Review 1

If the government imposes an excise tax in a market in which the demand curve is perfectly inelastic, the burden of the tax will fall completely on the ______ and the deadweight loss will equal ________. A) consumers; zero B) producers; zero C) consumers; the government's tax revenue D) producers; the government's tax revenue

A

The cross-price elasticity of demand of complementary goods is: A) less than 0. B) equal to 0. C) greater than 0. D) between 0 and 1.

A

The demand for strawberry ice cream tends to be relatively price elastic because: A) for most people, there are many close substitutes for strawberry ice cream. B) there are few substitutes for it. C) it has to be consumed very quickly. D) it costs so little.

A

The pair of items that is likely to have the highest cross-price elasticity of demand is: A) coffee and tea. B) skis and ski boots. C) pizza and pepperoni. D) milk and cookies.

A

The price elasticity of a good will tend to be greater: A) the longer the relevant time period. B) the fewer the number of substitute goods available. C) if it is a staple or necessity with few substitutes. D) if all of the above exist.

A

Given the demand curve for a good, the more price elastic the supply curve, the ______ equilibrium output will fall and the ______ will be the deadweight loss when the government imposes an excise tax. A) more; smaller B) more; larger C) less; smaller D) less; larger

B

Given the supply curve for a good, the more price elastic the demand curve, the ______ equilibrium output will fall and the ______ will be the deadweight loss when the government imposes an excise tax. A) more; smaller B) more; larger C) less; smaller D) less; larger

B

If a good has a price inelastic demand, then which of the following is not likely to be characteristic of this good? A) The good is a necessity and is relatively unimportant in the household budget. B) There are many substitutes for the good. C) Consumers spend a small percentage of their income on the good. D) Consumers do not have much time to adjust to market changes.

B

If a good is a necessity with few substitutes, then the price elasticity of demand will tend to be: A) more price elastic. B) less price elastic. C) equal to 1. D) the same as that of a luxury good.

B

If an excise tax is imposed on wine and collected from the consumers, the _____ curve will shift ____ by the amount of the tax. A) demand; upward B) demand; downward C) supply; upward D) supply; downward

B

If an increase in the price of a good leads to an increase in total revenue, then: A) the supply curve must be price inelastic. B) the demand curve must be price inelastic. C) the supply curve is price elastic. D) none of the above is correct.

B

If the government imposes an excise tax in a market in which the supply curve is perfectly inelastic, the burden of the tax will fall completely on the ______ and the deadweight loss will equal ________. A) consumers; zero B) producers; zero C) consumers; the government's tax revenue D) producers; the government's tax revenue

B

If your purchases of shoes remain constant at 9 pairs per year when the price of shirts increases from $8 to $12, then, for you, shoes and shirts are considered: A) inferior goods. B) unrelated goods. C) substitute goods. D) complementary goods.

B

Suppose the price elasticity of demand for oranges is 1.8. If a fall frost destroys one-third of the nation's orange crop, how will that affect total revenue from oranges, all other things unchanged? A) Total revenue will rise. B) Total revenue will fall. C) Total revenue will remain unchanged. D) Not enough information is given to answer the question.

B

Tax incidence refers to: A) who writes the check to the government. B) who really pays the tax to the government. C) the deadweight loss from the tax. D) the total revenue that the government collects from the tax.

B

The income elasticity of demand for eggs has been estimated to be 0.57. If income grows by 5 percent in a period, how will that affect demand for eggs in that period, all other things unchanged? A) Demand will increase by more than 5.7 percent. B) Demand will increase by about 2.9 percent. C) Demand will decrease by more than 5.7 percent. D) Demand will decrease.

B

The pair of items that is most likely to have a negative cross-price elasticity of demand is: A) aspirin and hamburgers. B) hot dogs and mustard. C) margarine and butter. D) ketchup and coffee.

B

The price elasticity of demand for gasoline in the short run has been estimated to be 0.4. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total revenue from gasoline in the short run, all other things unchanged? A) Demand will stay the same; total revenue will fall. B) Demand will decrease; total revenue will rise. C) Total revenue will remain unchanged. D) Demand will not change; total revenue will rise.

B

The price elasticity of demand for lettuce has been estimated to be 2.58. If an insect infestation destroys 10 percent of the nation's lettuce crop, how will that affect total revenue from lettuce, all other things unchanged? A) Total revenue will remain unchanged. B) Total revenue will fall. C) Total revenue will rise. D) Not enough information is given to answer the question.

B

There are several close substitutes for Bayer aspirin but fewer substitutes for a complete medical examination. Therefore, you would expect the demand for: A) medical exams to be more price elastic. B) Bayer aspirin to be more price elastic. C) Bayer aspirin to be more price inelastic. D) both to be equally price elastic.

B

When a public transit system (such as a subway or bus line) raises its fares, it may experience an increase in total revenue. This suggests that demand is: A) unstable. B) price inelastic. C) price elastic. D) unit-price elastic.

B

Given the demand curve for a good, the more price inelastic the supply curve, the ______ equilibrium output will fall and the ______ will be the deadweight loss when the government imposes an excise tax. A) more; smaller B) more; larger C) less; smaller D) less; larger

C

Given the supply curve for a good, the more price inelastic the demand curve, the ______ equilibrium output will fall and the ______ will be the deadweight loss when the government imposes an excise tax. A) more; smaller B) more; larger C) less; smaller D) less; larger

C

If an excise tax is imposed on beer and collected from the producers, the _____ curve will shift ____ by the amount of the tax. A) demand; upward B) demand; downward C) supply; upward D) supply; downward

C

If the government imposes a $5 excise tax on the sale of leather shoes collected from the supplier and the price of leather shoes does not change: A) the government will receive less tax revenue than anticipated. B) consumers are paying all of the tax. C) producers are paying all of the tax. D) consumers and producers are paying equal amounts of the tax.

C

If the government imposes a $5 excise tax on the sale of leather shoes collected from the supplier and the price of leather shoes increases by $2: A) the government will receive less tax revenue than anticipated. B) consumers are paying more of the tax than the producers. C) producers are paying more of the tax than are the consumers. D) the quantity of shoes sold will increase.

C

State governments place excise taxes on alcohol because: A) they want to subsidize alcohol production. B) they want to encourage individuals to produce their own alcohol. C) it discourages drinking alcohol while raising revenue for the government. D) of all of the above.

C

The price elasticity of demand for fresh tomatoes has been estimated to be 2.22. If a new insecticide and fertilizer treatment yields a 20 percent increase in the nation's fresh tomato crop, how will that affect total revenue from fresh tomatoes, all other things unchanged? A) Total revenue will remain unchanged. B) Total revenue will fall. C) Total revenue will rise. D) Not enough information is given to answer the question.

C

The deadweight loss from an excise tax comes about because: A) the number of transactions in the market is reduced. B) some mutually beneficial transactions do not take place. C) a quota rent exists. D) of both A and B.

D

To say that two goods are substitutes, their cross-price elasticities of demand should be: A) less than zero. B) negative, yet almost equal to zero. C) equal to zero. D) greater than zero.

D