MICRO (HWS 5,6,7,8, and 9)

This table refers to five possible buyers' willingness to pay for a six pack of Pepsi. If the price of Pepsi is $6.90, how much consumer surplus will there be?

$1.70

The burden of the tax on buyers per unit is (Note, the above demand curve closer to the origin should read: D After Tax)

$2

Rea would be willing to pay as much as $100 per week to have her house cleaned. Jason's opportunity cost of cleaning Rea's house is $55 per week. If Rea pays Jason $80 to clean her house, Jason's producer surplus is $80. $100. $55. None of the above. $25. $45

$25

How much tax revenue is collected from the sellers? (Note, the above demand curve closer to the origin should read: D After Tax) $6 $60 $120 $480 $360 $240.

$360

The equilibrium price in the market before the tax is imposed is (Note, the above demand curve closer to the origin should read: D After Tax)

$6

What is the total surplus area in the market when the price is P 1? A + B B + C C + D A + B + C + D B + C + D None of the above

B + C

The amount of deadweight loss associated with the tax is equal to P 1 D C P 2. P 2 A D P 3. D B C A B D. None of the answer choices are correct P 3 A C P 1.

None of the answer choices are correct

The graph below represents a $10 per unit tax on a good. On the graph, Q represents quantity and P represents price. The tax causes consumer surplus to decrease by the area A + B + C. A. C None of the answer choices are correct A + B + C+ D + F. B

None of the answer choices are correct

Economists define producer surplus as the

amount a seller is paid minus the cost of production.

The following situation isn't very common, however, if there is perfectly elastic demand then

any rise in price above that represented by the demand curve will result in a quantity demanded of zero.

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.

Goods that are a necessity for life like food and medicine

demand tends to be inelastic

The larger the number (in absolute value) of the price elasticity of demand, the

greater the responsiveness of quantity demanded to a change in price.

Given that the amount of land in Pitt County is fixed, the total supply of Pitt County land is relatively inelastic. relatively elastic. perfectly elastic. perfectly inelastic.

perfectly inelastic.

If a tax is placed on a good, then the goods' buyers and sellers share the burden,

regardless of how the tax is levied.

How do Economists' measure the gains and losses after a tax is imposed on a good? Economists use the tools of

welfare economics.

On the graph below, Q represents the quantity of the good and P represents the good's price. If the price of the good is $14, then producer surplus is $17. $22. $25. $28. $20 None of the above

$28.

The amount of the tax per unit is (Note, the above demand curve closer to the origin should read: D After Tax)

$3

Total revenue when the price is P 2 is represented by the area(s)

A + B

Which area represents consumer surplus at a price of P 1? ABD ACF BCDE DEF

ABD

Sellers whose costs are less than price are represented by segment AC. CE. BC. CD.

BC.

As price falls from P A to P B, which demand curve is most elastic demand?

D 1

The graph below shows a per unit tax of $10. On the graph, Q represents quantity and P represents price. The government collects tax revenue that is represented by the area None of the answer choices are correct F + G + L. L. A + B + D. C + F.

None of the answer choices are correct

Which supply curve represents perfectly inelastic supply?

S1

The price of a pepperoni pizza is $10. Suppose that there is a $1 tax imposed on pepperoni pizza. What do you expect to happen to the price and quantity of pepperoni pizza? The price of pepperoni pizzas will be between $10 and $11 and fewer will be sold. The price of pepperoni pizzas will be $11 and fewer will be sold. The price of pepperoni pizzas will be between $10 and $11 and more pizzas will be sold. The price of pepperoni pizzas will be $10 and fewer will be sold. None of the above. The price of pepperoni pizzas will exceed $11 and fewer will be sold.

The price of pepperoni pizzas will be between $10 and $11 and fewer will be sold

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

True

If the price elasticity of demand for a good is -0.94, then which of the following events is consistent with a 4 percent decrease in the quantity of the good demanded?

a 4.255 percent increase in the price of the good

An efficient allocation of resources requires that

all potential gains from trade among buyers and sellers are being realized.

Graphically, consumer surplus is represented as the area

below the demand curve and above price.

A legal minimum price at which a good can be sold is

called a price floor.

In the long run, the quantity supplied of most goods

can respond substantially to a change in price.

The term Economists' use for the loss in total surplus after a tax is called deadweight loss. inefficiency. economic loss. a deficit.

deadweight loss.

Another question on the same topic: total revenue and elasticities: Jenna makes bracelets. If the demand for bracelets is elastic and Jenna wants to increase her total revenue, she should

decrease the price of her bracelets.

Suppose that a technological advance in wheat production (maybe an improved seed, a better tractor, improvements in fertilizers, etc.) leads to a reduction in farmers' total revenue. This is likely because the

demand for wheat is inelastic.

It's important that you understand the relationship between price elasticity of demand and total revenue. What this in mind, if a price increase leads to an increase in total revenue then we know....

demand is inelastic.

Total revenue

remains unchanged as price increases when demand is unit elastic

If there is a price ceiling in this market at a price of $5.00, the result would be a

shortage of 20 units.

If demand is elastic then which of the following statements must be true:

the percentage change in quantity demanded is larger than the percentage change in price

All of the following determine the price elasticity of demand for a good except:

the steepness or flatness of the supply curve for the good

If the price doubles from $6 to $12, what happens to total revenue. What can we infer about the price elasticity of demand?

total revenue would increase and demand is inelastic between points C and B.

Which of these scenarios is most likely if a tax is imposed on the sellers of a good then this will

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

A binding price ceiling occurs if the price ceiling is set at

$8.

On the graph below, Q represents the quantity of the good and P represents the good's price. If the price of the good is $6, then consumer surplus is $4. $6. $8. $10. None of the above.

$8.

If the price of good X increases by 4 percent and there is a 4 percent decrease in the quantity demanded of good X then the price elasticity of demand for X is:

-1.

If the price elasticity of demand for a good is -0.40, then a 1 percent increase in price results in a

0.4 percent decrease in the quantity demanded.

The price that sellers effectively receive after the tax is imposed is P 1. impossible to determine from the figure. P 2. P 3.

P1

The price that buyers effectively pay after the tax is imposed is impossible to determine from the figure. P 1. P 2. P 3.

P3

Here is the other extreme case, (once again, this is highly unlikely), in the situation of perfectly inelastic demand,

quantity demanded stays the same whenever price changes.

The price that sellers receive after the tax is imposed is (Note, the above demand curve closer to the origin should read: D After Tax)

$5

Your income elasticity of demand for ECU women's basketball tickets tickets is 1.50. All else equal, this means that if your income increases by 20 percent, then you will buy

30 percent more basketball tickets.

What is the producer surplus are if price is P 2? BCE ACF ABED DEF AFQ2

ACF

Total surplus

All of the above are correct.

Suppose that the price elasticity of supply of meatball sandwiches is ES = 2.2. The price elasticity of demand for meatball sandwiches is EP = -1.6. If there is a $1 tax per meatball sandwich, what do you expect in terms of the tax incidence? Buyers and sellers will share the burden of the tax, however, sellers will pay more of the tax than buyers. Buyers will pay the entire burden of the $1 tax. Sellers will pay the entire burden of the $1 tax. Buyers and sellers will equally share the tax burden. Buyers and sellers will share the burden of the tax, however, buyers will pay more of the tax than sellers.

Buyers and sellers will share the burden of the tax, however, buyers will pay more of the tax than sellers.

The graph below shows a goods' tax of $10 per unit. On the graph, Q represents quantity and P represents price. The decrease in consumer and producer surpluses that is not offset by tax revenue is the area C. None of the answer choices are correct F. G. C + F.

C + F

Buyers who value this good less than price are represented by which line segment? AC. CE. BC. CD.

CE

Courtney enjoys bananas, so much that she would be willing to pay more than she now pays. Suppose that Courtney learns from her personal trainer that a banana after a work-out is a good food choice which promotes muscle recovery. This advice causes Courtney to change her tastes such that she values bananas more than before. If the market price is the same as before, then

Courtney's consumer surplus would increase.

Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.

False

True/False: There is a price floor at McDonald's for Big Macs.

False

Suppose that the price elasticity of supply for wine is 1.4. What does this number mean in words?

If the price of wine increases by 2 percent than the quantity supplied increases by 2.8 percent

The graph below shows a tax per unit of $10. On the graph, Q represents quantity and P represents price. After the tax, the producer surplus is the area D + F + G + H + J. D + F + J. A D + F + G + H. None of the answer choices are correct J.

J

For which of the following goods would demand be most elastic?

Levi 's jeans

Meredith really likes banana splits, so much that she claims that she would buy one banana split a day regardless of the price. If she is telling the truth,

Meredith's demand for banana splits is perfectly inelastic.

At the market-clearing equilibrium, total surplus is represented by the area A + B + C. A + B + D + F. D + E + F. A + B + C + D + E + F + G + H. C + E None of the above.

None of the above

The following table represents the costs of five possible sellers. If the market price is $900, the producer surplus in the market is $1100. $900. $750. $400. None of the above

None of the above

How much tax revenue does this tax produce for the government? (Note, the above demand curve closer to the origin should read: D After Tax) 480 $200 $800 $1,080 $100 None of the above.

None of the above.

Rea would be willing to pay as much as $100 per week to have her house cleaned. Jason's opportunity cost of cleaning Rea's house is $55 per week. If Rea pays Jason $80 to clean her house, Rea's consumer surplus is $80. $25. $45 None of the above. $55. $100.

None of the above.

Shelia buys some yoga pants for $35. If she receives consumer surplus of $20 then this implies that her willingness to pay for the yoga pants is $25. $15. $50. None of the above.

None of the above.

Suppose that there is a price floor at $5. Find the equilibrium price and quantity. Determine the amount of shortage or surplus (if one exists). Price is $5, Quantity is 40, shortage of 20 units. Price is $5, Quantity is 40, surplus of 20 units. Price is $5, Quantity is 40, shortage of 10 units. Price is $5, Quantity is 40, surplus of 10 units. None of the above.

None of the above.

The effective price that buyers pay after the tax is imposed is (Note, the above demand curve closer to the origin should read: D After Tax) $9. $6. $5. $3. None of the above.

None of the above.

What is the per unit burden of the tax on sellers: (Note, the above demand curve closer to the origin should read: D After Tax) $0.50 per unit. $1.50 per unit. $2.00 per unit. $2.50 per unit. $3.00 per unit. None of the above.

None of the above.

When the price falls from P 1 to P 2, which area represents the increase in consumer surplus? ABD ACF BCED DEF None of the above.

None of the above.

The per-unit burden of the tax on sellers is P 3 - P 1. Q 2 - Q 1. P 2 - P 1. P 3 - P 2.

P 2 - P 1

The equilibrium price before the tax is imposed is P 1. None of the answer choices are correct. P 3. P 2.

P 2.

The amount of the tax on each unit of the good is None of the answer choices are correct P 3 - P 2. Q 2 - Q 1. P 2 - P 1. P 3 - P 1.

P 3 - P 1.

The per unit burden of the tax on buyers is Q 2 - Q 1. P 3 - P 1. P 2 - P 1. P 3 - P 2.

P 3 - P 2.

The amount of tax revenue received by the government is equal to the area P 1 C D P 2. D B C A B C. P 2 D A P 3. P 3 A C P 1. None of the answer choices are correct

P 3 A C P 1.

If the price of corn is $3 per bushel, farmers can sell 10 million bushels. When the price of corn is $4 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.

Housing shortages caused by rent control likely have what effect over time?

The shortage will increase, because the demand for, and supply of, housing are more elastic in the long run.

Denise values the new iPhone at $600. The actual price of the iPhone is $1000. Denise

does not buy the iPhone and she experiences a consumer surplus of $0 on her non-purchase.

If a tax is placed on the buyers of a good, then we expect that the demand curve shifts

downward by the amount of the tax.

Should there be a large quantity demanded response to a change in price, then economists say that demand is

elastic

In panel (a), with the price floor in effect, there will be

equilibrium in the market.

A consumer's willingness to pay directly measures

how much a buyer values a good.

What does the price elasticity of supply measure?

how the quantity supplied responds to changes in the price of the good.

Once again, same concept, this time with a graph - if price increases from $10 to $15, total revenue will

increase by $20, so demand must be inelastic in this price range.

If the demand for ECU football tickets is elastic, then a decrease in the price of ECU football tickets will

increase total revenue.

If a tax is imposed on the buyers of flashlights, then the burden of the tax will fall

on both the buyers and the sellers.

Should the price of gasoline increases overnight by $1 per gallon, when will the price elasticity of demand (in absolute value) likely be the highest?

one year after the price increase.

The demand for Chocolate ice cream is likely quite elastic because

other flavors of ice cream are good substitutes for this particular flavor.

How is the price elasticity of demand calculated (something that you'll need to know on the next test :)

percentage change in quantity demanded divided by the percentage change in price.

Suppose you and your roommate eat three packages of Food Lion Mac and Cheese each week. After graduating from ECU, both of you get real jobs and make some real money. You still enjoy Food Lion Mac and Cheese very much and buy even more, however, your roommate now upgrades to Kraft Mac and Cheese (no longer buying the Food Lion brand). Economists would say that the income elasticity of Food Lion Mac and Cheese is:

positive for you and negative for your roommate.

If two goods are substitutes, their cross-price elasticity will be

positive.

When government imposes a binding price ceiling or a price floor in a market,

price no longer serves as a rationing device.

In the situation where demand is inelastic then the

quantity demanded changes proportionately less than price.

Notice a theme yet ? Another question about elasticities and revenues.....If corn farmers know that the demand for corn is inelastic, and they want to increase their total revenue, what do you recommend?

reduce the number of acres they plant in corn.

If the government imposes a price ceiling of $2.00 in this market, the result is a

shortage of 50 units of the good.

Price elasticity of supply is primarily determined by

the ability of sellers to change the amount of the good they produce.

What does it mean if a price control is "binding"?

the price control has an effect in the market.

The term income elasticity of demand captures how

the quantity demanded changes as consumer income changes.

Should the minimum wage exceed the equilibrium wage then

the quantity supplied of labor will exceed the quantity demanded.

Efficiency in a market is achieved when

the sum of producer surplus and consumer surplus is maximized.

You were just diagnosed with heart disease. Your doctor prescribed Crestor and there is no generic available yet for Crestor. Therefore,

your demand for Crestor would tend to be inelastic.