ECON 202 chapter 5, chapter 6
A binding price floor
-causes a surplus -is set at a price above the equilibrium price
The price paid by buyers in a market will increase if the government
-increases a binding price ceiling in that market -increases a binding price floor in that market
Rent Control
-is an example of a price ceiling -leads to a larger shortage of apartments in the long run than in the short run -leads to lower rents, and, in the long run, to lower-quality housing
If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is about
0.5 and supply is inelastic
If the price elasticity of supply is 1.5, and the price increase led to a 1.8% increase in quantity supplied, then the price increase is about
1.20%
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 the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in this market?
Equilibrium quantity to increase, but the impact on the equilibrium price would be ambiguous
Which of the following statements is valid when the market supply curve is vertical?
Market quantity supplied does not change when the price changes
What will happen to the equilibrium price and quantity of new cars if the price of gas rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto workers negotiate higher wages?
Quantity will fall, the effect on price is ambiguous
Music compact discs are normal goods. What will happen to the equilibrium price and quantity of music compact discs if musicians accept lower royalties, compact disc players become cheaper, more firms start producing music compact discs, and music lovers experience an increase in income?
Quantity will rise, the effect on price is ambiguous
The quantity sold in a market will decrease if the government decreases a
a binding price ceiling in that market
A price floor is binding when it is set
above the equilibrium price, causing a surplus
The dictionary defines equilibrium as a situation in which forces
balance
For which of the following types of goods would the income elasticity of demand be positive and relatively large?
luxuries
Total revenue will be at its largest value on a linear demand curve at the
midpoint of the curve
For a good that is a necessity
the good tends to be inelastic
On a downward-sloping linear demand curve, total revenue reaches maximum value at
the midpoint of the demand curve
Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?
Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous
Which of the following is the most likely explanation for the imposition of a price floor on the market for corn?
Sellers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor.
For a particular good, a 12 percent increase in price cases a 3 percent decrease in quantity demanded
The good is a necessity
A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?
The number of firms in a market tends to be more variable over long periods of time than over short periods of time.
A linear, upward-sloping supply curve has
a constant slope and a changing price elasticity of supply
An increase in the equilibrium quantity and an indeterminate change in equilibrium PRICE
an INCREASE in demand and INCREASE in supply
An increase in equilibrium PRICE and an indeterminate change in equilibrium QUANTITY
an INCREASE in demand and an DECREASE in supply
When a demand is elastic a decrease in price will cause
an increase in total revenue
When demand is elastic
and increase in price will cause a decrease in total revenue
An advance in farm technology that results in an increased market supply is
bad for farmers because total revenue will fall but good for consumers because prices for food will fall.
A price ceiling is binding when it is set
below the equilibrium price, causing a shortage
When a tax is placed on the buyers of lemonade, the
burden of the tax will be shared by the buyers and sellers, but the division of the tax is not always equal
Demand curve is inelastic and supply and elastic
buyers bear most of the burden of the tax
When a price of a good is lower than equilibrium price
buyers desire to purchase more than is produced
The midpoint method for calculating elasticities is convenient in that it allows us to
calculate the same value for elasticity, regardless of whether the price increases or decreases
A decrease in equilibrium quantity and an indeterminate change in equilibrium price
decrease in demand and decrease in supply
The price paid by buyers in a market will decrease if the government
decreases a tax on the good sold in that market
A $0.50 tax levied on the buyers of pomegranate juice will shift the demand curve
downward by exactly 0.50
If a tax is levied on the buyers of a product, then there will be a(n)
downward shift of the demand curve
A tax burden
falls more heavily on the side that is less elastic
The case of perfectly elastic demand is illustrated by a demand curve that is
horizontal
Elasticity is a measure of
how much buyers and sellers respond to changes in market conditions
Holding all other forces constant, if increasing the price of a good leads to an increase in total revenue, then the demand for the good must be
inelastic
A key determinant to the price elasticity of supply is the
length of the time period
The imposition of a binding price floor on a market causes the quantity demanded to be
less than the quantity supplied
In the housing market, supply and demand are
more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run
If a tax is levied on the sellers of a product then there will be a(n)
movement up and to the left along the demand curve
If two goods are complements, their cross-price elasticity will be
negative
Which of the following should be held constant when calculating an income elasticity of demand?
price of the good
A tax imposed on the buyers of a good will raise the
price paid by buyers and lower the equilibrium quantity
There is no shortage of scarce resources in a market economy because
prices adjust to eliminate shortages
A tax imposed on sellers of a good will
raise the price buyers pay, lower the price sellers receive
Total revenue
remains unchanged as price increases when demand is unit elastic
Demand curve is elastic and supply is inelastic
sellers bear most of the burden of the tax
If a tax is levied on sellers of a product, then the supply curve will
shift up
If the price elasticity of supply for a good is equal to infinity then the
supply curve is horizontal
In markets, prices move toward equilibrium because of
the actions of buyers and sellers
Which of the following statement is valid when supply is perfectly elastic at a price of $4?
the elasticity of supply approaches infinity
What would happen to the equilibrium price and quantity of lattes if coffee shops began using a machine that reduced the amount of labor necessary to produce steamed milk, which is used to make lattes and scientists discovered that lattes cause heart attacks?
the equilibrium price would decrease, and the effect on the equilibrium quantity would be ambiguous
The price elasticity of supply measures how much
the quantity supplied responds to changes in the price of the good
If there is a shortage of farm laborers, we would expect
the wage of farm laborers to increase
If the supply of a product increases, then we would expect the equilibrium price
to decrease and equilibrium quantity to increase
If the supply of a product decreases, then we would expect the equilibrium price
to increase and equilibrium quantity to decrease
A key lesson from the payroll tax is that the
true burden of a tax cannot be legislated
Which is correct?
who actually pays a tax depends on the price elasticities of supply and demand
