Govecon Unit 3

(Figure 49-2: Consumer Surplus II) At a price of P2 consumer surplus equals the area: A to B to P2 A to F to P1 A to Q3 to 0 P1 to P2 to B to F 0 to P1 to F to Q1

A to B to P2

(Figure 49-11: Gain in Producer Surplus) Which of the following area(s) represent producer surplus when there is a price floor equal to P1 ? D, E, and F B and C B,D, and F A, B, and C C and E

B,D, and F

(Figure 47-3: Demand Curves) Which graph(s) shows a perfectly inelastic demand curve? A B C D both C and D

C

(Figure 50-10: Tax) Which panel(s) best represents the effects of a regressive income tax? A B C A and B A and C

C

Xavier notices that the marginal utility of working with a tutor seems to fall with each hour the tutor helps him study. If Xavier studies with his tutor for so long that it actually hurts his grade due to exhaustion, then his marginal utility for that last hour will be: diminishing and negative. positive, but rising more slowly. zero. positive, but rising more quickly. negative, but beginning to rise.

diminishing and negative.

A men's tie store sold 30 ties per day when the price was $6 per tie and 60 ties per day when the price was $3 per tie. Compare the total revenues. What must the elasticity of ties be between these two points? (hint: take P x Q to find total revenue!) greater than zero but less than 1. equal to 1. less than 1 and less than 5. greater than 3. k

equal to 1.

(Table 51-3: Utility) Total utility is maximized at the ? unit. first second fifth sixth seventh

fifth

The price elasticity of a good will tend to be greater, or more elastic: for a longer time period. for a shorter time period. if it is a staple or necessity with few substitutes. if the share of income spent on the good is small.

for a longer time period.

If a consumer purchases X until MUx/Px = 20 and purchases Y until MUy / Py = 10, then to maximize their total utility, the consumer should: buy less of X and more of Y make no changes to the current combination of X and Y. buy more of both X and Y. buy less of both X and Y. buy more of X and less of Y

buy more of X and less of Y

Sometimes airlines raise ticket prices as the flight departure date approaches in the hope of increasing revenue. The airlines raise their prices on the assumption that: consumer demand becomes more price-elastic as departure time approaches. consumer demand is perfectly inelastic. consumers are not aware of airline prices. consumer demand is unrelated to prices. consumer demand becomes less price-elastic as departure time approaches.

consumer demand becomes less price-elastic as departure time approaches.

Suppose the price of cereal rose by 25% and the quantity of milk sold decreased by 50%. Then we know that the: cross-price elasticity between cereal and milk is —2. cross-price elasticity between cereal and milk is —0.5. price elasticity of demand for milk is 2. cross-price elasticity of demand for milk is 2. price elasticity of demand for cereal is 0.5.

cross-price elasticity between cereal and milk is —2.

Economists formally identify the satisfaction a person derives from the consumption of goods and services as: happiness. usefulness. utility. pleasure. cost.

utility

(Figure 48-1: Supply Curves) Which graph(s) shows a perfectly elastic supply curve? A B C D both A and D

D

The demand for textbooks is price inelastic. Which of the following would explain this? Many alternative textbooks can be used as substitutes. Students have a lot of time to adjust to price changes. Textbook purchases consume a large portion of most students' income. Textbooks are luxury goods for college students. The good is a necessity for college students.

The good is a necessity for college students.

Which of the following is likely to make supply more inelastic? The time period under consideration is quite long. The inputs necessary for production cannot readily be increased. The good is necessary for survival (e.g., a life-saving drug). Consumer income is rising. Production technology is easily adjusted to changes in price.

The inputs necessary for production cannot readily be increased.

The price elasticity of demand is computed as the percentage change in: quantity demanded divided by the percentage change in quantity supplied. price divided by the percentage change in quantity demanded. quantity demanded divided by the percentage change in income. quantity demanded divided by the percentage change in price. quantity supplied divided by the percentage change in price.

quantity demanded divided by the percentage change in price.

The principle of diminishing marginal utility: refers to the tendency of total utility to increase until an individual's budget is no longer constrained. refers to the tendency of marginal utility to decline as the amount of consumption of a good or service increases. indicates that, if a good is inferior, less of it will be purchased when income falls. assumes all goods are normal. refers to the possibility that some demand curves are upward sloping.

refers to the tendency of marginal utility to decline as the amount of consumption of a good or service increases.

(Figure 50-9: Market for Blue Jeans) The government recently levied a $10 tax on the producers of blue jeans. Using the graph, calculate the tax revenue. $1,000 $500 $4,000 $5,000 $2,000

$1,000

(Figure 50-9: Market for Blue Jeans) The government recently levied a $10 tax on the producers of blue jeans. Using the graph, calculate the deadweight loss. $1,000 $500 $250 $1,250 $2,000

$500

(Table 51-3: Utility) The marginal utility for the fifth unit is: 15. 10 5 60 0

0

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to and demand is described as 0.2; inelastic 5; inelastic 0.2; elastic 5; elastic 1; unit elastic

0.2; inelastic

Adam is a utility maximizing consumer who is spending all of his income on books and pencils. His marginal utility for the last book he bought was 10, and the price of the book was $5. If his marginal utility for the last pencil he consumed was 2, then what must the price of that pencil have been? $2 $5 $4 $1 $0.50

1

Each month Kim spends exactly $100 on ice cream regardless of the price of each container. Kim's price elasticity of demand for ice cream is: 0. 1. greater than 1, but less than 5. less than 1, but greater than 0. greater than 5.

1

(Figure 49-1: Consumer Surplus) In the figure, total consumer surplus is ? when the price is $10. $50 $59 $124 $144 $84

124

Max's marginal utilities for milk and honey are given in the table. The price of milk is $2 and the price of honey is $4. If Max's income is $16, how much milk and how much honey does he buy to maximize his utility? (hint: on a scratch sheet of paper, create a column of MU/$ for milk and a column of MU/$ for honey to find the combo!) 1 milk and 1 honey 4 milks and 2 honeys 5 milks and 4 honeys 6 milks and 0 honeys 6 milk and 1 honey

4 milks and 2 honeys

(Figure 50-7: Shrimp Market) If the government puts a $5 tax on the sellers of shrimp, the new Quantity sold is likely to be ? and the total tax revenue collected ? (note: if you eyeball it, you can tell - only one combination is even close). 500; $2,500 250; $1,250 750; $5 1,000; 0 Help. My head hurts.

500; $2,500

(Figure 49-2: Consumer Surplus II) At a price of P1 consumer surplus equals the area: A to B to P2 A to F to P1 A to Q3 to 0 P1 to P2 to B to F 0 to P1 to F to Q1

@

According to the substitution effect, an increase in the price of a product leads to an decrease in the quantity of the product demanded because buyers: have more real income. purchase more substitute goods instead of the product. experience a decrease in their purchasing power. purchase more complementary goods to go with the product. purchase more of the now relatively less expensive good.

@purchase more substitute goods instead of the product.

(Figure 48-1: Supply Curves) Which graph(s) shows a perfectly inelastic supply curve? A B C D both A and D

A

(Figure 49-11: Gain in Producer Surplus) Which of the following area(s) represent consumer surplus when there is a price floor equal to P1 ? D, E, and F B and C B,D, and F A C and E

A

(Figure 50-10: Tax) Which panel(s) best represents the effects of a proportional income tax? A B C A and B A and C

A

(Figure 47-3: Demand Curves) Which graph(s) shows a perfectly elastic demand curve? A B C D both C and D

D

(Figure 50-2: Tax Incidence) Based on the figure, consumers are likely to bear more of the burden of an excise tax in the situation(s) illustrated by Panels: A and B. A and D. B and D. B and C. C only.

A and D.

(Figure 49-18: Market in Equilibrium) At the equilibrium price, this market's total producer and consumer surplus equals the area: ABC BD. DEF. ABDF ABCDEF

ABCDEF

(Figure 47-3: Demand Curves) Gala apples are a type of apple that has many substitutes, is not a necessity, and is fairly price sensitive. Which graph best represents the demand schedule for Gala apples? A B C D I am confused. Help me.

B

(Figure 50-10: Tax) Which panel(s) best represents the effects of a progressive income tax? A B C A and B B and C

B

(Figure 50-2: Tax Incidence) Based on the figure, producers are likely to bear more of the burden of an excise tax in the situation(s) illustrated by Panels: A and B. A and C. B and D. B and C. D only.

B and C.

(Figure 49-11: Gain in Producer Surplus) Which of the following area(s) represent dead weight loss when there is a price floor equal to P1 D, E, and F B and C B,D, and F A, B, and C C and E

C and E

(Figure 49-18: Change in Total Surplus) Which of the following area(s) represent the change in total surplus when the price falls from $20 to $15? A, B, and C B and C B, C, D, and E C and E C

C and E

(Figure 49-18: Market in Equilibrium) At the equilibrium price, this market's producer surplus is equal to the area: ACE. EC AIF. DEF FDAB.

DEF

Suzy will know she has maximized her utility, if she is on her budget constraint and: consumption of Good X equals consumption of Good Y. what is spent on Good X equals what is spent on Good Y. MUx/Px = MUy/Py. MUx = MUy. Py /Px = MUx /MUy.

MUx/Px = MUy/Py.

(Figure 49-2: Consumer Surplus II) If the price rises from P1 to P2. consumer surplus decreases by the area: A to B to P2 A to F to P1 B to G to F P1 to P2 to B to F 0 to P1 to F to Q1

P1 to P2 to B to F

Which of the following is true of the elastic portion of a demand curve (hint: draw and label an E-U-I demand curve, then look at it)? Total revenue increases when price falls. Total revenue decreases when price falls. The absolute value of price elasticity is equal to 1. The percent change in quantity demanded is smaller than the percent change in price. Total dollars spent on this good falls when the price falls.

Total revenue increases when price falls.

The amount by which an additional unit of a good or service increases a consumer's total utility, all other things unchanged, is: marginal utility. maximum utility. average utility. required utility. cumulative utility.

marginal utility.

For Darryl, the optimum consumption bundle is the one that ? his ? , given his budget constraint. minimizes; utility maximizes; utility maximizes; opportunity cost minimizes; opportunity cost maximizes; income

maximizes; utility

Jessica experienced an increase in her income by 10% this year. In the same year, Jessica's quantity demanded of milk increased by 8%. This means that for Jessica: milk is an inferior good. milk is a normal good. milk is a complement to coffee. milk is exactly between being a normal and an inferior good.

milk is a normal good.

Penelope gets a 10% raise and in response she buys 4% more widgets. Thinking of Income Ed, for Penelope, widgets are a ? good that is a normal; luxury inferior; necessity normal; necessity inferior; luxury none of the above

normal; necessity

Which of the following would be most likely to have a vertical supply curve? salt oil insulin paintings by a dead painter like Van Gogh gasoline.

paintings by Leonardo da Vinci

The price elasticity of demand for skiing lessons in New Hampshire is over 1. This means that the demand is______in New Hampshire. price elastic price inelastic price unit-elastic. perfectly price elastic perfectly price inelastic.

price elastic

Suppose the price of gasoline increases 10% and quantity demanded for gasoline in Orlando drops 5% per day. The price elasticity of demand for gasoline in Orlando is: price elastic. price inelastic. price unit-elastic. perfectly price inelastic. perfectly price elastic

price inelastic.

An excise tax collected from the producers of a good: shifts the supply curve upward. creates a loss of revenue for the government. has a similar effect as a tax subsidy. shifts the supply curve downward. decreases the price of the good.

shifts the supply curve upward.

(Table 51-3: Utility) Marginal utility first becomes negative at the ? unit. first second fifth sixth fourth

sixth

Raina consumes 100% more mechanical pencils when the price of felt-tip pens increases by 50%. For Raina, pencils and pens are ? and the cross-price elasticity of demand is ? complements; 1/2 substitutes; -1/2 complements; 2 substitutes; 2 substitutes; 1/2

substitutes; 2

If the market for grapefruit is in equilibrium without any government intervention: total surplus is minimized. there is some deadweight loss. a few mutually beneficial trades are missed. the sum of consumer and producer surplus is maximized. the price of grapefruit is maximized.

the sum of consumer and producer surplus is maximized.