Econ 101 Ch 4-8 Questions
In the above figure, the deadweight loss due to the tax is
$1,000 (1/2 * ($2*1000) =$1,000.)
The above figure shows the apartment rental market in the city of Willoughby. Suppose the government of Willoughby imposes a rent ceiling of $500 per apartment. Calculate the basic best-case-scenario deadweight loss ignoring any potential deadweight loss due to search. The basic deadweight loss is
$100 thousand per month, 1/2 *($200*1) = $100
Given the budget line in the above figure, if income is $60, then the price of a pizza is ________ and the price of a CD is ________.
$10; $15, (Using the vertical intercept of 6 pizzas, we know that the price of a pizza must be $60/6 = $10. Using the horizontal intercept of 4 CDs, we know that the price of a CD must be $60/4 = $15)
In the above figure, the amount of the tax per unit imposed on the sellers is
$2.00, amount of the tax is the amount by which height of the supply curve (minimum sell price) is increased vertically.
In the above figure, the price received by the seller before the tax is ________ per compact disc, and the price received and kept by the seller after the tax is ________ per compact disc
$20; $10
in the above figure, if the market price is $100 per ton, then the firm's producer surplus on the second ton of wheat is
$25. ($100-$75 = $25)
In the figure above, originally the apartment rental market is in equilibrium with a rent of $600 per month. Then the government imposes a rent ceiling of $500 per month. The reduction (change) in producer surplus as a result of the price ceiling is
$250,000 per month (split it into a rectangle (area = $100*2000) and a side triangle (area = ½*($100*1000) )
A used car was recently priced at $20,000.00. Seeing the car, Bobby thought, "It's nice, but if I have to pay morethan $19,500 for this car, then I would rather do without it." After negotiations, Bobby purchased the car for$19,250.00. His consumer surplus was equal to
$250.00, ($19,500 - $19,250 = $250.)
In the above figure, the total consumer surplus at the efficient level of output is ________
$4.5 million (1/2 * ($30*300,000) = $4,500,000)
In the above figure, the total potential gains from trade (consumer and producer surplus combined) is equal to
$40
In the above figure, what is the total tax revenue collected by the government
$400 million (total tax revenue is the amount of the per-unit tax multiplied by the number of units sold when the tax is present. Here, that is $20*20million units.)
Jordan has two goods that he consumes this week. He can choose to go to the arcade and play video games or he can purchase baseball cards. The price of each video game is $.50 and each pack of baseball cards is $1. Jordan will spend all his allowance this week on these two goods. Jordan's consumption possibilities are listed in the table above. What is the amount of Jordan's allowance?
$5
The above figure shows the apartment rental market in the city of Willoughby. Suppose the government of Willoughby imposes a rent ceiling of $500 per apartment. Assume that the maximum amount of search activity takes place and that the total amount of deadweight loss is the maximum possible. Calculate the total deadweight loss in this worst-case scenario including any potential deadweight loss due to search. The total deadweight loss is
$500 thousand per month, area of this rectangle is $200x2 = $400. Combining this deadweight loss with the basic deadweight loss triangle yields total deadweight loss of$500.
The figure illustrates the market for hot dogs on Big Foot Island. The producer surplus is ________
$60 an hour The area is 1/2 *($0.60*200) = $60. The 0.60 in the calculation came from $1.20-$0.60 = $0.60.
if a rightward shift of the supply leads to a 6% decrease in price and 5% increase in quantity demanded, the price elasticity is
.83 PED= ΔQ/ΔP PED= 5/6=.83
In the above figure, if the production of gloves was restricted to 2,000 a day, then the deadweight loss would equal
1/2 * ($10*1000) = $5,000.
Ernie has an income of $40 which he plans to spend on cookies and milk. The price of milk is $1 per gallon, and the price of cookies is $2 per dozen. If Ernie buys 12 gallons of milk, how many dozens of cookies will he buy if he spends all of his income?
14( if he buys 12 gallons of milk and the price of milk PM = $12/gallon, he will spend $12 on milk. His income is $40, so he has $28 left over to spend on cookies. If the price of cookies is $2 per dozen,he can buy $28/$2 = 14 dozen cookies.
Suppose that the price elasticity of supply for oil is 0.5. Then, if the price of oil rises by 30 percent, the quantity of oil supplied will increase
15 percent ES = %∆QS/%∆P 0.5 = %∆QS/30%. Solve for %∆QS.
suppose the price elasticity of demand for oil is .1, in order to lower price of oil by 20%, the quantity of oil supplied must be increased by
2% PED= ΔQ/ΔP, THEREFORE .1= ΔQ/20 note that PED measures the responsiveness
the table above gives the demand schedule for snow peas. the price elasticity of demand between $6 and $7 per bushel is
2.6, average value method
The market for unskilled labor is illustrated in the figure above. The market is in equilibrium and thena minimum wage of $5 per hour is imposed. Employment will fall by
20 mil h/yer, 30-10
if the price elasticity of demand is 5, a 10 percent increase in the price results in a
50 percent decrease in quantity demanded ED = %∆Q/%∆P then 5 = %∆Q/10%. Solve for %∆QD
Firms A, B, and C produce rackets and the supply curve for each firm is described below: Firm A's supply curve is linear with a slope of 5 and it passes through the origin. Firm B's supply curve is linear with a slope of 1 and it passes through the origin. Firm C's supply curve is linear with a slope of 1/3 and it passes through the origin
For any price, the price elasticity of supply is equal along Firm A's supply curve, Firm B's supply curve,and Firm C's supply curve. A straight line supply curve that passes through the origin is unit elastic at any price
Which of the following is an efficient way for the government to collect tax revenues?
Impose a lump sum tax on buyers of widgets.(if a buyer buys a lot, a little, or even none of the good, the tax is the same.)
When a market is in equilibrium, the total amount of consumer surplus must be ________ the total amount of producer surplus
None of the above answers are correct the distribution of consumer and producer surplus need not be "fair", it can be very skewed or lopsided.
Diminishing marginal utility means that
Ralph will enjoy his second hamburger less than the first.
Which of the following statements best defines utilitarianism
Society should strive to achieve the greatest good for the greatest number
In the above figure, if income is $45.00, the price of hamburgers is $1.50, and the price of gasoline is $1.00, then which is the correct budget line?
The vertical intercept must be $45/$1.50 = 30. This is the maximum number of hamburgers that can be bought with $45 if the consumer buys no gasoline. The horizontal intercept must be $45/$1.00 = 45.
The figure above shows Clara's demand for CDs. The market price for a CD is $15. Which statement is true?
When Clara buys 6 CDs, she receives $15 of consumer surplus on her 6th CD.
if demand is price elastic,
a 1 percent decrease in the price leads to an increase in quantity demanded that exceeds 1 percent (PED > 1)
Demand is unit elastic when
a change in price of product leads to no change in total revenue
Demand is inelastic if
a leftward shift of the supply curve raises the total revenue (demand is inelastic when ΔQ<ΔP; total revenue increases as price increases x quantity decreases)
In the figure above, the demand curve shifts rightward from D0 to D1 so that D1 is the relevant demand curve. Suppose the government imposes a rent ceiling of $300 per month. After the shift to D1, there will be
a shortage of 200,000 apartments.(shortage is the discrepancy between the quantity demanded and the quantity supplied)
If there are no external costs or benefits, no price ceilings or price floors, and the good is not a public good or a common resource, then efficiency is
achieved when the good is produced in a competitive market
A market demand curve can be constructed by
adding the quantities that all consumers buy at each price. -Horizontal summing means to pick a price and add the individual quantities demanded at that price, and then repeat this process for each possible price
in the figure above, imposing a tax on the sellers of the product results in a division in which
all of the tax is paid by the sellers. (demand is perfectly inelastic)
The symmetry principle in economics means that
all similar individuals must be treated similarly
The opportunity cost of buying a good includes I. the price of the good. II. the value of time and other resources spent searching for or acquiring the good
both I and II
Good A has a perfectly inelastic demand and an upward-sloping supply curve. Good B has a perfectly inelastic supply and a downward-sloping demand curve. If the same sales tax is imposed on the sellers of both good A and good B, the price paid by
buyers of good A rises by more than the price paid by buyers of good B. (or good A, the buyers have the lower elasticity , and, for good B, the sellers have the lower elasticity )
suppose the price elasticity of teenagers' demand for cigarettes is 2.0. If the government imposes a taxon cigarettes that raises the price by 10 percent, by how much will it reduce teenage smoking?
by 20% PED= ΔQ/ΔP THEREFORE 2=ΔQ/10%
Mark's marginal utility from reading books is the ________ when he reads ________
change in his total utility; one additional book
Joe has $48, which he spends on movies and pizza. If the price of a movie falls, Joe can
consume more of both goods
The deadweight loss from producing an inefficient amount is a loss to the
consumers and to the producers.
When consumption of a good increases, marginal utility will
decrease (As consumption increases, the total utility increases and the marginal utility decreases)
A local transit authority charges $1 for a bus ride. An economics study suggests that in the price range from $0.50 to $1.50, the elasticity of demand for bus trips is 1.1. To increase its revenue, the transit authority should
decreases the fare ED = %∆QD/%∆P >1 %∆QD >%∆P. Total Revenue increases = P decreases x Q increases
The demand for Honda Accords is probably
elastic and more elastic than the demand for automobiles (substitutes determine PED, think lots of substitutes for honda, less subs for sedans, even less for automobiles)
if total revenue rises when the price of a good falls, demand must be
elastic, Buyers are responsive to price changes, making up for the lower price and causing the total revenue to increase. ED = %∆Q/%∆P >1 tf %∆Q > %∆P.
If a good is produced using inputs for which there are no substitutes, the good's
elasticity of supply is likely to be small more subs, more elastic
A price ________ makes it illegal to pay a lower price than the specified level. One example is
floor; the minimum wage.
The figure above illustrates a linear demand curve. By comparing the price elasticity in the $2 to $4 price range with the elasticity in the $8 to $10 range, you can conclude that the elasticity is
greater in the $8 to $10 range. it is unit elastic (PED=1) at its midpoint ata price of $5. It is elastic (PED>1) for prices higher than $5 and inelastic (PED<1) for prices lower than $5.
A rent ceiling set above the equilibrium rent
has no effect
A deadweight loss is created
if for the last unit produced, marginal social cost is greater than its marginal social benefit or if its marginal social benefit is greater than its marginal social cost (over and under production)
The demand for a good is less price elastic
if the share of the good in the average consumer's budget is smaller (more responsive to more expensive things like rent)
With rent controls, which of the following is most likely to occur?
illicit market activity
The price elasticity of supply is largest
in the long run more time leads to greater response
Deb's income has just risen from $950 per week to $1,050 per week. As a result, she decides toincrease the number of movies she attends each month by 5 percent. Her demand for movies is
income inelastic (IED= ΔQ/ΔI; ΔI=1050-950=100/1000=.1, IED=.05/.1=.5)
A rent ceiling below the equilibrium rent will encourage
increased search time and illicit markets (shortage)
A horizontal supply curve indicates an elasticity of supply that equals
infinity, by definition
to say that turnips are an inferior good means that the income elasticity of demand for turnips
is negative. With an inferior good, an increase in income is associated with a decrease in the quantity demanded.
if the supply curve for a good is represented by a straight line supply curve that is not vertical and that intersects the horizontal axis ,then the price elasticity of supply is
less than 1
The group affected most adversely by a minimum wage law is
low-wage, low-skilled workers (more elastic)
The value of a good is the
maximum price you are willing to pay for it.
If there is an external cost from making paper, an unregulated competitive market produces
more than the efficient quantity producer fails to take the full societal cost of producing the good into account, too much ends up being produced if the costs are underrepresented.
Suppose that the equilibrium wage in the low-skilled labor market is $9.25. Further, suppose the federal government raises the minimum wage to $9.00 an hour from its present level of $8.15. The government's action of increasing the minimum wage will result in
neither a shortage nor a surplus of labor in the low-skilled labor market - still below equilibrium
when the quantity of coal is measured in kilograms instead of pounds, the demand for coal becomes
neither more nor less elastic % changes are unit free
the price elasticity of demand depends on
neither the units used to measure price nor the units used to measure quantity. % changes are unit free
The supply of ratchets is such that the "minimum sell price" is the same and always $12 for every unit. The situation being described is that of
perfectly elastic supply
suppose that there are many essentially equivalent substitutes in consumption for good X. Then the demand for good X must be
perfectly elastic. he more substitutes, the greater the responsiveness to a price change and therefore the greater the price elasticity of demand.
A tax is imposed on the sellers of a product. The consumers will pay the full amount of the tax if demand is
perfectly inelastic
Producer surplus is the ________ summed over the quantity produced
price paid for a good minus the opportunity cost of making it
In the above figure, suppose the quantity produced is 40. Then
production is not efficient because MSC>MSB overproduction
A law or regulation that limits the amount that a firm is permitted to produce is called a
quota
A price floor
results in a surplus if the floor price is greater than the equilibrium price
The assertion that if resources are allocated efficiently, they also are allocated fairly is made by
robert Nozick, who believes that equality of opportunity is fair
Demand is perfectly inelastic when
shifts of the supply curve results in no change in qt demanded (vertical demand curve)
A rent ceiling that is set below the equilibrium rent results in ________.
shortage of housing
The marginal cost curve
shows the minimum price sellers must receive to produce a unit of a good or service.
A payment by the government that decreases the price paid by consumers and increases the price received by sellers is a
subsidy
When the competitive market is using its resources efficiently, the
sum of the total amount of consumer surplus plus the total amount of producer surplus is maximized. (no deadweight loss)
If a 1 percent decrease in the price of a pound of squash results in a larger percentage decrease in the quantity supplied,
supply is elastic PEs= ΔQ/ΔP
One of the problems associated with the utilitarianism is that it does not recognize that
taxing those with higher incomes may result in less work effort.
One way to characterize a perfectly elastic supply curve is to say that
the "minimum sell price" is the same for every unit perfectly elastic supply curve is horizontal, so the height of the supply curve (minimum sell price) is constant and the same for each unit.
If a rise in the price of good 1 decreases the quantity of good 2 demanded
the cross elasticity of demand is negative (think printers and ink, tennis balls and rackets)
In general, how a sales tax is divided between buyers and sellers is determined by
the elasticities of supply and demand (the side of the market with the lower elasticity will pay more.)
Assume that the supply for a good is perfectly inelastic and assume that the demand for that good is neither perfectly elastic nor perfectly inelastic. If the demand for that good decreases, which of the following will happen?
the equilibrium price will decrease and the equilibrium quantity will not change
assume that the demand for a good is perfectly elastic and assume that the supply for that good is neither perfectly elastic nor perfectly inelastic. if the supply for that good increases which of the following will happen
the equilibrium price will not change and the equilibrium quantity will increase, sketch the graph
Utilitarianism is based on the argument that
the greater a person's income, the smaller is the marginal benefit of a dollar.
All of the following statements about marginal benefit are correct EXCEPT one. Which one? the marginal benefitof a good
the marginal benefit of a good is equal to zero when resource use is allocatively efficient MB=MC
Suppose a country produces only bikes and clothing. The country achieves an efficient allocation of resources when
the marginal benefit of producing a bike equals the marginal cost of producing a bike. (MB=MC)
The amount of a per-unit tax paid by the buyer will be larger
the more inelastic the demand and the more elastic the supply
on a linear demand curve that intersects both axes and has a slope of -1.0,
the price elasticity of demand decreases as the price falls and qt increases and is 1.0 only at the midpoint
the price of elasticity of demand measures
the responsiveness of the quantity demanded to changes in price.
The price elasticity of demand for a good is -3 (or just 3 if you prefer to ignore the minus sign) and the price elasticity of supply for the good is 2. A $6 tax is imposed on buyers of the good. Which of the following statements is correct?
the sellers of the good will pay a greater share of the tax
A sales tax is imposed on the sellers of gasoline. This tax shifts
the supply of gasoline curve leftward(decrease in supply, min sell price increases)
Producing the gasoline we use in our cars requires a very specialized resource or input, namely crude oil. As a result
the supply of gasoline is inelastic.
Competitive markets will generally produce
too little of a public good (everyone wants, underproduction)
As Sean's consumption of rice goes up, his
total utility from consuming rice increases. (As consumption increases, the total utility increases and the marginal utility decreases.)
When a minimum wage is set above the equilibrium wage rate, ________.
unemployment increases (surplus, more employees than employers)
The satisfaction that a person receives from consuming a good or service is called ________
utility
Consumer surplus is the ________ summed over the quantity purchased.
value of a good minus the price paid for it