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.