Microeconomics
Price elasticity of demand formula
% change in QD / % change in price (End value- start value/ average*100)
price ceiling
A legal maximum on the price at which a good can be sold
price floor
A legal minimum on the price at which a good can be sold
total revenue
Price x Quantity
Using the midpoint method, what is the price elasticity of demand when price rises from $9 to $12?
Use this image to answer questions 4 - 6 a. 0.43 b. 0.67 c. 1.50 d. 2.33
If the price decreases from $22 to $16 due to a shift in the supply curve, consumer surplus increases by
a. $120. b. $360. c. $480. d. $600.
Over which range is the supply curve in this figure the most elastic?
a. $16 to $40 b. $40 to $100 c. $100 to $220 d. $220 to $430
At which price would a price ceiling be nonbinding?
a. $2 b. $3 c. $4 d. $6
Assume demand increases and as a result, equilibrium price increases to $22 and equilibrium quantity increases to 110. The increase in producer surplus would be:
a. $210. b. $360. c. $480. d. $570.
The efficient price is
a. $22, and the efficient quantity is 40. b. $22, and the efficient quantity is 110. c. $16, and the efficient quantity is 80. d. $8, and the efficient quantity is 40.
How much tax revenue does this tax produce for the government?
a. $24 b. $30 c. $32 d. $56
The effective price received by sellers after the tax is imposed is
a. $3. b. $4. c. $5. d. $7.
The price paid by buyers after the tax is imposed is
a. $3. b. $4. c. $5. d. $7.
At equilibrium, producer surplus is
a. $36. b. $72. c. $108. d. $144
At equilibrium, total surplus is
a. $36. b. $72. c. $108. d. $144
At equilibrium, consumer surplus is
a. $36. b. $72. c. $108. d. $144.
At which price would a price ceiling be binding?
a. $4 b. $5 c. $6 d. $7
The per-unit burden of the tax is
a. $4 for buyers and $6 for sellers. b. $5 for buyers and $5 for sellers. c. $6 for buyers and $4 for sellers. d. $10 for buyers and $0 for sellers.
A price ceiling set at
a. $4 will be binding and will result in a shortage of 3 units. b. $4 will be binding and will result in a shortage of 6 units. c. $7 will be binding and will result in a surplus of 6 units. d. $7 will be binding and will result in a surplus of 12 units.
A price floor set at
a. $4 will be binding and will result in a shortage of 3 units. b. $4 will be binding and will result in a shortage of 6 units. c. $7 will be binding and will result in a surplus of 6 units. d. $7 will be binding and will result in a surplus of 12 units
The amount of the tax per unit is
a. $4. b. $5. c. $6. d. $10.
How much tax revenue does this tax produce for the government?
a. $480 b. $600 c. $800 d. $1120
At the equilibrium price, consumer surplus is:
a. $480. b. $640. c. $1,120. d. $1,280.
At the equilibrium price, producer surplus is:
a. $480. b. $640. c. $1,120. d. $1,280.
At the equilibrium price, total surplus is:
a. $480. b. $640. c. $1,120. d. $1,280.
At which price would a price floor be binding?
a. $6 b. $5 c. $4 d. $3
At which price would a price floor be nonbinding
a. $8 b. $7 c. $6 d. $5
The effective price received by sellers after the tax is imposed is
a. $8. b. $10. c. $14. d. $18
The price paid by buyers after the tax is imposed is
a. $8. b. $10. c. $14. d. $18.
Assume demand increases and as a result, equilibrium price increases to $22 and equilibrium quantity increases to 110. The increase in producer surplus due to new producers entering the market would be:
a. $90. b. $210. c. $360. d. $480.
Assume demand increases and as a result, equilibrium price increases to $22 and equilibrium quantity increases to 110. The increase in producer surplus to producers already in the market would be:
a. $90. b. $210. c. $360. d. $480.
Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20 units to 25 units. Using the midpoint method, the cross-price elasticity of demand is
a. -1.0, and X and Y are complements b. -1.0, and X and Y are substitutes c. 1.0, and X and Y are complements d. 1.0, and X and Y are substitutes
Which of the following could be cross-price elasticity of demand for two goods that are complements?
a. -1.3 b. 0 c. 0.2 d. 1.4
Using the midpoint method, what is the income elasticity for good X?
a. -3.5 b. -0.29 c. 0.29 d. 3.5
Using the midpoint method, the price elasticity of demand between point C and point D is about?
a. 0.29 b. 0.54 c. 1.86 d. 2.0
Using the midpoint method, the price elasticity of demand between point A and point B is about?
a. 0.33 b. 0.5 c. 2.0 d. 3.0
If the price elasticity of demand for a good is 0.4, then a 10 percent increase in price results in a
a. 0.4% decrease in the quantity demanded b. 2.5% decrease in the quantity demanded c. 4% decrease in the quantity demanded d. 40% decrease in the quantity demanded.
Using the midpoint method, when price rises from $6 to $9, the price elasticity of demand is?
a. 0.43 b. 0.67 c. 1.00 d. 1.5
Using the midpoint method, when price falls from $6 to $3, the price elasticity of demand is?
a. 0.43 b. 0.67 c. 1.50 d. 2.33
Using the midpoint method, the price elasticity of demand between point A and point B is?
a. 1 b. 1.5 c. 2 d. 2.5
Which of the following is correct?
a. One-fourth of the burden of the tax falls on buyers, and three-fourths of the burden of the tax falls on sellers. b. One-third of the burden of the tax falls on buyers, and two-thirds of the burden of the tax falls on sellers. c. One-half of the burden of the tax falls on buyers, and one-half of the burden of the tax falls on sellers. d. Two-thirds of the burden of the tax falls on buyers, and one-third of the burden of the tax falls on sellers.
A price ceiling set at $15 will
a. be binding and will result in a shortage of 50 units. b. be binding and will result in a shortage of 100 units. c. be binding and will result in a shortage of 125 units. d. not be binding.
A price ceiling set at $5 will
a. be binding and will result in a shortage of 50 units. b. be binding and will result in a shortage of 75 units. c. be binding and will result in a shortage of 125 units. d. not be binding.
A price floor set at $20 will
a. be binding and will result in a surplus of 50 units. b. be binding and will result in a surplus of 100 units. c. be binding and will result in a surplus of 250 units. d. not be binding.
A price floor set at $5 will
a. be binding and will result in a surplus of 50 units. b. be binding and will result in a surplus of 75 units. c. be binding and will result in a surplus of 125 units. d. not be binding.
If price increases from $10 to $15, total revenue will
a. increase by $20, so demand must be inelastic in this price range. b. increase by $5, so demand must be inelastic in this price range. c. decrease by $20, so demand must be elastic in this price range. d. decrease by $10, so demand must be elastic in this price range.
If price falls from point A to point B, total revenue
a. increases, and demand is price elastic. b. decreases, and demand is price elastic. c. increases, and demand is price inelastic. d. decreases, and demand is price inelastic.
If price rises from point D to point C, total revenue
a. increases, and demand is price elastic. b. decreases, and demand is price elastic. c. increases, and demand is price inelastic. d. decreases, and demand is price inelastic.
Last year, Joan bought 50 pounds of hamburger when her household's income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. All else constant, Joan's income elasticity of demand for hamburger is?
a. positive, so Joan considers hamburger to be an inferior good. b. positive, so Joan considers hamburger to be a normal good and a necessity. c. negative, so Joan considers hamburger to be an inferior good. d. negative, so Joan considers hamburger to be a normal good but not a necessity.
Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the:
a. steeper the demand curve will be b. flatter the demand curve will be c. further to the right the demand curve will sit d. closer to the vertical axis the demand curve will sit.
If 4 units of the good are produced and sold, then
a. the cost to sellers exceeds the value to buyers. b. producer surplus is maximized. c. total surplus is minimized. d. the allocation of resources is inefficient.
If 10 units of the good are produced and sold, then
a. the marginal cost to sellers exceeds the marginal value to buyers. b. producer surplus is maximized. c. total surplus is minimized. d. the marginal value to buyers exceeds the marginal cost to sellers.
If 110 units of the good are being bought and sold, then
a. the marginal cost to sellers is equal to the marginal value to buyers. b. the marginal value to buyers is greater than the marginal cost to sellers. c. the marginal cost to sellers is greater than the marginal value to buyers. d. producer surplus is greater than consumer surplus.
If 40 units of the good are being bought and sold, then
a. the marginal cost to sellers is equal to the marginal value to buyers. b. the marginal value to buyers is greater than the marginal cost to sellers. c. the marginal cost to sellers is greater than the marginal value to buyers. d. producer surplus would be greater than consumer surplus.
Which of the following is not a determinant of the price elasticity of demand for a good?
a. the time horizon b. the steepness or flatness of the supply curve for the good. c. the definition of the market for the good d. the availability of substitutes for the good.
total surplus
consumer surplus + producer surplus
A tax burden
falls more heavily on the side of the market that is less elastic.
price elasticity of demand
it's always zero and negative
Income Elasticity
measure of how sensitive consumption of good X is to a change in a consumer's income; when you make more money, you buy more and vice-versa
price elasticity of supply
measure of how sensitive the quantity supplied of a good is to changes in price.
Elasticity
measures of how much buyers and sellers responds to changes in market.
price elasticity of demand
shows how much the quantity demanded of a good supplied responds to a change in price.
Consumer Surplus (CS)
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. It increases when price falls.
Producer Surplus (PS)
the amount a seller is paid for a good minus the seller's cost.
total producer surplus
the area above the supply curve and below the price.
total consumer surplus
the area below the demand curve and above the price
cross-price elasticity of demand
the change in price of one goods affect the other
Willingness to Sell (WTS)
the lowest price accepted by a seller for one unit of a good or service.
tax incidence
the manner in which the burden of a tax is shared among participants in a market. Both sides would be affected by it.
Willingness to Pay (WTP)
the maximum amount that a buyer will pay for a good.
Inelastic
there are no substitutes; they are usually necessities.
Efficiency
using resources in such a way as to maximize the production of goods and services.
price floor non binding
when it is below equilibrium
Price Floor Binding
when it's set above equilibrium
elastic
when there are close substitutes to the good
