ECON TEST 2
Suppose that a tax is placed on books. If the sellers pay the majority of the tax, then we know that the
Supply is more inelastic than the demand
When we move upward and to the left along a linear, downward-sloping demand curve, price elasticity of demand
always becomes larger
When demand is inelastic, an increase in price will cause
an increase in total revenue
Refer to Table 5-8. Using the midpoint method, the income elasticity of demand for good Y is
b. -2.33, and good Y is an inferior good.
When a tax is imposed in a market, it will
affect the behavior of both buyers and sellers.
Refer to Figure 6-24. In the after-tax equilibrium, government collects
$1,680 in tax revenue; of this amount, $1,260 represents a burden on buyers and $420 represents a burden on sellers.
Refer to Table 5-3. Using the midpoint method, in which range is demand most elastic?
$12 to $15
If the price elasticity of demand for a good is 0.2, then a 3 percent decrease in price results in a
0.6 percent increase in the quantity demanded
When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is
1
Using the midpoint method, if the price falls from $150 to $100, the absolute value of the price elasticity of demand is
1.1
Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about
1.43, increase in price will cause the hotels total revenue to decrease
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.
If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of demand is
2
Refer to Figure 5-12. Using the midpoint method, the price elasticity of demand between point X and point Y is
2.5
Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by
40%
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%.
price floor
A legal minimum on the price at which a good can be sold
Refer to Figure 5-11. If price increases from $10 to $20, total revenue will
B. increase by $120, so demand must be inelastic in this price range.
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.
If the price elasticity of demand for a good is 0.4, then which of the following events is consistent with a 2 percent decrease in the quantity of the good demanded?
a 5 percent increase in the price of the good
A price ceiling is
a legal maximum on the price at which a good can be sold.
After a binding price floor becomes effective, a
a smaller quantity of the good is bought and sold
If a binding price floor is imposed on the market for eBooks, then
a surplus of eBooks will develop.
a price floor is
a. a legal minimum on the price at which a good can be sold. b. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor. c. a source of inefficiency in a market. (all of the above are correct)
Refer to Figure 6-5. If the solid horizontal line on the graph represents a price floor, then the price floor is
a. binding and creates a surplus of 60 units of the good.
Refer to Figure 5-12. If the price decreased from $36 to $12, total revenue would
a. increase by $4,800, and demand is elastic between points X and Z.
Refer to Figure 5-12. Sellers' total revenue would increase if the price
a. increased from $6 to $9.
A price floor will be binding only if it is set
above the equilibrium price
Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling,
a. the quantity of physicals demanded increases. b. there is shortage of physicals. c. the quantity of physicals supplied decreases. all of the above are correct
A price ceiling is binding when it is set
below the equilibrium price, causing a shortage
A surplus results when a
binding price floor is imposed on a market
When a tax is placed on the buyers of lemonade, the
burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.
If a tax is imposed on a market with inelastic demand and elastic supply, then
buyers will bear most of the burden of the tax.
Refer to Figure 6-4. A government-imposed price of $6 in this market could be an example of a
c. (i) and (iv) only
Refer to Figure 6-5. Suppose the market is initially in equilibrium. Then the government imposes a price control, as represented by the solid horizontal line on the graph. If the price control is a price floor, then the price control
c. means that some firms will not be able to sell all that they want
Heath's income elasticity of demand for concerts is 2. All else equal, this means that if his income increases by 10 percent, he will purchase tickets for
d. 20 percent more concerts.
Using the midpoint method, if the price falls from $200 to $150, the price elasticity of demand is
elastic
When a tax is placed on the buyers of a product, buyers pay
more and sellers receive less than they did before the tax.
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.
Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the
demand for ice cream cones in this price range is elastic
A tax imposed on the sellers of a good will lower the
effective price received by sellers and lower the equilibrium quantity.
When the price of an eBook is $15.00, the quantity demanded is 400 eBooks per day. When the price falls to $10.00, the quantity demanded increases to 700. Given this information and using the midpoint method, we know that the demand for eBooks is
elastic
When the price of chai tea lattés is $5, Maxine buys 20 per month. When the price is $4, she buys 30 per month. Maxine's demand for chai tea lattés is
elastic, and her demand curve would be relatively flat
Demand is said to have unit elasticity if the price elasticity of demand is
equal to 1.
The midpoint method is used to compute elasticity because it
gives the same answer regardless of the direction of change.
Which curve is perfectly elastic
horizontal line (d)
If the price elasticity of supply is 0.8, and price increased by 5%, quantity supplied would
increase by 4%
An increase in price causes an increase in total revenue when demand is
inelastic
If the price elasticity of supply for wheat is less than 1, then the supply of wheat is
inelastic
To say that a price ceiling is nonbinding is to say that the price ceiling
is set above the equilibrium price.
For which pairs of goods is the cross-price elasticity most likely to be negative?
peanut butter and jelly
For which pairs of goods is the cross-price elasticity most likely to be positive?
pens and pencils
Which of the following expressions represents a cross-price elasticity of demand?
percentage change in quantity demanded of bread divided by percentage change in price of butter
Economists compute the price elasticity of demand as the
percentage change in the quantity demanded divided by the percentage change in price
Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be
positive
Refer to Figure 5-12. Which of the following price changes would result in no change in sellers' total revenue?
price decreases from 24 to 18
A tax imposed on the buyers of a good will raise the
price paid by buyers and lower the equilibrium quantity.
A perfectly inelastic demand implies that buyers
purchase the same amount as before when the price rises or falls.
A tax imposed on the sellers of a good will
raise the price buyers pay and lower the effective price sellers receive.
consumer surplus
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
producer surplus
the amount a seller is paid for a good minus the seller's cost of providing it
If a price floor is not binding, then
the equilibrium price is above the price floor
The price elasticity of supply measures how much
the quantity supplied responds to changes in the price of the good.
If a price ceiling is not binding, then
there will be no effect on the market price or quantity sold.
