ECO exam

At a price of $70 per unit, sellers' total revenue equals

$1050

Between point A and point B, price elasticity of demand is equal to

1.5

What does this graph illustrate

production function

Cost is a measure of the

seller's willingness to sell.

The vertical distance between points A and B represents the tax in the market. The amount of the tax per unit is

$14

If the price of the good is $14, then producer surplus is

$20.50

The price that buyers pay after the tax is imposed is

$24

Using the midpoint method, if the price falls from $200 to $150, the absolute value of the price elasticity of demand is

2.8

A price floor set at $60 would create a surplus of 20 units.

True

A binding price ceiling may not help all consumers, but it does not hurt any consumers.

false

Which of the following statements is not correct concerning government attempts to reduce the flow of illegal drugs into the country? Drug interdiction

shifts the demand curve for drugs to the left.

If the sellers bid against each other for the right to sell the good to a consumer, then the good will sell for

$100 or slightly less

If the market price is $1,000, the producer surplus in the market is

$300

If a 25 percent change in price results in a 40 percent change in quantity supplied, then the price elasticity of supply is about

1.60, and supply is elastic

A manufacturer produces 400 units when the market price is $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about

2.2

If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a

20 percent decrease in the quantity demanded

Using the midpoint method, which of the three supply curves represents the least elastic supply?

A

Which of the following is consistent with the elasticities given in Table 5-1?

A is a luxury and B is a necessity.

Zero economic profit implies that

Accounting profit is equal to the firm's oppertunity costs

The distinction between efficiency and equality can be described as follows:

Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.

Along which of these segments of the supply curve is supply least elastic?

GH

Which of the following statements about agriculture in the United States is correct?

Increasing the supply of agricultural products typically benefits consumers but harms farmers as a group.

Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?

Lower the price to increase total revenue.

For which pairs of goods is the cross-price elasticity most likely to be positive?

Pens and pencils

For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The good is a luxury.

A government program that reduces land under cultivation can help farmers by raising prices but hurts consumers.

True

A decrease in supply will cause the largest increase in price when

both supply and demand are inelastic.

A good will have a more inelastic demand, the

broader the definition of the market.

Demand is said to be price elastic if

buyers respond substantially to changes in the price of the good

If the cross-price elasticity of two goods is negative, then the two goods are

complements.

Marcus says that he would smoke one pack of cigarettes each day regardless of the price. If he is telling the truth, Marcus's

demand for cigarettes is perfectly inelastic.

Using the midpoint method, if the price falls from $200 to $150, the price elasticity of demand is

elastic

The section of the demand curve from A to B represents the

elastic section of the demand curve.

Between point A and point B on the graph, demand is

elastic, but not perfectly elastic.

A discovery that increases wheat yields per acre helps farmers by increasing both supply and total revenues.

false

Along the elastic portion of a linear demand curve, total revenue rises as price rises.

false

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

flatter the demand curve will be.

If the price decreased from $36 to $12, total revenue would

increase by $4,800, and demand is elastic between points X and Z.

If the price elasticity of supply is 1.2, and price increased by 5 percent, quantity supplied would

increase by 6%

If the demand for donuts is elastic, then a decrease in the price of donuts will

increase total revenue of donut sellers.

Goods with many close substitutes tend to have

more elastic demands

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

positive, and the good is a normal good.

in graph b there will be a

surplus

Income elasticity of demand measures how

the quantity demanded changes as consumer income changes.

A key determinant of the price elasticity of supply is the

time horizon

Which of the following is likely to have the most price elastic demand?

tommy hilfiger jeans

A discovery that increases wheat yields per acre hurts farmers by increasing supply and lowering their total revenues.

true

Cross-price elasticity is used to determine whether goods are substitutes or complements.

true

Demand for a good is said to be inelastic if the quantity demanded increases slightly when the price falls by a large amount.

true

Elasticity measures how responsive quantity is to changes in price

true

If demand is perfectly inelastic, the demand curve is vertical, and the price elasticity of demand equals 0.

true

If the government imposes a binding price floor in a market, then the consumer surplus in that market will decrease.

true

If the government places a $2 tax in the market, the buyer pays $6.

true

If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

true

In a competitive market, sales go to those producers who are willing to supply the product at the lowest price.

true

Necessities tend to have inelastic demands, whereas luxuries tend to have elastic demands.

true

Price elasticity of supply measures how much the quantity supplied responds to changes in the price.

true

To determine the incidence of a tax, it is necessary to have information on both the elasticity of demand and the elasticity of supply.

true

Jerome says that he will spend exactly $25 each month on new apps for his mobile device, regardless of the price of apps. Jerome's demand for apps is

unit elastic

The Earned Income Tax Credit, a government program that supplements the incomes of low-wage workers, is an example of a

wage subsidy

If long-run average total cost decreases as the quantity of output increases, the firm is experiencing

economies of scale

Suppose that a firm's long-run average total costs of producing televisions decreases as it produces between 10,000 and 20,000 televisions. For this range of output, the firm is experiencing

economies of scale

Suppose the market demand curve for a good passes through the point (quantity demanded = 100, price = $25). If there are five buyers in the market, then

the marginal buyer's willingness to pay for the 100th unit of the good is $25.

In the short run average total cost is u-shaped because of

the the slope of marginal product. at least one resource is fixed. diminshing returns.

A simultaneous increase in both the demand for tablets and the supply of tablets would imply that

the value of tablets to consumers has increased, and the cost of producing tablets has decreased

All else equal, an increase in demand will cause an increase in producer surplus.

true

Consumer surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually has to pay for it

true

If a market is in equilibrium, then it is impossible for a social planner to raise economic welfare by increasing or decreasing the quantity of the good.

true

If the supply curve is S and the demand curve shifts from D to D', what is the increase in producer surplus to existing producers?

$2500

At the equilibrium price, consumer surplus is

$800

If a firm produces nothing, which of the following costs will be zero?

Variable cost

Which of the following statements is not correct?

When the price is $6, there is a surplus of 8 units.

A shortage results when a

binding price ceiling is imposed on a market.

Moving production from a high-cost producer to a low-cost producer will

raise total surplus

A supply curve can be used to measure producer surplus because it reflects

sellers costs

rent control

serves as an example of a price ceiling.

At Nick's Bakery, the cost to make a cheese danish is $1.50 per danish. As a result of selling 10 danishes, Nick experiences a producer surplus in the amount of $20. Nick must be selling his danishes for

$3.50 each

Both the demand curve and the supply curve are straight lines. At equilibrium, consumer surplus is

$48

Both the demand curve and the supply curve are straight lines. At equilibrium, total surplus is

$72

The vertical distance between points A and B represents the tax in the market. The per-unit burden of the tax on buyers is

$8

If the market price of an orange is $0.90, then the market quantity of oranges demanded per day is

4

Which is not correct a. A government-imposed price of $10 would be a binding price floor if market demand is Demand A and a nonbinding price ceiling if market demand is Demand B. b. A government-imposed price of $4 would be a binding price ceiling if market demand is either Demand A or Demand B. c. A government-imposed price of $10 would be a binding price ceiling if market demand is either Demand A or Demand B. d. A government-imposed price of $8 would be a binding price floor if market demand is Demand A and a binding price ceiling if market demand is Demand B.

A government-imposed price of $10 would be a binding price ceiling if market demand is either Demand A or Demand B.

If total cost is $2500 and average variable costs are $4 when output is equal to 500 units, then

Average fixed costs must be $1. Average fixed costs must be declining. fixed costs must be equal to $500

If total cost is $2500 and average variable cost is $4, when output is equal to 500 units then,

Average total cost must be $5

At equilibrium, producer surplus is represented by the area

D+H+F.

A price ceiling set below the equilibrium price causes a shortage in the market.

True

A tax on buyers usually causes buyers to pay more for the good and sellers to receive less for the good than they did before the tax was levied.

True

Marginal cost is equal to average total cost when

average total cost is at its minimum

A firm produces 300 units of output at a total cost of $1,000. If fixed costs are $100,

average variable cost is $3

Which of the following is not correct? a. A minimum wage would not be binding if the equilibrium wage was above the minimum wage. b. A minimum wage would be binding for workers with high skills and much experience. c. The impact of a minimum wage depends on the skill and experience of the worker. d. The economy contains many labor markets for different types of workers.

b

If a tax is levied on the sellers of flour, then

buyers and sellers will share the burden of the tax

If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the

consumer does not purchase the good.

All else equal, what happens to consumer surplus if the price of a good increases?

consumer surplus decreases

When the price rises from P 1 to P 2 , consumer surplus

decreases by an amount equal to B+C

A drought in California destroys many red grapes causing the prices of both red grapes and red wine to rise. As a result, the consumer surplus in the market for red grapes

decreases, and the consumer surplus in the market for red wine decreases.

Suppose that a tax is placed on books. If the buyers pay the majority of the tax, then we know that the

demand is more inelastic than the supply.

If marignal product is increasing than

diminishing returns have yet to set in. average total cost must be falling marginal cost must be decreasing.

Suppose the government imposes a 50-cent tax on the sellers of packets of chewing gum. The tax would

discourage market activity

A $1.50 tax levied on the buyers of pomegranate juice will shift the demand curve

down by $1.50

When a certain price control is imposed on this market, the resulting quantity of the good that is actually bought and sold is such that buyers are willing and able to pay a maximum of P 1 dollars per unit for that quantity and sellers are willing and able to accept a minimum of P 2 dollars per unit for that quantity. If P 1 − P 2 = $3, then the price control is

either a price ceiling of $3.00 or a price floor of $6.00.

A binding minimum wage causes the quantity of labor demanded to exceed the quantity of labor supplied

false

A tax on sellers increases supply.

false

A binding price ceiling is shown in

graph (b) only.

The goal of rent control is to

help the poor by making housing more affordable.

A difference between explicit and implicit costs is that

implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.

A firm's opportunity costs of production are equal to its

implicit costs only

If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would

increase less than $1000

Firms may experience diseconomies of scale when

large management structures are bureaucratic and inefficient.

An example of an explicit cost of production would be the

lease payments for the land on which a firm's factory stands.

Most labor economists believe that the supply of labor is

less elastic than the demand, and, therefore, workers bear most of the burden of the payroll tax.

Economies of scale occur when

long-run average total costs fall as output increases

As the number of workers increases,

marginal product decreases

If marginal cost is rising,

marginal product must be falling.

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it

maximizes the combined welfare of buyers and sellers.

As a result of a decrease in price,

new buyers enter the market, increasing consumer surplus

The price ceiling shown in graph (a)

not binding

At a price of $2.00, total surplus is

smaller than it would be at the equilibrium price.

In this market, a minimum wage of $7.00 creates a labor

surplus of 4000 worker hours

A payroll tax is a

tax on the wages that firms pay their workers.

If economic profit is negative but the accounting profit is positive then,

the accounting profit must be less than the oppertunity costs.

The term tax incidence refers to

the distribution of the tax burden between buyers and sellers

Efficiency in a market is achieved when

the sum of producer surplus and consumer surplus is maximized.

How is the burden of the tax shared between buyers and sellers? Buyers bear

three-fourths of the burden, and sellers bear one-fourth of the burden.

Curve A is declining because

we are dividing fixed costs by higher and higher levels of output.

Consider the market for gasoline. Buyers

would lobby for a price ceiling, whereas sellers would lobby for a price floor

If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is

zero

Both the demand curve and the supply curve are straight lines. At equilibrium, producer surplus is

$24

If the government imposes a price ceiling of $55 in this market, then total surplus will be

$250.00

Kristi and Rebecca sell lemonade on the corner for $0.50 per cup. It costs them $0.10 to make each cup. On a certain day, their producer surplus is $20. How many cups did Kristi and Rebecca sell?

50

The efficient scale of production occurs at which quantity?

C

The minimum wage was instituted to ensure workers

a minimally adequate standard of living.

A tax on buyers decreases demand

True

If economic profit is negative,

accounting profit must be less than implicit cost.

On a graph, consumer surplus is represented by the area

below the demand curve and above price.

A surplus results when a

binding price floor is imposed on a market

When a tax is placed on the buyers of lemonade, the

burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal

The slope of total product can be explain as the

change in total product divided by the change in the resource employed.

A tax on the sellers of coffee will increase the price of coffee paid by buyers,

decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.

If the government wants to reduce the burning of fossil fuels, it should impose a tax on

either buyers or sellers of gasoline

the price ceiling

makes it necessary for sellers to ration the good using a mechanism other than price.

Average total cost start must increase once

margianl cost intesects average total cost

Average total cost is increasing whenever

marginal cost is greater than average total cost.

If average variable costs are decreasing with increased production then

marginal cost must be below average variable cost.

If marginal cost is below average total cost but above average variable cost then

marginal cost must be increasing

A demand curve reflects each of the following except the

quantity that each buyer will ultimately purchase.