Unit 2B Nature and Functions of Product Market (Surplus, Elasticity, and Utility) Study Guide

what is the price paid by consumers and the net price received by producers after the tax is paid?

b. $10.45 $9.45

Assume that demand for bottled water is relatively price elastic. An increase in supply of bottled water will result in which of the following?

a. A decrease in price, leading to an increase in total revenue

If the demand for a good is inelastic and the supply is elastic, which of the following is true when there is an increase in sales tax?

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

Suppose that the market supply curve for shoes is upward sloping and the market demand curve is downward sloping. How will the imposition of a sales tax on shoes affect the consumer surplus, the producer surplus, and the total surplus?

a. Decrease Decrease Decrease

The quantity of peanuts supplied increased from 40 tons per week to 60 tons per week when the price of peanuts increased from $4 per ton to $5 per ton. The price elasticity of supply for peanuts over this price change

a. Elastic

Which of the following will tend to make the demand for a product more elastic?

a. New firms produce similar products enter the industry

Which of the following taxes contributes most to decreasing inequality in the distribution of income?

a. Progressive income taxes

If a severe drought destroys a significant portion of the peanut crop and peanut farmers' revenues increase, which of the following is true over the observed range of prices?

a. The demand for peanuts must be price inelastic

the cross-price elasticity of demand between good X and good Z measures the percentage change in the quantity demanded of good X in response to a percentage change in

a. The price of good Z

The additional satisfaction received from consuming an additional unit of a good is called the

a. marginal utility

According to the law of diminishing marginal utility, which of the following is true?

a. the additional satisfaction received from consuming extra units of a good decreases as consumption of the good increases.

Promoters of a rock group know that if they charged $8 a ticket, 400 people would buy tickets for a concert, and if they charged $4 a ticket, 800 people would buy tickets. over this price range the demand for the concert tickets for the rock camp is

a. unit elastic

According to the diagram, what is the dollar amount of the tax unit?

b. $1.00

Following a decrease in the supply of oranges, the price of orange juice increase by 20%, which resulted in a 10% increase in the quantity of apple juice consumed. this implies that the cross elasticity of demanded between orange juice and apple juice is

b. 0.5

Assume that the price of good X decreases from $10 to $9 per unit and that the quantity demanded of good X increase from 25 to 30 units. In this price range, the demand for good X is

b. Elastic

If the government imposes a tariff on imports of cheese, the price and quantity of imported cheese will most likely change in which of the following ways?

b. Increase Decrease

Which of the following is true of the substitution effect of an increase in the price of a normal good?

b. It works to reinforce the income effect

which of the following will most likely lead to a more equal distribution of income?

b. More progressive income taxes

the diagram above shows the demand curve for a good. If the price increases from P1 to P2, and quantity consumed decreases from Q2 to Q1, consumer surplus decrease by the area

b. P1P2BC

An increase in the effective minimum wage will have less of an impact on employment if the demand for labor is

b. Relatively inelastic

If the income elasticity of demand for good X is negative and the cross-price elasticity of demand between good X and good Y is negative, which of the following must be true of good X?

b. X is an inferior good and is a complement to Y

If a price ceiling is set at P1, which of the following areas represent the resulting consumer surplus, producer surplus and dead weight loss?

b. f+g+I k h+j

A decrease in the supply of oranges raised the price of oranges In the market. the substitution effect of the price increase will motivate consumers to

b. increase the quantity of other fruits demanded and decrease the quantity of oranges

Assuming a downward-sloping demand curve and an upward-sloping supply curve, which of the following will occur as a result of an increase in the sales tax on a good?

b. quantity demanded will decrease

The difference between what consumers are willing to pay for units of a good and the price consumers actually pay for units of the good is called

c. Consumer surplus

After the government imposed a $0.20 per gallon tax on gasoline, the price of a gallon of gasoline increased from $1.00 to $1.15. Which of the following statements is true.

c. Consumers bear most, but not all, of the tax burden

which of the following is true if consuming one unit of a good yields 100 utils and consuming the second unit of the good increases satisfaction by 20 utils

c. The total utility of consuming two units is 120

In a given time period , a person consumes more and more of a good or service and, as a result, enjoys each additional unit less and is willing to pay less for each additional unit. This behavior is consistent with the law of

c. diminishing marginal utility

When total utility is at its maximum, marginal utility is

c. equal to zero

at her current level of consumption, a consumer is willing to pay up to $1.50 for a bottle of water and up to $1,500 for a diamond ring because the

c. marginal utility of a bottle of water is less than the marginal utility of a diamond ring

To maximize utility, a consumer with a fixed budget will purchase quantities of goods so that the ratios of marginal utility of each good to its

c. price are equal

When the market is in equilibrium, the total economic surplus is equal to area

f+g+h+i+j+k