AP Econ Unit 3
If a perfectly competitive market with no government intervention is allocatively efficient, which of the following must be true?
Consumer surplus plus producer surplus is at its maximum.
Which of the following is true of the substitution effect of an increase in the price of a normal good?
It works to reinforce the income effect.
If a 10 percent increase in the price of a good leads to a 25 percent decrease in the quantity demanded of the good, demand is
relatively elastic
Assume that the price elasticity of demand for good X is constant and equal to -0.5 and the price elasticity of demand for good Y is constant and equal to -2. Assume that goods X and Y have identical upward-sloping elastic supply curves. If a per-unit excise tax of the same amount is levied on good X and on good Y, which of the following would be true?
The tax share paid by consumers of good X would be relatively higher than that paid by consumers of good Y.
Assume that ice cream is a normal good. If the price of ice cream decreases, the substitution effect and the income effect will lead to which of the following changes in ice cream consumption?
sub and income effect increase
Assume that demand for bottled water is relatively price elastic. An increase in supply of bottled water will result in which of the following?
A decrease in price, leading to an increase in total revenue
The diagram above shows the demand curve for a good. If the price increases from P1 to P2, and quantity consumed decreases from Q1 to Q2, consumer surplus decreases by the area
BDC P1P2BC* P1P2BD Q1DCQ2
Suppose that the market supply curve for shoes is upward sloping and the market demand curve is downward sloping. How will the imposition of a sales tax on shoes affect the consumer surplus, the producer surplus, and the total surplus?
Cs, Ps, and Ts decrease
Which of the following statements about the price elasticity of demand is true?
D As more close substitutes become available, demand tends to be more price elastic.
Which of the following is true of the cross-price elasticity of demand?
It is greater than zero for two goods that are substitutes.
Which of the following will tend to make the demand for a product more elastic?
New firms which produce similar products enter the industry.
In the diagram above, if there is a price ceiling set at P1, consumer surplus will be represented by the area
P3ACP1
In which of the following cases would a firm's total revenue increase?
Price decreases and demand is elastic.
Following the imposition of a $4 per-unit tax in a competitive market, the seller's after-tax price falls from the original equilibrium price of $12 to $11. Which of the following statements relating to the imposition of the tax is true?
The new after-tax equilibrium price is $15
Assume that the market demand for a good is perfectly inelastic, the market supply for the good is perfectly elastic, and the market is in equilibrium. If there is a decrease in the price of a key input used in the production of the good, which of the following will occur?
There will be no change in the producer surplus.
Assume that the supply of corn is relatively price inelastic, while the demand for corn is relatively price elastic. If the government imposes a per-unit excise tax on the production of corn, the incidence of the tax will fall
more on sellers than on buyers
The difference between the price a consumer would be willing to pay for a cone of ice cream and the actual market price that she pays gives a measure of her
consumer surplus
If the demand for a good is perfectly price inelastic in the short run and the supply curve is upward sloping, imposing a sales tax on the good will
not change the after-tax revenues received by suppliers
Assume that the price of good X decreases from $10 to $9 per unit and that the quantity demanded of good X increases from 25 to 30 units. In this price range, the demand for good X is
elastic
The quantity of peanuts supplied increased from 40 tons per week to 60 tons per week when the price of peanuts increased from $4 per ton to $5 per ton. The price elasticity of supply for peanuts over this price range is
elastic
