Microeconomics HW (Ch 4, 5, 6)

An effective price floor that could be set in the market in the graph shown would be:

$23

If supply and demand analysis is a measure of how, then elasticity is a measure of:

how much.

Which of the following has more elastic demand in the short run? a. Pomegranate juice or drinking water: b. Cereal or Rice Krispies cereal: c. Speedboats or gourmet chocolate:

a. Pomegranate juice b. Rice Krispies c. Speedboats

The graph shown best represents:

an ineffective price floor

Does a subsidy to sellers affect the demand curve?

No, the quantity demanded will increase, but the demand curve does not move.

According to the graph shown, if the market goes from equilibrium to having its price set at $10 then:

producer surplus rises by area B, but falls by area E.

When a market is efficient,

there is no exchange that can make anyone better off without someone becoming worse off.

If the cross-price elasticity of two goods is 0.25, then we know that:

those goods are substitutes because their elasticity is greater than zero.

The size of the percentage change in quantity supplied of a good or service when its price changes is called by one percent is called:

price elasticity of supply.

We can consider the market for travelling to Mars to be missing, because no technology exists that allows this service to be bought and sold. Suppose that someone has invented space-travel technology that will enable this service to be provided. The figure below shows the estimated market for trips to Mars. The surplus that could be generated by filling in this missing market is $____thousand.

$3,200 +/- 2%

Suppose that when the price of peanut butter rises from $1 to $2 per jar, the quantity of jelly purchased falls from 20 million jars to 15 million jars. Instructions: Round your answer to three decimal places and include a negative sign if appropriate. The cross-price elasticity of demand between peanut butter and jelly using the midpoint method is ____ The goods are _____

-0.43+/-0.51 complements

If price elasticity of demand is -1.3 and price increases by 2 percent, quantity demanded will ___ by ___.

decrease; >2 percent

Ray just got a raise, and decided to splurge on a fancy dinner to celebrate. The change to Ray's demand for fancy dinners could be captured by the =:

income elasticity of demand.

If the government wants to encourage the consumption of a particular good, they should enact:

a subsidy on either buyers or sellers, since they will both have the same effect on the market.

Pencils are likely _____ than diamonds because _____.

more price elastic; they have more available substitutes.

According to the graph shown, consumer surplus is

$36

If Thelma's willingness to sell her homemade fudge is $4, then at which of the following prices would Thelma sell her fudge?

$4.01

Suppose a tax on sellers has been imposed in the graph shown. Once the tax is in place, the buyers experience:

a decrease in quantity demanded.

A subsidy to buyers has been placed in the market in the graph shown. The result is:

a higher quantity bought and sold at a higher price.

A consumer's willingness to pay:

is the maximum price that a buyer would be willing to pay for a good or service

It is most likely for which of the following to have an income elasticity greater than zero?

Deli meat

Assume the market was in equilibrium in the graph shown. If the market price gets set to $7,which of the following is true?

Some consumers gain surplus, but total surplus falls

Who benefits from a subsidy to buyers?

The benefit is shared depending on the elasticity of the supply and demand curves.

Assume there are three hardware stores in the market for hammers and that all three markets produce a single, standard model hammer. House Depot is an enormous mass producer of hammers and can offer a hammer for sale for a minimum of $7. Lace Hardware is a franchise and can offer the hammer for sale for a minimum of $10. Bob's Hardware store is a family owned and operated, independent hardware store and can offer hammers at a minimum price of $13. Given the scenario described, if the market price of hammers decreased from $15 to $13, which of the following can be said with certainty?

Total producer surplus would decrease

If a good has highly elastic demand, then:

a small percentage change in price will cause a large percentage change in quantity demanded.

Assume there are three hardware stores in the market for hammers and that all three markets produce a single, standard model hammer. House Depot is an enormous mass producer of hammers and can offer a hammer for sale for a minimum of $7. Lace Hardware is a franchise and can offer the hammer for sale for a minimum of $10. Bob's Hardware store is a family owned and operated, independent hardware store and can offer hammers at a minimum price of $13. Given the scenario described, if the market price of hammers increased from $8 to $14, total producer surplus would:

increase from $1 to $12

A market has four individuals considering buying a grill for his backyard. Further assume that grills come in only one size and model. Abe considers himself a grill-master, and finds a grill a necessity, so he is willing to pay $400 for a grill. Butch is a meat-lover, honing his grilling skills, and is willing to pay $350 for a grill. Collin just met the girl of his dreams, and she loves a good grilled steak, so in his effort to impress her he is willing to pay $320 for a grill. Daniel loves grilled shrimp and thinks it might be cheaper in the long run if he buys a grill instead of eating out every time he wants grilled shrimp, so he is willing to pay $200 for a grill. If the market price of grills is $350, given the scenario described, total consumer surplus would be:

$50

If the price of a haircut is $10, the number of haircuts provided is 200. If the price rises to $15 per haircut, barbers will work much longer hours, and the supply of haircuts will increase to 250. Instructions: Round your answer to two decimal places. The price elasticity of supply for haircuts between $10 and $15 using the mid-point method is

.56+/-0.102

Suppose that when the price of coffee beans goes from $1 to $1.20 per pound, production increases from 90 million pounds of coffee beans per year to 100 million pounds. Using the mid-point method, the percentage change in quantity supplied would be:

11 percent

According to the graph shown, producer surplus is area:

B

The following scenarios describe the price elasticity of supply and demand for a particular good. Elastic demand, inelastic supply Elastic demand, elastic supply Inelastic demand, elastic supply Inelastic demand, inelastic supply In which scenario will a subsidy increase consumption the most?

Elastic demand, elastic supply.

The government is deciding where to place a tax of $0.50 because they want to raise revenues. In which market will they likely generate more revenue?

In markets with inelastic supply and demand, since the decrease in quantity traded will be smaller than in a market with elastic supply and demand curves

Would you expect a tax on cigarettes to be more effective over the long run or the short run?

Long run because demand becomes more elastic over time

In which of the following situations can you say, without further information, that consumer surplus decreases relative to the market equilibrium level?

The federal government enforces a law that raises the price of dairy goods above the equilibrium. Your city passes a local property tax, under which buyers of new houses have to pay an additional 5 percent on top of the purchase price.

Scott and Tom have dinner together. When both decide they are full, Scott forces himself to finish the rest of the food on his plate even though he doesn't really want to, while Tom scrapes what's left on his plate into the garbage. How might an economist explain this behavior?

Tom acted rationally, maximizing his utility.

a. Draw a price ceiling at $12 The amount of shortage at this price is _____ The deadweight loss is ______ b. Draw a price ceiling at $4. The amount of shortage at this price is _____ The deadweight loss is _____

a. 0 +/- 2% 0+/- 2% b. 6 +/- 2% 24 +/- 2%

Suppose that when the average family income rises from $30,000 per year to $40,000 per year, the average family's purchases of toilet paper rise from 100 rolls to 105 rolls per year. Instructions: Round your answer to two decimal places. a. The income-elasticity of demand for toilet paper is______ b. Toilet paper is_____ c. The demand for toilet paper is ____

a. .17+/- 2% b. a normal good c. income-inelastic

When the price of a bar of chocolate is $1.00, demand is 100,000 bars. When the price rises to $1.50, demand falls to 60,000 bars. Calculate the price elasticity of demand according to the instructions below. Instructions: Round your answers to two decimal places. Do not include a minus sign. a. Suppose price increases from $1.00 to $1.50. The price elasticity of demand in terms of percentage change is n/r incorrect. b. Suppose price decreases from $1.50 to $1.00. The price elasticity of demand in terms of percentage change is n/r incorrect. c. Suppose the price increases from $1.00 to $1.50. The price elasticity of demand using the mid-point method is d. Suppose the price decreases from $1.50 to $1.00. The price elasticity of demand using the mid-point formula is

a. .80+/- 0.204 b. 2.03+/-0.204 c. 1.25+/- 0.102 d. 1.25+/- 0.102

Government attempts to lower, raise, or simply stabilize prices can:

backfire. create unintended side effects. decrease total surplus. ALL OF THESE ARE TRUE.

The Organization for the Promotion of Brussels Sprouts has convinced the government of Ironia to institute a price floor on the sale of Brussels sprouts, at $8 per bushel. Demand is given by: P = 9 - Q and supply by: P = 2Q, where Q is measured in thousands of bushels. Instructions: Round your answers to the nearest whole number. a. At market equilibrium, the price is $______ per bushel, and the equilibrium quantity is _____ thousand bushels. b. With the price floor, the price is $______ per bushel, and the quantity sold is _______ thousand bushels. c. The excess supply of Brussels sprouts produced with the price floor is _____ thousand bushels.

a. 6+/- 2%; 3+/- 2% b. 8+/- 2%; 1+/- 2% c. 3+/- 2%

Assume the market for wine is functioning at its equilibrium. For each of the following situations, say whether the new market outcome will be efficient or inefficient. a. A new report shows that wine is good for heart health: b. The government sets a minimum price for wine, which increases the current price: c. An unexpected late frost ruins large crops of grapes: d. Grape pickers demand higher wages, increasing the price of wine:

a. Efficient b. Inefficient c. Efficient d. Efficient

Considering the concept of cross-price elasticity, when two goods are complements:

an increase in the price of one will cause a decrease in the quantity demanded of the other.

Markets can be missing:

because public policy prevents the market from existing. when the production of a particular good is banned. because of a lack of accurate information between potential buyers and sellers. ALL OF THESE ARE TRUE

Total surplus:

can never fall below zero

According to the graph shown, if the market goes from equilibrium to having its price set at $10 then:

consumer surplus will decrease from (A + B + C) to (B + C)only. consumer surplus will increase from (A + B + C) to A only. consumer surplus (B + C) will transfer to producers. NONE OF THESE IS TRUE

After a price floor of $23 is placed on the market in the graph shown:

consumers lose because they pay a higher price. producers win because they sell at a higher price. the total traded in the market falls ALL OF THESE ARE TRUE.

Tax incidence:

depends on the relative elasticity of the supply and demand curves in a market.

If price elasticity of supply is 1.3 and price increase by 2 percent, quantity supplied will ____ by ______.

increase; > 2 percent

The loss of total surplus that results when the quantity of a good that is bought and sold is below the market equilibrium quantity:

is deadweight loss. occurs in inefficient markets. occurs when the market price is set above the equilibrium price. ALL OF THESE ARE TRUE

The market to buy and sell organs:

is missing. has been banned by public policy. would create surplus for those who would interact in it. ALL OF THESE ARE TRUE

In the diagram below, draw the price effect and the quantity effect for a price change from $60 to $70. Without calculation, the _____ is larger. Without calculation, total revenue _____

quantity effect; decreases

A tax on sellers:

shifts the supply curve up by the amount of the tax

When a market is not in equilibrium:

total surplus can be increased by a change in market price. the market is not efficient. there are exchanges that can make some better off without someone becoming worse off. ALL OF THESE ARE TRUE

A microchip manufacturing plant is likely to have a ______ price elasticity of supply than a bread bakery due to ______.

less elastic; a less flexible production process

A rare coin dealer is likely to have a _____ price elasticity of supply than a coffee shop due to ________.

less elastic; the availability of inputs

A pack of gum is _____ than a steak because _____.

less price elastic; it is smaller portion of one's income