BUS 260 Exam 2

If goods A and B are complements, then an increase in the price of good A will result in a. more of good A being sold. b. more of good B being sold. c. less of good B being sold. d. no difference in the quantity sold of either good

Less of good B being sold

In which of these cases will the tax burden fall most heavily on sellers of the good? a. The demand curve is relatively steep and the supply curve is relatively flat. b. The demand curve is relatively flat and the supply curve is relatively steep. c. The demand curve and the supply curve are both relatively flat. d. The demand curve and the supply curve are both relatively steep

The demand curve is relatively flat and the supply curve is relatively steep.

Suppose that when the price of corn is $2 per bushel, farmers can sell 10 million bushels. When the price of corn is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? a. The demand for corn is income inelastic, and so an increase in the price of corn will increase the total revenue of corn farmers. b. The demand for corn is income elastic, and so an increase in the price of corn will increase the total revenue of corn farmers. c. The demand for corn is price inelastic, and so an increase in the price of corn will increase the total revenue of corn farmers. d. The demand for corn is price elastic, and so an increase in the price of corn will increase the total revenue of corn farmers.

The demand for corn is price inelastic, and so an increase in the price of corn will increase the total revenue of corn farmers.

Which of the following statements is valid when supply is perfectly elastic at a price of $4? a. The elasticity of supply approaches infinity. b. The supply curve is vertical. c. At a price below $4, quantity supplied is infinite. d. At a price above $4, quantity supplied is zero.

The elasticity of supply approaches infinity.

Which of the following statements is valid when supply is perfectly elastic at a price of $4? a. The elasticity of supply approaches infinity. b. The supply curve is vertical. c. At a price below $4, quantity supplied is infinite. d. At a price above $4, quantity supplied is zero.

The elasticity of supply approaches infinity.

When consumers face rising gasoline prices, they typically a. reduce their quantity demanded more in the long run than in the short run. b. reduce their quantity demanded more in the short run than in the long run. c. do not reduce their quantity demanded in the short run or the long run. d. increase their quantity demanded in the short run but reduce their quantity demanded in the long run.

reduce their quantity demanded more in the long run than in the short run

Refer to Figure 6-3. If the government imposes a price ceiling of $8 on this market, then there will be a a. shortage of 0. b. shortage of 10. c. shortage of 20. d. shortage of 40.

shortage of 20

1. If a binding price ceiling is imposed on the computer market, then a. the demand for computers will increase. b. the supply of computers will decrease. c. a shortage of computers will develop. d. All of the above are correct.

shortage of computers develop

Suppose you are in charge of setting prices at a local sandwich shop. The business needs to increase its total revenue and your job is on the line. If the demand for sandwiches is elastic, you a. should increase the price of sandwiches. b. should decrease the price of sandwiches. c. should not change the price of sandwiches. d. could not determine what to do with price until you determine whether supply is elastic or inelastic.

should decrease the price of sandwiches.

If sellers do not adjust their quantities supplied at all in response to a change in price, a. advances in technology must be prevalent. b. the time period under consideration must be very long. c. supply is perfectly elastic. d. supply is perfectly inelastic.

supply is perfectly inelastic.

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.

c. support.

The cross-price elasticity of demand can tell us whether goods are a. normal or inferior. b. elastic or inelastic. c. luxuries or necessities. d. complements or substitutes.

complements or substitutes

For a good that is a luxury, demand a. tends to be inelastic. b. tends to be elastic. c. has unit elasticity. d. cannot be represented by a demand curve in the usual way.

tends to be elastic

A surplus exists in a market if a. there is an excess demand for the good. b. the situation is such that the law of supply and demand would predict an increase in the price of the good from its current level. c. the current price is above its equilibrium price. d. quantity demanded exceeds quantity supplied.

the current price is above its equilibrium price

There are very few, if any, good substitutes for motor oil. Therefore, a. the demand for motor oil would tend to be inelastic. b. the demand for motor oil would tend to be elastic. c. the demand for motor oil would tend to respond strongly to changes in prices of other goods. d. the supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars.

the demand for motor oil would tend to be inelastic.

When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is a. inelastic. b. elastic. c. unit elastic. d. perfectly inelastic.

elastic

Refer to Figure 5-11. When price falls from $50 to $40, it can be inferred that demand between those two prices is a. inelastic, since total revenue decreases from $8,000 to $5,000. b. inelastic, since total revenue increases from $5,000 to $8,000. c. elastic, since total revenue increases from $5,000 to $8,000. d. unit elastic, since total revenue does not change.

elastic, since total revenue increases from $5,000 to $8,000.

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. The relevant time horizon is short. b. The good is a necessity. c. The market for the good is broadly defined. d. There are many close substitutes for this good.

here are many close substitutes for this good.

If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the a. cross-price elasticity of demand is negative. b. price elasticity of demand is elastic. c. income elasticity of demand is negative. d. income elasticity of demand is positive.

income elasticity of demand is negative.

Refer to Figure 5-4. The section of the demand curve from B to C represents the a. elastic section of the demand curve. b. perfectly elastic section of the demand curve. c. unit elastic section of the demand curve. d. inelastic section of the demand curve.

inelastic section of the demand curve

The supply of a good will be more elastic, the a. more the good is considered a luxury. b. broader is the definition of the market for the good. c. larger the number of close substitutes for the good. d. longer the time period being considered.

longer the time period being considered

A tax imposed on the sellers of a good will a. lower the price paid by buyers and lower the equilibrium quantity. b. lower the price paid by buyers and raise the equilibrium quantity. c. lower the effective price received by sellers and lower the equilibrium quantity. d. lower the effective price received by sellers and raise the equilibrium quantity.

lower the effective price received by sellers and lower the equilibrium quantity.

For which of the following types of goods would the income elasticity of demand be positive and relatively large? a. all inferior goods b. all normal goods c. goods for which there are many complements d. Luxuries

luxeries

Frequently, in the short run, the quantity supplied of a good is a. impossible, or nearly impossible, to measure. b. not very responsive to price changes. c. determined by the quantity demanded of the good. d. determined by psychological forces and other non-economic forces.

not very responsive to price changes.

The price elasticity of demand measures how much a. quantity demanded responds to a change in price. b. quantity demanded responds to a change in income. c. price responds to a change in demand. d. demand responds to a change in supply.

quantity demanded responds to a change in price.

A tax imposed on the buyers of a good will a. raise the price paid by buyers and lower the equilibrium quantity. b. raise the price paid by buyers and raise the equilibrium quantity. c. raise the effective price received by sellers and lower the equilibrium quantity. d. raise the effective price received by sellers and raise the equilibrium quantity.

raise the price paid by buyers and lower the equilibrium quantity.

If a price floor is not binding, then a. the equilibrium price is above the price floor. b. the equilibrium price is below the price floor. c. it has no legal enforcement mechanism. d. More than one of the above is correct.

the equilibrium price is above the price floor

If a tax is levied on the sellers of a product, then the demand curve a. will shift down. b. will shift up. c. will become flatter. d. will not shift.

will not shift

. The minimum wage was instituted to ensure workers a. a middle-class standard of living. b. employment. c. a minimally adequate standard of living. d. unemployment compensation.

. a minimally adequate standard of living.

Refer to Figure 5-13. Using the midpoint method, what is the price elasticity of supply between points D and G? a. 1.89 b. 1.26 c. 0.53 d. 0.34

.53 Q2-Q1/Q1+Q2/2 P2-P1/P2+P1/2

Refer to Table 5-4. As price rises from $10 to $12, the price elasticity of demand using the midpoint method is approximately a. 0.08. b. 0.18. c. 0.42. d. 0.58.

.58

If a 40% change in price results in a 25% change in quantity supplied, then the price elasticity of supply is a. 0.63, and supply is elastic. b. 0.63, and supply is inelastic. c. 1.60, and supply is elastic. d. 1.60, and supply is inelastic.

0.63, and supply is inelastic

Refer to Table 5-2. Using the midpoint method, at a price of $16, what is the income elasticity of demand when income rises from $5,000 to $10,000? a. 0.00 b. 0.50 c. 1.00 d. 1.50

1.00

Refer to Figure 6-13. The effective price that sellers receive after the tax is imposed is a. $6. b. $10. c. $16. d. $24.

10

If the price elasticity of supply is 1.5, and a price increase led to a 3% increase in quantity supplied, then the price increase amounted to a. 0.2%. b. 0.5%. c. 2%. d. 4.5%.

2%

Refer to Figure 6-11. The amount of the tax per unit is a. $1. b. $1.50. c. $2.50. d. $3.50.

2.50

Refer to Figure 6-10. The per-unit burden of the tax is a. $4 on buyers and $6 on sellers. b. $5 on buyers and $5 on sellers. c. $6 on buyers and $4 on sellers. d. $10 on buyers and $0 on sellers.

4$ and 6$

Alice says that she would buy one banana split a day regardless of the price. If she is telling the truth, a. Alice's demand for banana splits is perfectly inelastic. b. Alice's price elasticity of demand for banana splits is 1. c. Alice's income elasticity of demand for banana splits is 0. d. None of the above answers is correct.

Alice's demand for banana split is perfectly inelastic

Which of the following statements is not valid when the market supply curve is vertical? a. Market quantity supplied does not change when the price changes. b. Supply is perfectly inelastic. c. An increase in market demand will increase the equilibrium quantity. d. An increase in market demand will increase the equilibrium price.

An increase in market demand will increase the equilibrium quantity.

If the government removes a tax on buyers of a good and imposes the same tax on sellers of the good, then the price paid by buyers will . a. not change and the price received by sellers will not change b. not change and the price received by sellers will decrease. c. decrease and the price received by sellers will not change. d. decrease and the price received by sellers will decrease.

a. not change and the price received by sellers will not change

Refer to Figure 6-4. For a price ceiling to be binding in this market, it would have to be set at a. any price below $6. b. a price between $3 and $6. c. a price between $6 and $9. d. any price above $6.

any price below $6

For which of the following goods is the income elasticity of demand likely highest? a. water b. diamonds c. hamburgers d. Housing

diamonds

4. If the government wants to reduce smoking, it should impose a tax on a. buyers of cigarettes. b. sellers of cigarettes. c. either buyers or sellers of cigarettes. d. whichever side of the market is less elastic.

either buyers or sellers of cigarettes.

Holding all other forces constant, if decreasing the price of a good leads to an increase 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, since a price increase always leads to an increase in total revenue.

elastic

When quantity demanded responds strongly to changes in price, demand is said to be a. fluid. b. elastic. c. dynamic. d. highly variable

elastic