Micro Final (CH 5-8)
A tax on buyers decreases the quantity of the good sold in the market. a. True b. False
a
Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Assume Erin is required to pay a tax of $40 when she hires someone to clean her house for a week. Which of the following is correct? a.Erin will now clean her own house. b.Ernesto will continue to clean Erin's house, but his producer surplus will decline. c.Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will increase. d.Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline.
a
If the production technology for smart televisions improves, what happens to consumer surplus in the market for smart televisions? a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus will not change; only producer surplus changes. d. Consumer surplus depends on what event led to the improvement in production technology.
a
In which of these instances is demand said to be perfectly inelastic? a. A decrease in price of 6% causes an increase in quantity demanded of 0%. b. A decrease in price of 6% causes a decrease in total revenue of 0%. c. An increase in price of 6%causes a decrease in quantity demanded of 100%. d. An increase in price of 6% causes a decrease in quantity demanded of 6%.
a
States in the U.S. may mandate minimum wages above the federal level. a. True b. False
a
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 a. lower both price and total revenues. b. raise price and lower total revenues. c. lower price and raise total revenues. d. raise both price and total revenues.
a
Suppose the market demand curve for a good passes through the point (quantity demanded = 100, price = $25). If there are five buyers in the market, then a. the marginal buyer's willingness to pay for the 100th unit of the good is $25. b.the sum of the five buyers' willingness to pay for the 100th unit of the good is $25. c.the average of the five buyers' willingness to pay for the 100th unit of the good is $25. d.all of the five buyers are willing to pay at least $25 for the 100th unit of the good.
a
When demand is inelastic, an increase in price will cause a.an increase in total revenue. b.a decrease in total revenue. c.no change in total revenue but an increase in quantity demanded. d.no change in total revenue but a decrease in quantity demanded.
a
Which of the following statements is not correct regarding the imposition of a tax on cigarettes? a. The incidence of the tax depends upon the price elasticities of demand and supply. b. Because there are few close substitutes for cigarettes, the buyers are likely to bear a greater share of the tax burden than the sellers. c. The incidence of the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. d. Because many cigarette smokers consider cigarettes to be a necessity, the sellers are likely to bear a smaller share of the tax burden than the buyers.
a
A binding minimum wage may not help all workers, but it does not hurt any workers. a. True b. False
b
A discovery that increases wheat yields per acre helps farmers by increasing both supply and total revenues. a. True b. False
b
A tax of $1 on sellers always increases the equilibrium price by $1. a. True b. False
b
Along the elastic portion of a linear demand curve, total revenue rises as price rises. a. True b. False
b
An increase in price causes an increase in total revenue when demand is a.elastic. b.inelastic. c.unit elastic. d.All of the above are possible.
b
Drug interdiction, which reduces the supply of drugs, will likely be a less effective policy than educating consumers to reduce their demand for drugs because the drug interdiction policy will lower drug prices and reduce the quantity of drugs demanded. a. True b. False
b
If the government imposes a $3 tax in a market, the buyers and sellers will share an equal burden of the tax. a. True b. False
b
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 a. decrease, and the price received by sellers will decrease. b. not change, and the price received by sellers will not change. c. decrease, and the price received by sellers will not change. d. not change, and the price received by sellers will decrease.
b
Price ceilings and price floors that are binding a.are desirable because they make markets more efficient and more fair. b.cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price. c.can have the effect of restoring a market to equilibrium. d.are imposed because they can make the poor in the economy better off without causing adverse effects.
b
The Earned Income Tax Credit is a a. policy to eliminate a price floor on basic goods needed by all households. b. method of raising living standards of the working poor without creating unemployment. c. policy to institute a price ceiling on basic goods needed by all households. d. tax credit given to high income families to incentivize hard work.
b
The demand for soap is more elastic than the demand for Dove soap. a. True b. False
b
Total surplus is always equal to the sum of consumer surplus and producer surplus. a. True b. False
b
When the government imposes a binding price ceiling on a competitive market, a surplus of the good arises, and sellers must ration the scarce goods among the large number of potential buyers. a. True b. False
b
Which of the Ten Principles of Economics does welfare economics explain more fully? a.The cost of something is what you give up to get it. b.Markets are usually a good way to organize economic activity. c.Trade can make everyone better off. d.A country's standard of living depends on its ability to produce goods and services.
b
A tax imposed on the sellers of a good will lower the a.price paid by buyers and lower the equilibrium quantity. b.price paid by buyers and raise the equilibrium quantity. c.effective price received by sellers and lower the equilibrium quantity. d.effective price received by sellers and raise the equilibrium quantity.
c
Candida teaches piano lessons to Ed once a week for $40. Ed values this service at $50 per week, while the opportunity cost of Candida's time is $25 per week. The government places a tax of $30 per week on piano teachers. After the tax, what is the total surplus? a. $5 b. $50 c. $0 d. $15
c
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's income elasticity of demand for basketball ticket is a.0.82, and basketball tickets are a normal good. b.0.82, and basketball tickets are an inferior good. c.1.22, and basketball tickets are a normal good. d.1.22, and basketball tickets are an inferior good.
c
For which pairs of goods is the cross-price elasticity most likely to be positive? a.peanut butter and jelly b.bicycle frames and bicycle tires c.pens and pencils d.college textbooks and iPods
c
If the price elasticity of demand for a good is 0.4, then which of the following events is consistent with a 2 percent decrease in the quantity of the good demanded? a.a 0.8 percent increase in the price of the good b.a 2.4 percent increase in the price of the good c.a 5 percent increase in the price of the good d.a 8 percent increase in the price of the good
c
If the tax on a good is increased from $1 per unit to $4 per unit, the deadweight loss from the tax increases by a factor of a.5. b.9. c.16. d.24.
c
In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 250 per month when there is no tax. Then a tax of $6 per widget is imposed. As a result, the government is able to raise $750 per month in tax revenue. We can conclude that the after-tax quantity of widgets is a.75 per month. b.100 per month. c.125 per month. d.150 per month.
c
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 a. $30. b. $85. c. $15. d. $100.
c
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. The price of crackers, a complement to cheese, increases. b. Consumption of cheese is found to cause cancer. c. A bovine disease affects half of the cow population resulting in a higher price for milk. d. New technology makes the production of cheese cheaper.
c
The deadweight loss from a tax of $x per unit will be smallest in a market a.in which demand is elastic and supply is inelastic. b.in which demand is inelastic and supply is elastic. c.in which demand is inelastic and supply is inelastic. d.None of the above are correct; we need to know the value of x in order to determine the answer.
c
When demand is unit elastic, price elasticity of demand equals a.1, and total revenue and price move in the same direction. b.1, and total revenue and price move in opposite directions. c.1, and total revenue does not change when price changes. d.0, and total revenue does not change when price changes.
c
A binding minimum wage a. alters both the demand for and supply of labor. b. affects only the supply of labor; it does not affect the demand for labor. c. affects only the demand for labor; it does not affect the supply of labor. d. alters both the quantity demanded of labor and the quantity supplied of labor.
d
A tax on the sellers of coffee will increase the price of coffee paid by buyers, a.increase the effective price of coffee received by sellers, and increase the equilibrium quantity of coffee. b.increase the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee. c.decrease the effective price of coffee received by sellers, and increase the equilibrium quantity of coffee. d.decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.
d
As more people become elderly, which allows them to choose when to retire, we would expect the deadweight loss from the federal income tax to a. decrease, and the revenue generated from the tax to increase. b. increase, and the revenue generated from the tax to increase. c. decrease, and the revenue generated from the tax to decrease. d. increase, and the revenue generated from the tax to decrease.
d
Holding all other factors constant and using the midpoint method, if a tractor manufacturer increases production from 80 to 100 units when price increases by 15 percent, then supply is a.inelastic, since the price elasticity of supply is equal to 0.68. b.inelastic, since the price elasticity of supply is equal to 1.48. c.elastic, since the price elasticity of supply is equal to 0.68. d.elastic, since the price elasticity of supply is equal to 1.48.
d
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 a. 16%, and gift wrap sellers' total revenue will increase as a result. b. 4%, and gift wrap sellers' total revenue will decrease as a result. c. 16%, and gift wrap sellers' total revenue will decrease as a result. d. 4%, and gift wrap sellers' total revenue will increase as a result.
d
Rent control is an example of a price a. floor; in cities with rent control prices are used to ration housing. b. floor; in cities with rent control mechanisms other than price are used to ration housing. c. ceiling; in cities with rent control prices are used to ration housing. d. ceiling; in cities with rent control mechanisms other than price are used to ration housing.
d
When policymakers are considering a particular action, they can use consumer surplus as a(n) a.objective measure of the benefits to buyers as determined by policymakers. b.measure of the benefits to buyers as the buyers perceive them. c.potentially flawed measure of the benefits to buyers if the buyers are not rational. d.Both b) and c) are correct.
d