Microeconomics Test 2 (ch. 4,5,6)

Suppose a tax on sellers has been imposed in the graph shown. Once the tax is in place, the buyers experience:

a decrease in quantity demanded.

If a good has a highly elastic demand, then:

a small percentage change in price will cause a large percentage change in quantity demanded

Deadweight loss:

occurs in markets that are inefficient, occurs when markets are not in equilibrium, is lost surplus due to less market transactions, ALL OF THESE ARE TRUE.

According to the graph shown, if the market goes from equilibrium to having its price set at $10 then:

producer surplus rises by area B, but falls by area E.

Assume a market that has an equilibrium price of $5. If the market price is set at $9, producer surplus:

rises for some because of the increased price, decreases for some because of fewer transactions taking place, BOTH OF THESE ARE TRUE.

According to the graph shown, producer surplus is:

$10.

Assume an equilibrium price of $7 and equilibrium quantity of 8 units at demand D and supply S2 in the graph shown. Total surplus is:

$32.

The price elasticity of supply between points A and B is

1.00

suppose that when the price of novels goes from $15 to $20 per book, production increases from 550 million books per year to 800 million books. Using the mid-point method, the price elasticity of supply would be:

1.4

Three points are identified on the graph:

At point A, demand is elastic At point B, demand is unit-elastic At point C, demand is inelastic

when a small percentage change in price causes a large percentage change in the quantity demanded, we say that they have a:

highly elastic demand

If the price of a cup of Dunkin' Donuts coffee rises, while the price of a Starbucks latte doesn't, we expect the quantity of lattes demanded to:

increase as some people switch from coffee to relatively less expensive latte.

The creation of markets that were previously "missing":

increases economic well being, increases total surplus, benefits those who interact in the new markets, ALL OF THESE ARE TRUE.

If income increases by 10% and the quantity demanded of a good then increases by 5%, the good is:

normal and income-inelastic.

When a market is efficient:

there is no exchange that can make anyone better off without someone becoming worse off.

If the cross-price elasticity of two goods is 0.25, then we know that:

those goods are substitutes because their elasticity is greater than zero.

Governments tend to set price ceilings:

to ensure everyone can afford certain goods.

After a price floor of $23 is placed on the market in the graph shown, which area represents producer surplus?

B+E

A market has four individuals considering buying a grill for his backyard. Further assume that grills come in only one size and model. Abe considers himself a grill-master, and finds a grill a necessity, so he is willing to pay $400 for a grill. Butch is a meat-lover, honing his grilling skills, and is willing to pay $350 for a grill. Collin just met the girl of his dreams, and she loves a good grilled steak, so in his effort to impress her he is willing to pay $320 for a grill. Daniel loves grilled shrimp and thinks it might be cheaper in the long run if he buys a grill instead of eating out every time he wants grilled shrimp, so he is willing to pay $200 for a grill. If the market price of grills is $350, given the scenario described, total consumer surplus would be:

$50

Suppose that when the price of coffee beans goes from $1 to $1.20 per pound, production increases from 90 million pounds of coffee beans per year to 100 million pounds. Using the mid-point method, the percentage change in quantity supplied would be:

11%

The traditional diet of the citizens of the nation of Ironia includes a lot of red meat, and ranchers make up a vital part of Ironia's economy. The government of Ironia decides to support its ranchers through a price floor, which it will maintain by buying up excess meat supplies. The table below shows the supply and demand schedule for red meat; quantities are given in thousands of pounds. How many thousands of pound of meat would you recommend that the government purchase to keep the price at $4 per pound? How much money should the government budget for this program?

25 thousand pounds $100,000

If the price elasticity of a demand for used cars priced between $3,000 and $5,000 is -1.2 (using the mid-point method), what will be the percent change in quantity demanded when the price of a used car falls from $5,000 to $3,000?

60%

Suppose that for health reasons, the government of the nation of Ironia wants to increase the amount of broccoli citizens consume. Which of the following policies could be used to achieve the goal?

A subsidy paid to shoppers who buy broccoli, A subsidy paid to farmers who grow broccoli.

According to the graph shown, producer surplus is area:

B

When Bob's willingness to pay for a cup of coffee is $1, and the price of a cup of coffee is $1:

Bob is indifferent about purchasing the coffee, Bob will get no surplus by purchasing the coffee, Bob will get the same surplus whether he purchases the coffee or not, ALL OF THESE ARE TRUE.

Suppose the government offers a subsidy to laptop sellers. Say whether each group of people gains or loses from this policy: Laptop buyers: Laptop sellers: Desktop computer sellers (assuming that they are different from laptop manufacturers): Desktop computer buyers:

Gain Gain Lose Gain

The following scenarios describe the price elasticity of supply and demand for a particular good: Inelastic demand, elastic supply Elastic demand, elastic supply Inelastic demand, inelastic supply Elastic demand, inelastic supply All else equal (equilibrium price, equilibrium quantity, and size of the tax), in which scenario will government revenues be the highest?

Inelastic demand, inelastic supply

Would you expect a tax on cigarettes to be more effective over the long run or the short run?

Long run because demand becomes more elastic over time.

Which of the following has a more elastic supply in the short run? Hospitals or mobile clinics: Purebred dogs or pet rabbits: On-campus courses or online courses:

Mobile clinics Pet rabbits Online courses

Does a subsidy to sellers affect the demand curve?

No, the quantity demanded will increase, but the the demand curve does not move.

If a good has an income elasticity of 1.83, which of the following can be said about it?

None of these statements is true.

For each of the following pairs, predict whether the cross-price elasticity of demand will be positive or negative: Soap and hand sanitizer CDs and MP3s Sheets and pillowcases

Positive Positive Negative

Assume the market was in equilibrium in the fraph shown. If the market price gets set to $7, which of the following is true?

Some consumers gain surplus, but total surplus falls.

Assume there are three hardware stores in the market for hammers and that all three markets produce a single, standard model hammer. House Depot is an enormous mass producer of hammers and can offer a hammer for sale for a minimum of $7. Lace Hardware is a franchise and can offer the hammer for sale for a minimum of $10. Bob's Hardware store is a family owned and operated, independent hardware store and can offer hammers at a minimum price of $13. Given the scenario described, if the market price of hammers decreased from $15 to $13, which of the following can be said with certainty?

Total producer surplus would decrease.

Does a tax on a sellers affect the supply curve?

Yes, it shifts up by the amount of the tax.

assuming elasticity is reported in absolute value, a measured price elasticity of demand of 1.2 would indicate:

an elastic demand, meaning the percentage change in quantity demanded will be greater than the percentage change in price

Government attempts to lower, raise, or simply stabilize prices can:

backfire, create unintended side effects, decreases total surplus, ALL OF THESE ARE TRUE.

Markets can be missing

because public policy prevents the market from existing, when the production of a particular good is banned, because of a lack of accurate information between potential buyers and sellers, ALL OF THESE ARE TRUE.

Assume the market is in equilibrium in the graph shown at demand D and supply S1. If the supply curve shifts to S2, and a new equilibrium is reached, which of the following is true?

consumer surplus increases by $11.

After a price floor of $23 is placed on the market in the graph shown:

consumers lose because they pay a higher price, producers win because they sell at a higher price, the total traded in the market falls, ALL OF THESE ARE TRUE.

It is most likely for which of the following to have an income elasticity greater than zero?

deli meat

When the market price is set above the equilibrium price:

efficiency does not occur, total surplus is not maximized, consumer surplus is decreased, ALL OF THESE ARE TRUE.

A consumer's willingness to pay:

is the maximum price that a buyer would be willing to pay for a good or service

A subsidy:

is the reverse of a tax.

In general, price controls have a:

larger effect in the long run because demand and supply become more elastic over time.

A microchip manufacturing plant is likely to have a ________ price elasticity of supply than a bread bakery due to __________.

less elastic; a less flexible production process

A pack of gum is _______ than a steak because _______.

less price elastic; it is a smaller portion of one's income

The price elasticity of supply is ______ elastic over time because _______.

more; producers have a longer time to adjust their production decisions