Micro eco test 2

Refer to Figure 6-13. The effective pricethat sellers receive after the tax is imposed is

$10.

Refer to Figure 6-11. The amount of the tax per unit is

$2.50.

If the price elasticity of demand for a good is 2.0, then a 5 percent increase in price results in a

10 percent decrease in the quantity demanded.

A tax imposed on the sellers of a good will

lower the effective price received by sellers and lower the equilibrium quantity.

For a good that is a luxury, demand

tends to be elastic

For which of the following types of goods would the income elasticity of demand be positive and relatively large?

Luxuries

Which of the following was a reason OPEC failed to keep the price of oil high?

Over the long run, producers of oil outside of OPEC responded to higher prices by expanding their production.

In which of these cases will the tax burden fall most heavily on sellers of the good?

The demand curve is relatively flat and the supply curve is relatively steep.

Suppose that when the price of corn is $2 per bushel, farmers can sell 10 million bushels. When the price of corn is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true?

The demand for corn is price inelastic, and so an increase in the price of corn will increase the total revenue of corn farmers.

Which of the following statements is valid when supply isperfectly elastic at a price of $4?

The elasticity of supply approaches infinity.

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

There are many close substitutes for this good.

If the price elasticity of demand for a good is about 1.3, then which of the following is consistent with a 7 percent increase in the quantity demanded of the good?

a 5.4 percent decrease in the price of the good

The minimum wage was instituted to ensure workers

a minimally adequate standard of living.

If a binding price ceiling is imposed on the computer market, then

a shortage of computers will develop.

When consumers face rising gasoline prices, they typically

reduce their quantity demanded more in the long run than in the short run.

Suppose that in a particular market, the supply curve is relatively inelastic and the demand curve is relatively elastic. If a tax is imposed in this market, then the

sellers will bear a greater burden of the tax than the buyers.

Refer to Figure 6-3. If the government imposes a price ceiling of $8 on this market, then there will be a

shortage of 20.

When OPEC raised the price of crude oil in the 1970s, it caused a

shortage of gasoline as the nonbinding price ceiling became binding.

Suppose you are in charge of setting prices at a local sandwich shop. The business needs to increase its total revenue and your job is on the line. If the demand for sandwiches is elastic, you

should decrease the price of sandwiches.

Which of the following is correct? Price controls often help

some of those they are designed to help.

If sellers do not adjust their quantities supplied at all in response to a change in price,

supply is perfectly inelastic.

Suppose that the government imposes a tax on corn used in the production of ethanol. The deadweight loss from this tax will likely be greater if

buyers and sellers have two years to adjust to the tax than if buyers and sellers have two months to adjust to the tax, because demand and supply will be more elastic.

A legal maximum on the price at which a good can be sold is called a price

ceiling.

The cross-price elasticity of demand can tell us whether goods are

complements or substitutes.

A surplus exists in a market if

the current price is above its equilibrium price.

There are very few, if any, good substitutes for motor oil. Therefore,

the demand for motor oil would tend to be inelastic.

Refer to Figure 5-11. When price falls from $50 to $40, it can be inferred that demand between those two prices is

elastic, since total revenue increases from $5,000 to $8,000.

Holding all other forces constant, if decreasing the price of a good leads to an increase in total revenue, then the demand for the goodmust be

elastic.

When quantity demanded responds strongly to changes in price, demand is said to be

elastic.

When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method,we know that the demand for bubble gum is

elastic.

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

income elasticity of demand is negative.

If the cost of producing flip-flops decreases, then consumer surplus in the flip-flop market will

increase.

A major university study finds that drinking green tea has many health benefits. As a result, the equilibrium price of green tea

increases, and producer surplus increases.

Refer to Figure 5-4. The section of the demand curve from B to C represents the

inelastic section of the demand curve.

If goods A and B are complements, then an increase in the price of good A will result in

less of good B being sold

The size of the deadweight loss that results from a tax on cola is smaller, the

less time cola sellers have to adjust to the tax.

The deadweight loss from a $1 tax per unit will be largest in a market with a

long amount of time for sellers to adjust to a price change and many close substitutes.

The supply of a good will be more elastic, the

longer the time period being considered.

If the government removes a tax on buyers of a good and imposes the same tax on sellers of the good, then the price paid by buyerswill

not change and the price received by sellers will not change.

If the government removes a $4 tax on buyers of restaurant meals and imposes the same $4 tax on sellers of restaurant meals, then the price paid by buyers will

not change, and the price received by sellers will not change.

Frequently, in the short run, the quantity supplied of a good is

not very responsive to price changes.

The price elasticity of demand measures how much

quantity demanded responds to a change in price

The local restaurant makes such great nachos 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

raise the price of the nachos.

A tax imposed on the buyers of a good will

raise the price paid by buyers and lower the equilibrium quantity.

If a price floor is not binding, then

the equilibrium price is above the price floor.

If a tax is levied on the sellers of a product, then the demand curve

will not shift.

A concert venue sells 15,000 tickets to a show, regardless of the market price. For this firm, the price elasticity of supply is

zero

Refer the Scenario. Dominic plows Soraya's driveway for $85. Dominic's opportunity cost of plowing Soraya's driveway is $55, and Soraya's willingness to pay Dominic to plow her driveway is $100. If Soraya hires Dominic to plow her driveway, Dominic's producer surplus is

$30.

Refer to Figure 6-10. The per-unit burden of the tax is

$4 on buyers and $6 on sellers.

Refer to Figure 5-13. Using the midpoint method, whatis the price elasticity of supply between points D and G?

0.53

Refer to Table 5-4.As price rises from $10 to $12, the price elasticity of demand using the midpoint method is approximately

0.58.

If a 40% change in price results in a 25% change in quantity supplied, then the price elasticity of supply is

0.63, and supply is inelastic.

Using the midpoint method, at a price of $16, what is the income elasticity of demand when income rises from $5,000 to $10,000?

1.00

If the price elasticity of supply is 1.5, and a price increase led to a 3% increase in quantity supplied, then the price increase amounted to

2%.

Suppose the government has imposed a price floor on cheese. Which of the following events could transform the price floor from one that is binding to one that is not binding?

A bovine disease affects half of the cow population resulting in a higher price for milk.

In which of these instances is demand said to be perfectly inelastic?

A decrease in price of 6% causes an increase in quantity demanded of 0%.

Alice says that she would buy one banana split a day regardless of the price. If she is telling the truth,

Alice's demand for banana splits is perfectly inelastic.

Which of the following statements is not valid when the market supply curve is vertical?

An increase in market demand will increase the equilibrium quantity.

The distinction between efficiency and equality can be described as follows:

Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie uniformly among members of society.

The value of everything a seller must give up to produce a good is called producer surplus.

False

Refer to Figure 6-4. For a price ceiling to be binding in this market, it would have to be set at

any price below $6.

When a tax is placed on the buyers of hockey skates, the size of the hockey skate market

decreases, but the price paid by buyers increases.

Suppose that 4000 tires are demanded at a particular price. If the price of tires rises from that price by 8 percent, the number of tires demanded falls to 3800. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

demand for tires in this price range is inelastic.

For which of the following goods is the income elasticity of demand likely highest?

diamonds

If the government wants to reduce smoking, it should impose a tax on

either buyers or sellers of cigarettes.