econ test 2 for 201

38. The French expression used by free-market advocates, which literally translates as "allow them to do," is a. laissez-faire. b. je ne sais pas. c. si'l vous plait. d. tête-à-tête.

a. laissez-faire.

31. Cost is a measure of the a. seller's willingness to sell. b. seller's producer surplus. c. producer shortage. d. seller's willingness to buy.

a. seller's willingness to sell.

9. The marginal tax rate on labor income for many workers in the United States is almost a. 30 percent. b. 40 percent. c. 50 percent. d. 65 percent.

b. 40 percent.

Scenario 8-1 Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. 70. Refer to Scenario 8-1. If Ernesto cleans Erin's house for $90, Ernesto's producer surplus is a. $80. b. $30. c. $20. d. $10.

c. $20.

64. Suppose good X has a negative income elasticity of demand. This implies that good X is a. a normal good. b. a necessity. c. an inferior good. d. a luxury.

c. an inferior good.

85. If the tax on a good is tripled, the deadweight loss of the tax a. remains constant. b. triples. c. increases by a factor of 9. d. increases by a factor of 12.

c. increases by a factor of 9.

43. The supply of a good or service is determined by a. those who buy the good or service. b. the government. c. those who sell the good or service. d. both those who buy and those who sell the good or service.

c. those who sell the good or service.

51. In a market economy, supply and demand determine a. both the quantity of each good produced and the price at which it is sold. b. the quantity of each good produced but not the price at which it is sold. c. the price at which each good is sold but not the quantity of each good produced. d. neither the quantity of each good produced nor the price at which it is sold.

a. both the quantity of each good produced and the price at which it is sold.

41. Demand is inelastic if the price elasticity of demand is a. less than 1. b. equal to 1. c. greater than 1. d. equal to 0.

a. less than 1.

15. Anger over British taxes played a significant role in bringing about the a. election of John Adams as the second American president. b. American Revolution. c. War of 1812. d. "no new taxes" clause in the U.S. Constitution.

b. American Revolution.

62. Taxes on labor tend to increase the number of hours that people choose to work. a. True b. False

b. False

61. The market for ice cream is a a. monopolistic market. b. highly competitive market. c. highly organized market. d. Both b and c are correct.

b. highly competitive market.

28. The price elasticity of supply measures how much a. the quantity supplied responds to changes in input prices. b. the quantity supplied responds to changes in the price of the good. c. the price of the good responds to changes in supply. d. sellers respond to changes in technology.

b. the quantity supplied responds to changes in the price of the good.

22. The benefit that government receives from a tax is measured by a. deadweight loss. b. consumer surplus. c. tax incidence. d. tax revenue.

d. tax revenue.

59. Which of the following statements is correct? a. Buyers always want to pay less and sellers always want to be paid more. b. Buyers always want to pay less and sellers always want to be paid less. c. Buyers always want to pay more and sellers always want to be paid more. d. Buyers always want to pay more and sellers always want to be paid less.

a. Buyers always want to pay less and sellers always want to be paid more.

34. The willingness to pay is the maximum amount that a buyer will pay for a good and measures how much the buyer values the good. a. True b. False

a. True

48. The demand for desserts tends to be more inelastic than the demand for red velvet cake. a. True b. False

a. True

50. When the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency. a. True b. False

a. True

52. Consumer surplus can be measured as the area between the demand curve and the equilibrium price. a. True b. False

a. True

56. Elasticity measures how responsive quantity is to changes in price. a. True b. False

a. True

65. Consumer surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually has to pay for it. a. True b. False

a. True

68. The Social Security tax is a labor tax. a. True b. False

a. True

72. The Social Security tax, and to a large extent, the federal income tax, are labor taxes. a. True b. False

a. True

78. For any given quantity, the price on a demand curve represents the marginal buyer's willingness to pay. a. True b. False

a. True

95. The area below the price and above the supply curve measures the producer surplus in a market. a. True b. False

a. True

84. Suppose that an increase in the price of melons from $1.30 to $1.80 per pound increases the quantity of melons that melon farmers produce from 1.2 million pounds to 1.6 million pounds. Using the midpoint method, what is the approximate value of the price elasticity of supply? a. 0.67 b. 0.89 c. 1.00 d. 1.13

b. 0.89

58. The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price. a. True b. False

b. False

16. Economists generally agree that the most important tax in the U.S. economy is the a. income tax. b. tax on labor. c. inheritance or death tax. d. tax on corporate profits.

b. tax on labor.

Scenario 8-2 Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28. 33. Refer to Scenario 8-2. If Karla hires Roland to mow her lawn, Karla's consumer surplus is a. $3. b. $5. c. $8. d. $25.

a. $3.

Indicate the answer choice that best completes the statement or answers the question. Figure 7-22 1. Refer to Figure 7-22. Assume demand increases, which causes the equilibrium price to increase from $50 to $70. The increase in producer surplus due to new producers entering the market would be a. $400. b. $800. c. $1,200. d. $900.

a. $400.

88. Why was OPEC unable to maintain high oil prices in the long run? a. Demand and supply are both elastic in the long run compared to the short run. b. Demand and supply are both inelastic in the long run compared to the short run. c. Demand is elastic and supply is inelastic in the long run compared to the short run. d. Demand is inelastic and supply is elastic in the long run compared to the short run.

a. Demand and supply are both elastic in the long run compared to the short run.

76. Which of the following is a tax on labor? a. Medicare tax b. inheritance tax c. sales tax d. All of the above are labor taxes.

a. Medicare tax

89. If the price elasticity of supply for a window manufacturer is 1.5, a. a 10% increase in the price of windows results in a 15% increase in the quantity of windows supplied. b. supply is considered to be inelastic. c. the manufacturer is likely operating very near capacity. d. All of the above are correct.

a. a 10% increase in the price of windows results in a 15% increase in the quantity of windows supplied.

17. The price elasticity of demand for a good measures the willingness of a. consumers to buy less of the good as price rises. b. consumers to avoid monopolistic markets in favor of competitive markets. c. firms to produce more of a good as price rises. d. firms to respond to the tastes of consumers.

a. consumers to buy less of the good as price rises.

24. When the government imposes taxes on buyers or sellers of a good, society a. loses some of the benefits of market efficiency. b. gains efficiency but loses equality. c. is better off because the government's tax revenues exceed the deadweight loss. d. moves from an elastic supply curve to an inelastic supply curve.

a. loses some of the benefits of market efficiency.

77. Externalities are a. side effects passed on to a party other than the buyers and sellers in the market. b. side effects of government intervention in markets. c. external forces that cause the price of a good to be higher than it otherwise would be. d. external forces that help establish equilibrium price.

a. side effects passed on to a party other than the buyers and sellers in the market.

82. Suppose the government places a per-unit tax on a good. The smaller the price elasticities of demand and supply for the good, the a. smaller the deadweight loss from the tax. b. greater the deadweight loss from the tax. c. less efficient is the tax. d. more equitable is the distribution of the tax burden between buyers and sellers.

a. smaller the deadweight loss from the tax.

19. Consumer surplus equals the a. value to buyers minus the amount paid by buyers. b. value to buyers minus the cost to sellers. c. amount received by sellers minus the cost to sellers. d. amount received by sellers minus the amount paid by buyers.

a. value to buyers minus the amount paid by buyers.

91. Suppose there is an early freeze in California that reduces the size of the lemon crop. What happens to consumer surplus in the market for lemons? a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus is not affected by this change in market forces. d. We would have to know whether the demand for lemons is elastic or inelastic to make this determination.

b. Consumer surplus decreases.

18. Producer surplus is the cost of production minus the amount a seller is paid. a. True b. False

b. False

26. The most important tax in the U.S. economy is the tax on corporations' profits. a. True b. False

b. False

27. Demand is inelastic if the price elasticity of demand is greater than 1. a. True b. False

b. False

86. A discovery that increases wheat yields per acre helps farmers by increasing both supply and total revenues. a. True b. False

b. False

93. Wendy is willing to pay $50 for a concert ticket and Bruce would like to receive $25. If the market price is $40 for this transaction, then the total surplus would be $15. a. True b. False

b. False

2. Under which of the following conditions would the interdiction of illegal drugs result in a decrease in the quantity of drugs sold and in a decrease in total spending on illegal drugs by drug users? a. The interdiction has the effect of shifting the demand curve for illegal drugs to the right. b. The price elasticity of demand for illegal drugs is 1.3. c. The price elasticity of supply for illegal drugs is 0.8. d. As a result of the interdiction, the price of illegal drugs increases by 20 percent and the quantity of illegal drugs sold decreases by 16 percent. Table 7-13 The only four producers in a market have the following costs: Seller Cost Abbey $30 Bev $40 Carl $55 Dale $65

b. The price elasticity of demand for illegal drugs is 1.3.

30. If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then the a. demand for the good is said to be elastic. b. demand for the good is said to be inelastic. c. law of demand does not apply to the good. d. demand curve for the good shifts only slightly in response to a change in price.

b. demand for the good is said to be inelastic.

39. Which of the following expressions represents a cross-price elasticity of demand? a. percentage change in quantity demanded of bread divided by percentage change in quantity supplied of bread b. percentage change in quantity demanded of bread divided by percentage change in price of butter c. percentage change in price of bread divided by percentage change in quantity demanded of bread d. percentage change in quantity demanded of bread divided by percentage change in income

b. percentage change in quantity demanded of bread divided by percentage change in price of butter

81. Efficiency in a market is achieved when a. a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs. b. the sum of producer surplus and consumer surplus is maximized. c. all firms are producing the good at the same low cost per unit. d. no buyer is willing to pay more than the equilibrium price for any unit of the good.

b. the sum of producer surplus and consumer surplus is maximized.

46. To measure the gains and losses from a tax on a good, economists use the tools of a. macroeconomics. b. welfare economics. c. international-trade theory. d. circular-flow analysis.

b. welfare economics.

55. The maximum price that a buyer will pay for a good is called a. consumer surplus. b. willingness to pay. c. equilibrium. d. efficiency.

b. willingness to pay.

71. Suppose good X has a positive income elasticity of demand. This implies that good X could be (i) a normal good. (ii) a necessity. (iii) an inferior good. (iv) a luxury. a. (i) only b. (i) and (ii) only c. (i), (ii), and (iv) only d. (iii) only

c. (i), (ii), and (iv) only

69. In 1776, the American Revolution was sparked by anger over a. the extravagant lifestyle of British royalty. b. the crimes of British soldiers stationed in the American colonies. c. British taxes imposed on the American colonies. d. the failure of the British to protect American colonists from attack by hostile Native Americans.

c. British taxes imposed on the American colonies.

45. Producer surplus equals the a. value to buyers minus the amount paid by buyers. b. value to buyers minus the cost to sellers. c. amount received by sellers minus the cost to sellers. d. amount received by sellers minus the amount paid by buyers.

c. amount received by sellers minus the cost to sellers.

54. Justin builds fences for a living. Justin's out-of-pocket expenses (for wood, paint, etc.) plus the value that he places on his own time amount to his a. producer surplus. b. producer deficit. c. cost of building fences. d. profit.

c. cost of building fences.

14. The loss in total surplus resulting from a tax is called a. a deficit. b. economic loss. c. deadweight loss. d. inefficiency.

c. deadweight loss.

66. Demand is said to have unit elasticity if the price elasticity of demand is a. less than 1. b. greater than 1. c. equal to 1. d. equal to 0.

c. equal to 1.

29. There are very few, if any, good substitutes for automotive tires. Therefore, the demand for automotive tires would tend to be a. elastic. b. unit elastic. c. inelastic. d. highly responsive to changes in income as well as changes in prices.

c. inelastic.

73. Market power and externalities are examples of a. laissez-faire economics. b. public policy. c. market failure. d. welfare economics.

c. market failure.

79. For which pairs of goods is the cross-price elasticity most likely to be positive? a. peanut butter and jelly b. bicycle frames and bicycle tires c. pens and pencils d. college textbooks and iPods

c. pens and pencils

20. The highest form of competition is called a. absolute competition. b. cutthroat competition. c. perfect competition. d. market competition.

c. perfect competition.

57. Buyers and sellers who have no influence on market price are referred to as a. market pawns. b. monopolists. c. price takers. d. price setters.

c. price takers.

32. The price elasticity of supply measures how responsive a. equilibrium price is to equilibrium quantity. b. sellers are to a change in buyers' income. c. sellers are to a change in price. d. consumers are to the number of substitutes.

c. sellers are to a change in price.

. The two words most often used by economists are a. prices and quantities. b. resources and allocation. c. supply and demand. d. efficiency and equity.

c. supply and demand.

40. The forces that make market economies work are a. work and leisure. b. politics and religion. c. supply and demand. d. taxes and government spending.

c. supply and demand.

67. The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as a. California economics. b. welfare economics. c. supply-side economics. d. elasticity economics.

c. supply-side economics.

87. If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in a. higher prices and higher total revenue from marijuana sales. b. higher prices but lower total revenue from marijuana sales. c. the same price and higher total revenue from marijuana sales. d. the same price but lower total revenue from marijuana sales.

c. the same price and higher total revenue from marijuana sales.

44. Assume Diana buys computers in a competitive market. It follows that a. Diana has a limited number of sellers to turn to when she buys a computer. b. Diana will find herself negotiating with sellers whenever she buys a computer. c. if Diana buys a large number of computers, the price of computers will rise noticeably. d. None of the above is correct.

d. None of the above is correct.

10. Demand is elastic if the price elasticity of demand is a. less than 1. b. equal to 1. c. equal to 0. d. greater than 1.

d. greater than 1.

23. In general, elasticity is a measure of a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive. c. how firms' profits respond to changes in market prices. d. how much buyers and sellers respond to changes in market conditions.

d. how much buyers and sellers respond to changes in market conditions.

12. A competitive market is a market in which a. an auctioneer helps set prices and arrange sales. b. there are only a few sellers. c. the forces of supply and demand do not apply. d. no individual buyer or seller has any significant impact on the market price.

d. no individual buyer or seller has any significant impact on the market price.

13. Consumer surplus is a good measure of economic welfare if policymakers want to a. maximize total benefit. b. minimize deadweight loss. c. respect the preferences of sellers. d. respect the preferences of buyers.

d. respect the preferences of buyers.

53. In a market economy, a. supply determines demand and demand, in turn, determines prices. b. demand determines supply and supply, in turn, determines prices. c. the allocation of scarce resources determines prices and prices, in turn, determine supply and demand. d. supply and demand determine prices and prices, in turn, allocate the economy's scarce resources.

d. supply and demand determine prices and prices, in turn, allocate the economy's scarce resources.

25. The study of how the allocation of resources affects economic well-being is called a. consumer economics. b. macroeconomics. c. willingness-to-pay economics. d. welfare economics.

d. welfare economics.