practice test 2 Econ 120

If the government levies a $5 tax per MP3 player on buyers of MP3 players, then the price paid by buyers of MP3players would likely a.increase by more than $5. b.increase by exactly $5 .c.increase by less than $5. d.decrease.

increase by less than $5

If the government removes a binding price ceiling from a market, then the price paid by buyers will a.increase, and the quantity sold in the market will increase. b.increase, and the quantity sold in the market will decrease. c.decrease, and the quantity sold in the market will increase. d.decrease, and the quantity sold in the market will decrease.

increase, and the quantity sold in the market will increase

There are very few, if any, good substitutes for automotive tires. Therefore, the demand for automotive tires would tend to be a.elastic. b.unit elastic. c.inelastic. d.highly responsive to changes in income as well as changes in prices.

inelastic

The difference between slope and elasticity is that slope a.is a ratio of two changes, and elasticity is a ratio of two percentage changes. b.is a ratio of two percentage changes, and elasticity is a ratio of two changes. c.measures changes in quantity demanded more accurately than elasticity. d.None of the above is correct; there is no difference between slope and elasticity.

is a ratio of two changes, and elasticity is a ratio of two percentage changes.

The tax burden will fall most heavily on buyers of the good when the demand curve a . is relatively steep, and the supply curve is relatively flat .b. is relatively flat, and the supply curve is relatively steep. c. and the supply curve are both relatively flat. d. and the supply curve are both relatively steep.

is relatively steep, and the supply curve is relatively flat

.Assume Leo buys coffee beans in a competitive market. It follows that a.Leo has a limited number of sellers from which to buy coffee beans. b.Leo will negotiate with sellers whenever he buys coffee beans. c.Leo cannot influence the price of coffee beans even if he buys a large quantity of them. d.None of the above is correct.

leo cannot influence the price of coffee beans even if he buts a large quantity of them

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.

less than 1

Assume the demand for cigarettes is relatively inelastic, and the supply of cigarettes is relatively elastic. When cigarettes are taxed, we would expect: a. most of the burden of the tax to fall on sellers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government. b. 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. c. the distribution of the tax burden between buyers and sellers of cigarettes to depend on whether buyers or sellers of cigarettes are required to pay the tax to the government. d. a large percentage of smokers to quit smoking in response to the tax.

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.

When quantity demanded increases at every possible price, the demand curve has a. shifted to the left. b.shifted to the right. c.not shifted; rather, we have moved along the demand curve to a new point on the same curve. d.not shifted; rather, the demand curve has become steeper.

shifted to the right

The forces that make market economies work area. a. work and leisure .b.politics and religion .c.supply and demand. d.taxes and government spending.

supply and demand

. For a good that is a necessity, demand a.tends to be inelastic. b.tends to be elastic. c.has unit elasticity. d.cannot be represented by a demand curve in the usual way.

tends to be inelastic

If the cross-price elasticity of demand for two goods is 1.25, then a.the two goods are luxuries. b.the two goods are substitutes. c.one of the goods is normal and the other good is inferior. d.the demand for one of the goods conforms to the law of demand, but the demand for the other good violates the law of demand.

the two goods are substitutes

Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because a.with rent control, the government guarantees landlords a minimum level of profit. b.they become resigned to the fact that many of their apartments are going to be vacant at any given time. c.with shortages and waiting lists, they have no incentive to maintain and improve their property. d.with rent control, it becomes the government's responsibility to maintain rental housing.

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

A binding price ceiling (i)causes a surplus. (ii)causes a shortage. (iii)is set at a price above the equilibrium price. (iv)is set at a price below the equilibrium price. a.(ii) only b.(iv) only c.(i) and (iii) only d.(ii) and (iv) only

.(ii) and (iv) only

If a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about a.1.33, and supply is elastic. b.1.33, and supply is inelastic. c.0.75, and supply is elastic. d.0.75, and supply is inelastic.

1.33, and supply is elastic

Studies indicate that the price elasticity of demand for beer is about 0.9. A government policy aimed at reducing beer consumption changed the price of a case of beer from $10 to $20. According to the midpoint method, the government policy should have reduced beer consumption by a.30% .b.40%. c.60%. d.74%.

60%

You have responsibility for economic policy in the country of Freedonia. Recently, the neighboring country of Sylvania has cut off all exports of oranges to Freedonia. George, who is one of your advisors, says that the best way to avoid a shortage of oranges is to take no action at all. Charles, another one of your advisors, argues that without a binding price floor, a shortage will certainly develop. Otto, a third advisor, suggests that you should impose a binding price ceiling in order to avoid a shortage of oranges. Which of your three advisors is most likely to have studied economics? a.George b.Charles c. Otto d.. Apparently, all three advisors have studied economics, but their views on positive economics are different.

George

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market?After the price ceiling becomes effective, a. a smaller quantity of the good is bought and sold. b.a smaller quantity of the good is demanded. c.a larger quantity of the good is supplied. d.the price rises above the previous equilibrium.

a smaller quantity of the good is bought and sold.

Which of the following might cause the demand curve for an inferior good to shift to the left? a. a decrease in income b.an increase in the price of a substitute c.an increase in the price of a complement d.None of the above is correct.

an increase in the price of a complement

An advance in farm technology that results in an increased market supply is a.good for farmers because it raises prices for their products but bad for consumers because it raises prices consumers pay for food. b.bad for farmers because total revenue will fall but good for consumers because prices for food will fall .c.good for farmers because it raises prices for their products and also good for consumers because more output is available for consumption. d.bad for farmers because total revenue will fall and bad for consumers because farmers will raise the price of food to increase their total revenue.

bad for farmers because total revenue will fall but good for consumers because prices for food will fall

Demand is said to be price elastic if a. the price of the good responds substantially to changes in demand. b.demand shifts substantially when income or the expected future price of the good changes. c.buyers do not respond much to changes in the price of the good. d.buyers respond substantially to changes in the price of the good.

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

Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation? a. Consumers have experienced an increase in income, and beef-production technology has improved. b. The price of chicken has risen, and the price of steak sauce has fallen. c. New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy. d. The demand curve for beef must be positively sloped.

c. New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy.

To say that a price ceiling is binding is to say that the price ceiling a.results in a surplus. b.is set above the equilibrium price. c.causes quantity demanded to exceed quantity supplied. d.All of the above are correct.

causes quantity demanded to exceed quantity supplied.

The price paid by buyers in a market will decrease if the government a. increases a binding price floor in that market .b. increases a binding price ceiling in that market. c. decreases a tax on the good sold in that market. d. All of the above are correct.

decreases a tax on the good sold in that market

Good X and good Y are substitutes. If the price of good Y increases, then thee. A.demand for good X will decrease. b.quantity demanded of good X will decrease. c.demand for good X will increase. d.quantity demanded of good X will increase.

demand for good X will increase

Tax incidence a. depends on the legislated burden. b. is entirely random. c. depends on the elasticities of supply and demand. d. falls entirely on buyers or entirely on sellers.

depends on the elasticities of supply and demand

Economists normally a. do not try to explain people's tastes, but they do try to explain what happens when tastes change. b. believe that they must be able to explain people's tastes in order to explain what happens when tastes change. c. do not believe that people's tastes determine demand, so they ignore the subject of tastes. d. incorporate tastes into economic models only to the extent that tastes determine whether pairs of goods are substitutes or complements.

do not try to explain people's tastes, but they do try to explain what happens when tastes change.

If a tax is levied on the buyers of a product, then there will be a(n) a.upward shift of the demand curve. b.downward shift of the demand curve .c.movement up and to the left along the demand curve. d.movement down and to the right along the demand curve.

downward shift of the demand curve