Macro- ch. 5-9

Demand is said to be inelastic if

the quantity demanded changes only slightly when the price of the good changes.

A price floor is

A legal minimum on the price at which a good can be sold

Which of the following events would increase producer surplus?

Sellers' costs stay the same and the price of the good increases.

When a country allows trade and becomes an exporter of silk, which of the following is not a consequence?

The price paid by domestic consumers of silk decreases.

When a country allows trade and becomes an importer of silk, which of the following is not a consequence?

The price received by domestic producers of silk increases.

In this market, a minimum wage of $6 is

binding and creates unemployment because it is higher than the equilibrium amount of $5

A government-imposed price of $24 in this market is an example of a

binding price floor that creates a surplus because it is above the equilibrium amount of $20

Demand is said to be price elastic if

buyers respond substantially to changes in the price of the good.

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.

What is the fundamental basis for trade among nations?

comparative advantage

To fully understand how taxes affect economic well-being, we must

compare the reduced welfare of buyers and sellers to the amount of revenue the government raises.

If a consumer places a value of $14 on a particular good and if the price of the good is $12, then the

consumer enjoys consumer surplus if he or she buys the good.

On a graph, the area below a demand curve and above the price measures

consumer surplus

Suppose there is an early freeze in California that reduces the size of the lemon crop. As the price of lemons rises, what happens to consumer surplus in the market for lemons?

consumer surplus decreases

If the cost of producing tables increases causing the price of tables to increase, consumer surplus in the table market will

decrease

The imposition of the tax causes the price received by sellers to

decrease by $--

The imposition of the tax causes the quantity sold to

decrease by --- unit(s)

The price ceiling causes quantity

demanded to exceed quantity supplied by ---- units.

Renters of rent-controlled apartments will likely benefit from both lower rents and higher quality of apartments.

false

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

flatter the demand curve will be.

The imposition of the tax causes the price paid by buyers to

increase by $--

If the demand for donuts is elastic, then a decrease in the price of donuts will

increase total revenue of donuts sellers.

Suppose the government increases the size of a tax by 20 percent. The deadweight loss from that tax

increases by more than 20 percent.

The deadweight loss from a tax per unit of good will be smallest in a market with

inelastic supply and inelastic demand.

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it

maximizes the combined welfare of buyers and sellers.

Welfare economics implies that the equilibrium price of a product is considered to be the best price because it

maximizes the combined welfare of buyers and sellers.

If the size of a tax increases, tax revenue

may increase, decrease, or remain the same

Goods with many close substitutes tend to have

more elastic demands

In the housing market, supply and demand are

more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.

The presence of a price control in a market for a good or service usually is an indication that

policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers.

a tax on a good

raises the price buyers pay and lowers the price sellers receive

When a tax is levied on a good, the buyers and sellers of the good share the burden,

regardless of how the tax is levied

Cost is a measure of the

seller's willingness to sell.

A supply curve can be used to measure producer surplus because it reflects

sellers costs

A tax on an imported good is called a

tariff

Producer surplus is

the amount a seller is paid minus the cost of production.

Income elasticity of demand measures how

the quantity demanded changes as consumer income changes.

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.

The price elasticity of supply measures how much

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

A key determinant of the price elasticity of supply is the

time horizon

What happens to the total surplus in a market when the government imposes a tax?

total surplus decreases

If a price ceiling is not binding, then it will have no effect on the market.

true

Price is the rationing mechanism in a free, competitive market.

true

Under rent control, landlords can cease to be responsive to tenants' concerns about the quality of the housing because

with shortages and waiting lists, they have no incentive to maintain and improve their property.