Microeconomics Exam #2

Refer to Figure 6-23. How much tax revenue does this tax produce for the government?

$18.

Refer to Figure 4-18. Equilibrium price and quantity are, respectively,

$25 and 400 units.

Perfectly Elastic Demand

- Extreme case - D curve= horizontal - Consumers' price sensitivity= extreme - Elasticity= infinity

Perfectly Inelastic Demand

- Extreme case - D curve= vertical - Consumers' price sensitivity= none - Elasticity= 0

Variety of Demand Curves

- Flatter curve= bigger elasticity - Steeper curve= smaller elasticity

Variety of Supply Curves

- Flatter curve= bigger elasticity - Steeper curve= smaller elasticity

Refer to Table 4-4. Suppose the market consists of Barb and Carl only. If the price falls by $2, the quantity demanded in the market increases by

8 units.

Refer to Table 5-10. Using the midpoint method, which of the three supply curves has the most inelastic price elasticity of supply?

Supply curve Z.

Refer to Figure 4-7. The movement from Db to Da could be caused by

an increase in the price of a complement.

Refer to Figure 6-15. For a price floor to be binding in this market, it would have to be set at

any price above $3.

Refer to Figure 6-15. For a price ceiling to be binding in this market, it would have to be set at

any price below $3.

Supply and demand in the long run

are MORE price-elastic (SO the shortage is larger)

Refer to Figure 4-19. If there is currently a shortage of 20 units of the good, then the law of

supply and demand predicts that the price will rise by $2 to eliminate the shortage.

Refer to Table 5-9. Which of the three supply curves represents the least elastic supply?

supply curve A

Refer to Table 5-9. Which of the three supply curves represents the most elastic supply?

supply curve C

Price Elasticity of Demand

Measures how much Qd responds to a change in P (% change in Qd)/(% change in P)

Refer to Figure 4-19. In this market, equilibrium price and quantity, respectively, are

$10 and 50 units.

Refer to Table 5-3. Using the midpoint method, in which range is demand most elastic?

$12 to $15

Refer to Figure 6-21. The price that buyers pay after the tax is imposed is

$12.00

Refer to Figure 6-23. The effective price received by sellers after the tax is imposed is

$3.

Refer to Table 6-4. Following the imposition of a price floor $3 above the equilibrium price, irate buyers convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price floor. The resulting market price is

$3.

Refer to Figure 6-21. What is the amount of the tax per unit?

$4

Refer to Figure 6-21. In the after-tax equilibrium, how much revenue does the government collect from the tax on this good?

$420

Refer to table 4-11. The equilibrium price and quantity, respectively, are

$6 and 30 units.

Refer to Figure 6-23. The price paid by buyers after the tax is imposed is

$6.

Refer to Figure 6-21. Acme, Inc. is a seller of the good. Acme sells a unit of the good to a buyer and then pays the tax on that unit to the government. Acme is left with how much money?

$8.00

Refer to Figure 6-4. A government-imposed price of $16 in this market could be an example of a (i)binding price ceiling. (ii)non-binding price ceiling. (iii)binding price floor. (iv)non-binding price floor.

(ii) and (iii) only

Unit Elastic Demand

- D curve= intermediate slope - Consumers' price sensitivity= intermediate - Elasticity= 1

Elastic Demand

- D curve= relatively flat - Consumers' price sensitivity= relatively high - Elasticity= >1

Inelastic Demand

- D curve= relatively steep - Consumers' price sensitivity= relatively low - Elasticity= <1

Who pays the luxury tax?

- Demand is price-elastic - In the short run, supply is inelastic SO...companies that say build yachts, pay most of the tax

Price Elasticity Determinants

- Higher when close substitutes are available - Higher for narrowly defined goods than for broadly defined ones - Higher for luxuries than for necessities - Higher in the long run than the short run

Refer to Figure 5-12. Sellers' total revenue would increase if the price

- Increased from $12 to $15 - Decreased from $39 to $36 - Decreased from $27 to $24

Price Elasticity of Supply

- Measures how much Qs responds to a change in P - Measures sellers' price-sensitivity - Use midpoint method to compute percentage changes (% change in Qs)/(% change in P)

Government policies that affect supply and demand

- Price controls - Taxes

Perfectly Elastic Supply

- S curve= horizontal - Sellers' price sensitivity= extreme - Elasticity= infinity

Unit Elastic Supply

- S curve= intermediate slope - Sellers' price sensitivity= intermediate - Elasticity= 1

Elastic Supply

- S curve= relatively flat - Sellers' price sensitivity= relatively high - Elasticity= >1

Inelastic Supply

- S curve= relatively steep - Sellers' price sensitivity= relatively low - Elasticity= <1

Perfectly Inelastic Supply (extreme case)

- S curve= vertical - Sellers' price sensitivity= none - Elasticity= 0

Which of the following statements is correct?

- The demand for flat-screen computer monitors is more elastic than the demand for monitors in general. - The demand for grandfather clocks is more elastic than the demand for clocks in general. - The demand for cardboard is more elastic over a long period of time than over a short period of time.

Determinants of Supply Elasticity

- The more easily sellers can change the quantity they produce, the greater the price elasticity of supply - For many goods, price elasticity of supply is greater in the long run than in the short run, because firms can build new factories, or new firms may be able to enter the market - Supply often becomes less elastic as Q rises, due to capacity limits

Refer to Figure 5-10. If rectangle D is larger than rectangle A, then

- demand is elastic between prices P1 and P2. - a decrease in price from P2 to P1 will cause an increase in total revenue. - the magnitude of the percent change in price between P1 and P2 is smaller than the magnitude of the corresponding percent change in quantity demanded.

The incidence of a tax falls more heavily on

-consumers than producers if demand is more inelastic than supply. -producers than consumers if supply is more inelastic than demand. -consumers than producers is supply is more elastic than demand.

Refer to Figure 4-3. If these are the only two consumers in the market, then the market quantity demanded at a price of $15 is

0 units.

Income Elasticity of Demand

Measures the response of Qd to a change in consumer income (% change in Qd)/(% change in income)

Refer to Table 6-4. Following the imposition of a price floor $3 above the equilibrium price, irate buyers convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price floor. The resulting shortage is

0 units.

Refer to Table 5-3. Using the midpoint method, what is the price elasticity of demand between $0 and $3?

0.11

If a 40% change in price results in a 25% change in quantity supplied, then the price elasticity of supply is about

0.63, and supply is inelastic.

A price increase has two effects on revenue:

1. Higher P means more revenue on each unit you sell 2. But you sell fewer units (lower Q) due to the Law of Demand

Rationing Mechanisms

1. Long lines 2. Discrimination according to seller's biases - Often unfair and inefficient UNLESS prices are controlled, then it is efficient and impersonal

Refer to Figure 5-17. Using the midpoint method, what is the price elasticity of supply between point B and point C?

1.44

Suppose the price elasticity of supply for minivans is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for minivans causes the price of minivans to increase by 5%, then the quantity supplied of minivans will increase by about

1.5% in the short run and 6% in the long run.

Refer to Figure 5-17. Using the midpoint method, what is the price elasticity of supply between point A and point B?

1.67

Refer to Table 4-4. Suppose the market consists of Adam, Barb, and Carl. If the price falls by $2, the quantity demanded in the market increases by

10 units.

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?

13.33 percent increase in the price of the good

Refer to Figure 4-3. If these are the only two consumers in the market, then the market quantity demanded at a price of $6 is

19 units.

Refer to Table 5-4. Using the midpoint method, what is the price elasticity of demand when price rises from $12 to $16?

2.33.

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

2.33.

Refer to Figure 5-12. Using the midpoint method, the price elasticity of demand between point X and point Y is

2.5.

Refer to Table 6-2. A price floor set at $20 results in

75 units sold.

Refer to Table 4-2. Suppose Abby, Brandi, Carrie, and DeeDee are the only four buyers in the market. If the price is $8, then the market quantity demanded is

24 units.

Refer to Table 4-8. If these are the only three sellers in the market, then an increase in the market price from $6 to $12 will increase quantity supplied by

24 units.

Refer to Table 6-4. How many units of the good are sold after the imposition of the price floor?

3

Refer to Table 6-2. A price ceiling set at $5 results in

50 units sold.

Refer to Table 4-4. Suppose the market consists of Adam and Barb only. If the price falls by $2, the quantity demanded in the market falls by

6 units.

Refer to Figure 4-3. If these are the only two consumers in the market, then the market quantity demanded at a price of $10 is

8.33 units.

Complements cross-price elasticity is

<0

Inferior goods income elasticity is

<0

If demand is inelastic, then price of demand is

<1 (% change in Q < % change in P) - The fall in revenue from lower Q is smaller than the increase in revenue from higher P, so revenue rises - When D is inelastic, a price increase causes revenue to rise

Normal goods income elasticity is

>0

Substitutes cross-price elasticity is

>0

If demand is elastic, then price elasticity of demand is

>1 (% change in Q > % change in P) - The fall in revenue from lower Q is greater than the increase in revenue from higher P, so revenue falls - When D is elastic, a price increase causes revenue to fall

Refer to Figure 5-10. Total revenue when the price is P2 is represented by the area(s)

A + B.

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

A is Diet Pepsi and B is soda.

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

A is a luxury and B is a necessity.

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

A is an airline ticket from Chicago to New York demanded by a vacationer and B is an airline ticket from Chicago to New York demanded by a business traveler.

Price Ceiling

A legal maximum on the price of a good or service (example: rent control)

Price Floor

A legal minimum on the price of a good or service (example: minimum wage)

Elasticity

A numerical measure of the responsiveness of Qd or Qs to one of its determinants (measures how much one variable responds to changes in another variable)

Refer to Figure 4-8. Suppose the figure shows the market demand for Big Box e-readers. Suppose the price of the leading competitor's e-readers, a substitute good, decreases. Which of the following changes would occur?

A shift from D1 to D2

Refer to Figure 4-8. Suppose the figure shows the market demand for laptop computers. Suppose the price of wireless keyboards, a complementary good, increases. Which of the following changes would occur?

A shift from D1 to D2

Refer to Figure 5-10. Total revenue when the price is P1 is represented by the area(s)

B+D.

A price ceiling BELOW the equilibrium price is

Binding - constraint on price so causes a shortage

A price floor ABOVE the equilibrium price is

Binding - constraint on wage so causes a surplus (unemployment)

Refer to Table 4-2. Whose demand does not obey the law of demand?

Carrie's

Refer to Figure 6-29. The buyers and sellers will bear an equal share of the tax burden if the demand is

D1, and the supply is S1.

Refer to Figure 6-29. The buyers will bear a higher share of the tax burden than sellers if the demand is

D2, and the supply is S2.

Refer to Table 5-10. Using the midpoint method, which of the three supply curves has the most elastic price elasticity of supply?

Supply curve X

Refer to Table 4-6. Which supply schedules obey the law of supply?

Firm B's and Firm D's only

Refer to Table 4-13. Suppose x = 1. Then it must be true that

Harry's demand curve is identical to Jake's demand curve.

Incidence of a Tax

How the burden of a tax is shared among market participants

Refer to Figure 6-29. Suppose D1 represents the demand curve for gasoline in both the short run and long run, S1 represents the supply curve for gasoline in the short run, and S2 represents the supply curve for gasoline in the long run. After the imposition of the $2,

I don't know

Cross-Price Elasticity of Demand

Measures the response of demand for one good to changes in the price of another good (% change in Qd for good 1)/(% change in price of good 2)

Price Controls

Intend to help the poor, but often hurt more than help

Assume Leo buys coffee beans in a competitive market. It follows that

Leo cannot influence the price of coffee beans even if he buys a large quantity of them.

Refer to Table 5-9. Along which of the supply curves does quantity supplied move proportionately more than the price?

None. Quantity supplied moves proportionately less than the price along all of the three supply curves.

A price ceiling ABOVE the equilibrium price is

Not binding - has no effect on the market outcome

A price floor BELOW the equilibrium price is

Not binding - has no effect on the market outcome

Refer to Figure 6-23. Which of the following is correct?

One-third of the burden of the tax falls on buyers, and two-thirds of the burden of the tax falls on sellers.

Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for chocolate chip cookies of an improved high-speed mixer that allows bakers to produce cookies in less time?

Point A to Point B

Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for fences of a decrease in the price of wood?

Point A to Point B

Refer to Figure 4-6. Suppose the federal government is concerned about obesity in the United States. Congress is considering two plans. One would require "junk food" producers to include warning labels on all junk food. The other would impose a tax on all products considered to be junk food. If the warning labels are successful, we could illustrate the plan as producing a movement from

Point A to Point B in Panel 1.

Refer to Figure 4-6. Suppose the federal government is concerned about obesity in the United States. Congress is considering two plans. One would require "junk food" producers to include warning labels on all junk food. The other would impose a tax on all products considered to be junk food. We could illustrate the tax as producing a movement from

Point A to Point C in Panel 2.

Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for Ramen noodles of a decrease in the incomes of young adults, assuming that Ramen noodles are an inferior good?

Point A to Point D

Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for swimming lessons of an increase in the incomes of parents with school-aged children?

Point A to Point D

Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for golf balls of an increase in green fees?

Point C to Point B

Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for paper napkins as a result of a "Go Green" advertising campaign encouraging people to use cloth napkins?

Point C to Point B

Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for convertible automobiles of an increase in the price of steel?

Point C to Point D

Which of the following expressions is valid for the price elasticity of demand?

Price elasticity of demand = {(Q2-Q1)/[(Q1+Q2)/2]}/{(P2-P1)/[(P1+P2)/2)]}

Revenue

Price x Quantity

Goal of luxury tax

Raise revenue from those who could most easily afford to pay (wealthy consumers)

Refer to Figure 5-20. Which supply curve represents perfectly inelastic supply?

S1

Refer to Figure 5-20. Which supply curve is most likely relevant over a very long period of time?

S3

Prices

Signals that guide the allocation of society's resources (altered when policymakers restrict prices)

Refer to Figure 5-19. Which of the following statements is correct?

Supply curve C is more inelastic than supply curve D.

Refer to Figure 4-14. Which of the following could explain a movement from E1 to E2?

The cost of an input to the production of this good increases.

For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The good is a luxury.

Taxes

The government can make buyers or sellers pay a specific amount on each unit

For a particular good, a 5 percent increase in price causes a 2 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The market for the good is broadly defined.

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.

Refer to Figure 5-12. Which of the following price changes would result in no change in sellers' total revenue?

The price decreases from $24 to $18.

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good?

The quantity of the good demanded decreases by 0.2 percent.

Refer to Table 4-13. Regarding Harry and Darby, for whom are sandwiches a normal good?

This cannot be determined from the given information.

Which of the following causes a surplus of a good?

a binding price floor

Refer to Figure 4-7. The movement from Da to Db could be caused by

a decrease in income, assuming the good is inferior.

Suppose that Jane enjoys Diet Coke so much that she consumes one can every day. Although she enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her consumption by a lot. These examples illustrate the importance of

a necessity versus a luxury in determining the price elasticity of demand.

Refer to Figure 4-8. Suppose the figure shows the market demand for coffee. Suppose the price of tea, a substitute good, increases. Which of the following changes would occur?

a shift from D2 to D1

Refer to Figure 4-8. Suppose the figure shows the market demand for laptop computers. Suppose the price of wireless printers, a complementary good, decreases. Which of the following changes would occur?

a shift from D2 to D1

Refer to Figure 6-4. A government-imposed price ceiling of $6 in this market results in

a shortage of 8 units.

Refer to Figure 6-4. A government-imposed price floor of $12 in this market results in

a surplus of 4 units.

If a binding price floor is imposed of the market for eBooks, then

a surplus of eBooks will develop.

Refer to Figure 5-12. If the price decreased from $36 to $12, total revenue would

increase by $4,800, and the demand is elastic between points X and Z.

Refer to Table 6-2. A price floor set at $20 will

be binding and will result in a surplus of 125 units.

Refer to Figure 6-16. In this market, a minimum wage of $7.25 is

binding and creates unemployment.

Refer to Table 4-13. Regarding Harry and Darby, whose demand for sandwiches conforms to the law of demand?

both Harry's and Darby's

Refer to Figure 6-29. Suppose D1 represents the demand curve for paperback novels, D2 represents the demand curve for gasoline, and S1 represents the supply curve for paperback novels and gasoline. After the imposition of the $2 on paperback novels and on gasoline, the

buyers of gasoline bear a higher burden of the $2 tax than buyers of paperback novels.

Refer to Figure 6-15. Suppose a price floor of $4 is imposed on this market. As a result,

buyers' total expenditure on the good decreases by $15.

Refer to Figure 6-15. Suppose a price ceiling of $2 is imposed on this market. As a result,

buyers' total expenditure on the good falls by $15.

A non binding price ceiling

causes a shortage.

Price ceilings and price floors that are binding

causes surpluses and shortages to persist because price cannot adjust to the market equilibrium price.

Refer to Table 4-8. Suppose Firm X and Firm Y are the only two sellers in the market. If the market price decreases from $12 to $9, quantity supplied will

decrease by 6 units.

Scenario 5-3...The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%. Refer to Scenario 5-3. The equilibrium price will

decrease in both the aged cheddar cheese and bread markets.

Refer to Scenario 5-4. The equilibrium quantity will

decrease in both the milk and beef markets.

Refer to Figure 4-7. The movement from Db to Da in the market for potato chips could be caused by a(n)

decrease in income, assuming that potato chips are a normal good.

Refer to Figure 4-16. The shift from S to S' in the market for peaches could be caused by a(n)

decrease in the labor costs of the workers who pick peaches.

Refer to Figure 4-16. The shift from S' to S in the market for chocolate cake could be caused by a(n)

decrease in the number of commercial bakers.

Refer to Figure 4-16. If the supply curves that are drawn represent supply curves for single-family residential houses, then the movement from S to S' could be caused by a(n)

decrease in the price of lumber.

Refer to Scenario 5-3. Total consumer spending on aged cheddar cheese will

decrease, and total consumer spending on bread will decrease.

Refer to Table 4-6. If these are the only four sellers in the market, then when the price decreases from $4 to $2, the market quantity supplied

decreases by 10 units.

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 in this price range 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.

Refer to Table 5-3. Using the midpoint method, if the price falls from $200 to $150, the price elasticity of demand is

elastic.

Refer to Figure 4-19. If the price in this market is currently $14, then there would be a(n)

excess supply of 40 units. The law of supply and demand predicts that the price will fall from $14 to a lower price.

Other things equal, the demand for a good tends to be more inelastic, the

fewer the available substitutes.

Refer to Scenario 5-4. The change in equilibrium quantity will be

greater in the beef market than in the milk market.

Refer to Scenario 5-3. The change in equilibrium quantity will be

greater in the bread market than in the aged cheddar cheese market.

Refer to Scenario 5-4. The change in equilibrium price will be

greater in the milk market than in the beef market.

Refer to Table 4-13. Suppose Harry, Darby, and Jake are the only demanders of sandwiches and that the market demand violates the law of demand. Then, in the table, the value of x must be

greater than or equal to 7.

Refer to Figure 4-16. The shift from S to S' could be caused by an

improvement in production technology.

Refer to Figure 5-11. If price increases from $10 to $20, total revenue will

increase by $120, so demand must be inelastic in this price range.

Scenario 5-4: Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 5-4. The equilibrium price will

increase in both the milk and beef markets.

Scenario 5-4Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 5-4. The equilibrium price will

increase in both the milk and beef markets.

Refer to Figure 4-7. The movement from Da to Db in the market for potato chips could be caused by a(n)

increase in the price of pretzels.

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.

Refer to Scenario 5-4. Total consumer spending on milk will

increase, and total consumer spending on beef will decrease.

Refer to Figure 5-17. If, holding the supply curve fixed, there were an increase in demand that caused the equilibrium price to increase from $6 to $7, then sellers' total revenue would

increase.

Refer to Table 4-6. If these are the only four sellers in the market, then when the price increases from $6 to $8, the market quantity supplied

increases by 2 units.

Refer to Table 4-2. Suppose Abby, Brandi, Carrie, and DeeDee are the only four buyers in the market. When the price decreases from $6 to $4, the market quantity demanded

increases by 3 units.

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is

inelastic.

Goods with many close substitutes tend to have

more elastic demands.

Assume the demand for cigarettes is relatively inelastic, and the supply of cigarettes is relatively elastic. When cigarettes are taxed, we would expect

most of the burden of the tax to fall on buyers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government.

Refer to Figure 6-16. In this market, a minimum wage of $2.75 creates a labor

neither a labor shortage nor surplus.

Refer to Figure 6-16. In this market, a minimum wage of $2.75 is

nonbinding and creates neither a labor shortage nor unemployment.

Refer to Table 6-2. A price ceiling set at $20 will

not be binding.

Refer to Figure 4-7. If the demand curve for Good X shifts from Db to Da, then

people are willing to buy less of Good X than before at each possible price.

Refer to Figure 4-7. If the demand curve for Good X shifts from Da to Db, then

people are willing to buy more of Good X than before at each possible price.

In 1990, Congress passed a new luxury tax on items such as yachts, private airplanes, furs, jewelry, and expensive cars. The goal of the tax was to

raise revenue from the wealthy.

A shortage forces

sellers to ration the good among buyers

Refer to Table 4-11. If the price were $4, a

shortage of 25 units would exist, and price would tend to rise.

Refer to Table 4-13. Suppose Harry, Darby, and Jake are the only demanders of sandwiches. Also suppose the following:• x = 2.• The current price of a sandwich is $3.00.• The market quantity supplied of sandwiches is 5.• The slope of the supply curve is 1. Then there is currently a

shortage of 5 sandwiches, and the equilibrium price of a sandwich is between $3.00 and $5.00.

Refer to Table 4-13. Suppose Harry, Darby, and Jake are the only demanders of sandwiches. Also suppose the following:• x = 2.• The current price of a sandwich is $3.00.• The market quantity supplied of sandwiches is 4.• The slope of the supply curve is 2. Then there is currently a

shortage of 6 sandwiches, and the equilibrium price of a sandwich is $5.00.

Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the

supply curve will shift downward by $20, and then price paid by buyers will decrease by less than $20.

Refer to Table 4-11. If the price were $8, a

surplus of 25 units would exist, and price would tend to fall.

Refer to Figure 6-16. In this market, a minimum wage of $7.25 creates a labor

surplus of 4,500 workers.

Refer to Table 4-13. Suppose Harry, Darby, and Jake are the only demanders of sandwiches. Also suppose the following:• x = 2.• The current price of a sandwich is $5.00.• The market quantity supplied of sandwiches is 10.• The law of supply applies to the supply of sandwiches. Then there is a

surplus of 5 sandwiches, and the price would be expected to fall from its current level of $5.00.

For a good that is a luxury, demand

tends to be elastic.

The value of the price elasticity of demand for a good will be relatively large when

the good is a luxury rather than a necessity.

Refer to Figure 6-30. In which market will the majority of the tax burden fall on sellers?

the market shown in panel (a).

Refer to Figure 6-30. In which market will the majority of the tax burden fall on buyers?

the market shown in panel (b).

Refer to Figure 6-30. In which market will the tax burden be most equally divided between buyers and sellers?

the market shown in panel (c).

Refer to Figure 6-21. Suppose buyers, rather than sellers, were required to pay this tax (in the same amount per unit as shown in the graph). Relative to the tax on sellers, the tax on buyers would result in

the same amount of tax revenue for the government.

The effects on P, Q, and the tax incidence are

the same whether the tax is imposed on buyers or sellers

Refer to Table 4-13. Suppose Harry, Darby, and Jake are the only demanders of sandwiches. Also suppose x = 2. Then

the slope of Jake's demand curve is -2, and the slope of the market demand curve is -2/5.

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.

If demand is more elastic than supply

then it is easier for buyers to leave the market while the sellers bear most of the burden of the tax

If supply if more elastic than demand

then it is easier for sellers to leave the market while the buyers bear most of the burden of the tax

If buyers and sellers in a certain market are price takers, then individually

they have no influence on market price.

Refer to Figure 6-23. For every unit of the good that is sold, sellers are required to send

three dollars to the government, and buyers are required to send nothing to the government.

Refer to Figure 6-21. How is the burden of the tax shared between buyers and sellers? Buyers bear

three-fourths of the burden, and sellers bear one-fourth of the burden.

Midpoint Method

{(End value-start value)/(midpoint)}x100

Standard Method of Computing % Change

{(End value-start value)/(start value)}x100