ECON

Karen sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.50 per knife for as many knives as Karen is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $1.75, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.25. Assume Karen is rational in deciding how many knives to sharpen. Her producer surplus is

$1.00

Producer surplus equals

Amount received by sellers - Costs of sellers.

Demand is inelastic if elasticity is

less than 1

A supply curve can be used to measure producer surplus because it reflects

sellers' cost

For a good that is a luxury, demand

tends to be elastic

Donald produces nails at a cost of $200 per ton. If he sells the nails for $350 per ton, his producer surplus per ton is

$150

Sarah buys a new MP3 player for $135. She receives consumer surplus of $25 on her purchase if her willingness to pay is

$160

Kelly is willing to pay $68 for a pair of shoes for a wedding. She finds a pair at her favorite outlet shoe store for $48. Kelly's consumer surplus is

$20

If Roberta sells a shirt for $30, and her producer surplus from the sale is $23, her cost must have been

$7

On a certain supply curve, one point is (quantity supplied = 200, price = $4.00) and another point is (quantity supplied = 250, price = $4.50). Using the midpoint method, the price elasticity of supply is about

.53

Suppose the price of Twinkies decreases from $1.45 to $1.25 and, as a result, the quantity of Twinkies demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for Twinkies in the given price range is

.64

If the price elasticity of supply is 1.5, and a price increase led to a 1.8% increase in quantity supplied, then the price increase amounted to

.83%

If a 15% increase in price for a good results in a 20% decrease in quantity demanded, the price elasticity of demand is

1.33

At a price of $1.00, a local coffee shop is willing to supply 100 cinnamon rolls per day. At a price of $1.20, the coffee shop would be willing to supply 150 cinnamon rolls per day. Using the midpoint method, the price elasticity of supply is

2.20

If the price elasticity of demand for a good is 0.25, then a 20 percent decrease in price results in a

5 percent increase in the quantity demanded

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

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

The price elasticity of demand changes as we move along a

A. horizontal demand curve.

We can say that the allocation of resources is efficient if

A. producer surplus is maximized.

There are very few, if any, good substitutes for motor oil. Therefore,

A. the demand for motor oil would tend to be inelastic.

On a graph, consumer surplus is represented by the area

B. below the demand curve and above price.

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because

B. buyers tend to be much more sensitive to a change in price when given more time to react.

If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the

B. consumer does not purchase the good.

When a good is taxed, the burden of the tax

B. falls more heavily on the side of the market that is more inelastic.

consumer surplus

B. is the amount a consumer is willing to pay minus the amount the consumer actually pays.

If the quantity supplied responds only slightly to changes in price, then

B. supply is said to be inelastic.

The price elasticity of supply measures how much

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

Total surplus is equal to

B. value to buyers - cost to sellers.

If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is

C. 1.60, and supply is elastic.

The decrease in total surplus that results from a market distortion, such as a tax, is called a

C. deadweight loss.

The deadweight loss from a tax

C. is larger, the larger is the amount of the tax per unit.

Economists compute the price elasticity of demand as the

C. percentage change in quantity demanded divided by the percentage change in price.

Producer surplus is

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

When a supply curve is relatively flat,

C. the supply is relatively elastic.

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

D. 40 percent decrease in the quantity demanded.

Which of the following equations is not valid?

D. Total surplus = Value to sellers - Cost to sellers

Total surplus is represented by the area

D. between the demand and supply curves up to the point of equilibrium.

When a tax is imposed on a good, the

D. equilibrium quantity of the good always decreases.

Welfare economics is the study of

D. how the allocation of resources affects economic well-being.

One result of a tax, regardless of whether the tax is placed on the buyers or the sellers, is that the

D. tax reduces the welfare of both buyers and sellers.

elasticity is

a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

A tax affects

buyers, sellers, and the government

All else equal, what happens to consumer surplus if the price of a good increases?

consumers surplus decreases

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

cookies

When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is

elastic

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

Suppose that quantity demand rises by 10% as a result of a 15% decrease in price. The price elasticity of demand for this good is

inelastic and equal to 0.67.

Goods with many close substitutes tend to have

more elastic demands

The price elasticity of demand measures how much

quantity demanded responds to a change in price

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is a

rectangle

When a tax is levied on a good, the buyers and sellers of the good share the burden,

regardless of how the tax is levied.

For a good that is a necessity, demand

tends to be inelastic

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

total surplus decreases

Suppose Chris and Laura attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called

willingness to pay