ECON 201 Exam 2

Which of the following changes would not shift the supply curve for a good or service?

a change in the price of the good or service

When demand is inelastic, a decrease in price will cause

a decrease in total revenue

If a surplus exists in a market, then we know that the actual price is

above the eq price and QS is greater than QD

When a tax is levied on sellers of tea

both sellers and buyers of tea are made worse off

Under rent control, bribery is a mechanism to

bring the total price of the apartment (including the bribe) closer to the eq price

Price of potato chips decreases from $1.45 to $1.25 and quantity demanded increases from 2000 to 2200. Price elasticity of demand?

0.64

Hotel packages in Las Vegas: When the price is $250, the QD is 2000 packages/week. When the price is $280, the QD is 1700 packages/week. Price elasticity of demand?

1.43 and an increase in the price will cause hotels' TR to decrease

If consumers often purchase muffins to eat while they drink their lattes, what would happen to the eq price and Q of lattes if the price of muffins rises?

Both the eq price and Q would decrease

What would happen to the eq price and quantity of lattes if consumers' incomes rise and lattes are a normal good?

Both the eq price and quantity would increase

One economist argued that rent control is "the best way to destroy a city, other than bombing". Why would an economist say this?

He fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city

What would happen to the eq price and quantity for coffee if the wages of the coffee-bean pickers fell and the price of tea fell?

Price would fall and the effect on quantity would be ambiguous

Suppose the eq price of a physical is $200 and the gov imposes a price ceiling of $150. As a result of the price ceiling the

QD of physicals increases and the QS of physicals decreases

A city wants to raise revenues. The mayor suggests that the city raise price of admission at the pool to raise revenues. The city manager suggests that the city lower the price of admission. Who is correct?

The mayor would be correct if demand were price inelastic, the city manager would be correct if demand were price elastic

A price ceiling will be binding only if it is set

below the eq price

Price ceilings and price floors that are binding

cause surpluses and shortages to persist bc price cannot adjust to the market eq price

A decrease in the price of a good will

decrease quantity supplied

A tax on sellers of coffeewill increase the price of coffee paid by buyers

decrease the effective price of coffee received by sellers, and decrease the eq quantity of coffee

Equilibrium price must decrease when demand

decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously

A tax on the buyers of sofas

decreases the size of the sofa market

Which of the following events must cause eq quantity to fall?

demand and supply both decrease

At the eq price, the quantity of the good that buyers are willing and able to buy

exactly equals the quantity that sellers are willing and able to sell

If an increase in income results in a decrease in the QD of a good, then for that good, the

income elasticity of demand is negative

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be

positive

In a competitive market free of gov regulation

price adjusts until QD equals QS

The local bakery makes such good cinnamon rolls that consumers dont respond much to change in price. If the owner wants to increase revenue, they should

raise the price of cinnamon rolls

Suppose roses are selling $20/dozen but the eq price is $30/dozen. We would expect a

shortage to exist and the market price of roses to increase

When a binding price ceiling is imposed ona market to benefit buyers

some buyers benefit and some buyers are harmed

A minimum wage that is set above the markets eq wage will result in excess

supply of labor, that is, unemployment

Suppose roses are selling $40/dozen but the eq price is $30/dozen/ We would expect a

surplus to exist and the market price of roses to decrease

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of

the availability of close substitutes in determining the price elasticity of demand

An alternative to rent-control laws that would not reduce the quantity of housing supplied is

the payment by government of a fraction of a poor family's rent