Econ 101 (Oh) Exam 2

Rapidly increasing health costs have been a major political concern since at least 1992. Suppose the government sets the maximum price for a normal doctor visit at $20 to control rising health costs but the current market price is $40. What will happen?

More people will try to visit the doctor, but there will be fewer doctors willing to see patients at that price.

If the estimated price elasticity of demand for foreign travel is 4:

a 20% decrease in the price of foreign travel will increase quantity demanded by 80%.

Look at the figure The Gasoline Market. The pretax equilibrium price is $3, and the equilibrium quantity before tax is 20,000 gallons. An excise tax has been levied on each gallon of gasoline supplied by producers. Based on the graph, the incidence of the tax on suppliers is:

$0.75.

Look at the figure The Market for Yachts. If the government imposes a $60,000 tax on yachts (collected from the producers), the price of yachts will rise to _____ and the government will collect _____.

$160,000; $120 million

A student organization is formed on your college campus to protest against the high rent for apartments near campus. This organization is planning a meeting with the dean and president of the college. Which of the following best describes the policy the student organization will fight for?

a price ceiling

Which of the following is an excise tax?

a tax of $0.41 per gallon of gas

Rent controls in New York City cause all of the following EXCEPT:

an increase in the quantity supplied of rent-controlled apartments.

Look at the figure The Gasoline Market. The pretax equilibrium price is $3, and the equilibrium quantity before tax is 20,000 gallons. An excise tax has been levied on each gallon of gasoline supplied by producers, shifting the supply curve upward. The total tax revenue collected by the government is equal to:

$26,250.

Look at the figure The Gasoline Market. The pretax equilibrium price is $3, and the equilibrium quantity before tax is 20,000 gallons. An excise tax has been levied on each gallon of gasoline, shifting the supply curve upward. The deadweight loss from this tax is equal to:

$4,375.

Gas prices recently increased by 25%. In response, purchases of gasoline decreased by 5%. According to this finding, the price elasticity of demand for gas is:

.2

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____, and demand is described as _____.

0.2; inelastic

The only producer of chocolate bunnies in the world, Choco's Bunny Company, recently expanded its production capacity from 1,000 to 2,000 bunnies per day. If the price elasticity of demand for bunnies is 3.33, by how much will the company have to reduce its price to sell the additional 1,000 bunnies (by the midpoint method)?

20%

The price elasticity of demand can be found by:

comparing the percentage change in quantity demanded to the percentage change in price.

When the government imposes an excise tax in a market with a downward-sloping demand curve and an upward-sloping supply curve:

consumer surplus falls, producer surplus falls, and a deadweight loss occurs

Look at the figure The Market for Yachts. If the government imposes a $60,000 tax on yachts and collects it from the consumers, the _____ curve will shift _____ by _____.

demand; downward; $60,000

Use of the midpoint method to calculate the price elasticity of demand eliminates the problem of computing:

different elasticities, depending on whether price decreases or increases

Taxes on the purchase of specific items such as gasoline, cigarettes, or alcoholic beverages are called:

excise taxes.

Look at the figure The Market for Yachts. A price _____ of _____ will bring the about the same price and output in the market for yachts as would an excise tax of $60,000.

floor; $160,000

. Hugo Chávez was the president of Venezuela. Venezuela is a major producer of oil products, which remain the keystone of Venezuela's economy. Suppose President Chávez wanted to increase his popularity with the citizens of Venezuela and enacted a government policy to reduce the price of gasoline sold at state-owned gas stations to 50% of the previous price. Assuming a downward-sloping demand curve for gasoline, in theory, this policy would result in the quantity of gasoline demanded to be _____ the quantity of gasoline supplied.

greater than

One of the ways rent control is inefficient is that it leads to:

high opportunity costs associated with wasted time searching for apartments

The governor wants to levy a $1 excise tax on some good—he doesn't care which—but he does want to minimize the deadweight loss. The deadweight loss will be least when the demand curve is _____ and the supply curve is _____.

inelastic; inelastic

To minimize deadweight loss, markets where demand is relatively _____ and supply is relatively _____ should be taxed.

inelastic; inelastic

If the government imposes binding rent control:

it may result in some landlords leaving the business because they cannot cover costs.

Price ceilings will impose costs on society because they:

lead to a smaller quantity offered on the market.

Given any upward-sloping supply curve for a good, the more inelastic the demand curve, the _____ equilibrium output will fall and the _____ will be the deadweight loss when the government imposes an excise tax.

less; smaller

To be binding, a price ceiling must be set at a price:

lower than the equilibrium price.

Given any downward-sloping demand curve for a good, the more price-elastic the supply curve, the _____ equilibrium output will fall and the _____ will be the deadweight loss when the government imposes an excise tax.

more; larger

The ratio of the percentage change in quantity demanded to the percentage change in price is the _____ elasticity of demand.

price

The most likely reason that the government implements a _____ is because it feels the price is too high for _____.

price ceiling; consumers

When the government removes a binding price floor:

quantity demanded will increase and quantity supplied will decrease.

refers to how much of the tax is actually paid by consumers and producers.

refers to how much of the tax is actually paid by consumers and producers.

If an excise tax is imposed on automobiles and collected from consumers:

the demand curve will shift downward by the amount of the tax

A price floor is likely to cause deadweight loss because:

the quantity of the good is less than the equilibrium quantity

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures:

the responsiveness of the quantity change to the price change

When a tenant in a rent-controlled apartment sublets the apartment to another renter at a rent higher than the price ceiling:

the transaction takes place on a black market.

When the minimum wage increases:

unemployment among unskilled workers increases.

An analysis of the effect of excise taxes on markets allows us to conclude that:

whether the tax is levied on consumers or producers, the quantity sold will be the same.

Egg producers know that the elasticity of demand for eggs is 0.1. If they want to increase sales by 5%, they will have to lower price by:

50%.

Suppose the price elasticity of demand for yachts equals 4.04, while the price elasticity of supply for yachts equals 0.22. If Congress reinstates a luxury tax on yachts, who will pay more of the tax?

Yacht builders will pay more.