 6-18. The amount of the tax per unit is

$14.

the amount of tax per unit

$2.00

Refer to Figure 6-27. Suppose a tax of $6 per unit is imposed on this market. How much will buyers pay per unit after the tax is imposed?

$22

Refer to Figure 6-21. In the after-tax equilibrium, how much revenue does the government collect from the tax on this good?

$420

Refer to Figure 6-6. Which of the following price ceilings would be binding in this market?

$6

Refer to Figure 6-9. At which price would a price floor be binding?

$7

Suppose buyers of vodka are required to send $5.00 to the govt. for every bottle they buy. Further, suppose this tax causes the effective price received by sellers of vodka to fall by $3.00 per bottle.

-This tax caused the demand curve for vodka to shift downward by $5.00 at each quantity of vodka -the price paid by buyers is $2.00 per bottle more than it was before the tax -sixty percent of the burden of the tax falls on sellers

Refer to Figure 6-2. The price ceiling

-is binding. -causes a shortage. -causes the quantity demanded to exceed the quantity supplied. All of the above are correct.

To say that a price ceiling is binding is to say that the price ceiling is?

-results in a shortage - is set below the equilibrium price -causes quantity demanded to exceed quantity supplied

suppose sellers, rather than buyers, were required to pay this tax (graph). Relative to the tax on buyers, the tax on sellers would result in

-the same amount of tax revenue for the govt. -buyers bearing the same share of the tax burden -sellers bearing the same share of the tax burden -the same amount of tax revenue for the govt.

Refer to Figure 6-5. Suppose the market is initially in equilibrium. Then the government imposes a price control, as represented by the horizontal line on the graph. If the price control is a price floor, then the price control

.-causes the quantity demanded to decrease by 50 units, relative to the initial equilibrium. -causes the quantity supplied to increase by 40 units, relative to the initial equilibrium. -results in some firms being more successful than others in selling their goods. All of the above are correct

If a 20% change in price results in a 15% change in quantity supplied, then the price elasticity of supply is about

0.75, and supply is inelastic.

Hilda's Hair Hysteria earned $3,750 in total revenue last month when it sold 125 haircuts. This month it earned $3,600 in total revenue when it sold 90 haircuts. The price elasticity of demand for Hilda's Hair Hysteria is

1.14.

Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points B and C?

1.19

if a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is bout

1.33 and supply is elastic

If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about

1.60, and supply is elastic.

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for tortilla chips in the given price range is

2.20.

If the price elasticity of demand for a good is 1, then a 3 percent decrease in price results in a

3 percent increase in the quantity demanded.

If the price elasticity of demand for aluminum foil is 1.45, then a 2.4% decrease in the price of aluminum foil will increase the quantity demanded of aluminum foil by

3.48%, and aluminum foil sellers' total revenue will increase as a result.

If the price elasticity of supply is 1.2, and a price increase led to a 5% increase in quantity supplied, then the price increase is about

4.2%.

Refer to Table 6-2. A price ceiling set at $5 results in

50 units sold.

In which of these instances is demand said to be perfectly inelastic?

A decrease in price of 2% causes an increase in quantity demanded of 0%.

Suppose the government has imposed a price ceiling on sliced sandwich bread. Which of the following events could transform the price ceiling from one that is binding to one that is not binding?

An decrease in the price of peanut butter and jelly.

Assume, two specific points on the demand curve are (q=2,00 & p=$15) and (q=2,400 & p=$12)

Both of these points lie on section BC of the demand curve.

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

Elastic

Refer to Figure 5-3. Which demand curve is unit elastic?

None of the above.

A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will

Raise the price, reduce the quantity, increase total revenues, & increase crime.

Refer to Figure 5-20. Which supply curve represents perfectly inelastic supply?

S1

for a particular good, a 12% increase in price causes a 3 percent decrease in quantity demanded. which is most likely applicable to this good?

The good is a necessity

income elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in consumers income, computed as the %change in quantity demanded divided by %change in income.

Price elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the %change in Q divided by %change in P.

price elasticity of supply

a measure of how much the quantity supplied of a good responds to a chaing in the price of that good, computed as %change in Q supplied divided by %change in P.

Elasticity

a measure of responsiveness of quantity demanded or quantity supplied to a change in one of its determinants.

Refer to Figure 6-7. Which of the following price controls would cause a shortage of 20 units of the good?

a price ceiling set at $6

the govt. imposes a price ceiling.

because the price that balances supply & demand is below equilibrium the ceiling, the price ceiling is not binding.

Refer to Figure 6-20. Suppose a tax of $5 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed?

between $5 and $10

Refer to Figure 6-28. Suppose a tax of $4 per unit is imposed on this market. How much will buyers pay per unit after the tax is imposed?

between $7 and $10

a surplus results when a

binding price floor is imposed on a market

a good will have a more inelastic demand, the

broader the definition of the market

A legal maximum on the price at which a good can be sold is called a price

ceiling

Josh mow lawns. If the demand for lawn-mowing service is elastic and Josh wants to increase his total revenue, he should

decrease the price of his lawn-mowing service

Refer to Figure 5-8. An increase in price from $15 to $20 would

decrease total revenue by $500.

A $5 tax levied on the buyers of pants will cause the

demand curve for pants to shift down by $5.

Inelastic

demand is said to be inelastic if the quantity demanded responds only slightly to changes in the price.

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

elastic

when quantity demanded responds strongly to changes in price, demand is said to be

elastic

if the price elasticity of demand is 1.5, regardless of which two points on the demand curve are used to compute the elasticity, then demand is

elastic, and the demand curve is something other than a straight, downward-sloping line

If the price elasticity of demand is 1.5, regardless of which two points on the demand curve are used to compute the elasticity, then demand is

elastic, and the demand curve is something other than a straight, downward-sloping line.

Refer to Figure 5-1. Between point A and point B on the graph, demand is

elastic, but not perfectly elastic.

if the govt. removes a tax on a good, then the quantity of the good sold will

increase

if the govt. levies a $5 tax per ticket on buyers of NFL game tickets, then the price paid by buyers of nfl tickets would

increase by less than $5

If the government removes a binding price ceiling from a market, then the price received by sellers will

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

Refer to Figure 5-4. If the price increases in the region of the demand curve between points B and C, we can expect total revenue to

increase.

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

inelastic.

the tax burden will fall most heavily on buyers of the good when the demand curve

is relatively steep, and the supply curve is relatively flat.

the supply of a good will be more elastic, the

longer the time period being considered.

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will

lower both price and total revenues.

good with many close substitutes tend to have

more elastic demands

Which of the following is likely to have the most price elastic demand?

music downloads

Refer to Figure 6-13. If the government imposes a price ceiling of $6 on this market, then there will be

no shortage.

If the government removes a $1 tax on sellers of gasoline and imposes the same $1 tax on buyers of gasoline, then the price paid by buyers will

not change, and the price received by sellers will not change.

If the government removes a $2 tax on buyers of cigars and imposes the same $2 tax on sellers of cigars, then the price paid by buyers will

not change, and the price received by sellers will not change.

A legal minimum on the price at which a good can be sold is called a

price floor

A tax imposed on the buyers of a good will raise the

price paid by buyers and lower the equilibrium quantity.

If a nonbinding price ceiling is imposed on a market, then the

quantity sold in the market will stay the same.

supply is said to be inelastic if the

quantity supplied responds only slightly to changes in the price.

A tax on sellers will shift the

supply curve upward by the amount of the tax.

When a supply curve is relatively flat,

supply is relatively elastic.

For a good that is a luxury, demand

tends to be elastic.

total revenue

the amount paid by buyers & received by sellers of a good, computed as (price of the good X quantity sold). (P x Q)

when equilibirum price is above the price ceiling,

the ceiling is a binding constraint

Milk has an inelastic demand, & beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the pop of beef cattle by 50%

the greater in the beef market than in the milk market

tax incidence

the manner in which the burden of a tax is shared among participants in a market

Refer to Figure 6-30. In which market will the majority of the tax burden fall on sellers?

the market shown in panel (a).

perfectly elastic

the price elasticity of supply approaches infinity & the supply curve is horizontal

the vertical distance between points a & B represents the tax in the market.

the price that buyers pay after the tax is imposed is $24

if the price elasticity of supply is zero, then

the quantity supplied is the same, regardless of price

Supply of a good is said to be elastic if

the quantity supplied responds substantially to changes in the price.

Refer to Figure 6-22. 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.

Refer to Figure 6-25. 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 sellers of the good, rather than the buyers, are required to pay the tax to the government. After the sellers are required to pay the tax, relative to the case depicted in the graph, the burden on buyers will be

the same, and the burden on sellers will be the same.

If a price ceiling is not binding, then

there will be no effect on the market price or quantity sold.

the section of the demand curve at point b represents the

unit elastic section of the demand curve

If a tax is levied on the sellers of a product their will be?

upward shift of the supply curve

Consider the market for gasoline. Buyers

would lobby for a price ceiling, whereas sellers would lobby for a price floor.

perfectly inelastic

zero elasticity, supply curve is vertical

If sellers do not adjust their quantity supplied at all in response to a change in price, the price elasticity of supply is

zero, and the supply curve is vertical.