Test 2

The deadweight loss from a $3 tax will be largest in a market with:

elastic supply and elastic demand

The impact of one person's actions on the well-being of a bystander is called:

externality

Price elasticity of demand measures

quantity demanded responds to a change in price

Consumer surplus is equal to the A. Value to buyers - Amount paid by buyers. B. Amount paid by buyers - Costs of sellers. C. Value to buyers - Costs of sellers. D. Value to buyers - Willingness to pay of buyers.

A. Value to buyers - Amount paid by buyers.

Elasticity is A. a measure of how much buyers and sellers respond to changes in market conditions. B. the study of how the allocation of resources affects economic well-being. C. the maximum amount that a buyer will pay for a good. D. the value of everything a seller must give up to produce a good.

A. a measure of how much buyers and sellers respond to changes in market conditions.

All externalities: A. cause markets to fail to allocate resources efficiently B. cause equilibrium prices to be too high C. benefit producers at the expense of consumers D. cause equilibrium prices to be too low.

A. cause markets to fail to allocate resources efficiently.

If the government levies a $500 tax per car on sellers of cars, then the price received by sellers of cars would A. decrease by less than $500. B. decrease by exactly $500. C. decrease by more than $500. D. increase by an indeterminate amount.

A. decrease by less than $500.

Ryan says that he would buy one cup of tea every day regardless of the price. If he is telling the truth, Ryan's: A. demand for tea is perfectly inelastic. B. price elasticity of demand for tea is 1. C. income elasticity of demand for tea is 0. D. None of the above answers is correct.

A. demand for tea is perfectly inelastic.

If the demand for textbooks is inelastic, then an increase in the price of textbooks will A. increase total revenue of textbook sellers. B. decrease total revenue of textbook sellers. C. not change total revenue of textbook sellers. D. There is not enough information to answer this question.

A. increase total revenue of textbook sellers.

If the government removes a binding price ceiling from a market, then the price paid by buyers will A. increase, and the quantity sold in the market will increase. B. increase, and the quantity sold in the market will decrease. C. decrease, and the quantity sold in the market will increase. D. decrease, and the quantity sold in the market will decrease.

A. increase, and the quantity sold in the market will increase.

The tax burden will fall most heavily on buyers of the good when the demand curve: A. is relatively steep, and the supply curve is relatively flat. B. is relatively flat, and the supply curve is relatively steep. C. and the supply curve are both relatively flat. D. and the supply curve are both relatively steep.

A. is relatively steep, and the supply curve is relatively flat.

Willingness to pay A. measures the value that a buyer places on a good. B. is the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept. C. is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept. D. is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

A. measures the value that a buyer places on a good.

Which of the following equations is valid? A. Consumer surplus = Total surplus - Cost to sellers B. Producer surplus = Total surplus - Consumer surplus C. Total surplus = Value to buyers - Amount paid by buyers D. Total surplus = Amount received by sellers - Cost to sellers

B. Producer surplus = Total surplus - Consumer surplus

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct? A. The flatter supply curve represents a supply that is inelastic relative to the supply represented by the steeper supply curve. B. The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve. C. Given two prices with which to calculate the price elasticity of supply, that elasticity would be the same for both curves. D. A decrease in demand will increase total revenue if the steeper supply curve is relevant, while a decrease in demand will decrease total revenue if the flatter supply cure is relevant.

B. The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve.

Rent-control laws dictate A. the exact rent that landlords must charge tenants. B. a maximum rent that landlords may charge tenants. C. a minimum rent that landlords may charge tenants. D. both a minimum rent and a maximum rent that landlords may charge tenants.

B. a maximum rent that landlords may charge tenants.

The case of perfectly elastic demand is illustrated by a demand curve that is A. vertical. B. horizontal. C. downward-sloping but relatively steep. D. downward-sloping but relatively flat.

B. horizontal.

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will A. raise both price and total revenues. B. lower both price and total revenues. C. raise price and lower total revenues. D. lower price and raise total revenues.

B. lower both price and total revenues.

A tax imposed on the sellers of a good will A. raise both the price buyers pay and the effective price sellers receive. B. raise the price buyers pay and lower the effective price sellers receive. C. lower the price buyers pay and raise the effective price sellers receive. D. lower both the price buyers pay and the effective price sellers receive.

B. raise the price buyers pay and lower the effective price sellers receive.

If the price elasticity of supply for a good is equal to infinity, then the A. supply curve is vertical. B. supply curve is horizontal. C. supply curve also has a slope equal to infinity. D. quantity supplied is constant regardless of the price.

B. supply curve is horizontal.

If a price ceiling is not binding, then A. the equilibrium price is above the price ceiling. B. the equilibrium price is below the price ceiling. C. it has no legal enforcement mechanism. D. None of the above is correct because all price ceilings must be binding.

B. the equilibrium price is below the price ceiling.

The price elasticity of demand measures A. buyers' responsiveness to a change in the price of a good. B. the extent to which demand increases as additional buyers enter the market. C. how much more of a good consumers will demand when incomes rise. D. the movement along a supply curve when there is a change in demand.

B. the extent to which demand increases as additional buyers enter the market.

The price elasticity of supply measures how much: A. the quantity supplied responds to changes in input prices. B. the quantity supplied responds to changes in the price of the good. C. the price of the good responds to changes in supply. D. sellers respond to changes in technology.

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

If a tax is levied on the sellers of a product, then there will be a(n) A. downward shift of the supply curve. B. upward shift of the supply curve. C. movement up and to the right along the supply curve. D. movement down and to the left along the supply curve.

B. upward shift of the supply curve.

If demand is price inelastic, then when price rises, total revenue A. will fall. B. will rise. C. will remain unchanged. D. may rise, fall, or remain unchanged. More information is need to determine the change in total revenue with certainty.

B. will rise.

The maximum price that a buyer will pay for a good is called the A. cost. B. willingness to pay. C. equity. D. efficiency.

B. willingness to pay.

The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is considering two po-tential programs: Operation Methbust would increase the number of sheriffs' deputies to search out and de-stroy methamphetamine labs. Operation Say No to Meth would increase the training required of public school teachers so that they could better educate students about the health risks of using meth. Assuming that each program were successful, which of the following statements is correct? A. Both Operation Methbust and Say No would reduce the equilibrium quantity and increase the equilibrium price of meth. B. Both Operation Methbust and Say No would increase the equilibrium quantity and reduce the equilibrium price of meth. C. Both Operation Methbust and Say No would reduce the equilibrium quantity of meth; Operation Methbust would increase the equilibrium price, whereas Say No would reduce the equilibrium price of meth. D. Both Operation Methbust and Say No would reduce the equilibrium price of meth; Operation Methbust would reduce the equilibrium quantity, whereas Say No would increase the equilibrium quantity of meth.

C. Both Operation Methbust and Say No would reduce the equilibrium quantity of meth; Operation Methbust would increase the equilibrium price, whereas Say No would reduce the equilibrium price of meth

A price ceiling will be binding only if it is set A. equal to the equilibrium price. B. above the equilibrium price. C. below the equilibrium price. D. either above or below the equilibrium price.

C. below the equilibrium price.

Price controls A. always produce a fair outcome. B. always produce an efficient outcome. C. can generate inequities of their own. D. All of the above are correct.

C. can generate inequities of their own.

Total surplus is represented by the area below the A. demand curve and above the price. B. price and up to the point of equilibrium. C. demand curve and above the supply curve, up to the equilibrium quantity. D. demand curve and above the horizontal axis, up to the equilibrium quantity.

C. demand curve and above the supply curve, up to the equilibrium quantity.

Good news for farming can be bad news for farmers because the A. supply curve for an individual farmer is usually perfectly elastic. B. supply curve for an individual farmer is usually perfectly inelastic. C. demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right decrease total revenues to sellers. D. demand for basic foodstuffs is usually elastic, meaning that factors that shift supply to the right increase total revenues to sellers.

C. demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right decrease total revenues to sellers.

Tax incidence: A. depends on the legislated burden B. is entirely random C. depends on the elasticities of supply and demand D. falls entirely on buyers or entirely on sellers.

C. depends on the elasticities of supply and demand.

Holding all other forces constant, if increasing the price of a good leads to a decrease in total revenue, then the demand for the good must be A. unit elastic. B. inelastic. C. elastic. D. None of the above is correct because a price increase always leads to an increase in total revenue.

C. elastic.

When a supply curve is relatively flat, the A. sellers are not at all responsive to a change in price. B. equilibrium price changes substantially when the demand for the good changes. C. supply is relatively elastic. D. supply is relatively inelastic.

C. supply is relatively elastic.

If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a A. 0.4 percent decrease in the quantity demanded. B. 2.5 percent decrease in the quantity demanded. C. 4 percent decrease in the quantity demanded. D. 40 percent decrease in the quantity demanded.

D. 40 percent decrease in the quantity demanded.

A binding minimum wage tends to A. cause a labor surplus. B. cause unemployment. C. have the greatest impact in the market for teenage labor. D. All of the above are correct.

D. All of the above are correct.

For a particular good, a 10 percent increase in price causes a 15 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? A. There are no close substitutes for this good. B. The good is a necessity. C. The market for the good is broadly defined. D. The relevant time horizon is long.

D. The relevant time horizon is long.

Which of the following tools and concepts is useful in the analysis of international trade? A. total surplus B. domestic supply C. equilibrium price D. All of the above are correct

D. all of the above are correct

When a buyer's willingness to pay for a good is equal to the price of the good, the A. buyer's consumer surplus for that good is maximized. B. buyer will buy as much of the good as the buyer's budget allows. C. price of the good exceeds the value that the buyer places on the good. D. buyer is indifferent between buying the good and not buying it.

D. buyer is indifferent between buying the good and not buying it.

A legal maximum on the price at which a good can be sold is called a price A. floor. B. subsidy. C. support. D. ceiling.

D. ceiling.

Which of the following is not an example of a public policy? A. rent-control laws B. minimum-wage laws C. taxes D. equilibrium laws

D. equilibrium laws

The greater the price elasticity of demand, the A. more likely the product is a necessity. B. smaller the responsiveness of quantity demanded to a change in price. C. greater the percentage change in price over the percentage change in quantity demanded. D. greater the responsiveness of quantity demanded to a change in price.

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

In general, elasticity is a measure of A. the extent to which advances in technology are adopted by producers. B. the extent to which a market is competitive. C. how firms' profits respond to changes in market prices. D. how much buyers and sellers respond to changes in market conditions.

D. how much buyers and sellers respond to changes in market conditions.

In the case of perfectly inelastic demand, A. the change in quantity demanded equals the change in price. B. the percentage change in quantity demanded equals the percentage change in price. C. infinitely-large changes in quantity demanded result from very small changes in the price. D. quantity demanded stays the same whenever price changes.

D. quantity demanded stays the same whenever price changes.

Which of the following would be the most likely result of a binding price ceiling imposed on the market for rental cars? A. frequent rental programs such as "Rent nine times and the tenth rental is free!" B. enhanced maintenance programs to promote the high quality of the cars C. free gasoline given to people as an incentive to a rent a car D. slow replacement of old rental cars with newer ones

D. slow replacement of old rental cars with newer ones

A tariff is:

a tax on an imported good

When demand is elastic, a decrease in price will cause

an increase in total revenue.