Econ 201 Chapter 4,,5,6

A binding price floor sets a price that is the _____ price that sellers can charge and is _____ the equilibrium price.

lowest; above

When the government imposes a magazine tax of $0.10 per magazine on buyers, the tax reduces the _____ for buyers. Now, buyers are willing to buy a given quantity of magazines only if the sale price before tax is _____.

marginal benefits; lower by $0.10 per magazine

Economists want to focus on the _____ of the price elasticity of demand. They use what mathematicians call the absolute value.

positive value

Those who argue to allow price gouging point out that anti-gouging laws are a form of a _____.

price ceiling

The _____ measures how responsive buyers are to price changes.

price elasticity of demand

A _____ is a minimum price that sellers can charge.

price floor

Governments typically set minimum wages in order to raise the wages received by the lowest wage workers. The minimum wage is a _____.

price floor

All of these are shifters of supply EXCEPT:

prices of substitutes in consumption.

A bigger absolute value of the price elasticity of supply means that:

the quantity is more responsive to price changes.

When the government imposes a tax on you as a seller, your marginal cost of producing each unit goes:

up by the amount of the tax.

Customs regulations limit:

what kinds and how many souvenirs you can bring back from abroad.

If the regulation isn't binding, it:

won't affect market outcomes.

When the sign of the cross-price elasticity of demand is positive, it means that:

you buy more of a good when the price of another good goes up.

Which of the following is correct about the market for red delicious apples?

It is perfectly competitive, because many consumers want an identical good.

A price floor does two things:

It raises prices, and it lowers the quantity sold.

_____ is a maximum price that sellers can charge.

A price ceiling

If the price of tacos rises by 30%, and the quantity supplied rises by 3%, what is the price elasticity of supply of tacos?

0.1

If the price of windmills rises by 20%, and the quantity supplied rises by 2%, what is the price elasticity of supply of windmills?

0.1

If cutting the price of frozen pizza by 30% leads to an increase in the quantity demanded by 6%, what is the absolute value of the price elasticity of demand for frozen pizza?

0.2

_____ requires you to buy or sell a minimum amount of a good.

A mandate

_____ is the burden of being assigned by the government to send a tax payment.

A statutory burden

_____ is a payment made by the government to those who make a specific choice.

A subsidy

Why may you want to raise your prices when you discover that demand for your product is inelastic?

Because raising prices will increase your revenue.

Which of these LEAST describes an example of bundling?

Going out to dinner and ordering an appetizer

Which of the following affects the decisions of both buyers and sellers?

Government policy

A rock band announces that their upcoming tour will be the last one before they retire. What effect will this likely have in the market for this band's concert tickets?

Increase in demand

A taxi company finds success in its city of operation. Due to this success, a new company comes into town to try and compete with the original company. What has the inclusion of this new company created, and what shift will it cause in the market?

Increased number of sellers; increase in supply

Jose works at a cellular service provider. He often offers people discounts if they also agree to buy a case and an extra charger from him. Given that this is what Jose has had to resort to in order to sell phones, what can be said about the market?

It is in disequilibrium.

_____ in weather emergencies might encourage consumers at the front of the queue to overbuy at normal prices.

Price ceilings

_____ on food and toiletries in Venezuela created a shortage of these essentials and led to a large black market for these goods.

Price ceilings

_____ sets a minimum or maximum quantity that can be sold.

Quantity regulation

_____ set a limit on the maximum quantity of a good that can be sold.

Quotas

__ increase the quantities demanded and supplied, and they tend to lower the price buyers pay and _____ the price sellers receive. Determine the impact of a subsidy on market equilibrium.

Subsidies; increase

Priya is a student at Florida State University. She graduates soon and has started applying for jobs at various different companies. What role is Priya playing in the labor market?

Supplier

_____ is the total amount you receive from buyers, which is calculated as price times quantity.

Total revenue

At what point is a market in equilibrium?

When the quantity supplied equals the quantity demanded.

The price elasticity of supply reflects the flexibility of firms to increase or decrease the quantity supplied. Which of the following does NOT increase flexibility?

When there's less time to adjust

What is the total effect dependent on when there is a shift in both the supply and demand curves?

Which shift is bigger

When a regulation is binding, which of the following is NOT true?

With a quota on buyers, the government limits the price and quantity people can buy.

A tax leads to:

a decline in the quantity sold.

Following the shift in supply to the left after a tax, the new supply curve intersects the demand curve at:

a lower quantity demanded.

A price ceiling is:

a maximum price that sellers can charge.

Quantity regulation is _____ quantity that can be sold.

a minimum or maximum

A price floor is:

a minimum price that sellers can charge.

By shaping costs and benefits, government policy can:

change the decisions that sellers and buyers make.

Price ceilings _____ prices and cause _____.

lower; shortages

If a a price for a substitute good decreases, then demand for the other substitute will:

decrease

If McDonald's lowers the price of its Big Mac, it will _____ the demand for Burger King's Whopper because the two products are _____ of one another.

decrease; substitutes

Buyers bear a smaller share of the economic burden when:

demand is relatively elastic, and supply is relatively inelastic.

When you take out a loan to buy a home, you are on the _____ side in the market for _____.

demand; credit

Taxes on buyers decrease _____ to reflect the new _____ marginal benefit, shifting the demand curve to the left.

demand; lower

Advertising can be a shifter of the _____ curve and is considered a change in _____.

demand; preference

The price elasticity of _____ measures how responsive buyers are to _____.

demand; price changes

When there is a surplus in the market, stores will _____ the good until it reaches the equilibrium price.

discount

A binding price floor is a price floor that prevents the market from reaching the _____ price.

equilibrium

Aika owns a flower shop. She finds that on Valentine 's Day, she sells out of every kind of flower and has no customers left waiting at the end of the day. This is an example of a market in:

equilibrium.

In equilibrium:

every seller who wants to sell an item can find a buyer, and every buyer can find a potential seller.

A surplus causes price to _____.

fall

If the government effectively limits quantity demanded, the quantity consumed will _____ and the price will _____.

fall; fall

The Social Security system in the United States is a _____ program that will provide you with _____.

federal government; retirement income

With price regulation, the new price will be the regulated price, and the quantity sold is determined by the:

forces of supply and demand.

As a manager, you will want to use the price elasticity of demand for your product to:

forecast the likely consequences of any change in price.

In an auction, the price you pay depends on:

how much you and other bidders raise the price.

The price elasticity of demand measures:

how responsive buyers are to price changes.

Quantity regulations for _____ effectively limit the supply of workers.

immigration quotas

If prices are free to adjust, then eventually a:

market will be drawn to equilibrium.

Quotas set a limit on the:

maximum quantity of a good that can be sold.

When the sign of the cross-price elasticity of demand is positive, it means that you buy _____ of a good when the price of another good goes up.

more

A supercenter provides more variety of goods than a small store does. You will find that you are _____ when shopping in a supercenter because _____.

more price sensitive; there are close substitutes to something you want

A binding price ceiling can lead to all of the following EXCEPT:

more quantity supplied.

Government policy can shape the most personal of decisions, such as whether to get married and how many kids to have, by:

changing their costs and benefits.

An elasticity of −5 means a _____ demand would occur than if the elasticity were −0.5.

bigger percentage change in

A mandate requires you to _____ of a certain good.

buy or sell a minimum amount

The graph below illustrates the consequences of housing quotas in Seattle, showing the demand and supply curves for housing. Due to zoning laws, homeowners in Seattle can now sell their houses for _____ more than they could without the laws where prices rose from _____ without the quota to $600,000 with the quota.

$200,000; $400,000

The graph below shows rent control in the market for New York City apartments. Without any price regulation, the equilibrium price would be _____ or _____ million studio apartments are rented each month.

$3,000; 1

If cutting the price of automobiles by 20% leads to an increase in the quantity demanded by 5%, what is the absolute value of the price elasticity of demand for automobiles?

0.25

If the average income in the United States rises by 5%, then housing expenditures by homeowners increase by 3%. Based on this information, what is the income elasticity of demand for housing?

0.6

The graph below shows rent control in the market for New York City apartments. At the price ceiling, how many apartments are consumers willing to rent?

1.1 million apartments

When Uber increased prices by 80% for a certain place and specific time it led to a 100% increase in Uber drivers supplying rides. Using the percent change in the price and the percent change in the quantity supplied, what is the price elasticity of supply for Uber rides?

1.25

When the government increased the minimum wage by 50%, it led to a 75% increase in workers providing labor. Based on the information given, what is the price elasticity of supply for labor?

1.50

On weeknights an Uber driver can expect to earn $110 driving a six-hour shift. Surge pricing on Saturday nights mean that Uber drivers can expect to earn $140 driving a six-hour shift. On weeknights, there are 200 drivers on the road, which rises to 300 on Saturdays. Calculate the price elasticity of supply of Uber drivers using the midpoint formula.

1.67

The graph below illustrates the consequences of housing quotas in Seattle, showing the demand and supply curves for housing. If there is no government regulation, the supply-equals-demand equilibrium occurs when there are _____ housing units in Seattle, selling for _____ each.

700,000; $400,000

_____ is a price ceiling that prevents the market from reaching the market equilibrium price.

A binding price ceiling

_____ is a price floor that prevents the market from reaching the equilibrium price.

A binding price floor

_____ on prescription drugs in Canada results in fewer new drugs being available in Canada.

A price ceiling

If the equilibrium price is $20 for a flu shot, what occurs at a price of $100 per flu shot if nothing has changed in the market?

A surplus

_____ is the burden created by the change in after-tax prices faced by buyers and sellers as a result of the tax.

An economic burden

Recall that the demand curve presents your marginal benefit curve. With this is mind, and with no change in the availability of water, why is it that your willingness to pay for water is relatively small compared to other, nonessential to life, goods?

Because your water consumption is based on marginal benefit, not total benefit

Dr. Larson is a professor at a state university. He is known for being tough but fair in his grading, and rarely gives out A's on his assignments. Considering that Dr. Larson is on the supply side and his students are on the demand side, why is it so difficult to attain an A?

Demand is high, so price is high.

Malik is a local politician running for governor in his state. What role does Malik play in the market for votes?

Demander

Krishan goes to a local bank to make a deposit in his savings account. While there, he considers the principles of economics that he has been learning at the university. He concludes that in this situation he is a supplier of credit. How is this so?

He is supplying the bank with his savings, which the bank will in turn lend out to other borrowers.

Which of the following is NOT a policy that governments use to reduce the alcohol consumption?

Imposing a mandate on alcohol

Which of the following is NOT a correct demand elasticity factor?

Necessities have more elastic demand.

Income elasticity of demand equals:

Percent change in quantity demanded ÷ Percent change in income.

Cross-price elasticity of demand equals:

Percent change in quantity demanded ÷ Percent change in price of another good.

Price elasticity of demand =:

Percent change in quantity demanded ÷ Percent change in price.

Mrs. Johnson decides that she is going to create her own country. She determines that she will be in charge of all production matters because she knows how to do things more efficiently than anybody else. What kind of economy has Mrs. Johnson effectively created?

Planned

A guitar manufacturer finds a cheaper source for wood in the production of their electric guitars. During this time, a sharp decrease occurs in the popularity of rock music in favor of electronic dance music created using computers. What effect will this have on price and quantity?

Price falls; the change in quantity is unknown

_____ is a price regulation to set an upper limit on the amount that landlords can charge in monthly rent; this price is the _____ in the rental market.

Rent control; price ceiling

Which has greater absolute price elasticity of demand, rice and pasta or restaurant meals?

Restaurant meals

A clothing manufacturer finds a cheaper supplier of wool for their winter coats. During this time, an unexpected cold front moves across the country. What effect will this have on price and quantity?

The effect on price is unknown; quantity rises

Why does an increase in demand lead to an increase in price and quantity?

The increase in price acts as an incentive for suppliers to increase the quantity supplied.

_____ measures by what percent the quantity demanded will change following a 1% price increase.

The price elasticity of demand

When is it helpful to use the morning-evening method?

When analyzing a graph with both a supply and demand shift

All of these are examples of market economies EXCEPT:

a country's prime minister decides that she knows what is best for her country, and dictates all factors of production for her nation.

A price ceiling leads to _____ in the quantity supplied and _____ in the quantity demanded, thus creating shortages.

a decrease; an increase

A subsidy is:

a payment made by the government to those who make a specific choice.

A binding price ceiling is:

a price ceiling that prevents the market from reaching the market equilibrium price.

The opposite of _____ is a price floor, which sets a _____ price that can be charged.

a price ceiling; minimum

When _____ is set below the equilibrium price, it doesn't have any effect.

a price floor

A binding price floor is:

a price floor that prevents the market from reaching the equilibrium price.

An increase in demand causes both price and quantity to go up because:

at a higher price level, companies have an incentive to produce more, creating a new equilibrium.

Tax incidence describes the:

division of the economic burden of a tax between consumers and producers.

It _____ whether the buyer or seller is assigned by the government to send in the tax; the end result is _____.

doesn't matter; exactly the same

Employers are prohibited from hiring anyone at a lower wage than the minimum wage, even if you would be willing to work for less. This is an example of the way:

government policy can change prices in the market.

Quotas set by the government limit taxis in many cities. A quota that restricts supply leads to:

higher prices and a lower quantity sold.

Where the supply curve cuts the demand curve:

is the equilibrium point.

Demand is elastic when the percent change in quantity is _____ than the percent change in price, which means that the price elasticity is _____.

larger; greater than one

Governments impose quotas to _____, which can be applied to _____.

limit the quantity sold; both buyers and sellers

Quantity regulations for immigration quotas effectively:

limit the supply of workers.

Higher prices lead to _____ total revenue if demand is inelastic, and lead to _____ total revenue if demand is elastic.

more; less

When a government introduces a new tax on sellers, equilibrium occurs at the point where the _____ curve meets the _____ curve.

new supply; demand

The Department of Transportation limits the _____ truck drivers can _____.

number of hours; work each week

The supply and demand curves covered in the book so far are most appropriate for analyzing:

perfectly competitive markets.

When you are NOT in a(n) _____market, then you need to know the _____for your specific product.

perfectly competitive; elasticity of demand

The price elasticity of supply is a _____ number, because changes in price lead to changes in quantity in _____ along a supply curve.

positive; the same direction

When the government sets a quota on goods sold, the gap between _____ creates an incentive for potential _____ to find a way around the regulation.

price and marginal cost; sellers

Taxi fares, which are often set by the local government, are a form of _____.

price ceiling

As a manager, you will want to use the _____ for your product to forecast the likely consequences of _____.

price elasticity of demand; a change in price

The _____ measures how responsive sellers are to price changes.

price elasticity of supply

A _____ does two things: it raises prices, and it lowers the quantity sold.

price floor

Governments may restrict the quantity of alcohol supplied by limiting the:

quantity of businesses that can sell alcohol by requiring liquor licenses.

Demand is elastic when the percent change in _____ is larger than the percent change in _____, which means that the price elasticity is greater than one.

quantity; price

Governments have different reasons for setting binding price floors. Sometimes they are trying to _____ prices in order to help _____.

raise; sellers

With price regulation, the new price will be the _____, and you can use that price to find the _____.

regulated price; quantity sold

With quantity regulation, the quantity is determined by the _____, and the forces of supply and demand determine the _____.

regulation; price

James goes to a concert at the amphitheater by his house. During the encore, the drummer throws one of his drum sticks into the crowd and James catches it. James doesn't have much interest in memorabilia, so he decides to list the drumstick on eBay. In the market for this band's memorabilia, James is a:

seller

The government uses _____ to encourage the consumption of certain goods like education.

subsidies

The availability of _____ determines the price elasticity of _____.

substitutes; demand

A supercenter provides more variety of goods than a small store does. You will find that you are more price sensitive when you shop at a _____ because _____.

supercenter; it will provide close substitutes to something you want

Prices fall during a surplus because:

suppliers are left with unsold inventory and discount the good in order to generate revenue by selling off their inventory.

Quotas set by the government limit taxis in many cities. A quota that restricts _____ leads to higher prices and a _____ quantity sold.

supply; lower

A statutory burden is:

the burden of being assigned by the government to send a tax payment.

If the percent rise in price is smaller than the percent decline in quantity, then:

the demand for your product is elastic.

The percent change in quantity between any two points is equal to:

the difference between the two points divided by the average of the two points.

Supply and demand play an important role in determining quantities sold and equilibrium prices, but _____ is another important factor influencing many market outcomes.

the government

The Department of Transportation limits:

the number of hours truck drivers can work each week.

All of these are considered "prices" in a market EXCEPT:

the quantity of shirts at a store

The deduction on your pay stub for the FICA (Federal Insurance Contributions Act) tax is:

your half of the payment toward your Social Security account.