econ Test #2

Refer to the Figure. Which of the following price floors would be binding in this market?

$10

Refer the Scenario. Dominic plows Soraya's driveway for $85. Dominic's opportunity cost of plowing Soraya's driveway is $55, and Soraya's willingness to pay Dominic to plow her driveway is $100. If Soraya hires Dominic to mow her lawn, Soraya's consumer surplus is

$15

Refer to the Figure. Using the midpoint method, demand is unit elastic between prices of

$16 and $32.

Refer to the Figure. In the after-tax equilibrium, how much revenue does the government collect from the tax on this good?

$240

Refer to the Figure. The per-unit burden of the tax on buyers is

$4

Refer to the Table. Using the midpoint method, the income elasticity of demand for good Y is

-0.44, and good Y is an inferior good.

Matt purchases 4 boxes of spinach and 3 pounds of tomatoes per month when the price of spinach is $1.50 per box. He purchases 5 boxes of spinach and5pounds of tomatoes per month when the price of spinach is $1.00 per pound. Using the midpoint method, Matt's cross-price elasticity of demand for spinach and tomatoes is

-1.25, and they are complements.

Refer to the Table. Using the midpoint method, the price elasticity of demand in the price range from $25 to $30 is about

.80

Refer to the Table. Using the midpoint method, at a price of $8, what is the income elasticity of demand when income rises from $2,000 to $3,500?

0.73

Refer to the Table. Using the midpoint method, at a price of $16, what is the income elasticity of demand when income rises from $1,000 to $2,000?

1

Tricia's Tea Shop increased its total monthly revenue from $2,520 to $2,750 when it reduced the price of a cup of tea from $3 to $2.50. The price elasticity of demand for Tricia's Tea Shop is

1.47

Refer to the Table. Using the midpoint method, what is the income elasticity of demand for good X?

1.66

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue?

1.67

If the price elasticity of demand for a good is 2.0, then a 5 percent increase in price results in a

10 percent decrease in the quantity demanded.

Refer to the Table. Suppose the government imposes a price floor of $5 on this market. What will be the size of the surplus in this market?

12 units

If the price elasticity of supply is 1.8, and a price increase led to a 4 increase in quantity supplied, then the price increase is about

2.22%

Suppose the price of tablets increases by 8 percent and producers respond by increasing the quantity supplied by 20 percent. The price elasticity of supply for tablets is

2.5 and producers are very responsive to the price change.

Refer to the Figure. Using the midpoint method, between prices of $32 and $40, price elasticity of demand is

3

If the price elasticity of demand for gift wrap is 0.8, then a 5% increase in the price of gift wrap will decrease the quantity demanded of gift wrap by

4%, and gift wrap sellers' total revenue will increase as a result.

If the price elasticity of demand for a good is 0.75, then an 8 percent decrease in price results in a

6 percent increase in the quantity demanded.

Refer to the Table. Suppose the government imposes a price ceiling of $2 on this market. What will be the size of the shortage in this market?

6 units

If the price elasticity of supply is 0.6 and price increases by 15 percent, the quantity supplied will increase by

9 percent

Suppose the government has imposed a price floor on cheese. Which of the following events could transform the price floor from one that is binding to one that is not binding?

A bovine disease affects half of the cow population resulting in a higher price for milk.

In which of these instances is demand said to be perfectly inelastic?

A decrease in price of 6% causes an increase in quantity demanded of 0%.

Refer to the Table. Which of the following is consistent with the elasticities given in Table?

A is a good several years after a price increase, and B is that same good several days after the price increase.

Which of the following is not a likely statement regarding the imposition of a binding price floor on the market for cigarettes?

Buyers of cigarettes have pressured policymakers into imposing the price floor.

Suppose sellers of gasoline are required to send $0.50 to the government for every gallon of gasoline they sell. Further, suppose this tax causes the price paid by buyers of gasoline to rise by $0.40 per gallon. Which of the following statements is correct?

Demand is relatively inelastic compared to supply of gasoline.

Which of the following statements helps to explain why government drug interdiction increases drug-related crime?

Interdiction results in an increase in the amount of money needed to buy the same amount of drugs.

Which of the following was a reason OPEC failed to keep the price of oil high?

Over the long run, producers of oil outside of OPEC responded to higher prices by expanding their production.

Suppose that when the price of perfume is $35 per bottle, a firm can sell 1 million bottles. When the price of perfume is $30 per bottle, firms can sell 1.5 million bottles. Which of the following statements is true?

The demand for perfume is price elastic, so a decrease in the price of perfume will increase the total revenue of perfume producers.

Which of the following could describe a good for which a decrease in price would decrease revenue?

The good is a necessity.

Which of the following statements is not correct regarding the imposition of a tax on cigarettes?

The incidence of the tax depends upon the price elasticities of demand and supply.

Suppose that a $3.00 tax per pack is imposed on cigarettes. Which of the following is consistent with the demand being relatively inelastic and the supply being relatively elastic?

The price buyers pay increases by more than $1.50 and the price sellers receive decreases by less than $1.50.

In which of the following cases is it most likely that an increase in the size of a tax will increase tax revenue?

The size of the tax before the increase was small relative to the size of the market.

For a particular good, a 15 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

There are no close substitutes for this good.

If the price elasticity of demand for a good is 0.45, then which of the following events is consistent with a 9 percent decrease in the quantity of the good demanded?

a 20 percent increase in the price of the good

If the price elasticity of demand for a good is about 1.3, then which of the following is consistent with a 7 percent increase in the quantity demanded of the good?

a 5.4 percent decrease in the price of the good

Compared to 1950 there has been

a 70 percent drop in the number of farmers, but farm output more than doubled.

Refer to the Figure. In which of the following cases would the market price serve as a rationing mechanism?

a price floor set at $6

Refer to the Figure. If the government imposes a price ceiling of $6 on this market, then there will be

a shortage of 20 units.

Suppose the government wants to encourage Americans to eat healthier, so it imposes binding price ceilings on the markets for fresh vegetables. As a result

a shortage of fresh vegetables will develop.

Suppose the government wants to encourage Americans to eat healthier, so it imposes binding price ceilings on the markets for fresh vegetables. As a result,

a shortage of fresh vegetables will develop.

A policy to help the poor that would not reduce the quantity of housing supplied is

a subsidy from the government to offset a portion of a poor family's rent.

If a binding price floor is imposed on the market for carrots, then

a surplus of carrots will develop.

A binding minimum wage

alters both the quantity demanded of labor and the quantity supplied of labor.

If the market price of 60-inch flat-screen TVs is $1,200 and the government imposes a price control setting the price at $1,000, this price control could be a

binding price ceiling or a nonbinding price floor.

Refer to the Figure. A government-imposed price of $12 in this market is an example of a

binding price ceiling that creates a shortage.

Refer to the Figure. A government-imposed price of $24 in this market is an example of a

binding price floor that creates a surplus.

A government-mandated minimum price that is set above the market equilibrium price is a

binding price floor that results in a surplus.

Rent control is an example of a price

ceiling; in cities with rent control mechanisms other than price are used to ration housing.

Refer to the Figure. If the economy is at point N on the curve, then a decrease in the tax rate will (Laffer Curve)

decrease the deadweight loss of the tax and increase tax revenue.

When a tax is placed on the buyers of hockey skates, the size of the hockey skate market

decreases, but the price paid by buyers increases.

Refer to the Figure. A price ceiling set at $4 causes quantity

demanded to exceed quantity supplied by 20 units.

Refer to the Figure. For prices above $50, demand is price

elastic, and total revenue will fall as price rises.

Holding all other factors constant and using the midpoint method, if a manufacturer increases production from 600 to 750 units when price increases by15 percent, then supply is

elastic, since the price elasticity of supply is equal to 148.

In the market for oil in the long run, demand and supply are

elastic, so a shift in supply leads to a small change in price.

If the market price of burgers is $8 and the government sets a legal minimum at $9, the government has imposed a price

floor that is binding.

Which of the following is likely to have the most price elastic demand?

flowers

A binding price ceiling

forces the price lower than the market price.

If the price of airline tickets falls, when is the price elasticity of demand likely to be the lowest?

immediately after the price increase

If the government levies a $10 tax per designer handbag, then the price paid by buyers of designer handbags would

increase by less than $10.

A payroll tax has the effect of

increasing the wages paid by firms and decreasing the wages received by workers.

The price elasticity of demand for lightbulbs

is relatively inelastic because there are very few substitutes for lightbulbs.

Suppose that the demand for toilet paper is highly inelastic, and the supply of toilet paper is highly elastic. A tax of $0.10 per roll levied on toilet paper will decrease the effective price received by sellers of toilet paper by

less than $0.05.

Suppose researchers discover a new shape for cranberry bogs that allow cranberry growers to harvest more cranberries than with the old shape. If the demand for cranberries is relatively inelastic, the discovery will

lower both price and total revenues.

If the government removes a $4 tax on buyers of restaurant meals and imposes the same $4 tax on sellers of restaurant meals, then the price paid by buyers will

not change, and the price received by sellers will not change.

Louisa sends candy to the troops overseas. When Louisa's income rises by 3 percent, her quantity demanded of candy increases by 5 percent. For Louisa, the income elasticity of demand for candy is

positive, and candy is a normal good.

A perfectly inelastic demand implies that buyers would

purchase the same amount as before when the price rises by 10%.

Suppose the equilibrium price of a jar of spaghetti sauce is $3, and the government imposes a price floor of $4 per jar. As a result of the price floor, the

quantity demanded of spaghetti sauce decreases, and the quantity of spaghetti sauce that firms want to supply increases.

If the market price of T-shirts is $10 and the government imposes a price ceiling at $12, the market will

reach the equilibrium and the price ceiling is not binding.

If kale farmers know that the demand for kale is price inelastic, in order to increase their total revenues they should

reduce the number of acres they plant to decrease their output.

Which of the following is not an example of the type of tax that economists generally agree is the most important tax in the U.S. economy?

sales tax

Suppose that in a particular market, the supply curve is relatively inelastic and the demand curve is relatively elastic. If a tax is imposed in this market, then the

sellers will bear a greater burden of the tax than the buyers.

When OPEC raised the price of crude oil in the 1970s, it caused a

shortage of gasoline as the nonbinding price ceiling became binding.

Which of the following is correct? Price controls often help

some of those they are designed to help.

You are in charge of increasing revenue for the city's bus service. The mayor advises you to reduce the price of a bus ticket to get more riders, but you think a more prudent approach would be to increase the price of a bus ticket. Your approach is based on the assumption that

the demand for bus tickets is inelastic, and the mayor believes the demand for bus tickets is elastic.

Refer to the Figure. If 55 units of the good are being bought and sold, then

the marginal cost to sellers is greater than the marginal value to buyers.

Which of the following would not be considered a cost of Sheryl's Sweeties cupcake business?

the price buyers are willing to pay for Sheryl's cupcakes

If the government removes a binding price ceiling in the market for gasoline, then

the price of gasoline will increase, and the quantity of gasoline sold will increase.

If the equilibrium wage exceeds the minimum wage, then

there will be no unemployment.