ECON 1002 TEST 1 (CH. 3,4,5,8)

(Figure: Market Changes) Refer to the figures. If the figures represent the market for a popular soda, which figure shows the effect of an increase in the price of a competing energy drink?

Figure C

(Figure: Price Controls) Refer to the figure. Which of the following price controls would cause a shortage of 20 units of the good?

a price ceiling of $6

Over time, housing shortages caused by rent control ______ because the supply of housing is ______ elastic in the long run.

increase; more

If equilibrium price increases while equilibrium quantity decreases, then we know that:

market supply has decreased.

If producers form expectations that copper prices will be higher in the future, then this will shift the:

supply curve of copper to the left

A price floor causes:

surplus

(Table: Equilibrium Adjustment) Refer to the table. If the price in the free market is $8, then a:

surplus of 25 units would exist and price would tend to fall.

The elasticity of demand:

tells us how responsive consumer purchases are to price changes

If sellers want to sell more products than buyers are willing to purchase, we know that:

the current price is greater than the equilibrium price.

Which of the following would cause the current supply of iPods to increase?

the expectation that the future price of iPods will decrease

If the supply of a good is very elastic, then any increase in demand for the good will have a

very small impact on the price of the good

An alternative to rent controls that increases the quantity of housing and targets consumers that need low-cost rental property is:

vouchers

The Federal minimum wage causes unemployment mostly among:

young unskilled workers.

A legal maximum price at which a good can be sold is a price:

ceiling

Recall the discussion about the demand for oil in your textbook. Which of the following correctly explains why the demand curve for oil is negatively sloped? As the price of oil rises:

consumers increasingly use oil only for those purposes without good substitutes.

Which one of the following products would tend to have inelastic demand?

crude oil

(Figure: Supply-Driven Price Change) Refer to the figure. When the supply curve shifts from S 0 to S 1, the equilibrium price rises to:

$12 and the equilibrium quantity falls to 70.

Refer to the figure. What is the change in producer surplus if the price rises from $2 to $3 per unit?

$15

(Figure: Market Equilibrium) According to the figure, the equilibrium price and quantity are:

$2 and 4.

The table shows the results of Excel Company's market survey. If the market price of Excel computers is $1,200 each, how much total consumer surplus (in $) are the four consumers earning?

$380

(Table: Equilibrium Adjustment) Refer to the table. The equilibrium price is:

$6

Refer to the table. What is the total amount of producer surplus (per barrel of oil) earned by all four producers if the market price per barrel of oil is $51?

$87.75

If Major League Baseball ticket prices rise by 15 percent, the number of tickets sold falls by 5 percent. The elasticity of demand is:

-1/3.

The supply of a good tends to be more elastic if

. production can be expanded without causing a big increase in the price of its inputs.

If the price of cocoa rises by 20 percent, the quantity supplied of cocoa rises by 4 percent. What is the elasticity of supply?

0.2

If the price of aluminum increases 4 percent, and the quantity supplied increases by 1 percent, what is the price elasticity of supply?

0.25

If the price of electronic readers falls 6 percent and quantity demanded rises by 9 percent, the elasticity of demand is ______ in absolute value, so demand is ______.

1.5; elastic

Figure: Minimum Wage) Refer to the figure. How many workers are unemployed at a minimum wage of $8?

20

Figure: Market Equilibrium Reference: Ref 4-2 (Figure: Market Equilibrium) Refer to the figure. At a price of $3, quantity supplied is ______ and quantity demanded is ______, leading to a _______.

6; 2; surplus of 4 units

Price floors would create all of the following effects EXCEPT:

A. deadweight loss. Correct B. wasteful decreases in product quality. C. misallocation of resources. D. surpluses.

When Asian countries went into a recession in 1997, the demand for oil _______ and the price of oil ________.

A. decreased; decreased

The quantity of cell phones that firms plan to sell this month depends on all of the following EXCEPT the:

A. number of producers of cell phones. B. price of a cell phone. C. wages of workers in electronics factories. Correct D. All of these choices affect market conditions.

Because of government price controls, a business must now sell soft-serve ice cream at half its original price. This business might respond by:

A. offering smaller servings of ice cream. B. skimping on toppings of nuts, fudge, and cherries. C. reducing hours of operation. CorrectD. All of the answers are correct.

(Figure: Price Floor) Refer to the figure. What are the lost gains from trade as a result of the imposition of the price floor?

Areas (C + F)

Recall the discussion in your textbook about the supply curve for oil. What explains why the supply curve for oil is positively sloped?

As the price of oil rises, more producers enter the market

Gun buyback programs, such as the one instituted in Washington, D.C., tend to not be very effective because

CorrectB. the supply of the types of guns exchanged is highly elastic.

Suppose that consumers begin to believe that the price of housing will be lower next period. What will happen in the market for housing as a result of these expectations?

Demand for housing will begin to fall, and the price of housing will decrease.

(Figure A: Supply Right Shift) (Figure B: Supply Left Shift) Refer to the two figures. Which of the following statements is TRUE? Figure A: Supply Right Shift Figure B: Supply Left Shift I. Figure A depicts the expectation that the future price will decrease. II. Figure A depicts the entry of foreign producers because of a reduction in trade barriers. III. Figure B depicts falling input prices. IV. Figure B depicts technological innovations. V. Figure B depicts a decrease in taxes.

I and II only

Which of the following statements is TRUE? I. Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good or service and its market price. II. Mr. Bill is willing to pay $10 for two pounds of clay. If the market price per pound of clay is $2.50, his consumer surplus is $7.50. III. Total consumer surplus is represented graphically by the area beneath the demand curve and above the market price.

I and III only

Which of the following statements is TRUE? I. An increase in supply causes a temporary surplus at the old equilibrium price. II. An increase in supply lowers the equilibrium price and increases the equilibrium quantity. III. A technological innovation that reduces the costs of production causes an increase in supply.

I, II, and III

Which of the following statements is TRUE? Answers: A. Luxury goods tend to have more elastic demand curves. B. Goods with more substitutes tend to have a lower elasticity of demand. C. Necessity goods tend to have more elastic demand curves. D. The elasticity of demand for a particular brand of product equals the elasticity of demand for the product category.

Luxury goods tend to have more elastic demand curves.

Which of the following probably has the most elastic demand?

McDonald's hamburgers

If price controls are so harmful, why would a country ever impose them?

Politicians have strong incentives to respond to the public when prices increase sharply.

(Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D 1 and the initial supply curve is S 1. Suppose this depicts the market for corn. How does the market change when flooding in Iowa destroys a significant amount of the corn crop.

S 1 will shift to S 2.

(Figure: Supply Elasticity) Refer to the figure. Which one of the four supply curves has the greatest responsiveness to price changes?

Supply Curve B

Suppose it is widely believed that the price of flat-screen, high-definitio

The demand for flat-screen TVs will decrease now.

Lead, an input in the production of ammunition, has increased in price from $0.60/lb in 2006 to over $1.50/lb in 2007. What happened to the equilibrium price and quantity of ammunition over this period?

The equilibrium price increased and the equilibrium quantity decreased.

An increase in demand and a decrease in supply occur in a market. What happens to the equilibrium price and quantity?

The equilibrium price increases; the change in the equilibrium quantity is ambiguous.

What happened as a result of the elimination of price controls on oil and gasoline in 1981?

The shortage of gasoline was eliminated nearly overnight.

Five new sellers enter a market (that previously had seven) and begin producing a good. Which of the following choices explains what happens to the equilibrium Q and P?

The supply curve will shift to the right, the equilibrium P will fall, and the equilibrium Q will rise.

A change in quantity supplied is reflected by a movement along the same supply curve while a change in supply refers to a shift in the entire supply curve.

True

An increase in the use of labor-saving technologies will shift the supply curve to the right.

True

Economists blame the long lines at gasoline stations in the United States during the 1970s as well as the long delays in construction projects on:

U.S. government regulation of gasoline prices.

In 1808, when slavery in the United States was still legal, Congress banned the importation of new slaves. Under these circumstances, would a slave redemption campaign have worked well? Why?

Yes, because the supply of slaves was inelastic

A price floor is:

a minimum price allowed by law.

Which of the following could cause an increase in the demand for gasoline?

an approaching hurricane that threatens a major oil refinery in Texas

(Figure: Losses from Price Ceilings) Refer to the figure. A price ceiling of $1 causes lost consumer surplus equal to area ________ and lost producer surplus equal to area ________.

c; e

Economists call the maximum legal price a price ceiling because the price:

cannot legally go higher than the ceiling.

Potato chips and popcorn are substitutes. A subsidy for potato chips will ______the demand for popcorn and the quantity of popcorn sold will ______.

decrease; decrease

Suppose that Country X is a high-cost producer of oil and Country Y is a low-cost producer of oil. The citizens of Country X use both oil produced in their own country as well as oil produced in Country Y. If the market price of oil decreases, oil production in Country X will _______, and the citizens of Country X will _________________.

decrease; purchase a larger fraction of their oil from Country Y

The price of good X increases from $55 to $60, and quantity demanded decreases from 500 to 400. The price of good Y increases from $55 to $60, and quantity demanded decreases from 500 to 475. Given this information, the

demand curve for good X is more elastic than the demand curve for good Y.

If gasoline prices remain high long enough, people will arrange to do more telecommuting. This would be an example of why the elasticity of

demand for gasoline is higher in the long run

Assume that spaghetti is an inferior good for most people. As their incomes increase, all other things held constant, the:

demand for spaghetti will decrease shifting the demand curve to the left.

Use the midpoint method to answer this question. When a good's price increases from $20 to $25 and its quantity demanded decreases from 100 to 75, the elasticity of demand for that good is

elastic

Walter provides lawn-cutting services and notices that his total revenue increases when he cuts prices. The elasticity of demand for his services is

elastic.

In 2005, Ireland began taxing residents on how much garbage they threw away in an effort to promote recycling. In response, residents began burning trash (which is environmentally more harmful and resulted in an increase in burn victims as people accidentally set themselves on fire). This story suggests that the elasticity of demand for trash collection was more ______ than lawmakers believed because ______ than previously thought.

elastic; there were more substitutes for trash collection

Gains from trade are maximized at the:

equilibrium price and quantity.

Immediately after a hurricane, it is likely that the quantity demanded for tree cutting/removal services will ______ the quantity supplied, causing the price of tree cutting/removal services to ______.

exceed; rise

(Figure: Market Equilibrium) Refer to the figure. At a price of $1, the market is characterized by a(n):

excess demand of 4 units.

Price ceilings reduce quality because:

facing excess demand sellers cannot raise prices to increase profit

Most economists favor price controls as a way of allocating resources.

false

The demand for oil is inelastic because there are:

few substitutes for oil in its major use.

When the minimum price that can be legally charged is above the market price, we say there is a price:

floor.

Price floors make it illegal to compete for more customers by lowering prices, so firms compete by offering customers:

higher quality.

The fundamental determinant of the elasticity of demand for a good is

how easy it is to substitute the good for another.

The supply of ancient Egyptian papyrus manuscripts is probably

inelastic.

The lower the price ceiling is relative to the market equilibrium price, the:

larger the shortage.

New research indicates that running marathons is actually bad for the heart (it increases inflammatory markers associated with heart attacks). This news will:

lead to a decrease in the demand for running shoes.

A price ceiling is a(n):

legally established maximum price that can be charged for a good.

The steeper a linear demand curve is the

less elastic the demand.

A deadweight loss is the total of:

lost consumer and producer surplus when all mutually profitable gains from trade are not exploited.

In free markets, surpluses lead to:

lower prices.

Under rent control tenants can expect:

lower rent and lower quality housing.

Over time, the demand for most goods becomes ______ elastic since we are able to ______.

more; develop more/better substitutes

Which of the following probably has the least elastic demand?

prescription medications

Total revenue is:

price X quantity.

Rent controls are:

price ceilings on rental housing.

ent controls are:

price ceilings on rental housing.

The minimum wage is an example of a(n):

price floor

Which of the following are factors that shift the demand curve?

price of substitutes, tastes, price of complements

The elasticity of demand measures how sensitive the:

quantity demanded is to a change in price.

if the demand for a good is elastic, then

revenues decrease when the price goes up.

Figure: Price Ceiling) Refer to the figure. If a price ceiling were set at $12, there would be a:

shortage of 0 units.

A price ceiling creates a ________ when it is set ________.

shortage; below the equilibrium price

Both the elasticities of demand and supply tend to be more elastic in the long-run.

true

Elasticity of demand is always negative.

true

The formation of the Organization of the Petroleum Exporting Countries (OPEC) made it easier for these oil-producing countries to act together and successfully limit the supply of oil, thus raising prices.

true