Microeconomics HW #3 (Chapters 5,6,7)

Goods with many close substitutes tend to have a. more elastic demands. b. less elastic demands. c. price elasticities of demand that are unit elastic. d. income elasticities of demand that are negative.

a. more elastic demands.

Given the market for illegal drugs, when the government is successful in reducing the flow of drugs into the United States, a. supply decreases, demand is unaffected, and price increases. b. demand decreases, supply is unaffected, and price decreases. c. demand and supply both decrease, leaving price essentially unchanged. d. supply decreases, demand increases, and price increases substantially.

a. supply decreases, demand is unaffected, and price increases.

Refer to Figure 7-11. If the demand curve is D and the supply curve shifts from S' to S, what is the change in producer surplus? a. Producer surplus increases by $625. b. Producer surplus increases by $1,875. c. Producer surplus decreases by $625. d. Producer surplus decreases by $1,875.

b. Producer surplus increases by $1,875.

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1? a. A is a luxury and B is a necessity. b. A is a good after an increase in income and B is that same good after a decrease in income. c. A has fewer substitutes than B. d. A is a good immediately after a price increase and B is that same good 3 years after the price increase.

A

Refer to Figure 6-22. Sellers pay how much of the tax per unit? a. $0.50. b. $1.50. c. $3.00. d. $5.00.

A. 0.50

Refer to Figure 7-11. If the supply curve is S and the demand curve shifts from D to D', what is the increase in producer surplus to existing producers? a. $625 b. $2,500 c. $3,125 d. $5,625

B. $2,500

Refer to Figure 5-1. Between point A and point B, price elasticity of demand is equal to a. 0.33. b. 0.67. c. 1.5 d. 2.67.

C

Refer to Figure 5-19. Which of the following statements is not correct? a. Supply curve A is perfectly inelastic. b. Supply curve B is perfectly elastic. c. Supply curve C is unit elastic. d. Supply curve D is more elastic than supply curve C.

C

A binding minimum wage causes the quantity of labor demanded to exceed the quantity of labor supplied. a. True b. False

F

Efficiency refers to whether a market outcome is fair, while equality refers to whether the maximum amount of output was produced from a given number of inputs. a. True b. False

T

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

T

Goods with close substitutes tend to have more elastic demands than do goods without close substitutes. a. True b. False

T

Refer to Figure 7-9. If the price of the good is $14, then producer surplus is a. $19.50. b. $22.50. c. $20.50. d. $25.00.

c. $20.50.

Refer to Figure 6-3. In panel (b), there will be a. a shortage. b. equilibrium in the market. c. a surplus. d. lines of people waiting to buy the good.

c. a surplus.

Refer to Figure 6-2. The price ceiling a. Is binding. b. causes a shortage. c. causes the quantity demanded to exceed the quantity supplied. d. All of the above are correct.

d. All of the above are correct.

Refer to Figure 6-2. The price ceiling a. causes a shortage of 40 units. b. is not binding, because it is set above the equilibrium price. c. causes a shortage of 45 units. d. causes a shortage of 85 units.

d. causes a shortage of 85 units.

Refer to Figure 7-11. If the supply curve is S and the demand curve shifts from D to D', what is the increase in producer surplus due to new producers a. $625 b. $2,500 c. $3,125 d. $5,625

A. $625

Refer to Figure 5-15. Along which of these segments of the supply curve is supply least elastic? a. GH b. CD c. AC d. AB

A. GH

If a firm is facing elastic demand, then the firm should decrease price to increase revenue. a. True b. False

T

If the demand curve is very inelastic and the supply curve is very elastic in a market, then the sellers will bear a greater burden of a tax imposed on the market, even if the tax is imposed on the buyers. a. True b. False

T

Suppose there is an increase in supply that reduces market price. Consumer surplus increases because (1) consumer surplus received by existing buyers increases and (2) new buyers enter the market. a. True b. False

T

Refer to Figure 7-11. If the supply curve is S and the demand curve shifts from D to D', what is the change in producer surplus? a. Producer surplus increases by $3,125. b. Producer surplus increases by $5,625. c. Producer surplus decreases by $3,125. d. Producer surplus decreases by $5,625.

a. Producer surplus increases by $3,125.

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.

If the price elasticity of supply is 1.2, and price increased by 5%, quantity supplied would a. increase by 4.2%. b. increase by 6%. c. decrease by 4.2%. d. decrease by 6%.

b. increase by 6%.

When consumers face rising gasoline prices, they typically a. reduce their quantity demanded more in the long run than in the short run. b. reduce their quantity demanded more in the short run than in the long run. c. do not reduce their quantity demanded in the short run or the long run. d. increase their quantity demanded in the short run but reduce their quantity demanded in the long run.

A. reduce their quantity demanded more in the long run than in the short run

Refer to Figure 7-11. If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what is the producer surplus? a. $625 b. $1,250 c. $2,500 d. $5,000

C. $2500

Refer to Figure 6-22. The price paid by buyers after the tax is imposed is a. $3.00. b. $3.50. c. $5.00. d. $6.00.

C. $5.00

Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points C and D? a. 0.21 b. 0.29 c. 0.73 d. 1.36

C. 0.73

Refer to Figure 7-10. Which area represents the increase in producer surplus when the price rises from P1 to P2 due to new producers entering the market? a. BCG b. ACH c. DGH d. AHGB

C. DGH

All else equal, a decrease in demand will cause an increase in producer surplus. a. True b. False

F

In a competitive market, sales go to those producers who are willing to supply the product at the lowest price. a. True b. False

T

The minimum wage is more often binding for teenagers than for other members of the labor force. a. True b. False

T

If a tax is imposed on a market with inelastic demand and elastic supply, then a. buyers will bear most of the burden of the tax. b. sellers will bear most of the burden of the tax. c. the burden of the tax will be shared equally between buyers and sellers. d. it is impossible to determine how the burden of the tax will be shared.

a. buyers will bear most of the burden of the tax.

A good will have a more elastic demand, the a. greater the availability of close substitutes. b. more broad the definition of the market. c. shorter the period of time. d. more it is regarded as a necessity.

a. greater the availability of close substitutes.

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 a. inelastic. b. elastic. c. unit elastic. d. perfectly inelastic.

a. inelastic.

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding? a. Improvements in production technology reduce the costs of producing laptop computers. b. The number of firms selling laptop computers decreases. c. Consumers' income decreases, and laptop computers are a normal good. d. The number of consumers buying laptop computers decreases.

b. The number of firms selling laptop computers decreases.

Refer to Figure 6-22. As the figure is drawn, who sends the tax payment to the government? a. The buyers send the tax payment. b. The sellers send the tax payment. c. A portion of the tax payment is sent by the buyers, and the remaining portion is sent by the sellers. d. The question of who sends the tax payment cannot be determined from the graph.

b. The sellers send the tax payment.

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? a. a 7.5 increase in the price of the good b. a 13.33 percent increase in the price of the good c. an increase in the price of the good from $7.50 to $10 d. an increase in the price of the good from $10 to $17.50

b. a 13.33 percent increase in the price of the good

When demand is inelastic, a decrease in price will cause a. an increase in total revenue. b. a decrease in total revenue. c. no change in total revenue but an increase in quantity demanded. d. no change in total revenue but a decrease in quantity demanded.

b. a decrease in total revenue.

Refer to Figure 7-3. When the price rises from P1 to P2, consumer surplus a. increases by an amount equal to A. b. decreases by an amount equal to B+C. c. increases by an amount equal to B+C. d. decreases by an amount equal to C.

b. decreases by an amount equal to B+C.

If a price ceiling is not binding, then a. the equilibrium price is above the price ceiling. b. the equilibrium price is below the price ceiling. c. it has no legal enforcement mechanism. d. None of the above is correct because all price ceilings must be binding.

b. the equilibrium price is below the price ceiling.

Which of the following is not a determinant of the price elasticity of demand for a good? a. the time horizon b. the steepness or flatness of the supply curve for the good c. the definition of the market for the good d. the availability of substitutes for the good

b. the steepness or flatness of the supply curve for the good

A t-shirt maker would be willing to supply 75 t-shirts per day at a price of $18.00 each. At a price of $20.00, the t- shirt maker would be willing to supply 100 t-shirts. Using the midpoint method, the price elasticity of supply for t- shirts is about a. 0.37, and supply is elastic. b. 0.37, and supply is inelastic. c. 2.71, and supply is elastic. d. 2.71, and supply is inelastic.

c. 2.71, and supply is 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? a. Supply curves are steeper over long periods of time than over short periods of time. b. Buyers of goods tend to be more responsive to price changes over long periods of time than over short periods of time. c. The number of firms in a market tends to be more variable over long periods of time than over short periods of time. d. Firms prefer to change their prices in the short run rather than in the long run.

c. The number of firms in a market tends to be more variable over long periods of time than over short periods of time.

The mayor of Workerville proposes a local payroll tax to fund a new water park for the city. The mayor proposes to collect half the tax from workers and half the tax from firms. The mayor will be able to successfully divide the burden of the tax equally if the a. demand for labor is more elastic than the supply of labor. b. supply of labor is more elastic than the demand for labor. c. demand for labor and supply of labor are equally elastic. d. It is not possible for the tax burden to fall equally on firms and workers.

c. demand for labor and supply of labor are equally elastic.

Refer to Figure 6-3. A binding price floor is shown in a. both panel (a) and panel (b). b. panel (a) only. c. panel (b) only. d. neither panel (a) nor panel (b).

c. panel (b) only.

Suppose that corn farmers want to increase their total revenue. Knowing that the demand for corn is inelastic, corn farmers should a. plant more corn so that they would be able to sell more each year. b. increase spending on fertilizer in an attempt to produce more corn on the acres they farm. c. reduce the number of acres on which they plant corn. d. contribute to a fund that promotes technological advances in corn production.

c. reduce the number of acres on which they plant corn.

Refer to Figure 7-2. If the price of the good is $100, then consumer surplus amounts to a. $50. b. $75. c. $100. d. $125

d. $125

Which of the following statements about the price elasticity of demand is correct? a. The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases. b. Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. c. Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y. d. All of the above are correct.

d. All of the above are correct.

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest? a. immediately after the price increase b. one month after the price increase c. three months after the price increase d. one year after the price increase

d. one year after the price increase