Econ 1 Test 2 Chapters 5-6, 7-8, 13
True/False Indicate whether the sentence or statement is true or false. 28. If the price of calculators increases by 15 percent and the quantity demanded per week falls by 45 percent as a result, then the price elasticity of demand is 3.
T
True/False Indicate whether the sentence or statement is true or false. 33. The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in income.
T
True/False Indicate whether the sentence or statement is true or false. 35. Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.
T
True/False Indicate whether the sentence or statement is true or false. 38. If a supply curve is horizontal then supply is said to be perfectly elastic and the price elasticity of supply approaches infinity.
T
True/False Indicate whether the sentence or statement is true or false. 39. OPEC failed to maintain a high price of oil in the long run, partly because both the supply of oil and the demand for oil are more elastic in the long run than in the short run.
T
True/False Indicate whether the sentence or statement is true or false. The demand for Rice Krispies is more elastic than the demand for cereal in general.
T
Refer to Figure 6-14. The effective price that sellers receive after the tax is imposed is a. $24. b. $14. c. $10. d. $8.
c
Refer to Figure 7-5. If the price of the good is $14, then producer surplus is a. $17. b. $22. c. $25. d. $28.
c
Refer to Figure 7-9. At the equilibrium price, total surplus is a. $480. b. $640. c. $1,120. d. $1,280.
c
The burden of a luxury tax falls a. more on the rich than on the middle class. b. more on the poor than on the middle class. c. more on the middle class than on the rich. d. equally on the rich, the middle class, and the poor.
c
True/False Indicate whether the sentence or statement is true or false. If a tax is imposed on the buyers of a product, the tax burden will fall entirely on the buyers.
f
True/False Indicate whether the sentence or statement is true or false. The incidence of a tax depends on whether the tax is levied on buyers or sellers.
f
True/False Indicate whether the sentence or statement is true or false. 24. Necessities tend to have inelastic demands, whereas luxuries have elastic demands.
T
True/False Indicate whether the sentence or statement is true or false. 25. Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.
T
True/False Indicate whether the sentence or statement is true or false. 30. If demand is perfectly inelastic, the demand curve is vertical, and elasticity is equal to 0.
T
A production function is a relationship between a. inputs and quantity of output. b. inputs and revenue. c. inputs and costs. d. inputs and profit.
a
Deadweight loss measures the a. loss in a market to buyers and sellers that is not offset by an increase in government revenue. b. loss in revenue to the government when buyers choose to buy less of the product because of the tax. c. loss of equity in a market due to government intervention. d. loss of total revenue to business firms due to the price wedge caused by the tax.
a
For Firm A, when four units of output are produced, the total cost is $175 and the average variable cost is $33.75. What would the average fixed cost be if ten units were produced? a. $4 b. $10 c. $40 d. $135
a
For the purpose of analyzing the gains and losses from a tax on a good, we use tax revenue as a direct measure of a. government's benefit from the tax. b. government's loss from the tax. c. the deadweight loss of the tax. d. the overall net gain to society of the tax.
a
Refer to Figure 13-1. As the number of workers increases, a. total output increases, but at a decreasing rate. b. marginal product increases, but at a decreasing rate. c. marginal product increases at an increasing rate. d. total output decreases.
a
Refer to Figure 13-2. Which of the following statements best captures the nature of the underlying production function? a. Output increases at a decreasing rate with additional units of input. b. Output increases at an increasing rate with additional units of input. c. Output decreases at a decreasing rate with additional units of input. d. Output decreases at an increasing rate with additional units of input.
a
Refer to Figure 13-2. Which of the statements below is most consistent with the shape of the total cost curve? a. Producing an additional cookie is always more costly than producing the previous cookie. b. Total production of cookies decreases with additional units of input. c. Producing additional cookies is equally costly, regardless of how many cookies are already being produced. d. Producing additional cookies becomes increasingly costly only when the number of cookies already being produced is large.
a
Refer to Figure 8-7. The tax causes producer surplus to decrease by the area a. D + F. b. D + F + G. c. D + F + J. d. D + F + G + H.
a
The length of the short run a. is different for different types of firms. b. can never exceed 3 years. c. can never exceed 1 year. d. is always less than 6 months.
a
Total cost can be divided into two types of costs. Those two types are a. fixed costs and variable costs. b. fixed costs and marginal costs. c. variable costs and marginal costs. d. average costs and marginal costs.
a
XYZ corporation produced 300 units of output but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. Each of the 275 units sold was sold for a price of $95. Total profit for the XYZ corporation would be a. -$3,875. b. $26,125. c. $28,500. d. $30,000.
a
A deadweight loss is a consequence of a tax on a good because the tax a. induces the government to increase its expenditures. b. induces buyers to consume less, and sellers to produce less, of the good. c. causes a disequilibrium in the market. d. imposes a loss on buyers that is greater than the loss to sellers.
b
A total-cost curve shows the relationship between the a. quantity of an input used and the total cost of production. b. quantity of output produced and the total cost of production. c. total cost of production and profit. d. total cost of production and total revenue.
b
Constant returns to scale occur when a. long-run total costs are constant as output increases. b. long-run average total costs are constant as output increases. c. the firm's long-run average cost curve is falling as output increases. d. the firm's long-run average cost curve is rising as output increases.
b
If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would a. slope downward. b. be horizontal. c. slope upward. d. slope downward for low output levels and upward for high output levels.
b
Refer to Figure 8-7. If the government imposes a price ceiling of $8 on this market. The resulting deadweight loss would be a. the area C + F. b. greater than the area C + F. c. smaller than the area C + F. d. zero.
b
Refer to Figure 8-7. The government collects tax revenue that is represented by the area a. L. b. B + D. c. C + F. d. F + G + L.
b
Refer to Figure 8-7. The tax causes consumer surplus to decrease by the area a. A. b. B + C. c. A + B + C. d. A + B + C+ D + F.
b
Refer to Scenario 13-5. In producing the 7,000 staplers, the firm's average variable cost was a. $2. b. $4. c. $6. d. $8.
b
Refer to Table 13-3. Each worker at Gallo's cork factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of corks produced. Assume the number of machines does not change. If Gallo's produces at a rate of 78 corks per hour, what is the total machine cost per day? a. $20 b. $40 c. $72 d. $320
b
Refer to Table 13-3. Each worker at Gallo's cork factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of corks produced. If Gallo's produces at a rate of 35 corks per hour, what is the total labor cost per hour? a. $40 b. $48 c. $384 d. $424
b
Suppose that the equilibrium price in the market for widgets is $5. If a law reduced the maximum legal price for widgets to $4, a. any possible increase in consumer surplus would be larger than the loss of producer surplus. b. any possible increase in consumer surplus would be smaller than the loss of producer surplus. c. the resulting increase in producer surplus would be larger than any possible loss of consumer surplus. d. the resulting increase in producer surplus would be smaller than any possible loss of consumer surplus.
b
The amount by which total cost rises when the firm produces one additional unit of output is called a. average cost. b. marginal cost. c. fixed cost. d. variable cost.
b
The marginal product of labor can be defined as a. change in profit/change in labor. b. change in output/change in labor. c. change in labor/change in output. d. change in labor/change in total cost.
b
The minimum points of the average variable cost and average total cost curves occur where a. the marginal cost curve lies below the average variable cost and average total cost curves. b. the marginal cost curve intersects those curves. c. the average variable cost and average total cost curves intersect. d. the slope of total cost is the smallest.
b
When marginal cost exceeds average total cost, a. average fixed cost must be rising. b. average total cost must be rising. c. average total cost must be falling. d. marginal cost must be falling.
b
Average total cost equals a. change in total costs divided by quantity produced. b. change in total costs divided by change in quantity produced. c. (fixed costs + variable costs) divided by quantity produced. d. (fixed costs + variable costs) divided by change in quantity produced.
c
If marginal cost is rising, a. average variable cost must be falling. b. average fixed cost must be rising. c. marginal product must be falling. d. marginal product must be rising.
c
John has decided to start his own lawn-mowing business. To purchase the mowers and the trailer to transport the mowers, John withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is John's annual opportunity cost of the financial capital that has been invested in the business? a. $30.00 b. $140.00 c. $170.00 d. $3,000.00
c
Marginal cost equals a. total cost divided by quantity of output produced. b. total output divided by the change in total cost. c. the slope of the total cost curve. d. the slope of the line drawn from the origin to the total cost curve.
c
Refer to Figure 13-3. Which of the following could explain why the total product curve shifted in this diagram? a. A reduction in capital equipment available to the firm. b. Labor skills have become rusty and outdated in the firm. c. The firm has developed new technology in its production facility. d. The firm is now receiving a higher price for its product.
c
Some costs do not vary with the quantity of output produced. Those costs are called a. marginal costs. b. average costs. c. fixed costs. d. incurred costs.
c
Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand now include the cost of a. building the lemonade stand. b. hiring an artist to design a logo for her sign. c. lemonade mix. d. All of the above are correct.
c
Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by $3,000 and it decreases producer surplus by $4,400. The deadweight loss of the tax is a. $200. b. $400. c. $600. d. $1,200.
c
Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus a. would necessarily increase even if the higher price resulted in a surplus of widgets. b. would necessarily decrease because the higher price would create a surplus of widgets. c. might increase or decrease. d. would be unaffected.
c
To fully understand how taxes affect economic well-being, we must a. assume that economic well-being is not affected if all tax revenue is spent on goods and services for the people who are being taxed. b. know the dollar amount of all taxes raised in the country each year. c. compare the reduced welfare of buyers and sellers to the amount of revenue the government raises. d. take into account the fact that almost all taxes reduce the welfare of buyers, increase the welfare of sellers, and raise revenue for the government.
c
When marginal cost is less than average total cost, a. marginal cost must be falling. b. average variable cost must be falling. c. average total cost is falling. d. average total cost is rising.
c
Which of the following is an implicit cost? (i) the owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm (ii) interest paid on the firm's debt (iii) rent paid by the firm to lease office space a. (ii) and (iii) b. (i) and (iii) c. (i) only d. (iii) only
c
Which of these assumptions is often realistic for a firm in the short run? a. The firm can vary both the size of its factory and the number of workers it employs. b. The firm can vary the size of its factory, but not the number of workers it employs. c. The firm can vary the number of workers it employs, but not the size of its factory. d. The firm can vary neither the size of its factory nor the number of workers it employs.
c
As Al's Radiator Company adds workers while keeping the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Al's Radiator Company encounters a. economies of scale. b. diseconomies of scale. c. increasing marginal returns. d. diminishing marginal returns.
d
At what level of output will average variable cost equal average total cost? a. When marginal cost equals average total cost b. For all levels of output in which average variable cost is falling c. When marginal cost equals average variable cost d. There is no level of output where this occurs, as long as fixed costs are positive.
d
Economies of scale arise when a. an economy is self-sufficient in production. b. individuals in a society are self-sufficient. c. fixed costs are large relative to variable costs. d. workers are able to specialize in a particular task.
d
In the long run for Firm A, total cost is $105 when output is 3 units and $120 when output is 4 units. Does Firm A exhibit economies or diseconomies of scale? a. Diseconomies of scale, since total cost is rising as output rises. b. Diseconomies of scale, since average total cost is falling as output rises. c. Economies of scale, since total cost is rising as output rises. d. Economies of scale, since average total cost is falling as output rises.
d
Refer to Figure 8-7. The decrease in consumer and producer surpluses that is not offset by tax revenue is the area a. C. b. F. c. G. d. C + F.
d
Refer to Scenario 13-5. In producing the 7,000 staplers, the firm's average fixed cost was a. $1.00 b. $1.32 c. $2.21 d. $2.43
d
Refer to Table 13-3. Gallo's cork factory experiences diminishing marginal product of labor with the addition of which worker? a. The third worker. b. The fourth worker. c. The fifth worker. d. The sixth worker.
d
To an economist, it is conceivable that the objective that motivates an individual entrepreneur to start a business arises from a. an innate love for the type of business that he or she starts. b. a desire to earn a profit. c. an altruistic desire to provide the world with a good product. d. All of the above are correct.
d
Total surplus with a tax is equal to a. consumer surplus plus producer surplus. b. consumer surplus minus producer surplus. c. consumer surplus plus producer surplus minus tax revenue. d. consumer surplus plus producer surplus plus tax revenue.
d
Which of the following costs of publishing a book is a fixed cost? a. Author royalties of 5% per book. b. The costs of paper and binding. c. Shipping and postage expenses. d. Composition, typesetting, and jacket design for the book.
d
True/False Indicate whether the sentence or statement is true or false. A government subsidy would improve upon the market efficiency because such a policy makes both consumers and producers better off.
f
True/False Indicate whether the sentence or statement is true or false. Diminishing marginal product exists when the total cost curve becomes flatter as outputs increases.
f
True/False Indicate whether the sentence or statement is true or false. If the marginal cost curve is rising, then so is the average total cost curve.
f
True/False Indicate whether the sentence or statement is true or false. The shape of the total cost curve is unrelated to the shape of the production function.
f
True/False Indicate whether the sentence or statement is true or false. When a good is taxed, the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.
f
True/False Indicate whether the sentence or statement is true or false. When economists speak of a firm's costs, they are usually excluding the opportunity costs.
f
True/False Indicate whether the sentence or statement is true or false. Because of the greater flexibility that firms have in the long run, all short-run cost curves lie on or above the long-run curve.
t
True/False Indicate whether the sentence or statement is true or false. Diminishing marginal product exists when the production function becomes flatter as inputs increase.
t
True/False Indicate whether the sentence or statement is true or false. Free markets allocate (a) the supply of goods to the buyers who value them most highly and (b) the demand for goods to the sellers who can produce them at least cost.
t
True/False Indicate whether the sentence or statement is true or false. In a competitive market, sales go to those producers who are willing to supply the product at the lowest price.
t
True/False Indicate whether the sentence or statement is true or false. In general, a tax burden falls more heavily on the side of the market that is more inelastic.
t
True/False Indicate whether the sentence or statement is true or false. In some cases, specialization allows larger factories to produce goods at a lower average cost than smaller factories.
t
True/False Indicate whether the sentence or statement is true or false. Normally, both buyers and sellers of a good become worse off when the good is taxed.
t
True/False Indicate whether the sentence or statement is true or false. Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.
t
True/False Indicate whether the sentence or statement is true or false. The area below the price and above the supply curve measures the producer surplus in a market.
t
True/False Indicate whether the sentence or statement is true or false. The equilibrium of supply and demand in a market maximizes the total benefits to buyers and sellers of participating in that market.
t
True/False Indicate whether the sentence or statement is true or false. The shape of the marginal cost curve tells a producer something about the marginal product of her workers.
t
True/False Indicate whether the sentence or statement is true or false. The willingness to pay is the maximum amount that a buyer will pay for a good and measures how much the buyer values the good.
t
True/False Indicate whether the sentence or statement is true or false. When market price increases, producer surplus increases because (1) producer surplus received by existing sellers increases, and (2) new sellers enter the market.
t
True/False Indicate whether the sentence or statement is true or false. 29. The flatter the demand curve that passes through a given point, the more inelastic the demand.
F
True/False Indicate whether the sentence or statement is true or false. 27. The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.
F
True/False Indicate whether the sentence or statement is true or false. 31. When demand is inelastic, a decrease in price increases total revenue.
F
True/False Indicate whether the sentence or statement is true or false. 32. Price elasticity of demand along a linear, downward-sloping demand curve increases as price falls.
F
True/False Indicate whether the sentence or statement is true or false. 34. Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.
F
True/False Indicate whether the sentence or statement is true or false. 36. Supply tends to be more elastic in the short run and more inelastic in the long run.
F
True/False Indicate whether the sentence or statement is true or false. 37. When the price of knee braces increased by 25 percent, the Brace Yourself Company increased its quantity supplied of knee braces per week by 75 percent. BYC's price elasticity of supply of knee braces is 0.33.
F
True/False Indicate whether the sentence or statement is true or false. 40. Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for drugs is inelastic.
F
12. Alice says that she would buy one banana split a day regardless of the price. If she is telling the truth, a. Alice's demand for banana splits is perfectly inelastic. b. Alice's price elasticity of demand for banana splits is 1. c. Alice's income elasticity of demand for banana splits is 0. d. None of the above answers is correct.
a
15. Income elasticity of demand measures how a. the quantity demanded changes as consumer income changes. b. consumer purchasing power is affected by a change in the price of a good. c. the price of a good is affected when there is a change in consumer income. d. many units of a good a consumer can buy given a certain income level.
a
19. Which of the following would be true as the price elasticity of supply approaches infinity? a. Very small changes in price lead to very large changes in quantity supplied. b. Very large changes in price lead to very small changes in quantity supplied. c. Very small changes in price lead to no change in quantity supplied. d. Very large changes in price lead to no change in quantity supplied.
a
21. Technological advances in wheat production can lower farmers' total revenue because the a. demand for wheat is inelastic. b. demand for wheat is elastic. c. supply of wheat is elastic. d. supply of wheat is inelastic.
a
5. Refer to Figure 5-1. Assume the section of the demand curve labeled A corresponds to prices between $6 and $12. Then, when the price increases from $8 to $10, a. the percent decrease in the quantity demanded exceeds the percent increase in the price. b. the percent increase in the price exceeds the percent decrease in the quantity demanded. c. sellers' total revenue increases as a result. d. it is possible that the quantity demanded fell from 550 to 500 as a result.
a
6. Demand is said to be unit elastic if a. quantity demanded changes by the same percent as the price. b. quantity demanded changes by a larger percent than the price. c. the demand curve shifts by the same percentage amount as the price. d. quantity demanded does not respond to a change in price.
a
A consumer's willingness to pay directly measures a. the extent to which advertising and other external forces have influenced the consumer's decisions regarding his or her purchases of goods and services. b. the cost of a good to the buyer. c. how much a buyer values a good. d. consumer surplus.
a
A shortage results when a. a binding price ceiling is imposed. b. a binding price floor is imposed. c. a price ceiling is imposed but it is not binding. d. a price floor is imposed but it is not binding.
a
A tax imposed on the sellers of a good will a. raise the price paid by buyers and lower the equilibrium quantity. b. raise the price paid by buyers and raise the equilibrium quantity. c. raise the effective price received by sellers and raise the equilibrium quantity. d. raise the effective price received by sellers and lower the equilibrium quantity.
a
Buyers of a good bear the larger share of the tax burden when a tax is placed on a product for which a. the supply is more elastic than the demand. b. the demand in more elastic than the supply. c. the tax is placed on the sellers of the product. d. the tax is placed on the buyers of the product.
a
Noah drinks Dr. Pepper. He can buy as many cans of Dr. Pepper as he wishes at a price of $0.50 per can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Noah is rational in deciding how many cans to buy. His consumer surplus is a. $0.50. b. $0.85. c. $1.05. d. $1.20.
a
Refer to Figure 5-1. The section of the demand curve labeled A represents the a. elastic section of the demand curve. b. inelastic section of the demand curve. c. unit elastic section of the demand curve. d. perfectly elastic section of the demand curve.
a
Refer to Figure 6-12. In which market will the majority of the tax burden fall on the seller? a. market (a) b. market (b) c. market (c) d. All of the above are correct.
a
Refer to Figure 6-14. The effective price that buyers will pay after the tax is imposed is a. $24. b. $16. c. $10. d. $8.
a
Refer to Figure 6-2. In which of the following cases would sellers have to develop a rationing mechanism? a. A price ceiling is set at $8. b. A price ceiling is set at $12. c. A price floor is set at $8. d. A price floor is set at $10.
a
Refer to Figure 7-9. At the equilibrium price, consumer surplus is a. $480. b. $640. c. $1,120. d. $1,280.
a
Sally sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.50 per knife for as many knives as Sally is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $1.75, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.25. Assume Sally is rational in deciding how many knives to sharpen. Her producer surplus is a. $0.25. b. $0.50. c. $1.00. d. $1.75.
a
There are very few, if any, good substitutes for motor oil. Therefore, a. the demand for motor oil would tend to be inelastic. b. the demand for motor oil would tend to be elastic. c. the demand for motor oil would tend to respond strongly to changes in prices of other goods. d. the 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.
a
When a tax is imposed on tea and buyers of tea are required to send in the tax payments to the government, a. buyers of tea and sellers of tea both are made worse off. b. buyers of tea are made worse off and the well-being of sellers is unaffected. c. buyers of tea are made worse off and sellers of tea are made better-off. d. the well-being of both buyers of tea and sellers of tea is unaffected.
a
When government imposes a price ceiling or a price floor in a market, a. price no longer serves as a rationing device. b. efficiency in the market is enhanced. c. shortages and surpluses are eliminated. d. buyers and sellers both become better off.
a
11. 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 price increases and the equilibrium quantity is unchanged. c. the equilibrium quantity and the equilibrium price both are unchanged. d. buyers' total expenditure on the good is unchanged.
b
13. Refer to Figure 5-7. Total revenue when the price is P2 is represented by the area(s) a. B + D. b. A + B. c. C + D. d. D.
b
14. Harry's Barber Shop increased its total monthly revenue from $1,500 to $1,800 when it raised the price of a haircut from $5 to $9. The price elasticity of demand for Harry's Haircuts is a. 0.567. b. 0.417. c. 1.429. d. 2.200.
b
16. Which of the following expressions represents a cross-price elasticity of demand? a. percentage change in quantity demanded of apples divided by percentage change in quantity supplied of apples b. percentage change in quantity demanded of apples divided by percentage change in price of pears c. percentage change in price of apples divided by percentage change in quantity demanded of apples d. percentage change in quantity demanded of apples divided by percentage change in income
b
18. If the quantity supplied responds only slightly to changes in price, then a. supply is said to be elastic. b. supply is said to be inelastic. c. an increase in price will not shift the supply curve very much. d. even a large decrease in demand will change the equilibrium price only slightly.
b
7. Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the a. steeper the demand curve will be. b. flatter the demand curve will be. c. further to the right the demand curve will sit. d. closer to the vertical axis the demand curve will sit.
b
9. When demand is perfectly inelastic, the demand curve will be a. negatively sloped, because buyers decrease their purchases when the price rises. b. vertical, because buyers purchase the same amount as before whenever the price rises or falls. c. positively sloped, because buyers respond by increasing the market quantity demanded of the good when price rises. d. positively sloped, because buyers respond by increasing their total expenditure on the good when price rises.
b
At a minimum wage that exceeds the equilibrium wage, a. the quantity demanded of labor will exceed the quantity supplied. b. the quantity supplied of labor will exceed the quantity demanded. c. the minimum wage will not be binding. d. the market for skilled workers is affected, but the market for unskilled workers remains unaffected.
b
On a graph, consumer surplus is the area a. between the demand and supply curves. b. below the demand curve and above price. c. below the price and above the supply curve. d. below the demand curve and to the right of equilibrium price.
b
Over time, housing shortages caused by rent control a. increase, because the demand for, and supply of, housing are less elastic in the long run. b. increase, because the demand for, and supply of, housing are more elastic in the long run. c. decrease, because the demand for, and supply of, housing are less elastic in the long run. d. decrease, because the demand for, and supply of, housing are more elastic in the long run.
b
Price controls are usually enacted a. as a means of raising revenue for public purposes. b. when policymakers believe that the market price of a good or service is unfair to buyers or sellers. c. when policymakers detect inefficiencies in a market. d. All of the above are correct.
b
Refer to Figure 6-14. The amount of the tax per unit is a. $16. b. $14. c. $8. d. $6.
b
Refer to Figure 7-5. If the price of the good is $8.50, then producer surplus is a. $6.50. b. $8.00. c. $9.50. d. $11.00.
b
Refer to Figure 7-9. At the equilibrium price, producer surplus is a. $480. b. $640. c. $1,120. d. $1,280.
b
Ronnie operates a lawn-care service. On each day, the cost of mowing the first lawn is $10; the cost of mowing the second lawn is $12; and the cost of mowing the third lawn is $15. His producer surplus on the first three lawns of the day is $53. If Ronnie charges all customers the same price for lawn mowing, that price is a. $25. b. $30. c. $36. d. $45.
b
Suppose Katie, Kendra, and Kristen each purchase a particular type of cell phone at a price of $80. Katie's willingness to pay was $100, Kendras's willingness to pay was $95, and Kristen's willingness to pay was $80. Which of the following statements is correct? a. For the three individuals together, consumer surplus amounts to $35. b. Having bought the cell phone, Kristen is better off than she would have been had she not bought it. c. Had the price of the cell phone been $95 rather than $80, Katie and Kendra definitely would have been buyers and Kristen definitely would not have been a buyer. d. The fact that all three individuals paid $80 for the same type of cell phone indicates that each one placed the same value on that cell phone.
b
Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market a. decreases. b. is unchanged. c. increases. d. may increase, decrease, or remain unchanged.
b
Suppose there is an early freeze in California that reduces the size of the lemon crop. What happens to consumer surplus in the market for lemons? a. It increases. b. It decreases. c. It is not affected by this change in market forces. d. We would have to know whether the demand for lemons is elastic or inelastic to make this determination.
b
The minimum wage, if it is binding, lowers the incomes of a. no workers. b. only those workers who cannot find jobs. c. only those workers who have jobs. d. all workers.
b
Under rent control, tenants can expect a. lower rent and higher quality housing. b. lower rent and lower quality housing. c. higher rent and a shortage of rental housing. d. higher rent and a surplus of rental housing.
b
Inefficiency exists in an economy when a good is a. being produced with less than all available resources. b. not distributed fairly among buyers. c. not being produced by the lowest-cost producers. d. being consumed by buyers who value it most highly.
c
Which of the following is the most correct statement about tax burdens? a. A tax burden falls most heavily on the side of the market that is more elastic. b. A tax burden falls most heavily on the side of the market that is less elastic. c. A tax burden falls most heavily on the side of the market that is closer to unit elastic. d. A tax burden is distributed independently of relative elasticities of supply and demand.
b
Which of the following statements is true? a. A tax levied on buyers will never be even partially paid by sellers. b. Who actually pays a tax depends on the price elasticities of supply and demand. c. Government can decide who actually pays a tax. d. A tax levied on sellers always will be passed on completely to buyers.
b
17. Muriel's income elasticity of demand for football tickets is 1.50. All else equal, this means that if her income increases by 20 percent, she will buy a. 150 percent more football tickets. b. 50 percent more football tickets. c. 30 percent more football tickets. d. 20 percent more football tickets.
c
20. Knowing that the demand for wheat is inelastic, if all farmers voluntarily plowed under 10 percent of their wheat crop, then a. consumers of wheat would buy more wheat. b. wheat farmers would suffer a reduction in their total revenue. c. wheat farmers would experience an increase in their total revenue. d. the demand for wheat would decrease.
c
A tax on the buyers of coffee will a. increase the effective price of coffee paid by buyers, increase the price of coffee received by sellers, and increase the equilibrium quantity of coffee. b. decrease the effective price of coffee paid by buyers, increase the price of coffee received by sellers, and decrease the equilibrium quantity of coffee. c. increase the effective price of coffee paid by buyers, decrease the price of coffee received by sellers, and decrease the equilibrium quantity of coffee. d. increase the effective price of coffee paid by buyers, decrease the price of coffee received by sellers, and increase the equilibrium quantity of coffee.
c
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. the amount a buyer is willing to pay for a good minus the cost of producing the good. c. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good. d. a buyer's willingness to pay for a good plus the price of the good.
c
If an allocation of resources is efficient, then a. consumer surplus is maximized. b. producer surplus is maximized. c. all potential gains from trade among buyers are sellers are being realized. d. the allocation is necessarily equitable as well.
c
In which of the following circumstances would a buyer be indifferent about buying a good? a. The amount of consumer surplus the buyer would experience as a result of buying the good is zero. b. The price of the good is equal to the buyer's willingness to pay for the good. c. The price of the good is equal to the value the buyer places on the good. d. All of the above are correct.
c
The demand for salt is inelastic and the supply of salt is elastic. The demand for caviar is elastic and the supply of caviar is inelastic. Suppose that a tax of $1 per pound is levied on the sellers of salt and a tax of $1 per pound is levied on the buyers of caviar. We would expect that most of the burden of these taxes will fall on a. sellers of salt and the buyers of caviar. b. sellers of salt and the sellers of caviar. c. buyers of salt and the sellers of caviar. d. buyers of salt and the buyers of caviar.
c
The particular price that results in quantity supplied being equal to quantity demanded is the best price because it a. maximizes costs of the seller. b. maximizes tax revenue for the government. c. maximizes the combined welfare of buyers and sellers. d. minimizes the expenditure of buyers.
c
We can say that the allocation of resources is efficient if a. producer surplus is maximized. b. consumer surplus is maximized. c. total surplus is maximized. d. sellers' costs are minimized.
c
10. 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. inelastic and the demand curve will be horizontal. c. elastic and the demand curve will be vertical. d. inelastic and the demand curve will be vertical.
d
22. Which of the following statements does not help to explain why government drug interdiction increases drug-related crime? a. The demand for illegal drugs is inelastic. b. Interdiction results in drug addicts having a greater need for quick cash. c. Interdiction results in an increase in the amount of money needed to buy the same amount of drugs. d. Government drug programs are more lenient now with drug offenders than they were in the 1980s.
d
23. There are fewer farmers in the United States today than 200 years ago because of a. more educational opportunities and increases in farm technology. b. increased government regulations in farming and increased farm technology. c. an elastic demand for food and more attractive urban alternatives to farming. d. increases in farm technology and an inelastic demand for food.
d
8. In the case of perfectly inelastic demand, a. the change in quantity demanded equals the change in price. b. the percentage change in quantity demanded equals the percentage change in price. c. infinitely-large changes in quantity demanded result from very small changes in the price. d. quantity demanded stays the same whenever price changes.
d
A legal maximum price at which a good can be sold is a price a. floor. b. stabilization. c. support. d. ceiling.
d
Demand is elastic if elasticity is a. less than 1. b. equal to 1. c. equal to 0. d. greater than 1.
d
Marjorie is willing to pay $68 for a pair of shoes for a formal dance. She finds a pair at her favorite outlet shoe store for $48. Marjorie's consumer surplus is a. $10. b. $20. c. $48. d. $68.
d
Opponents of the minimum wage point out that the minimum wage a. encourages teenagers to drop out of school. b. prevents some workers from getting needed on-the-job training. c. contributes to the problem of unemployment. d. All of the above are correct.
d
Producer surplus measures a. the benefits to sellers of participating in a market. b. the costs to sellers of participating in a market. c. the price that buyers are willing to pay for sellers' output of a good or service. d. the benefit to sellers of producing a greater quantity of a good or service than buyers demand.
d
Refer to Figure 5-1. The section of the demand curve labeled C represents the a. elastic section of the demand curve. b. perfectly elastic section of the demand curve. c. unit elastic section of the demand curve. d. inelastic section of the demand curve.
d
Refer to Figure 6-2. If the government imposes a price ceiling of $8 in this market, the result would be a a. surplus of 10. b. surplus of 20. c. shortage of 10. d. shortage of 20.
d
Refer to Figure 7-9. Assume demand increases and as a result, equilibrium price increases to $22 and equilibrium quantity increases to 110. The increase in producer surplus is equal to a. $210. b. $360. c. $480. d. $570.
d
Total surplus in a market is represented by the total area a. under the demand curve and above the price. b. above the supply curve and up to the equilibrium price. c. under price and up to the point of equilibrium. d. between the demand and supply curves up to the point of equilibrium.
d
Which of the following is not a result of government-imposed rent control? a. fewer new apartments offered for rent b. less maintenance provided by landlords c. bribery d. higher quality housing
d
Which of the following statements is not correct about a market in equilibrium? a. The price determines which buyers and which sellers participate in the market. b. Those buyers who value the good more than the price choose to buy the good. c. Those sellers whose costs are less than the price choose to produce and sell the good. d. Consumer surplus will be equal to producer surplus.
d
True/False Indicate whether the sentence or statement is true or false. Binding price ceilings benefit consumers because they allow consumers to buy all the goods they demand at a lower price.
f
True/False Indicate whether the sentence or statement is true or false. Economists use the term tax incidence to refer to who is legally responsible for paying the tax.
f
True/False Indicate whether the sentence or statement is true or false. If a price ceiling of $2 per gallon is imposed on gasoline, and the market equilibrium price is $1.50, the price ceiling is a binding constraint on the market.
f
True/False Indicate whether the sentence or statement is true or false. A tax on golf clubs will cause buyers of golf clubs to pay a higher price, and the equilibrium quantity will decrease.
t
True/False Indicate whether the sentence or statement is true or false. A binding minimum wage in a competitive labor market creates unemployment.
t
True/False Indicate whether the sentence or statement is true or false. A government-imposed tax on a market shrinks the size of the market.
t
True/False Indicate whether the sentence or statement is true or false. If a price ceiling is below equilibrium price, the quantity demanded will exceed the quantity supplied.
t
True/False Indicate whether the sentence or statement is true or false. Lawmakers can decide whether the buyers or the sellers must send a tax to the government, but they cannot legislate the true burden of a tax.
t
True/False Indicate whether the sentence or statement is true or false. Rent control may lead to lower rents for those who find housing, but the quality of the housing may also be lower.
t