Econ 2302 Exam 2 Study Guide

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A tax levied on the buyers of a good shifts the

demand curve downward (or to the left).

Externalities tend to cause markets to be

inefficient

Which of the following is not a common resource?

national defense

A tax levied on the sellers of a good shifts the

supply curve upward (or to the left)

Consumer surplus is

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

Consumer surplus is

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

When a country allows trade and becomes an exporter of a good,

the gains of the domestic producers of the good exceed the losses of the domestic consumers of the good

If education produces positive externalities, we would expect

the government to subsidize education

Income elasticity of demand measures how

the quantity demanded changes as consumer income changes

The price elasticity of supply measures how much

the quantity supplied responds to changes in the price of the good.

Total surplus is

the total value of the good to buyers minus the cost to sellers of providing the good

Economists typically measure efficiency using

total surplus.

Price controls are usually enacted

when policymakers believe that the market price of a good or service is unfair to buyers or sellers

Price controls are usually enacted

when policymakers believe that the market price of a good or service is unfair to buyers or sellers.

The price of sugar that prevails in international markets is called the

world price of sugar

Refer to Figure 6-14. The effective price that sellers receive after the tax is imposed is

$10

Refer to Figure 7-15. At the equilibrium price, producer surplus is

$100

Refer to Figure 7-15. At the equilibrium price, consumer surplus is

$150

Refer to Figure 6-14. The price that buyers pay after the tax is imposed is

$24

Refer to Figure 7-15. At the equilibrium price, total surplus is

$250

A binding price floor (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price.

(i) and (iii) only

A binding price floor (i)causes a surplus. (ii)causes a shortage. (iii)is set at a price above the equilibrium price. (iv)is set at a price below the equilibrium price.

(i) and (iii) only

A binding price ceiling (i)causes a surplus. (ii)causes a shortage. (iii)is set at a price above the equilibrium price. (iv)is set at a price below the equilibrium price.

(ii) and (iv) only

When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about

0.55.

If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a

40 percent decrease in the quantity demanded

If the price elasticity of demand for a good is 10.0, then a 4 percent increase in price results in a

40 percent decrease in the quantity demanded.

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-2?

A is airline tickets in the short run, and B is airline tickets in the long run.

The price elasticity of demand for bread

All of the above are correct.

When a binding price floor is imposed on a market,

All of the above are correct.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus before the tax is measured by the area

I+J+K+L+M+Y.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus after the tax is measured by the area

J+K+L+M

For a particular good, a 10 percent increase in price causes a 5 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The good is a necessity

What happens to the total surplus in a market when the government imposes a tax?

Total surplus decreases

What happens to the total surplus in a market when the government imposes a tax?

Total surplus decreases.

Minimum-wage laws dictate

a minimum wage that firms may pay workers

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good.

Price ceilings and price floors that are binding

cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price

Patterns of trade among nations are primarily determined by

comparative advantage

If the cross-price elasticity of two goods is negative, then the two goods are

complements

Economists view the fact that Florida grows oranges, Texas pumps oil, and California makes wine as

confirmation of the virtues of free trade

The difference between social cost and private cost is a measure of the

cost of an externality

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the

deadweight loss due to the tax

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the

deadweight loss due to the tax.

When a country allows trade and becomes an importer of a good,

domestic producers become worse off, and domestic consumers become better off

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

flatter the demand curve will be

A country has a comparative advantage in a product if the world price is

higher than that country's domestic price without trade

A consumer's willingness to pay directly measures

how much a buyer values a good

A consumer's willingness to pay directly measures

how much a buyer values a good.

The imposition of a binding price floor on a market causes quantity demanded to be

less than quantity supplied

Under rent control, tenants can expect

lower rent and lower quality housing

Minimum-wage laws dictate the

lowest price employers may pay for labor

When a tax is placed on the buyers of a product, buyers pay

more and sellers receive less than they did before the tax

Goods with many close substitutes tend to have

more elastic demands

When a tax is placed on the sellers of a product, buyers pay

more, and sellers receive less than they did before the tax.

When policymakers set prices by legal decree, they

obscure the signals that normally guide the allocation of society's resources

If the price of gasoline rises, when is the price elasticity of demand likely to be the highest?

one year after the price increase

The minimum wage is an example of a

price floor

When government imposes a price ceiling or a price floor on a market,

price no longer serves as a rationing device

A tax imposed on the sellers of a good will raise the

price paid by buyers and lower the equilibrium quantity

A tax imposed on the buyers of a good will raise the

price paid by buyers and lower the equilibrium quantity.

Markets do not ensure that the air we breathe is clean because

property rights are not well established for clean air

When the government intervenes in markets with externalities, it does so in order to

protect the interests of bystanders

The price elasticity of demand measures how much

quantity demanded responds to a change in price

A tax imposed on the sellers of a good will

raise the price buyers pay and lower the effective price sellers receive

A seller is willing to sell a product only if the seller receives a price that is at least as great as the

sellers's cost of production

If a tax is levied on the buyers of a product, then the demand curve will

shift down

If a tax is levied on the buyers of a product, then the demand curve will

shift down.

If a tax is levied on the sellers of a product, then the supply curve will

shift up

If a tax is levied on the sellers of a product, then the supply curve will

shift up.

Refer to Figure 6-2. The price ceiling causes a

shortage of 85 units

After a binding price floor becomes effective, a

smaller quantity of the good is bought and sold

A tax on an imported good is called a

tariff

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by K+L represents

tax revenue

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by K+L represents

tax revenue.

For a good that is a necessity, demand

tends to be inelastic.

Assume, for the U.S., that the domestic price of pineapples without international trade is lower than the world price of pineapples. This suggests that, in the production of pineapples,

the U.S. has a comparative advantage over other countries and the U.S. will export pineapples

The size of the deadweight loss generated from a tax is affected by the

elasticities of both supply and demand.

A decrease in supply will cause the smallest increase in price when

both supply and demand are elastic

A decrease in supply will cause the largest increase in price when

both supply and demand are inelastic

If a price floor is not binding, then

there will be no effect on the market price or quantity sold

Refer to Figure 5-5. Using the midpoint method, between prices of $12 and $18, price elasticity of demand is

0.33

Refer to Figure 6-2. The price ceiling

All of the above are correct

A price floor is

All of the above are correct.

A price ceiling is

a legal maximum on the price at which a good can be sold.

Rent-control laws dictate

a maximum rent that landlords may charge tenants

When demand is inelastic, an increase in price will cause

an increase in total revenue

On a graph, consumer surplus is represented by the area

below the demand curve and above price.

A price ceiling will be binding only if it is set

below the equilibrium price

Refer to Figure 6-5. If the horizontal line on the graph represents a price floor, then the price floor is

binding and creates a surplus of 90 units of the good

A shortage results when a

binding price ceiling is imposed on a market

Under rent control, bribery is a mechanism to

bring the total price of an apartment (including the bribe) closer to the equilibrium price

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

buyers of the good will bear most of the burden of the tax

Because the demand for wheat tends to be inelastic, the development of a new, more productive hybrid wheat would tend to

decrease the total revenue of wheat farmers

If the government removes a binding price floor from a market, then the price paid by buyers will

decrease, and the quantity sold in the market will increase

Good news for farming can be bad news for farmers because the

demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right decrease total revenues to sellers

When studying how some event or policy affects a market, elasticity provides information on the

direction and magnitude of the effect

The demand for Hubba Bubba bubble gum is likely

elastic because there are many close substitutes for Hubba Bubba

In general, elasticity is a measure of

how much buyers and sellers respond to changes in market conditions

In general, elasticity is a measure of

how much buyers and sellers respond to changes in market conditions.

To determine whether a good is considered normal or inferior, one could examine the value of the

income elasticity of demand for that good

To determine whether a good is considered normal or inferior, one could examine the value of the

income elasticity of demand for that good.

If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the

income elasticity of demand is negative.

If the price elasticity of supply is 0.8, and price increased by 5%, quantity supplied would

increase by 4%

If the government removes a binding price ceiling from a market, then the price received by sellers will

increase, and the quantity sold in the market will increase

Over time, housing shortages caused by rent control

increase, because the demand for and supply of housing are more elastic in the long run

An increase in price causes an increase in total revenue when demand is

inelastic

The price elasticity of demand for eggs

is computed as the percentage change in quantity demanded of eggs divided by the percentage change in price of eggs

A key determinant of the price elasticity of supply is the

length of the time period

A key determinant of the price elasticity of supply is the

length of the time period.

If a tax is levied on the sellers of a product, then the demand curve will

not shift

For which pairs of goods is the cross-price elasticity most likely to be negative?

peanut butter and jelly

The presence of a price control in a market for a good or service usually is an indication that

policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be

positive

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be

positive.

When a tax is placed on a product, the price paid by buyers

rises, and the price received by sellers falls

A tax levied on the sellers of a good shifts the

supply curve upward (or to the left).

Producer surplus is

the amount a seller is paid minus the cost of production.

The term tax incidence refers to

the distribution of the tax burden between buyers and sellers

If a price ceiling is not binding, then

the equilibrium price is below the price ceiling

The price elasticity of supply measures how much

the quantity supplied responds to changes in the price of the good

Which of the following is not a determinant of the price elasticity of demand for a good?

the steepness or flatness of the supply curve for the good

Total surplus is

the total value of the good to buyers minus the cost to sellers of providing the good.

We can say that the allocation of resources is efficient if

total surplus is maximized


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