econ 101 exam 2
the price elasticity of demand for skiing lessons in new hampshire is over 1. this means that the demand is _______ in new hampshire.
price elastic
when a tenant in a rent-controlled apartment sublets the apartment to another renter at a rent higher than the price ceiling:
the transaction takes place on a black market
the price elasticity of demand for fresh tomatoes has been estimated to be 2.22. if a new insecticide and fertilizer treatment yields a 20% increase in the nation's fresh tomato crop, how will that affect total revenue from fresh tomatoes, all other things unchanged?
total revenue will rise
suppose the government of the oil-rich country saudi arabia gets gasoline prices at $0.25 per gallon when the market price is $1.50. the saudi government's actions will
cause gasoline shortages even in an oil-rich country
if demand _______ and the university of michigan increases the price of football tickets, revenues will increase
is price-inelastic
state governments levy excise taxes on alcohol because
it discourages drinking alcohol while raising revenue for the government
if a good has a price-inelastic demand, then which of the following is NOT likely to be characteristic of this good?
it has many substitutes
if the government imposes binding rent control:
it may result in some landlords leaving the business because they cannot cover costs
the supply curve for a good will be more elastic if:
production inputs are readily available at a relatively low cost
when the government removes a binding price floor:
quantity demanded will increase and quantity supplied will decrease
if demand is elastic, the _______ effect dominates the ______ effect, and a ______ in price will cause total revenue to rise.
quantity; price; decrease
the university president believes that increasing student tuition by 5% will increase revenues. if the president is correct that revenues will increase, then the tuition increase will _______ the number of students enrolling by _______.
reduce; less than 5%
the incidence of a tax
refers to how much of the tax is actually paid by consumers and producers
assume the same upward supply curve for each of the following goods. considering demand only, a tax on ______ would result in the largest deadweight loss.
restaurant meals
which of the following is NOT a factor in determining the price elasticity of demand?
the slope of the supply curve
the total surplus in a market is:
the sum of consumer surplus and producer surplus
if the technology of producing peanuts improves, total surplus in the peanut butter market:
will increase
the ratio of the percentage change in quantity demanded to the percentage change in price is the _________ elasticity of demand.
price
the most likely reason that the government implements a _______ is because it feels the price is too high for _______.
price ceiling; consumers
governments continue to impose price controls. which of the following is not a valid reason for this?
price controls are always effective
the most likely reason that the government would implement a ________ is because it feels that the price is too low for ______.
price floor; producers
suppose the price elasticity of demand for cheeseburgers equals 0.37. this means the overall demand for cheeseburgers is:
price inelastic
the burden of a tax on a good is said to fall completely on the consumers if the
price paid by consumers for the good increases by the amount of the tax
a restaurant manager has estimated that the price elasticity of demand for meals is 2. if the restaurant increases menu prices by 5%, she can expect the number of meals sold to decrease by ________ and total revenue to ________.
10%; fall
the price elasticity of supply for a good is 3 if a _______ in price leads to a 3% decrease in the quantity supplied.
1% decrease
the number of seats in a football stadium is fixed at 70,000. the city decides to impose a tax of $10 per ticket. in response, the team management raises the ticket price from $30 to $40 and still sells all 70,000 tickets. the tax caused a change in the consumer surplus of _______, a change in the producer surplus of _______, and a deadweight loss of ________.
-$700,000; $0, $0
when demand is _______, a rise in price leads to a _______ in total revenue
-inelastic; increase -elastic; decrease
each month, jessica buys exactly 15 big macs regardless of the price. jessica's price elasticity for big macs is:
0
gas prices recently increased by 25%. in response, purchases of gasoline decreased by 5%. according to this finding, the price elasticity of demand for gas is:
0.2
the price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. the price elasticity of demand is equal to ________, and demand is described as _________.
0.2; inelastic
the only producer of chocolate bunnies in the world, choco's bunny company, recently expanded its production capacity from 1,000 to 2,000 bunnies per day. if the price elasticity of demand for bunnies is 3.33, by how much will the company have to reduce its price to sell the additional 1,000 bunnies (by the midpoint method)?
20%
egg producers know that the elasticity of demand for eggs is 0.1. if they want to increase sales by 5%, they will have to lower price by:
50%
if the estimated price elasticity of demand for foreign travel is 4:
a 20% decrease in the price of foreign travel will increase quantity demanded by 80%.
if the government removed the excise tax on gasoline, assuming that neither demand nor supply is perfectly inelastic, which of the following would not occur?
a decrease in producer surplus
which of the following goods is likely to have the largest price elasticity of demand?
a green Cannondale mountain bike
a newspaper typically consumes a smaller fraction of a consumer's budget than a home entertainment system. therefore, you would expect the demand for:
a home entertainment system to be more price-elastic
a student organization is formed on your college campus to protest against the high rent for apartments near campus. this organization is planning a meeting with the dean and president of the college. which of the following best describes the policy the student organization will fight for?
a price ceiling
which of the following is an excise tax?
a tax of $0.41 per gallon of gas
producer surplus is represented by the area _______ the supply curve and ______ the price
above; below
rent controls in new york city cause all of the following except:
an increase in the quantity supplied of rent-controlled apartments
if total revenue goes up when the price falls, demand is said to:
be price-elastic
consumer surplus can be found by computing the area _______ the _______ curve and _______ the price
below; demand; above
if the demand curve is downward-sloping and supply is perfectly elastic, then the burden of an excise tax is
borne entirely by consumers
the price elasticity of demand can be found by:
comparing the percentage change in quantity demanded to the percentage change in price
if the market for grapefruit is in equilibrium without any outside intervention to change the equilibrium price:
consumer and producer surplus are maximized
ashley bought a new pair of jeans. when she walked out of the store, she thought "i got such a great deal; i would have paid $40 more for these jeans!" this best represents the concept of
consumer surplus
when the government imposes an excise tax in a market with a downward-sloping demand curve and an upward-sloping supply curve
consumer surplus falls, producer surplus falls, and a deadweight loss occurs
along a given downward-sloping demand curve, an increase in the price of a good will ________ consumer surplus
decrease
along a downward-sloping demand curve, an increase in the price of a good will
decrease consumer surplus
suppose a competitive market has a downward-sloping demand curve and a horizontal supply curve. if the supply curve shifts downward, equilibrium price will _______, equilibrium quantity will _______, consumer surplus will _______, and producer surplus will ______.
decrease; increase; increase; not change
assuming that the supply curve of cupcakes is upward-hoping and demand for cupcakes decreases, there is a ________ in ________ surplus
decrease; producer
if an excise tax is imposed on wine and collected from the consumers, the ________ curve will shift _______ by the amount of the tax
demand; downward
use of the midpoint method to calculate the price elasticity of demand eliminates the problem of computing:
different elasticities, depending on whether price decreases or increases
if the main purpose of a tax is to decrease the amount of a harmful activity, such as underage drinking, the government should impose it on harmful activities whose supply is ________ and demand is ________.
elastic; elastic
anna is willing to sell her 20-year-old boat, but not for less than $2,300. for anna, the cost of selling this boat is _________ $2,300
equal to
taxes on the purchase of specific items such as gasoline, cigarettes, or alcoholic beverages are called
excise taxes
a rancher in oklahoma decides to raise the price of her beef by 19% over the prevailing market price. if the demand for beef is perfectly elastic, this rancher's quantity demanded will:
fall to 0
for which of the following is the cross-price elasticity of demand most likely a large positive number?
french fries and onion rings
Hugo Chávez was the president of Venezuela. Venezuela is a major producer of oil products, which remain the keystone of Venezuela's economy. Suppose President Chávez wanted to increase his popularity with the citizens of Venezuela and enacted a government policy to reduce the price of gasoline sold at state-owned gas stations to 50% of the previous price. Assuming a downward-sloping demand curve for gasoline, in theory, this policy would result in the quantity of gasoline demanded to be _____ the quantity of gasoline supplied.
greater than
the long-run price elasticity of supply crude oil is _______ the short-run price elasticity of supply of crude oil.
greater than
suppose the government sets a price floor below the current price of a good. this price floor will:
have no effect on the price of the good
one of the ways rent control is inefficient is that it leads to:
high opportunity costs associated with wasted time searching for apartments
a major state university in the south recently raised tuition by 12%. an economics professor at this university asked his students, "how many of you will transfer to another university because of the increase in tuition?" one student in about 300 said that they would transfer. based on this information, the price elasticity of demand fur education at this university is:
highly inelastic.
which of the following statements is TRUE?
income elasticity of demand measures how much the quantity demanded of a good is affected by changes in consumers' incomes
along a given supply curve, an increase in the price of a good will:
increase producer surplus
after a price decrease, the quantity effect tends to:
increase total revenue
an agricultural market price support policy establishes a binding price floor, which:
increases the price received by farmers
the governor wants to levy a $1 excise tax on some good - he doesn't care which - but he does want to minimize the deadweight loss. the deadweight loss will be least when the demand curve is _______ and the supply curve is _______.
inelastic; inelastic
to minimize deadweight loss, markets where demand is relatively ________ and supply is relatively ________ should be taxed
inelastic; inelastic
we predict the long-run price elasticity of demand for gasoline to be _______ the short-run price elasticity of demand for it
larger than
price ceilings will impose costs on society because they
lead to a smaller quantity offered on the market
west african cotton farmers are very upset about the subsidies the u.s. government pays to american cotton farmers. one reason for this could be that subsidized cotton from the united states:
leads to cotton surpluses in the united states and lower prices for west african farmers on world markets
given any upward-sloping supply curve for a good, the more inelastic the demand curve, the _______ equilibrium output will fall and the _______ will be the deadweight loss when the government imposes an excise tax
less; smaller
suppose the price elasticity of demand for fishing lures equals 1.5 in south carolina and .63 in alabama. to increase revenue, fishing are manufacturers should:
lower prices in south carolina and raise prices in alabama
to be binding, a price ceiling must be set at a price:
lower than the equilibrium price
suppose the government decides to fight obesity in america by imposing an excise tax based on the saturated fat content of food. the most likely effect of this tax would be to
lower the profits of ice cream suppliers
rapidly increasing health costs have been a major political concern since at least 1992. suppose the government sets the maximum price for a normal doctor visit at $20 to control rising health costs but the current market price is $40. what will happen?
more people will try to visit the doctor, but there will be fewer doctors willing to see patients at that price.
given any downward-sloping demand curve for a good, the more price-elastic the supply curve, the _______ equilibrium output will fall and the _______ will be the deadweight loss when the government imposes an excise tax
more; larger
if the income elasticity of demand for a good is _______, the good is said to be _______.
negative; inferior
if the price of emergency visits to the doctor rose, we would expect:
only a slight decline in the number of emergency visits to the doctor
which of the following is most likely to have a vertical supply curve?
paintings by Van Gogh
raina consumes 100% more mechanical pencils when the price of felt-tip pens increases by 50%. for raina, pencils and pens are ______, and the cross-price elasticity of demand is _______.
substitutes; 2
suppose the cross-price elasticity of demand for butter and margarine is equal to 0.96 but the cross-price elasticity for water and lemons is -0.13. this means that butter and margarine are ______, while water and lemons are _______.
substitutes; complements
the demand for textbooks is price-inelastic. which of the following would explain this?
textbooks are a necessity
which of the following is NOT true regarding a price-elastic demand curve?
the absolute value of the price elasticity is a fraction less than 1
the total producer surplus for a good can be calculated in all of the following ways EXCEPT as:
the area below the supply curve for the good up to the quantity of the good sold
the total consumer surplus for good X can be calculated in all ways EXCEPT as:
the area bounded by the demand curve for X and the two axes
suppose the U.S. removes sugar quotas and the market price of sugar drops. if the demand curve for candy bars is downward-sloping, in the candy bar market we would expect:
the consumer surplus to increase.
consumer surplus for an individual buyer is equal to
the consumer's willingness to pay for the good minus the price of the good
if an excise tax is imposed on automobiles and collected from consumers:
the demand curve will shift downward by the amount of the tax
a hotel has a capacity of 100 rooms in the short run. which of the following statements best describes the short-run elasticity of supply for rooms at this hotel?
the elasticity of supply is zero in the short run because the short-run supply curve is vertical.
a consumer's willingness to pay depends on
the expected additional benefit of consuming the good or service
if demand is downward-sloping and supply is upward-sloping, which of the following statements about the effects of an excise tax is incorrect?
the lower the elasticity of supply relative to the elasticity of demand, the lower the burden of the tax borne by suppliers.
maximum total surplus in the market for chocolate occurs when:
the market is in equilibrium
a consumer's willingness to pay reflects:
the maximum price at which she would buy the good or service
the deadweight loss from an excise tax comes about because
the number of transactions in the market is reduced and some mutually beneficial transactions do not take place
the university hopes to raise more revenue by increasing parking fees. this plan will only work if:
the price effect is larger than the quantity effect.
if the government wants to minimize the deadweight loss from taxes, it should tax goods for which
the price elasticity of demand is low
a price floor is likely to cause deadweight loss because:
the quantity of the good is less than the equilibrium quantity
when the price goes down, the quantity demand goes up. the price elasticity of demand measures:
the responsiveness of the quantity change to the price change
the united states and the european union impose price floors on many agricultural products. these price floors lead to unwanted surpluses. to deal with a surplus:
the u.s. government in some cases has destroyed the surplus production
when a market is efficient:
there is no way to make some people better off without making other people worse off
when the minimum wage increases:
unemployment among unskilled workers increases
total revenue will decrease if the price goes _______ and demand is ________.
up; price-elastic
a perfectly price-inelastic demand curve is:
vertical
an analysis of the effect of excise taxes on markets allows us to conclude that:
whether the tax is levied on consumers or producers, the quantity sold will be the same
if a frost destroys much of the grapefruit crop, assuming a positively sloped supply curve and a negatively sloped demand curve, total surplus:
will decrease
peanut butter is an inferior good. if there is an increase in income, total surplus in the peanut butter market:
will decrease
coffee and tea are substitutes in consumption. if there is an increase in the price of coffee, assuming a positively sloped supply curve and a negatively sloped demand curve, total surplus in the tea market:
will increase
peanut butter and jelly are complements in consumption. assuming that the supply curve of peanut butter is upward-sloping, if there is a decrease in the price of jelly, producer surplus in the peanut butter market:
will increase
suppose the price elasticity of demand for yachts equals 4.04, while the price elasticity of supply for yachts equals 0.22. if congress reinstates a luxury tax on yachts, who will pay more of the tax?
yacht builders will pay more