wk6

If the price of haircuts increased from $18 to $24 and the quantity decreased from 35 to 28 units, what is the price elasticity of demand? A. 0.78 B. 0.6 C. 0.12 D. 1.01

A

If two countries specialize in the good that they have a comparative advantage in and then trade, they can both be made better off. A. True. B. False.

A

Inelastic demand, prohibition A. Increases total expenditures on the banned product B. Decreases total expenditures on the banned product C. Does not change total expenditures on the product D. Decreases the cost of evading the prohibition

A

Legalizing marijuana and taxing it may be a good idea because it leads to a massive transfer of wealth from the black market dealers to the government. A. True. B. False.

A

Suppose McDonalds sells 500 burgers at the price of $3 per burger. If it increases its price to $7, the sales drop to 300. Calculate the new revenue and determine price elasticity of demand. A. Revenue = $2100; demand is inelastic B. Revenue = $2,100; demand is elastic C. Revenue = $1,500; demand is inelastic D. Revenue = $1,500; demand is elastic

A

Suppose the government imposes a tax on the sellers of a particular good. The more elastic the demand curve, the... A. less tax revenue will be generated. B. more tax revenue will be generated C. more willing consumers will be to pay for the good. D. tax will have no effect on consumers since it is imposed on sellers.

A

Tax burden generally falls on the group that is more... A. inelastic. B. elastic. C. unit elastic. D. The tax burden is always shared equally between buyers and sellers.

A

The passage of a law prohibiting the use of a drug leads to an increase in expenditure on that drug when A. The demand for the drug is perfectly inelastic. B. The demand for the drug is highly elastic. C. The demand curve is relatively flat. D. Both b) and c)

A

When demand for a good is inelastic, prohibition of that good will... A. Increase total expenditure of the prohibited good. B. Decrease total expenditure of the prohibited good. C. Not change the total expenditure on the good. D. Decreases the cost of evading the prohibition.

A

#2 If you want to generate the most government revenue, with the least deadweight loss, you should A. Tax goods with elastic demand B. Tax goods with inelastic demand C. Tax goods with elastic supply D. Increase taxes on all goods

B

#3 Suppose for a given good that the demand curve is perfectly inelastic, and the equilibrium price in the market is $A. If the government imposes a tax of $k on the suppliers, what is the new price? A. $A B. $A+$k C. $k D. $A-$k

B

Assume that the United States is better than Mexico, in an absolute sense, at producing everything. That is to say that the US will be worse off if she ever imports goods from Mexico. A. True. B. False.

B

If .95 is the cross-price elasticity of demand for good W with respect to good X, A. Good W is a complement to Good X. B. Good W is a substitute to Good X. C. Good W is a normal good. D. Good W is an inferior good.

B

If the cross-price elasticity of demand for good Y with respect to good Z is -1.9, the goods are A. substitutes. B. complements. C. normal goods. D. inferior goods.

B

If the price elasticity of a certain good is elastic, what would happen to the revenue earned from that good if its price decreases slightly? A. Revenue will decrease. B. Revenue will increase. C. Revenue will remain unchanged. D. Revenue will fall to 0.

B

It is generally true that the more substitutes a good has, .... A. the more inelastic the demand curve of that good. B. the more elastic the demand curve of that good. C. the demand curve of that good is unit elastic. D. it does not matter - availability of substitutes does not determine price elasticity of demand.

B

The passage of a law prohibiting the purchase of a drug is likely to be most effective at reducing the use of this drug when A. the supply for drug is elastic. B. the demand for the drug is elastic. C. the demand for the drug is inelastic. D. The cost of supplying the drug remains low.

B

What can be said about the relationship between elasticity and deadweight loss? A. More elasticity leads to less deadweight loss. B. More elasticity leads to more deadweight loss. C. More inelasticity leads to more deadweight loss. D. Elasticity and deadweight loss are not related.

B

Which of the following is an example of a good with inelastic demand? A. Ramen noodles B. Salt C. Luxury boats D. Land

B

Which of the following was NOT a result of higher prices for alcohol during prohibition? A. Total expenditure increased B. Quantity consumed dramatically decreased C. People prefered to consumer hard alcohol D. Revenue to criminals dramatically increased

B

A potential unintended consequence of prohibition is A. a decrease in the consumption of the good. B. a decrease in the supply of the good. C. an increase in expenditure on the good. D. none of above

C

If a 5% rise in price results in an 8% change in demand, the product is A. perfectly elastic. B. inelastic. C. elastic. D. perfectly inelastic.

C

Suppose when Eric earns a salary of $20,000, he buys 20 fast food meals per year. When Eric gets a raise and earns a salary of $30,000, he buys 10 fast food meals per year. Calculate the income elasticity of demand, and decide whether Eric considers fast food meals a normal or inferior good. A. -0.6; Eric considers fast food an inferior good. B. 0.6; Eric considers fast food a normal good. C. -1.67; Eric considers fast food an inferior good. D. -1.67; Eric considers fast food a normal good.

C

Suppose you are a government official tasked with placing a tax on a good to raise funds for public education. Which of the following would you most likely tax if you wished to maximize tax revenue? A. Private jets B. Fresh produce C. Cigarettes D. Train tickets

C

To compute elasticity A. calculate the change in quantity divided by the change in price. B. calculate the average change in quantity divided by the change in price C. calculate the percentage change in quantity divided by the percentage change in price. D. calculate the percentage change in price divided by the percentage change in quantity.

C

When determining who will bear the burden of a tax, the government must A. Know the demand of the good or service B. Understand the supply of the good C. Know the price elasticity of the demand and supply D. Know the income elasticity of demand

C

Making drugs illegal has a similar economic effect to ________ A. Making the good cheaper B. Increasing demand C. Increasing supply D. Taxing drugs

D

Making goods with inelastic demand illegal tends to have which of the following effects? A. Increases total expenditure on the good B. Increases the price of the good C. Transfers money to criminals D. All of the above

D

Suppose demand for gasoline is highly inelastic while supply is elastic. If the government imposes $0.50 tax (per gallon) on suppliers, which of the following is most likely to be an accurate burden on buyers and suppliers? A. $0.05 paid by buyers, $0.45 paid by suppliers B. $0.20 paid by buyers, $0.30 paid by suppliers C. $0.25 paid by buyers, $0.25 paid by suppliers D. $0.45 paid by buyers, $0.05 paid by suppliers

D

The deadweight loss of a tax represents... A. The tax revenue lost to criminals. B. The consumer surplus that is given to the government. C. The producer surplus that is given to the government. D. The producer and consumer surplus that is lost because of the tax.

D

Which of the following is a potential economic effect of prohibition of a good? A. Small reduction in quantity consumed. B. Large increase in price. C. Increase in income of the black market dealers. D. All of the above.

D

Which of the following is an example of a good with inelastic supply? A. Luxury boats B. Marijuana C. Alcohol D. Land

D

Which of the following statements regarding taxes is true? A. Taxes imposed on suppliers affect only the suppliers. B. Taxes imposed on a good with an inelastic demand will generate less tax revenue than a good with an elastic demand. C. Buyers of a taxed good are the only people affected by the tax. D. Placing a tax on the sellers of a good will have the same effect as imposing an equivalent tax on the buyers of a good.

D

Which of the following was NOT an effect of alcohol prohibition in the US? A. Small reduction in quantity consumed. B. Large increase in the price of alcohol. C. Large increase in household spending on alcohol. D. Large increase in imported wine consumption.

D

he deadweight loss of a tax represents... A. the tax revenue lost to criminals. B. the value of the tax. C. the producer and consumer surplus that is given to the government. D. the producer and consumer surplus that is lost because of the tax.

D

Which of the following is a potential economic effect of legalization of a good? A. Small increase in quantity consumed. B. Large reduction in price (without taxes). C. Increase in income of the black market dealers. D. All of the above. E. Only A & B.

E