ECO231: Exam 2

Flip Answer: d. binding price ceiling that creates a shortage.

Refer to Figure 6-4. A government-imposed price of $6 in this market is an example of a a. non-binding price ceiling that creates a shortage. b. binding price floor that creates a surplus. c. non-binding price floor that creates a surplus. d. binding price ceiling that creates a shortage.

Flip Answer: $800

Refer to Figure 7-6. At the equilibrium price, consumer surplus is $700. $800. $1,600. $1,400.

Flip Answer: $600.

Refer to Figure 7-6. If the government imposes a price floor of $110 in this market, then consumer surplus will decrease by $200. $800. $400. $600.

Flip Answer: supply curve B

Refer to Table 5-9. Which of the three supply curves represents the least elastic supply? supply curve B supply curve A supply curve C There is no difference in the elasticity of the three supply curves.

In a competitive market free of government regulation, a. price adjusts until quantity demanded equals quantity supplied. b. price adjusts until quantity demanded is less than quantity supplied. c. price adjusts until quantity demanded is greater than quantity supplied. d. supply adjusts to meet demand at every price.

a. price adjusts until quantity demanded equals quantity supplied.

A perfectly inelastic demand implies that buyers a. purchase the same amount as before when the price rises or falls. b. increase their purchases only slightly when the price falls. c. decrease their purchases when the price rises. d. respond substantially to an increase in price.

a. purchase the same amount as before when the price rises or falls.

Which of the following statements is valid when the market supply curve is vertical? a. An increase in market demand will not increase the equilibrium price. b. Market quantity supplied does not change when the price changes. c. An increase in market demand will increase the equilibrium quantity. d. Supply is perfectly elastic.

b. Market quantity supplied does not change when the price changes.

A price floor will be binding only if it is set a. either above or below the equilibrium price. b. above the equilibrium price. c. equal to the equilibrium price. d. below the equilibrium price.

b. above the equilibrium price.

Producer surplus measures the a. price that buyers are willing to pay for sellers' output of a good or service. b. benefits to sellers of participating in a market. c. costs to sellers of participating in a market. d. benefit to sellers of producing a greater quantity of a good or service than buyers demand.

b. benefits to sellers of participating in a market.

Demand is said to be unit elastic if quantity demanded a. changes by a smaller percent than the price. b. changes by the same percent as the price. c. does not respond to a change in price. d. changes by a larger percent than the price.

b. changes by the same percent as the price.

As we move downward and to the right along a linear, downward-sloping demand curve, a. both slope and elasticity remain constant. b. slope changes but elasticity remains constant. c. slope remains constant but elasticity changes. d. both slope and elasticity change.

c. slope remains constant but elasticity changes.

A key determinant of the price elasticity of supply is a. how responsive buyers are to changes in sellers' prices. b. the slope of the demand curve. c. the ability of sellers to change the amount of the good they produce. d. the ability of sellers to change the price of the good they produce.

c. the ability of sellers to change the amount of the good they produce.

For a horizontal demand curve, a. both the slope and price elasticity of demand are undefined. b. the slope is undefined, and the price elasticity of demand is equal to 0. c. the slope is equal to 0, and the price elasticity of demand is undefined. d. both the slope and price elasticity of demand are equal to 0.

c. the slope is equal to 0, and the price elasticity of demand is undefined.

For a vertical demand curve, a. both the slope and price elasticity of demand are undefined. b. both the slope and price elasticity of demand are equal to 0. c. the slope is undefined, and the price elasticity of demand is equal to 0. d. the slope is equal to 0, and the price elasticity of demand is undefined.

c. the slope is undefined, and the price elasticity of demand is equal to 0.

A key determinant of the price elasticity of supply is the a. income of consumers. b. price elasticity of demand. c. time horizon. d. importance of the good in a consumer's budget.

c. time horizon.

Jerome says that he will spend exactly $25 each month on new apps for his mobile device, regardless of the price of apps. Jerome's demand for apps is a. perfectly inelastic. b. somewhat inelastic, but not perfectly inelastic. c. unit elastic. d. perfectly elastic.

c. unit elastic.

Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called a. producer surplus. b. consumer surplus. c. willingness to pay. d. a resistance price.

c. willingness to pay.

For which pairs of goods is the cross-price elasticity most likely to be positive? Halloween candy and rain coats canoes and kayaks cats and cat food pizza and college textbooks

canoes and kayaks

The case of perfectly elastic demand is illustrated by a demand curve that is a. downward-sloping but relatively flat. b. vertical. c. downward-sloping but relatively steep. d. horizontal.

d. horizontal.

If the price elasticity of supply is 1.2, and price increased by 5%, quantity supplied would a. decrease by 6%. b. increase by 4.2%. c. decrease by 4.2%. d. increase by 6%.

d. increase by 6%.

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

d. inelastic.

Which of the following is likely to have the most price inelastic demand? a. optional textbooks b. tablet computers c. leather boots d. lightbulbs

d. lightbulbs

A $1.50 tax levied on the buyers of pomegranate juice will shift the demand curve downward by exactly $1.50. upward by exactly $1.50. upward by less than $1.50. downward by less than $1.50.

downward by exactly $1.50.

When a tax is imposed on the buyers of a good, the demand curve shifts upward by the amount of the tax. downward by the amount of the tax. downward by less than the amount of the tax. upward by less than the amount of the tax.

downward by the amount of the tax.

A tax imposed on the buyers of a good will lower the price paid by buyers and raise the equilibrium quantity. effective price received by sellers and raise the equilibrium quantity. price paid by buyers and lower the equilibrium quantity. effective price received by sellers and lower the equilibrium quantity.

effective price received by sellers and lower the equilibrium quantity.

When a tax is placed on the buyers of a product, buyers pay less and sellers receive less than they did before the tax. more and sellers receive less than they did before the tax. less and sellers receive more than they did before the tax. more and sellers receive more than they did before the tax.

more and sellers receive less than they did before the tax.

For which pairs of goods is the cross-price elasticity most likely to be negative? pens and pencils peanut butter and jelly iPods and iPads celery and coffee

peanut butter and jelly

A tax imposed on the buyers of a good will raise the effective price received by sellers and raise the equilibrium quantity. price paid by buyers and raise the equilibrium quantity. price paid by buyers and lower the equilibrium quantity. effective price received by sellers and lower the equilibrium quantity.

price paid by buyers and lower the equilibrium quantity.

Which of the following could be the price elasticity of demand for a good for which an increase in price would decrease revenue? 0.9 0.6 1 2.6

2.6

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue? 0.4 1 4 0

4

Kristi and Rebecca sell lemonade on the corner for $0.50 per cup. It costs them $0.10 to make each cup. On a certain day, their producer surplus is $20. How many cups did Kristi and Rebecca sell? 200. 8. 40. 50.

50

Flip Answer: b. $125.

Figure 7-2 If the price of the good is $100, then consumer surplus amounts to a. $75. b. $125. c. $100. d. $50.

Flip Answer: A+B+C.

Figure 7-3 When the price is P1, consumer surplus is A+B+C. A+B+D. A. A+B.

Flip Answer: a shortage of 8 units.

Refer to Figure 6-4. A government-imposed price ceiling of $6 in this market results in a shortage of 8 units. a shortage of 4 units. 14 units sold. 10 units sold.

Flip Answer: a surplus of 4 units.

Refer to Figure 6-4. A government-imposed price floor of $12 in this market results in a surplus of 4 units. a surplus of 2 units. 10 units sold. 12 units sold.

Flip Answer: a. binding price floor that creates a surplus.

Refer to Figure 6-4. A government-imposed price of $12 in this market is an example of a a. binding price floor that creates a surplus. b. binding price ceiling that creates a shortage. c. non-binding price floor that creates a surplus. d. non-binding price ceiling that creates a shortage.

Flip Answer: (ii) and (iii) only

Refer to Figure 6-4. A government-imposed price of $16 in this market could be an example of a (i)binding price ceiling. (ii)non-binding price ceiling. (iii)binding price floor. (iv)non-binding price floor. Which is correct? (ii) only (ii) and (iii) only (i) and (iv) only (i) only

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

0.75, and supply is inelastic.

Which of the following could be the price elasticity of demand for a good for which a decrease in price would decrease revenue? 1.8 1 2.4 0.8

0.8

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

1.33, and supply is elastic.

Caroline sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.95 per knife for as many knives as Caroline is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $2.00, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.50. Assume Caroline is rational in deciding how many knives to sharpen. Her producer surplus is $1.30. $0.95. $1.85. $1.15.

$1.85

A binding price floor (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. Which is correct? (i) only (iii) only (ii) and (iv) only (i) and (iii) only

(i) and (iii) only

A non binding price floor (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. Which is correct? (i) and (iii) only (ii) and (iv) only (iv) only (iii) only

(iv) only

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue? 1.8 1 0.3 None of the above could be correct.

0.3

Flip Answer: a. consumer surplus to new consumers who enter the market when the price falls from P2 to P1.

Figure 7-3. Area C represents the a. consumer surplus to new consumers who enter the market when the price falls from P2 to P1. b. decrease in consumer surplus to each consumer in the market when the price increases from P1 to P2. c. decrease in consumer surplus that results from a downward-sloping demand curve. d. increase in producer surplus when quantity sold increases from Q2 to Q1.

Flip Answer: A

Figure 7-3. When the price is P2, consumer surplus is A. A+B. B. A+B+C.

Flip Answer:d. decreases by an amount equal to B+C.

Figure 7-3. When the price rises from P1 to P2, consumer surplus a. increases by an amount equal to B+C. b. decreases by an amount equal to C. c. increases by an amount equal to A. d. decreases by an amount equal to B+C.

Flip Answer: d. Buyers place a higher value on the good after the price increase.

Figure 7-3. When the price rises from P1 to P2, which of the following statements is not true? a. Consumer surplus in the market falls. b. The buyers who still buy the good are worse off because they now pay more. c. Some buyers leave the market because they are not willing to buy the good at the higher price. d. Buyers place a higher value on the good after the price increase.

Flip Answer: b. $185.

If the price of the good is $80, then consumer surplus amounts to a. $110. b. $185. c. $135. d. $160.

Flip Answer: 1.25

Refer to Figure 5-16. Using the midpoint method, what is the price elasticity of supply between $4 and $6? 1.25 1.00 1.20 0.75

Flip Answer: 1.17

Refer to Figure 5-16. Using the midpoint method, what is the price elasticity of supply between $6 and $8? 1.00 0.86 1.25 1.17

Flip Answer: D1

Refer to Figure 5-2. As price falls from Pa to Pb, which demand curve represents the most elastic demand? D1 D3 D2 All of the above are equally elastic.

Flip Answer: D3

Refer to Figure 5-2. As price falls from Pa to Pb, we could use the three demand curves to calculate three different values of the price elasticity of demand. Which of the three demand curves would produce the smallest elasticity? D1 D2 D3 All of the above are equally elastic.

Flip Answer: The tax is levied on buyers of the good, rather than on sellers.

Refer to Figure 6-24. Which of the following statements is correct? The tax leaves the size of the market unchanged. All of the above are correct. The amount of the tax per unit is $6. The tax is levied on buyers of the good, rather than on sellers.

Flip Answer: $24

Refer to Figure 6-24. Andrew is a buyer of the good. Taking the tax into account, how much does Andrew effectively pay to acquire one unit of the good? $18 $26 $16 $24

Flip Answer: d. $1,680 in tax revenue; of this amount, $1,260 represents a burden on buyers and $420 represents a burden on sellers.

Refer to Figure 6-24. In the after-tax equilibrium, government collects a. $1,440 in tax revenue; of this amount, $960 represents a burden on buyers and $480 represents a burden on sellers. b. $1,440 in tax revenue; of this amount, $720 represents a burden on buyers and $720 represents a burden on sellers. c. $1,680 in tax revenue; of this amount, $840 represents a burden on buyers and $840 represents a burden on sellers. d. $1,680 in tax revenue; of this amount, $1,260 represents a burden on buyers and $420 represents a burden on sellers.

Flip Answer: All of the above are correct.

Refer to Figure 6-24. Suppose sellers, rather than buyers, were required to pay this tax (in the same amount per unit as shown in the graph). Relative to the tax on buyers, the tax on sellers would result in the same amount of tax revenue for the government. sellers bearing the same share of the tax burden. All of the above are correct. buyers bearing the same share of the tax burden.

Flip Answer: $6.

Refer to Figure 6-24. The per-unit burden of the tax on buyers of the good is $8. $6. $2. $4.

Flip Answer: $24

Refer to Figure 6-24. The price paid by buyers after the tax is imposed is $24. $21. $18. $16.

Flip Answer:$8

Refer to Figure 6-24. What is the amount of the tax per unit? $2 $8 $4 $6

Flip Answer: (ii) and (iii) only

Refer to Figure 6-4. A government-imposed price of $6 in this market could be an example of a (i)binding price ceiling. (ii)non-binding price ceiling. (iii)binding price floor. (iv)non-binding price floor. Which is correct? (i) only (ii) and (iii) only (ii) only (i) and (iv) only

Flip Answer: When the price is $6, there is a surplus of 8 units.

Refer to Figure 6-4. Which of the following statements is not correct? When the price is $16, quantity supplied exceeds quantity demanded by 12 units. When the price is $12, there is a surplus of 4 units. When the price is $10, quantity supplied equals quantity demanded. When the price is $6, there is a surplus of 8 units.

Flip Answer: b. Megan's consumer surplus is $1.70 and total consumer surplus for the five individuals is $9.80.

Table 7-2 This table refers to five possible buyers' willingness to pay for a case of Vanilla Coke. If the market price is $3.80, a. David, Laura, and Megan will be the only buyers of Vanilla Coke. b. Megan's consumer surplus is $1.70 and total consumer surplus for the five individuals is $9.80. c. David's consumer surplus is $4.70 and total consumer surplus for the five individuals is $9.50. d. the demand curve for Vanilla Coke, taking the five individuals into account, is horizontal.

Flip Answer: c. $4.50.

Table 7-2 This table refers to five possible buyers' willingness to pay for a case of Vanilla Coke. If the market price is $5.50, the consumer surplus in the market will be a. $3.00. b. $21.00. c. $4.50. d. $15.50.

Flip Answer: b. David and Laura

Table 7-2 This table refers to five possible buyers' willingness to pay for a case of Vanilla Coke. If the price of Vanilla Coke is $6.90, who will purchase the good? a. all five individuals b. David and Laura c. Megan, Mallory and Audrey d. David, Laura and Megan

Flip Answer: d. All of the above are correct.

Table 7-2 This table refers to five possible buyers' willingness to pay for a case of Vanilla Coke. Which of the following is not true? a. At a price of $4.00, total consumer surplus in the market will be $9.00. b. At a price of $5.50, Megan is indifferent between buying a case of Vanilla Coke and not buying one. c. At a price of $9.00, no buyer is willing to purchase Vanilla Coke. d. All of the above are correct.

In which of these instances is demand said to be perfectly inelastic? a. A decrease in price of 2% causes an increase in quantity demanded of 0%. b. A decrease in price of 2% causes a decrease in total revenue of 0%. c. An increase in price of 2% causes a decrease in quantity demanded of 2%. d. An increase in price of 2% causes a decrease in quantity demanded of 1/2%.

a. A decrease in price of 2% causes an increase in quantity demanded of 0%.

Cost is a measure of the a. seller's producer surplus. b. producer shortage. c. seller's willingness to sell. d. seller's willingness to buy.

c. seller's willingness to sell.

Consumer surplus is equal to the a. Value to buyers - Amount paid by buyers. b. Value to buyers - Willingness to pay of buyers. c. Value to buyers - Costs of sellers. d. Amount paid by buyers - Costs of sellers.

a. Value to buyers - Amount paid by buyers.

Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result, a. a shortage of treadmills will develop. b. the supply of treadmills will decrease. c. the demand for treadmills will increase. d. All of the above are correct.

a. a shortage of treadmills will develop.

A perfectly elastic demand implies that a. any rise in price above that represented by the demand curve will result in a quantity demanded of zero. b. price will rise by an infinite amount when there is a change in quantity demanded. c. quantity demanded and price change by the same percent as we move along the demand curve. d. buyers will not respond to any change in price.

a. any rise in price above that represented by the demand curve will result in a quantity demanded of zero.

Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frame levied on picture frames will increase the price paid by buyers of picture frames by a. between $0.50 and $1. b. less than $0.50. c. $1. d. $0.50.

a. between $0.50 and $1.

Suppose that the demand for digital cameras is elastic, and the supply of digital cameras is inelastic. A tax of $20 per camera levied on digital cameras will decrease the effective price received by sellers of digital cameras by a. between $10 and $20. b. less than $10. c. $10. d. $20.

a. between $10 and $20.

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly a. elastic, and the demand curve will be horizontal. b. elastic, and the demand curve will be vertical. c. inelastic, and the demand curve will be horizontal. d. inelastic, and the demand curve will be vertical.

a. elastic, and the demand curve will be horizontal.

When quantity demanded responds strongly to changes in price, demand is said to be a. elastic. b. dynamic. c. highly variable. d. fluid.

a. elastic.

A key determinant of the price elasticity of supply is the a. length of the time period. b. extent to which buyers alter their quantities demanded in response to changes in prices. c. extent to which buyers alter their quantities demanded in response to changes in their incomes. d. number of close substitutes for the good in question.

a. length of the time period.

The price elasticity of demand changes as we move along a a. linear, downward-sloping demand curve. b. horizontal demand curve. c. vertical demand curve. d. All of the above are correct.

a. linear, downward-sloping demand curve.

Goods with many close substitutes tend to have a. more elastic demands. b. price elasticities of demand that are unit elastic. c. income elasticities of demand that are negative. d. less elastic demands.

a. more elastic demands.

Which of the following is likely to have the most price elastic demand? a. music downloads b. toothpaste c. fruit d. scissors

a. music downloads

A supply curve can be used to measure producer surplus because it reflects a. the actions of sellers. b. quantity supplied. c. sellers' costs. d. the amount that will be purchased by consumers in the market.

c. sellers' costs.

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, the a. quantity demanded of physicals increases, and the quantity supplied of physicals decreases. b. supply curve for physicals shifts to the left. c. demand curve for physicals shifts to the right. d. number of physicals performed stays the same.

a. quantity demanded of physicals increases, and the quantity supplied of physicals decreases.

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should a. raise the price of the cinnamon rolls. b. leave the price of the cinnamon rolls unchanged. c. lower the price of the cinnamon rolls. d. reduce costs.

a. raise the price of the cinnamon rolls.

Which of the following is likely to have the most price inelastic demand? hardback novels a. salt b. white chocolate chip with macadamia nut c. cookies d. box seats at a major league baseball game

a. salt

If the quantity supplied responds only slightly to changes in price, then a. supply is said to be inelastic. b. an increase in price will not shift the supply curve very much. c. even a large decrease in demand will change the equilibrium price only slightly. d. supply is said to be elastic.

a. supply is said to be inelastic.

Consumer surplus is a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. b. a buyer's willingness to pay for a good plus the price of the good. c. the amount a buyer is willing to pay for a good minus the cost of producing the good. d. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good.

a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

Demand is said to be inelastic if a. the quantity demanded changes only slightly when the price of the good changes. b. the price of the good responds only slightly to changes in demand. c. buyers respond substantially to changes in the price of the good. d. demand shifts only slightly when the price of the good changes.

a. the quantity demanded changes only slightly when the price of the good changes.

The price elasticity of supply measures how much a. the quantity supplied responds to changes in the price of the good. b. the quantity supplied responds to changes in input prices. c. the price of the good responds to changes in supply. d. sellers respond to changes in technology.

a. the quantity supplied responds to changes in the price of the good.

A seller's opportunity cost measures the a. value of everything she must give up to produce a good. b. consumer surplus. c. out of pocket expenses to produce a good but not the value of her time. d. amount she is paid for a good minus her cost of providing it.

a. value of everything she must give up to produce a good.

When demand is perfectly inelastic, the demand curve will be a. vertical, because buyers purchase the same amount as before whenever the price rises or falls. b. positively sloped, because buyers increase their total expenditures when price rises. c. negatively sloped, because buyers decrease their purchases when the price rises. d. positively sloped, because buyers increase their purchases when price rises.

a. vertical, because buyers purchase the same amount as before whenever the price rises or falls.

Which of the following statements is correct? a. The demand for grandfather clocks is more elastic than the demand for clocks in general. b. All of the above are correct. c . The demand for cardboard is more elastic over a long period of time than over a short period of time. d. The demand for flat-screen computer monitors is more elastic than the demand for monitors in general.

b. All of the above are correct.

There are very few, if any, good substitutes for motor oil. Therefore, the a. demand for motor oil would tend to be elastic. b. demand for motor oil would tend to be inelastic. c. demand for motor oil would tend to respond strongly to changes in prices of other goods. d. supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars.

b. demand for motor oil would tend to be inelastic.

Demand is said to have unit elasticity if the price elasticity of demand is a. equal to 0. b. equal to 1. c. less than 1. d. greater than 1.

b. equal to 1.

A consumer's willingness to pay directly measures a. the cost of a good to the buyer. b. how much a buyer values a good. c. consumer surplus. d. the extent to which advertising and other external forces have influenced the consumer's preferences.

b. how much a buyer values a good.

When demand is perfectly inelastic, the price elasticity of demand a. is zero, and the demand curve is horizontal. b. is zero, and the demand curve is vertical. c. approaches infinity, and the demand curve is horizontal. d. approaches infinity, and the demand curve is vertical.

b. is zero, and the demand curve is vertical.

Most labor economists believe that the supply of labor is a. more elastic than the demand, and, therefore, firms bear most of the burden of the payroll tax. b. less elastic than the demand, and, therefore, workers bear most of the burden of the payroll tax. c. more elastic than the demand, and, therefore, workers bear most of the burden of the payroll tax. d. less elastic than the demand, and, therefore, firms bear most of the burden of the payroll tax.

b. less elastic than the demand, and, therefore, workers bear most of the burden of the payroll tax.

Whether a good is a luxury or necessity depends on the a. scarcity of the good. b. preferences of the buyer. c. price of the good. d. intrinsic properties of the good.

b. preferences of the buyer.

When a supply curve is relatively flat, a. supply is relatively inelastic. b. supply is relatively elastic. c. Both a and b are correct. d. sellers are not very responsive to changes in price.

b. supply is relatively elastic.

Producer surplus is a. measured using the demand curve for a good. b. the amount a seller is paid minus the cost of production. c. the opportunity cost of production minus the cost of producing goods that go unsold. d. always a negative number for sellers in a competitive market.

b. the amount a seller is paid minus the cost of production.

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

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

Which of the following is likely to have the most price inelastic demand? a. white chocolate chip with macadamia nut cookies b. Mrs. Field's chocolate chip cookies c. cookies d. milk chocolate chip cookies

c. cookies

Marcus says that he would smoke one pack of cigarettes each day regardless of the price. If he is telling the truth, Marcus's a. income elasticity of demand for cigarettes is 0. b. price elasticity of demand for cigarettes is infinite. c. demand for cigarettes is perfectly inelastic. d. More than one of the above is correct.

c. demand for cigarettes is perfectly inelastic.

The mayor of Workerville proposes a local payroll tax to fund a new water park for the city. The mayor proposes to collect half the tax from workers and half the tax from firms. The mayor will be able to successfully divide the burden of the tax equally if the a. It is not possible for the tax burden to fall equally on firms and workers. b. demand for labor is more elastic than the supply of labor. c. demand for labor and supply of labor are equally elastic. d. supply of labor is more elastic than the demand for labor.

c. demand for labor and supply of labor are equally elastic.

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

c. depends on the elasticities of supply and demand.

Holding all other factors constant and using the midpoint method, if a tractor manufacturer increases production from 80 to 100 units when price increases by 15 percent, then supply is a. inelastic, since the price elasticity of supply is equal to 1.48. b. inelastic, since the price elasticity of supply is equal to 0.68. c. elastic, since the price elasticity of supply is equal to 1.48. d. elastic, since the price elasticity of supply is equal to 0.68.

c. elastic, since the price elasticity of supply is equal to 1.48.

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is a. highly responsive to changes in income. b. unit elastic. . d. elastic.

c. inelastic

For which of the following goods is the price elasticity of demand most inelastic? a. large pizza b. large pepperoni pizza c. pizza d. Domino's large pepperoni pizza

c. pizza

In the case of perfectly inelastic demand, a. infinitely-large changes in quantity demanded result from very small changes in the price. b. the change in quantity demanded equals the change in price. c. quantity demanded stays the same whenever price changes. d. the percentage change in quantity demanded equals the percentage change in price.

c. quantity demanded stays the same whenever price changes.

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is a. 0.67, and an increase in price will result in a decrease in total revenue for good A. b. 1.50, and an increase in price will result in a decrease in total revenue for good A. c. 1.50, and an increase in price will result in an increase in total revenue for good A. d. 0.67, and an increase in price will result in an increase in total revenue for good A.

d. 0.67, and an increase in price will result in an increase in total revenue for good A.

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about a. 1.43, and an increase in the price will cause hotels' total revenue to increase. b. 0.70, and an increase in the price will cause hotels' total revenue to decrease. c. 0.70, and an increase in the price will cause hotels' total revenue to increase. d. 1.43, and an increase in the price will cause hotels' total revenue to decrease.

d. 1.43, and an increase in the price will cause hotels' total revenue to decrease.

A price floor is a. a legal minimum on the price at which a good can be sold. b. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor. c. a source of inefficiency in a market. d. All of the above are correct.

d. All of the above are correct.

A seller's willingness to sell is a. related to her supply curve, just as a buyer's willingness to buy is related to his demand curve. b. measured by the seller's cost of production. c. less than the price received if producer surplus is a positive number. d. All of the above are correct.

d. All of the above are correct.

If a binding price ceiling is imposed on the baby formula market, then a. the quantity of baby formula demanded will increase. b. the quantity of baby formula supplied will decrease. c. a shortage of baby formula will develop. d. All of the above are correct.

d. All of the above are correct.

In which of the following circumstances would a buyer be indifferent about buying a good? a. The price of the good is equal to the value the buyer places on the good. b. The price of the good is equal to the buyer's willingness to pay for the good. c. The amount of consumer surplus the buyer would experience as a result of buying the good is zero. d. All of the above are correct.

d. All of the above are correct.

The demand for Godiva mint chocolates is likely quite elastic because a. the market is narrowly defined. b. this particular type of chocolate is viewed as a luxury by many chocolate lovers. c. there are many close substitutes. d. All of the above are correct.

d. All of the above are correct.

Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When the price of ginger ale is $3 per bottle, firms can sell 2 million bottles. Which of the following statements is true? a. The demand for ginger ale is income inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers. b. The demand for ginger ale is price inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers. c. The demand for ginger ale is income elastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers. d. The demand for ginger ale is price elastic, so an increase in the price of ginger ale will decrease the total revenue of ginger ale producers.

d. The demand for ginger ale is price elastic, so an increase in the price of ginger ale will decrease the total revenue of ginger ale producers.

A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact? a. Supply curves are steeper over long periods of time than over short periods of time. b. Firms prefer to change their prices in the short run rather than in the long run. c. Buyers of goods tend to be more responsive to price changes over long periods of time than over short periods of time. d. The number of firms in a market tends to be more variable over long periods of time than over short periods of time.

d. The number of firms in a market tends to be more variable over long periods of time than over short periods of time.

A linear, upward-sloping supply curve has a. both a changing slope and a changing price elasticity of supply. b. a changing slope and a constant price elasticity of supply. c. both a constant slope and a constant price elasticity of supply. d. a constant slope and a changing price elasticity of supply.

d. a constant slope and a changing price elasticity of supply.

When we move upward and to the left along a linear, downward-sloping demand curve, price elasticity of demand a. first becomes larger, then smaller. b. always becomes smaller. c. first becomes smaller, then larger. d. always becomes larger.

d. always becomes larger.

Suppose that the demand for light bulbs is inelastic, and the supply of light bulbs is elastic. A tax of $2 per bulb levied on light bulbs will increase the price paid by buyers of light bulbs by a. less than $1. b. $1. c. $2. d. between $1 and $2.

d. between $1 and $2.

When a buyer's willingness to pay for a good is equal to the price of the good, the a. buyer's consumer surplus for that good is maximized. b. buyer will buy as much of the good as the buyer's budget allows. c. price of the good exceeds the value that the buyer places on the good. d. buyer is indifferent between buying the good and not buying it.

d. buyer is indifferent between buying the good and not buying it.

Justin builds fences for a living. Justin's out-of-pocket expenses (for wood, paint, etc.) plus the value that he places on his own time amount to his a. profit. b. producer deficit. c. producer surplus. d. cost of building fences.

d. cost of building fences.

If the government removes a binding price floor 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 decrease. d. decrease, and the quantity sold in the market will increase.

d. decrease, and the quantity sold in the market will increase.

Suppose that when the price of wheat is $2 per bushel, farmers can sell 10 million bushels. When the price of wheat is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? The demand for wheat is a. price elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. b. income inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. c. income elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. d. price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers

d. price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers

A seller is willing to sell a product only if the seller receives a price that is at least as great as the a. seller's producer surplus. b. average willingness to pay of buyers of the product. c. seller's profit. d. seller's cost of production.

d. seller's cost of production.

The price elasticity of supply measures how responsive a. equilibrium price is to equilibrium quantity. b. sellers are to a change in buyers' income. c. consumers are to the number of substitutes. d. sellers are to a change in price.

d. sellers are to a change in price.

The smaller the price elasticity of demand, the a. more likely the product is a luxury. b. more substitutes the product has. c. greater the responsiveness of quantity demanded to a change in price. d. smaller the responsiveness of quantity demanded to a change in price.

d. smaller the responsiveness of quantity demanded to a change in price.

Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result, a. the equilibrium quantity decreases, and the equilibrium price is unchanged. b. the equilibrium quantity and the equilibrium price both are unchanged. c. buyers' total expenditure on the good is unchanged. d. the equilibrium price increases, and the equilibrium quantity is unchanged.

d. the equilibrium price increases, and the equilibrium quantity is unchanged.

Suppose that gasoline prices increase dramatically this month. Lola commutes 100 miles to work each weekday. Over the next few months, Lola drives less on the weekends to try to save money. Within the year, she sells her home and purchases one only 10 miles from her place of employment. These examples illustrate the importance of a. the definition of a market in determining the price elasticity of demand. b. the availability of substitutes in determining the price elasticity of demand. c. a necessity versus a luxury in determining the price elasticity of demand. d. the time horizon in determining the price elasticity of demand.

d. the time horizon in determining the price elasticity of demand.

Which of the following is likely to have the most price inelastic demand? a. Colgate mint-flavored toothpaste b. mint-flavored toothpaste c. a generic mint-flavored toothpaste d. toothpaste

d. toothpaste

A tax on the buyers of cereal will increase the price of cereal paid by buyers, decrease the effective price of cereal received by sellers, and decrease the equilibrium quantity of cereal. increase the effective price of cereal received by sellers, and increase the equilibrium quantity of cereal. decrease the effective price of cereal received by sellers, and increase the equilibrium quantity of cereal. increase the effective price of cereal received by sellers, and decrease the equilibrium quantity of cereal.

decrease the effective price of cereal received by sellers, and decrease the equilibrium quantity of cereal.

A tax on the buyers of sofas increases the size of the sofa market. has no effect on the size of the sofa market. may increase, decrease, or have no effect on the size of the sofa market. decreases the size of the sofa market.

decreases the size of the sofa market.

A tax on buyers will shift the demand curve downward by the amount of the tax. supply curve downward by the amount of the tax. supply curve upward by the amount of the tax. demand curve upward by the amount of the tax.

demand curve downward by the amount of the tax.

A $5 tax levied on the buyers of pants will cause the demand curve for pants to shift down by $5. supply curve for pants to shift down by $5. supply curve for pants to shift up by $5. demand curve for pants to shift up by $5.

demand curve for pants to shift down by $5.

If the government levies a $5 tax per ticket on buyers of NFL game tickets, then the price paid by buyers of NFL game tickets would increase by exactly $5. increase by less than $5. decrease by an indeterminate amount. increase by more than $5.

increase by less than $5.

A tax imposed on the buyers of a good will lower the price buyers pay and raise the effective price sellers receive. raise both the price buyers pay and the effective price sellers receive. raise the price buyers pay and lower the effective price sellers receive. lower both the price buyers pay and the effective price sellers receive.

raise the price buyers pay and lower the effective price sellers receive.

For which of the following goods is the income elasticity of demand likely highest? clothing allergy medication cell phone contracts tennis lessons

tennis lessons