Econ 102 exam 2 study guide
A price floor is
a legal minimum on the price at which a good can be sold, often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor, & a source of inefficiency in a market.
When a tax is placed on the sellers of energy drinks, 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 quantity sold in a market will increase if the government
decreases a binding price floor in that market.
Welfare economics is the study of
how the allocation of resources affects economic well-being.
The particular price that results in quantity supplied being equal to quantity demanded is the best price because it
maximizes the combined welfare of buyers and sellers.
Total surplus in a market will increase when the government
neither a or b
As we move downward and to the right along a linear, downward-sloping demand curve,
slope remains constant but elasticity changes.
If the price elasticity of demand is equal to 1, then demand is unit elastic.
true
In general, demand curves for luxuries tend to be price elastic.
true
In order to calculate consumer surplus in a market, we need to know willingness to pay and price.
true
Using the midpoint method, in which range is demand most elastic? 0 1000 3 800 6 600 9 400 12 200 15 0
$12 to $15
At Nick's Bakery, the cost to make homemade chocolate cake is $4 per cake. As a result of selling five cakes, Nick experiences a producer surplus in the amount of $17.50. Nick must be selling his cakes for
$7.50 each
Buyers of a good bear the larger share of the tax burden when the (i) supply is more elastic than the demand for the product. (ii) demand in more elastic than the supply for the product. (iii) tax is placed on the sellers of the product. (iv) tax is placed on the buyers of the product.
(i) only
Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue?
0.65
At price of $1.30 per pound, a local apple orchard is willing to supply 150 pounds of apples per day. At a price of $1.50 per pound, the orchard is willing to supply 170 pounds of apples per day. Using the midpoint method, the price elasticity of supply is about
0.875
If the price elasticity of supply is 1.2, and a price increase led to a 5% increase in quantity supplied, then the price increase is about
4.2%
Suppose sellers of liquor are required to send $5.00 to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $3.00 per bottle. Which of the following statements is correct?
This tax causes the supply curve for liquor to shift upward by $5.00 at each quantity of liquor.
Consumer surplus is equal to the
Value to buyers - Amount paid by buyers.
When demand is elastic, an increase in price will cause
a decrease in total revenue
A binding minimum wage
alters both the quantity demanded and quantity supplied of labor.
Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to
both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices.
To say that a price floor is binding is to say that the price floor
causes quantity supplied to exceed quantity demanded
A legal maximum on the price at which a good can be sold is called a price
ceiling
The mayor of Workerville proposes a local payroll tax to fund a new water park for the city. The mayor proposes to collect half the tax from workers and half the tax from firms. The mayor will be able to successfully divide the burden of the tax equally if the
demand for labor and supply of labor are equally elastic.
Holding all other factors constant and using the midpoint method, if a candy manufacturer increases production by 20 percent when the market price of candy increases from $0.50 to $0.60, then supply is
elastic, since the price elasticity of supply is equal to 1.1.
The OPEC oil cartel has difficulty maintaining high prices in the long run because the supply of oil is more inelastic in the long run than in the short run.
false
Demand is elastic if the price elasticity of demand is
greater than 1
If the government levies a $5 tax per MP3 player on buyers of MP3 players, then the price paid by buyers of MP3 players would likely
increase by less than $5
A key determinant of the price elasticity of supply is the
length of the time period
A seller's willingness to sell is
measured by the seller's cost of production, related to her supply curve, just as a buyer's willingness to buy is related to his demand curve, & less than the price received if producer surplus is a positive number.
If soybean farmers know that the demand for soybeans is inelastic, in order to increase their total revenues they should
reduce the number of acres they plant to decrease their output.
If the government allowed a free market for transplant organs such as kidneys to exist, the
shortage of organs would be eliminated, and there would be no surplus of organs.
Producer surplus directly measures
the well being of sellers
Which of the following is likely to have the most price inelastic demand?
toothpaste (necessity=inelastic)
If the government removes a binding price ceiling in a market, then the producer surplus in that market will increase.
true
The flatter the demand curve that passes through a given point, the more elastic the demand.
true