Econ2

Per unit taxes are said to be inefficient because they create ______________.

deadweight loss

The difference between supply and quantity supplied is that "supply" refers to the _____________ and "quantity supplied" refers to the _____________.

curve; point on the curve

How does the concept of deadweight loss apply to a per unit tax?

A per unit tax results in a loss in social surplus.

A price ceiling is:

a maximum price sellers are allowed to charge for a good or service

Graphically positioned, where does producer surplus fall in relation to supply and demand?

above the supply curve but under the price

Why does a "per unit" tax create a deadweight loss?

it creates a wedge between the price consumers pay and the price producers receive

Where supply and demand intersect on a graph, quantity demanded equals quantity supplied. This quantity intersection is referred to as ________________.

the equilibrium quantity

A company created the following graph to illustrate the relationship between the quantity demanded Qd of gasoline and price per gallon p of gasoline. Based on the graph, which of the following statements are true? Please select two correct answers.

-Quantity demanded decreases as price increases. -At a price of $1.20 per gallon, quantity demanded is 700 million gallons.

When plotting a demand curve for crushed tomatoes, what is assumed to be constant according to ceteris paribus?

-the price of a can of tomato sauce -income

A surplus is the result of a price set above the equilibrium price. When producers face a surplus, they are willing to increase production even further. This combination of higher quantity and higher price increases industry profits, which are beneficial to producers.

False

Price ceilings are typically enacted in an attempt to keep prices high for those who produce the product.

False

A rise in the price of DVD players will increase the demand for DVDs.

False DVD players and DVDs are clearly complementary goods. Thus, an increase in the price of one will decrease the demand for the other.

Which of the following best defines consumer surplus?

It is the gap between the price consumers are willing to pay, based on their preferences, and the market equilibrium price.

If there is a decrease in price for printers, what would we expect to happen to the demand for printer cartridges?

There will be an increase in demand for printer cartridges.

Which of the following characteristics is a fundamental similarity that nearly all demand curves share?

They slope downward from left to right.

A recession is likely to hit a gambling and entertainment mecca like Las Vegas particularly hard compared with the average city.

True

Which of these scenarios is true for a normal good?

When a person's income rises, he/she will buy more of the good.

Taking into account ceteris paribus, which of the following factors of production will not impact the supply of corn?

a disease killing potato plants

Consumer surplus is the area found _____________ market price and _______________ the demand curve.

above; below

Which of the following would lead to a surplus?

excess supply

Suppose that the demand and supply curves have similar steepness. If demand for the good increases slightly and at the same time supply of that good significantly decreases, the equilibrium price of the good will ________ and the equilibrium quantity of the good will ________.

increase; decrease

Assume equilibrium price for lemons is $1.50 for a dozen. If a government believes the price for lemons is too high, and sets a temporary price cap at $1.00 for a dozen, what will happen?

-There will be a shortage of lemons. -After the price cap is lifted, prices will return to the equilibrium price.

A significant portion of the world's oranges are produced in Florida. What would likely happen if a hurricane wiped out a significant portion of Florida's orange crop?

-The supply of oranges would decrease. -The quantity supplied of oranges would decrease at every price.

Why is there consumer surplus?

Because some people are willing to pay more for a product than equilibrium price.

You are responsible for setting prices of finished clothing items at a major textile manufacturer. In the past year the price of cotton, a critical input, has increased by 20%. What is the likely result?

Supply of clothing will decrease.

Some consumers are willing to pay more for a product than they actually pay. This difference between the amount they are willing to pay and what they actually pay is known as consumer surplus.

True

A decrease in demand for inferior goods results from a rise in income.

True A decrease in demand for inferior goods results from a rise in income because inferior goods are usually cheaper substitutes purchased with lower incomes.

A rise in the price of a substitute for olive oil will increase demand for olive oil.

True A rise in the price of a substitute will increase demand because people are likely to buy the more affordable product instead of the higher priced one.

Which of the following is not a factor that could cause a shift in supply for a certain good?

a change in income

A price floor will affect both the price charged for a good and the quantity supplied if ________________.

it is set above the equilibrium price When a price floor is set above the equilibrium price, the quantity supplied will rise and the quantity demanded will fall, causing a surplus. When a price floor is set below the equilibrium price, there is nothing preventing the price from rising to its equilibrium level. Only when the price floor is above the market equilibrium will in influence the market quantity and price.

China is currently on the tail end of a "demographic bulge" that will see unprecedented numbers of retirees and senior citizens over the next decade. You are the strategy coordinator of a major sporting goods company. The main products in your catalog are hiking equipment, diving gear, physical therapy equipment, and basketball equipment. Where would you expect the greatest increase in demand as the elderly and retiree population increases?

physical therapy equipment

Given the graph below, what are the equilibrium price and equilibrium quantity?

q = 40 thousand, p = $15

Given the schedule below, what is the equilibrium quantity and price?

q = 600, p = $16 Equilibrium price and quantity occurs where quantity supplied equals quantity demanded.

Given the graph below, what is the equilibrium quantity and price?

q=15, p=$10

The supply and demand schedule below represents the market for toothbrushes. What is the equilibrium price and quantity?

q=24,p=$8

Equilibrium price occurs when

quantity demanded is equal to quantity supplied.

Quantity demanded is different from demand because _________________________.

quantity demanded is the number of units consumers demand at a specific price, while demand is a schedule comprised of quantity demanded at different prices

What term is best described as the total number of units of a good or service producers are willing to sell at a given price?

quantity supplied

Although governments can collect tax revenue in the form of a per unit tax on output, this creates inefficiency known as deadweight loss because _________________________________.

the market is no longer in equilibrium

Assuming a market is currently at the equilibrium price and quantity, when a price ceiling is set below the equilibrium price, ______________.

the quantity demanded will rise and the quantity supplied will fall, causing a shortage

Price controls are set on pet food. Calculate the shortage caused by the price ceiling.

the shortage is equal to 900−180, or 720 thousands of cans of pet food.

Assume that the market equilibrium price is 50 cents for a pound of bananas, and the quantity sold is roughly 10 pounds. What kind of price control could generate an excess supply of bananas?

A basic lesson of a price floor is that when it is set above the market equilibrium price, this will lead to excess supply. Setting a price for a pound of bananas at 75 cents will generate a surplus since the quantity demanded will be lower than the quantity supplied.

A price floor is the highest price that one can legally pay for some good or service.

False

You survive through grad school by eating a bland diet of rice and lentils, which you view to be inferior to more expensive meals. After graduating, you secure a high-paying job and can now afford much more than rice and lentils. As a result, your demand for rice and lentils is likely to increase.

False Rice and lentils are clearly an inferior good in this example. Eating out and higher priced foods will make up a higher share of spending after an increase in income.

If the price of a good were to change will it shift demand or change quantity demanded?

It will change quantity demanded.

As adolescents become increasingly interested in electronics - as opposed to books - where would you find the greatest increase in demand?

Kindle books for iPads and other tablets

Suppose the price of beer increases. What would you expect to happen to the demand for wine? Assume that beer and wine are substitutes.

The demand for wine would increase.

A popular athlete, whose fashion choices are closely followed by the public and often imitated, suddenly starts wearing pink pants. What most likely happens to the demand for pink pants (all else equal)?

The demand increases.

All of the following cause the supply curve to shift except _________.

a change in product price

Which of the following is not a factor that could cause a shift in the demand curve for a certain good?

a change in the price of a good

Which of the following conditions does not impact the supply of watermelon?

a decrease in the amount of carrots grown in the same region

Ryan is studying the effects of income on the demand for jewelry. Which factors are held constant when using the ceteris paribus assumption?

all factors affecting demand besides income When studying the relationship between demand and an influencing factor, the ceteris paribus assumption holds all other influencing factors constant in order to study the effects of only the factor at hand.

What term best describes the loss in social surplus that occurs when a market produces an inefficient quantity?

deadweight loss

Corn syrup and maple syrup are substitutes. News of health benefits from maple has increased the demand for maple syrup and decreased the demand for corn syrup. Meanwhile, the government has subsidized corn crops, a key ingredient of corn syrup. As a result, the equilibrium price of corn syrup _______ and the equilibrium quantity ________.

decreases; is unknown

When considering factors that shift demand curves, which of the following will increase demand?

encouraged buying based on future expectations

Jenna changes the amount of butter she purchases depending on whether it costs $3, $4, or $6 a pound. In order to derive her demand curve for butter, what other information do we need?

how much butter she buys at each price point