Economics 2
True or False: When a free market for a good reaches equilibrium, anyone who is willing and able to pay the market price can buy the good.
True
Which of the following is correct?
Workers determine the supply of labor, and firms determine the demand for labor
If the government levies a $2 tax per DVD on buyers of DVDs, then the price received by sellers of DVDs would
decrease by less than $2.
When a payroll tax is enacted, the wage received by workers
falls, and the wage paid by firms rises
When a binding price floor is imposed on a market to benefit sellers
some sellers benefit, and some sellers are harmed
The term tax incidence refers to
the distribution of the tax burden between buyers and sellers.
A movement upward and to the left along a demand curve is called a(n)
decrease in quantity demanded.
Chapter 4
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If the government removes a tax on a good, then the price paid by buyers will
decrease, and the price received by sellers will increase
For a market for a good or service to exist, there must be a
group of buyers and sellers.
For which of these following goods is the income elasticity of demand likely lowest?
housing
When demand is perfectly inelastic, the price elasticity of demand
is zero, and the demand curve is vertical.
True of False: Necessities tend to have inelastic demands, whereas luxuries tend to have elastic demands
True
True of False: The law of demand is true for most goods in the economy.
True
If the minimum wage exceeds the equilibrium wage, then
the quantity supplied of labor will exceed the quantity demanded.
Chapter 5
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Chapter 6
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True or False: Most economists are in favor of price controls as a way of allocating resources in the economy.
False
If muffins and bagels are substitutes, a higher price for bagels would result in a(n)
increase in the demand for muffins.
If a tax is levied on the buyers of a product, then the supply curve will
not shift.
Income elasticity of demand measures how
the quantity demanded changes as consumer income changes.
True or False: A price ceiling is a legal minimum on the price at which a good or service can be sold.
False
True or False: A yard sale is an example of a market
True
Rent-control laws dictate
a maximum rent that landlords may charge tenants.
A shortage results when a
binding price ceiling is imposed on a market.
Suppose that gasoline prices increase dramatically this month. Lola commutes 100 miles to work each weekday. Over the next few months, Lola drives less on the weekends to try to save money. Within the year, she sells her home and purchases one only 10 miles from her place of employment. These examples illustrate the importance of
the time horizon in determining the price elasticity of demand.
In a competitive market, the quantity of a product produced and the price of the product are determined by
both buyers and sellers.
Most labor economists believe that the supply of labor is
less elastic than the demand, and, therefore, workers bear most of the burden of the payroll tax.
Necessities such as food and clothing tend to have
low price elasticity's of demand and low income elasticity's of demand
Under rent control, tenants can expect
lower rent and lower quality housing
When a tax is placed on the buyers of a product, buyers pay
more and sellers receive less than they did before the tax.
When a tax is placed on the sellers of a product, buyers pay
more, and sellers receive less than they did before the tax.
A competitive market is a market in which
no individual buyer or seller has any significant impact on the market price.
Frequently, in the short run, the quantity supplied of a good is
not very responsive to price changes
Whether a good is a luxury or necessity depends on the
preferences of the buyer.
A price floor is
1) a source of inefficiency in a market. 2) a legal minimum on the price at which a good can be sold. 3) of ten 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. 4) All of the above are correct.
Each of the following is a determinant of demand except
production technology.
Holding the nonprice determinants of supply constant, a change in price would
result in a movement along a stationary supply curve.
An increase in quantity demanded
results in a movement downward and to the right along a demand curve.
An increase in demand is represented by a
rightward shift of a demand curve.
When a binding price ceiling is imposed on a market to benefit buyers,
some buyers benefit, and some buyers are harmed.
In a market, to find the total amount supplied at a particular price, we must
sum the quantities that individual firms are willing and able to supply at that price.
In any economic system, scarce resources have to be allocated among competing uses. Market economies harness the forces of
supply and demand to allocate scarce resources
When a supply curve is relatively flat, the
supply is relatively elastic.
If a price floor is not binding, then
the equilibrium price is above the price floor.
True or False: Baseballs and baseball bats are substitute goods.
False
True or False: If the cross-price elasticity of demand for two goods is negative, then the two goods are substitutes
False
True or False: In general, demand curves for necessities tend to be price elastic.
False
True or False: Price will rise to eliminate a surplus.
False
True or False: The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.
False
True or False: When the price of a good is low, selling the good is profitable, and so the quantity supplied is large.
False
Cross-price elasticity of demand measures how
the quantity demanded of one good changes in response to a change in the price of another good.
When the price of a good or service changes
there is a movement along a given demand curve.
The demand for a good or service is determined by
those who buy the good or service.
When quantity moves proportionately the same amount as price, demand is
unit elastic, and the price elasticity of demand is 1
For which of the following goods is the income elasticity of demand likely lowest?
water
Who gets scarce resources in a market economy?
whoever is willing and able to pay the price
The quantity demanded of a good is the amount that buyers are
willing and able to purchase.
Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When the price of ginger ale is $3 per bottle, firms can sell 2 million bottles. Which of the following statements is true?
The demand for ginger ale is price inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers.
True or False: The law of demand states that, other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises.
True
True or False: When free markets ration goods with prices, it is both efficient and impersonal.
True
True or False: When the price of a good is high, selling the good is profitable, and so the quantity supplied is large.
True
True or false: In general, demand curves for luxuries tend to be price elastic.
True
In competitive markets, buyers
and sellers are price takers.
Last year, Shelley bought 6 pairs of designer jeans when her income was $40,000. This year, her income is $50,000, and she purchased 10 pairs of designer jeans. Holding other factors constant, it follows that Shelley
considers designer jeans to be a normal good.
The price elasticity of demand for a good measures the willingness of
consumers to buy less of the good as price rises.
A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct?
The mayor would be correct if demand were price inelastic; the city manager would be correct if demand were price elastic.
A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?
The number of firms in a market tends to be more variable over long periods of time than over short periods of time.
For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
There are many close substitutes for this good.
True or False: A "Just Say No" drug education policy that successfully educates consumers to reduce their demand for drugs will lower drug prices and reduce the quantity of drugs demanded.
True
True or False: A discovery that increases wheat yields per acre hurts farmers by increasing supply and lowering their total revenues.
True
True or False: A market is a group of buyers and sellers of a particular good or service.
True
True or False: A price ceiling set above the equilibrium price is not binding.
True
True or False: At the equilibrium price, the quantity that buyers want to buy exactly equals the quantity that sellers want to sell.
True
True or False: Demand for a good is said to be inelastic if the quantity demanded increases slightly when the price falls by a large amount.
True
True or False: Economic policies often have effects that their architects did not intend or anticipate.
True
True or False: Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.
True
True or False: If a firm is facing elastic demand, then the firm should decrease price to increase revenue
True
True or False: If a good or service is sold in a competitive market free of government regulation, then the price of the good or service adjusts to balance supply and demand
True
True or False: In a competitive market, the quantity of each good produced and the price at which it is sold are not determined by any single buyer or seller
True
True or False: In a market economy, supply and demand determine both the quantity of each good produced and the price at which it is sold.
True
True or False: Minimum-wage laws dictate the lowest wage that firms may pay workers.
True
True or False: Policymakers use taxes to raise revenue for public purposes and to influence market outcomes.
True
True or False: Price controls are usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers.
True
True or False: Price controls can generate inequities.
True
True or False: Price is the rationing mechanism in a free, competitive market
True
True or False: Prices allocate a market economy's scarce resources.
True
True or False: Regardless of whether a tax is levied on sellers or buyers, taxes discourage market activity.
True
True or False: Supply and demand both tend to be more elastic in the long run and more inelastic in the short run
True
If the demand for a product increases, then we would expect equilibrium price
and equilibrium quantity both to increase.
A supply curve slopes upward because
an increase in price gives producers an incentive to supply a larger quantity.
In a market economy, supply and demand are important because they
can be used to predict the impact on the economy of various events and policies.
A legal maximum on the price at which a good can be sold is called a price
ceiling
Demand is said to be unit elastic if quantity demanded
changes by the same percent as the price.
A likely example of complementary goods for most people would be
chips and salsa.
If marijuana were legalized, it is likely that there would be an increase in the supply of marijuana. Advocates of marijuana legalization argue that this would significantly reduce the amount of revenue going to the criminal organizations that currently supply marijuana. These advocates believe that the
demand for marijuana is inelastic.
When studying how some event or policy affects a market, elasticity provides information on the
direction and magnitude of the effect
When small changes in price lead to infinite changes in quantity demanded, demand is perfectly
elastic, and the demand curve will be horizontal.
There are several criticisms of the minimum wage. Which of the following is not one of those criticisms? The minimum wage
fails to raise the wage of any employed person.
The law of demand states that, other things equal, when the price of a good
falls, the quantity demanded of the good rises
The greater the price elasticity of demand, the
greater the responsiveness of quantity demanded to a change in price
If a good is normal, then an increase in income will result in a(n)
increase in the demand for the good.
An increase in the price of a good will
increase quantity supplied.
If the demand for donuts is elastic, then a decrease in the price of donuts will
increase total revenue of donut sellers
If the government removes a binding price ceiling from a market, then the price paid by buyers will
increase, and the quantity sold in the market will increase.
Over time, housing shortages caused by rent control
increase, because the demand for and supply of housing are more elastic in the long run.
You love peanut butter. You hear on the news that 50 percent of the peanut crop in the South has been wiped out by drought and that this will cause the price of peanuts to double by the end of the year. As a result, your demand for peanut butter
increases today.