Micro Exam 2
A $0.50 tax levied on the buyers of pomegranate juice will shift the demand
downward by exactly $0.50
total surplus
all of the above (can be used to measure a markets efficiency, is the sum of consumer surplus and producer surplus, is the value to buyers minus the cost to sellers)
in which of the following situations will total revenue increase
all the above (price elasticity of demand is 1.2 and the price of goods decrease, PED is 0.5 and the price increases, PED is 3.0 and the price decreases)
Suppose that the market price for pizzas increases. The increase in producer surplus comes from the benefit of the higher prices to
both existing sellers who now receive higher prices on pizzas as they were already selling and new sellers who enter the market because of the higher prices.
When a tax is levied on sellers of tea
both sellers and buyers are made worse off
When a tax is placed on the buyers of lemonade, the
burden of the tax will always be shared by the buyers and sellers, buy the division of the burden is not always equal.
Which is correct about how much buyers want to pay and sellers want to be paid
buyers always want to pay less and sellers always want to be paid more
Which of the following statements is correct concerning the burden of a tax imposed on take-out food
buyers and sellers share the burden of the tax
If the government removes a binding price floor from the market, then the price paid by buyers will
decrease and the quantity sold will increase
Sofie values a stainless steel fridge for her new house at 3,500, but she succeeds in buying one for 3,000. Sofies consumer surplus is
$500
a binding price floor i. causes a surplus ii. causes a shortage iii. is set at a price above EQ iv. is set at a price below EQ
1. causes surplus and iii. is set at a price above EQ
a 10% increase in fas prices reduces gasoline consumption by about
2.5% after 1 year and 6% after 5 years
If the price elasticity of demand for tuna is 2, then a 1.5% increase in the price of tuna will decrease the quantity demanded of tuna by
3% and tuna sellers total revenue will decrease as a result
if the price elasticity of demand for a good is 0.1 then a 30% decrease in price results in
3% increase in quantity demanded
mary and cathy are roommates. mary assigns a $30 value to smoking. Cathy values a smoke free room at $15. Which of the following senarios is a successful example of the Coase theorem?
Mary pays Cathy $16 so that Mary can smoke
The demand for Godiva pumpkin truffles is likely quite elastic becuse
Other types of chocolate are good substitutes for this flavor
THE DEMAND FOR BOURBON WHISKEY IS MORE ELASTIC THAN THE DEMAND FOR ALCOHOLIC BEVERAGES IN GENERAL.
TRUE
negative externalities occur when one persons actions
adversely affect the well being of a bystander who is not a party to the action
A perfect elastic demand implies that
any rise in price above that represented by the demand curve will result in a quantity demanded of zero
consumer surplus in a market can be represented by the
area below the demand curve and above the price
suppose that the demand for digital cameras is elastic and the supply is inelastic. a tax of $20 per camera levied on digital cameras will decrease the effective price by sellers of digital cameras by
between $10 and $20
Suppose that the demand for digital cameras is elastic, and the supply of digital cameras is inelastic. A tax of 20 per camera levied on digital cameras will decrease the effective price received by sellers of digital cameras by
between 10 and 20
an externality exists whenever
bobbi engages in an activity that influences the well being of rosa and yet bobbi neither pays nor receives payment for that influence
the supply curve for a product reflects the
cost to sellers of producing the product
A tax on the sellers of coffee mugs
decreases the size of the coffee mug market
Suppose that a tax is placed on books. If the buyers pay the majority of the tax, then we know that the
demand is more inelastic than the supply
Which of the following is likely to have the most price elastic demand -floss -milk -salt -diamond earings
diamond earings
suppose the government imposes a 30 cent tax on sellers of packets of gum. The tax would
discourage market activity
when a tax is imposed on the buyers of a good, the demand curve shifts
downward by the amount of the tax
Greater than 1, elastic or inelastic
elastic
When the price of CDs is $4, Daphne buys 5 per month. When the price is $3, she buys 9 per month. Daphne's demand for used CDs is
elastic, and her demand curve would be relatively flat
Suppose the cross price elasticity of demand between hot dogs and mustard is -2.00. This implies that a 10% increase in the price of hot dogs will cause the quantity of mustard purchased to
fall by 20%
sellers of a good bear the larger share of the tax burden when a tax is placed on a product for which the i. supply is more elastic than the demand ii. demand is more elastic than supply iii. tax is placed on the sellers of the product iv. tax is placed on the buyers of the product
ii. demand is more elastic than supply
externalities tend to cause markets to be
inefficient
Suppose the ddemand for peaches decreases. What will happen to producer surplus in the market for peaches
it decreases
willingness to pay
measures the value that a buyer places on a good.
Sallys cat casues mike to sneeze. Sally values her cat at 300. the cost to mike is 3350. Based on the coase theorem...
mike should pay sally $325 to give her cat away
total revenue
remains unchanged as price increases when demand is unit elastic
positive externalities
result in smaller than efficient equilibrium quantity
Which of the following is likely to have the least price elastic demand 1. milk 2. ice cream 3. salt 4. diamond earings
salt
Suppose that in a particular market, the demand curve is highly elastic, and the supply curve is highly inelastic. if a tax is imposed in this market, then the
sellers will bear a greater burden of the tax than the buyers
A $0.10 tax levied on on the sellers of chocolate bars will cause the
supply curve for chocolate bars to shift up by $0.10
Buyers of a good bear the larger share of the tax burden when the
supply is more elastic than the demand for the product
If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of
the availability of close substitutes in determining the price elasticity of demand
Suppose Juan is filling out a survey that he received in the mail. The survey asks him what he would do if the price of his favorite toothpaste increased. Juan reports that he would switch to a different brand. The survey asks what he would do if the price of all toothpaste increased. he said he must use toothpaste, so he would adjust his spending somewhere else. This illustrates the importance of
the definition of a market in determining the price elasticity of demand
if a change in the price of a good results in no change in total revenue, then
the demand for the good must be unit elastic
suppose that the flu shots create a positive externality equal to $12 per shot. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?
the equilibrium quantity is less than the socially optimal quantity
For a particular good, a 8% increase in price causes a 48% decrease in quantity demanded. Which of the following statements is most likely applicable to this good
the good is a luxury
for a particular good, a 12% increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
the good is a necesity
For a particular good, a 10% increase in price causes a 3% decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
the relevant time horizon is short
economists typically measure efficiency using
total surplus
we can say that the allocation of resources is efficient if
total surplus is maximized
Private solutions may not be possible due to the cost of negotiating and enforcing these solutions. Such costs are called
transaction costs
jeff decides that he would pay as much as $3000 for a new laptop. He buys the computer and realizes consumer surplus of $700. How much did Jeff pay for his laptop
$2,300
For which pairs of goods is the cross-price elasticity most likely to be positive
(substitutes) Pens and pencils
Tyler purchases 5 pounds of hot dogs per month when his monthly income is $2,000 and 4 pounds when his income is $2,200. Tylers income elasticity of demand for hot dogs is
-2.33 and dogs are an inferior good
Suppose the price of chips decreases from $1.45 to $1.25 and the quantity of chips demanded increases from 2000 to 2200. Using midpoint method, the price elasticity of demand for chips in the given price range is
.64
Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue -0.2 -1 -1.5
0.2
When the price of good A is $50, the quantity demanded of good A is 500. When the price of good A rises to $70, the quantity demanded of good A falls to 400. Using the midpoint method, the price elasticity of demand for good A is
0.67 and an increase in price will result in an increase in total revenue for good A
Which of the following causes a surplus of a good 1. binding price floor 2. binding price ceiling 3. a tax on the good
1. a binding price floor
charles purchases 20 basketball tickets per year when his annual income is $50,000 and 25 basketball tickets when his annual income is $60,000. Charles income elasticity of demand for basketball tickets is
1.22, and basketball tickets are a normal good
If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about
1.6 and supply is elalstic
if a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about
1.60 and price is elastic
A bakery would be willing to supply 500 donuts per day at a price of 0.5 each. At a price of 0.8 the bakery would be willing to supply 1,100 donuts. Using the midpoint method, the price elasticity of supply for donuts is about
1.63 and supply is elastic
Ryan buys a new tractor for $118,000. He recieves consumer surplus of 13,000 on his purchase. Ryans willing to pay is
131,000
if the price elasticity of supply is 0.2 and a price increase led to a 3% increase in quantity supplied, then the price increase is about
15%
if the price elasticity of supple is 1.5, and a price increase led to a 3% increase in quantity supplies, then the price increase is about
2%
Which of the following statements is correct 1. a tax levied on buyers will never be partially paid by sellers 2. who actually pays a tax depends on the price elasticities of supply and demand 3. government can decide who actually pays the tax 4. a tax levied on sellers always will be passed on completely to buyers
2. who actually pays a tax depends on the price elasticities of supply and demand
If the price elasticity of demand for aluminum foil is 1.45, then a 2.4% decrease in the price of aluminum foil will increase the quantity demanded of aluminum foil by
3.48% and aluminum foil sellers total revenue will increase as a result
retas income elasticity of demand for steak dinners is 1.50. all else equal, this means that if her income increases by 20%, she will buy
30% more steak dinners
If the price elasticity of demand for a good is 0.4, then a 10% increase in price results in
4% decrease in quantity demanded
Ryans income elasticity of demand for steak dinners is 3. all else equal, this means that if his income increases 20% he will buy
60% more steak dinners
suppose sellers of liquor are required to send 1$ to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $0.80 per bottle. Which is true?
All of the above (the tax causes the supple cureve to shift upward by $1, the effective price received by sellers is $0.20 per bottle less than it was before tax, 80% of the burden of the tax falls on buyers)
For a particular good, a 2% increase in price causes a 12% decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
The good is a luxury
A city wants to raise revenues to build a new swimming pool next year. The mayor suggests that the city raise the price of admission to the current pools this year to raise revenue. The city manager suggests that the city lower the price of admission to raise revenue. Who is corrects
The mayor would be correct if demand were price inelastic, the city manager would be correct if demand were price elastic.
A city wants to raise revenues to build a new swimming pool next year. The mayor suggests that the city raise the price of admission to the current pool. The city manager suggests the city lower the price to the current pool.
They mayor would be correct if demand were price inelastic, the city manager would be correct if demand were price elastic
a price floor will be binding only if it is set
above the EQ price
Producer surplus measures the
benefits to sellers of participating in a market
if a tax is levied on the buyers of dog food, then
buyers and sellers will share the burden of the tax
The demand for salt is inelastic and the supply for salt is elastic. The demand for caviar is elastic and the supply for caviar is ineslastic. Suppose that a tax of 1 per pound is levied on the sellers of salt, and a tax of 1 per pound is levied on the buyers of caviar. We would expect that most of the burden of these taxes will fall of
buyers of salt and the sellers of caviar.
If the cross price elasticity of two goods is negative, then the two goods are
complements
The cross price elasticity of demand can tell us whether goods are
complements or substitutes
If the cross- price elasticity of 2 goods is negative, then the 2 goods are
compliments
Last year Shelly bought 6 pairs of designer jeans when her income was 40,000. This year, her income is 50,000 and she purchased 10 pairs of designer jeans. holding other factors constant, it follows that Shelly
considers designer jeans to be a normal good
Which of the following statements is not correct about a market in equilibrium?
consumer surplus will be equal to producer surplus
A tax on the buyers of cereal will increase the price of cereal paid by buyers
decrease the effective price of cereal received by sellers, and decrease the EQ quantity of cereal
a tax on the sellers of coffee will increase the price of coffee paid by buyers,
decrease the effective price of coffee received by sellers and decrease the equilibrium quantity of coffee
a tax on the sellers of coffee mugs
decreases the size of the coffee mug market
When the price of bubble gum is $.5, the quantity demanded is 400 packs per day. When the price falls to $.4, the quantity demanded is 600. Using the midpoint method, we know that the demand for bubble gum is
elastic
holding all other factors constant and using the midpoint method, if a candy manufacture increases production by 20% when the market price of candy increases from $0.5 to $0.6 then supply is
elastic, since the price elasticity of supply is equal to 1.1
Demand is elastic if the price elasticity of demand is
greater than 1
for which of the following goods is the income elasticty of demand likely lowest 1. housing 2. champagne 3. HD DVD players 4. subscriptions to movie channels
housing
nonbinding price ceiling i. casues a surplus ii. casues a shortage iii. is set at a price above the EQ price iv. is set at a price below the EQ price
iii only- is set at a price above the EQ price
if the price of milk rises, when is the price elasticity of demand likely to be the lowest
immediately after the price increases
if the price of natural gas rises, when is the price elasticity of demand likely to be the lowest
immediately after the price increases
A nonbinding price floor i. causes a surplus ii. causes a shortage iii. is set at a price above EQ iv. is set at a price below EQ
iv. is set at a price below the EQ price
For which of the following types of goods would the income elasticity of demand be positive and relatively large
luxuries
For which of the following types of goods would the income elasticity of demand be positive and relatively large 1. inferior goods 2. normal goods 3. goods with many compliments 4. luxuries
luxuries
when a tax is placed on the buyers of a product, buyers pay
more and sellers receive less than they did before the tax
Last year, Joan bought 100 pounds of hamburger when her households income was $80,000. This year, her income was only $60,000 and joan bought 120 pounds of hamburger. All else constant, Joans income elasticity of demand for hamburger is
negative, so Joan considers hamburger to be an inferior good.
Economists compute the price elasticiy of demand as the
percentage change in quantity demanded divided by the percentage change in price
Assume that a 4% increase in income results in a 2% increase in the quantity demanded of a good. The income elasticcity of demand for the good is
positive and the good is a normal good
ryan rescues dogs from his local animal shelter. When Ryans income rises by 7%, his quantity demanded of dog biscuts increases by 12%. For ryan, the income elasticity of demand for dog biscuits is
positive, and dog biscuits are a normal good
you and your roommate eat three packets of ramen each week. After graduation last month, both of you were hired at several times your college income. You still enjoy ramen and buy even more, but your roommate plans to buy fewer in favor off foods she prefers more. when looking at income elasticity of demand for ramen, yours would be .... and your roommates >>>
positive, and your roommates would be negative
legal minimum on the price at which a good can be sold is called
price floor
Suppose the equilibrium price of a physical exam by a doctor is 200$ and the gov imposes a price ceiling of 150$ per physical. As a result of the price ceiling, the
quantity demanded of physicals increases, and the quantity supplied decreases
The price elasticity of demand measures how much
quantity demanded responds to a change in price
If a nonbinding price floor is imposed on a market, then the
quantity sold in the market will stay the same
suppose the government imposes a $0.20 tax on the sellers of iced tea. which of the following is not correct? the tax would 1. shift the supply curve upward by 20cents 2.raise the equilibrium price by 20cents 3.reduce the equilibrium quantity 4. discourage market activity
raise the equilibrium price by 20cents
the local bakery makes such a great cinnamon roll that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should
raise the price of the cinnamon rolls
How is the burden of tax divided
regardless of whether the tax is levied on the buyer or seller, the buyers and sellers bear some proportion of the tax burden
if a tax is imposed on a market with inelastic supply and elastic demand, then
sellers will bear most of the burden of the tax (may more if you are inelastic)
Suppose that in a partcular market, the supply curve is highly elastic and the demand curve is highly inelastic. if a tax is imposed in this market, then
the buyers will bear a greater burden of the tax than the sellers.
A $2.00 tax levied on the sellers of birdhouses with shift the supply curve
upward by exactly $2.00
For which of the following goods is the income elasticity of demand likely lowest 1. water 2. diamonds 3. hamburgers 4. cars
water
for which of the following goods is the income elasticity of demand likely lowest 1. fresh fruit 2. filet mignon steaks 3. sapphire pendant necklaces 4. water
water
