Micro Test 2
Rent-control laws dictate...
A maximum rent that landlords may charge tenants.
Minimum-wage laws dictate...
A minimum wage that firms may pay workers.
When the price of good A is $50, the quantity demanded for good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is...
0.67, and an increase in price will result in an increase in total revenue for good A.
Suppose that Jenny enjoys Diet Coke so much that she consumes one can every day. Although she enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her consumption by a lot. These examples illustrate the importance of...
A necessity versus a luxury in determining the price elasticity of demand.
When the supply of a good decreases and the demand for the good remains unchanged, consumer surplus...
Decreases.
Suppose there is currently a tax of $50 per ticket on airline tickets. Buyers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the...
Demand curve will shift upward by $20, and the effective price received by sellers will increase by less than $20.
Suppose the government imposes a $40 tax on the buyers of refrigerators. The tax would...
Discourage market activity.
A $2 tax per gallon of paint is placed on the buyers of paint will shift the demand curve...
Downward by exactly $2.
A tax imposed on the buyers of a good will lower the...
Effective price received by sellers and lower the equilibrium quantity.
When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is...
Inelastic.
Necessities such as food and clothing tend to have...
Low price elasticities of demand and low income elasticites of demand.
The price elasticity of demand measures how much...
Quantity demanded responds to a change in price.
If a change in the price of a good results in no change in total revenue, then...
The demand for the good must be unit elastic.
The "invisible hand" refers to...
The marketplace guiding self-interests of market participants into promoting general economic well-being.
Labor taxes may distort labor markets greatly if...
The number of hours many part-time workers want to work is very sensitive to the wage rate.
Which of the following will cause an increase in producer surplus?
The price of a substitute increases.
Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good?
The quantity of the good demanded decreases by 0.2 percent.
A key determinant of the price elasticity of supply is the...
Time horizon.
What happens to the total surplus in a market when the government imposes a tax?
Total surplus decreases.
We can say that the allocation of resources is efficient if...
Total surplus is maximized.
The price elasticity of demand for mobile phones...
Will be lower if consumers perceive mobile phones to be a necessity.
Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called...
Willingness to pay.
The marginal seller is the seller who...
Would leave the market first if the price were any lower.
Last year, Tess bought 5 handbags when her income was $54,000. This year her income was $60,000, and she purchased 7 handbags. Holding other factors constant, it follows that Tess's income elasticity of demand is about...
3.17, and Tess regards handbags as normal goods.
In the market for widgets, the supply curve is typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is $200 per month when there is no tax. Then a tax of $5 per widget is imposed. The price paid by buyers increase by $2 and after-tax priced received by sellers falls by $3. The government is able to raise $750 per month in revenue from the tax. The deadweight loss from the tax is...
$125.
Suppose that when the price of good X increases from $800 to $850, the quantity demanded of good Y increases from 65 to 70. Using the midpoint method, the cross price elasticity of demand is about...
1.2, and X and Y are substitutes.
Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2000 packages per week. When the price is $280, the quantity demanded is 1700 packages per week. Using the midpoint method, the price elasticity of demand is about...
1.43, and an increase in the price will cause hotels' total revenue to decrease.
Which of the following is likely to have the most price inelastic demand?
Athletic shoes.
On a graph, consumer surplus is represented by the area...
Below the demand curve and above price.
Demand is said to be price elastic if...
Buyers respond substantially to changes in the price of the good.
If the government levies a $500 tax per can on sellers of cars, then the price received by sellers of cars would...
Decrease by less than $500.
Which of the following will cause a decrease in producer surplus?
Income increases and buyers consider the goods to be inferior.
If the government levies a $5 tax per ticket on buyers of NFL game tickets, then the price paid by buyers of NFL game tickets would...
Increase by less than $5.
Other things equal, the deadweight loss of a tax...
Increases as the size of the tax increases, and the increase in the deadweight loss is more rapid than the increase in the size of the tax.
Other things equal, the deadweight loss of tax...
Increases as the size of the tax increases, and the increase in the deadweight loss is more rapid than the increase in the size of the tax.
The deadweight loss from a tax of $2 per unit will be smallest in a market with...
Inelastic supply and inelastic demand.
Suppose the demand for peanuts increases. What will happen to producer surplus in the market for peanuts?
It increases.
How is the burden of tax divided?
Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear some proportion of the tax burden.
Taxes cause deadweight losses because they...
Lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government. Distort incentives to both buyers and sellers. Prevent buyers and sellers from realizing some of the gains from trade.
The minimum wage, if it is binding, lower the incomes of...
Only those workers who become unemployed.
For which pairs of goods is the cross-price elasticity most likely to be negative?
Peanut butter and jelly.
For which pairs of goods is the cross-price elasticity most likely to be positive?
Pens and pencils.
Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is...
Positive, and the good is a normal good.
Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be...
Positive.
Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the...
Quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases.
If a nonbinding price ceiling is imposed on a market, then the...
Quantity sold in the market will stay the same.
A tax on a good...
Raises the price that buyers effectively pay and lowers the price that sellers effectively receive.
When consumers face rising gasoline prices, they typically...
Reduce their quantity demanded more in the long run than in the short run
Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when the...
Supply of the product is more elastic than the demand for the product.
The deadweight loss from a tax of $2 per unit will be smallest in a market with...
Supply of the product is more elastic than the demand for the product.
One result of a tax, regardless of whether the tax is placed on the buyers or the sellers, is that the...
Tax reduces the welfare of both buyers and sellers.
