Micro Midterm Practice questions
An excise tax is levied on suppliers. The incidence of the tax:
cannot be determined without more information.
Suppose the Brazilian government sets the price of coffee at $1 per pound when the market price is $10 per pound. The government's action will:
cause a shortage of coffee, even in a coffee-rich country.
(Table: Market for Apartments in San Francisco) Use Table: Market for Apartments in San Francisco. If a government price ceiling of $1,600 is imposed in this market, the result will be inefficiency in the form of an _____ million apartments.
excess demand of 0.8
If an excise tax is imposed on new electric cars and is collected from producers, the:
supply curve will shift upward by the amount of the tax.
If the price elasticity of supply is greater than 1:
supply is elastic.
In the market for chimichangas, which factor would NOT shift the supply curve to the right?
a decrease in the price of chimichangas
Which factor would cause an INCREASE in the supply of a good?
an advance in the technology of producing the good
A regressive tax:
takes a lower percentage of income as income rises.
Regina is trying to determine how much she will have to pay in this year's tax return. Suppose income tax is levied on 0% of the first $1,000 in income, 10% of the next $9,000, and 20% of remaining earnings. If Regina earned $20,000, how much tax would she have to pay?
$2,900
(Figure: Rent Controls in the Market for Apartments in New York City) Use Figure: Rent Controls in the Market for Apartments in New York City. Without rent controls, the equilibrium quantity of rental units is:
2.0 million.
(Table: The Market for Kombucha) Use Table: The Market for Kombucha. The table shows the quantity demanded (Qd) and quantity supplied (Qs) of kombucha at various prices. If the government does NOT impose a price control, the price of a bottle of kombucha will equal:
$2.75
Suppose the governor of New Hampshire decides to implement a state income tax. If personal income up to and including $25,000 is not taxed, income of $25,001 to $50,000 is taxed at 10%, and income over $50,000 is taxed at 25%, a family earning $60,000 in income will pay _____ in personal taxes.
$5,000
The negative relationship between quantity demanded and price is called the law of:
Demand
Suppose that, to help peach farmers, Georgia implements a quantity control on the sale of Georgia peaches. Which statement about the undesirable side effects of a quantity control is NOT correct?
Quantity controls do not create deadweight loss.
Which statement is FALSE regarding a normal good?
When income increases, the demand for a substitute good increases.
Which of the following is NOT a key element of the supply and demand model?
The way in which disequilibrium of supply and demand causes the supply curve or demand curve to shift to restore equilibrium.
Suppose the market price of strawberries is $14 per bushel, and a price ceiling is set at $18 per bushel. What is the impact of this price ceiling?
This is a nonbinding price ceiling. A price ceiling is a legal maximum price, so to be binding, it must be set below the equilibrium price. If the market price is below the price ceiling, market forces will move the price toward $14, and the price ceiling of $18 will be irrelevant.
A decrease in the price of a good will result in:
an increase in the quantity demand
The incidence of a tax:
refers to who really bears the burden of the tax.
The two principles of tax fairness are:
the benefits principle and the ability-to-pay principle.
What is the difference between a shortage and scarcity?
Scarcity will always exist, but a shortage will exist only if the price of a good is below the equilibrium level.
Which of the following would shift the supply curve for NFL jerseys rightward?
a decrease in the wages of workers employed to produce NFL jerseys
A quota limit that is below the market equilibrium quantity results in:
a demand price that exceeds the supply price.
If the supply and demand curves intersect at a price of $60, then any price above that would result in:
an excess supply
The demand curve for Adidas shoes has shifted to the right. What could have caused this?
an increase in enthusiasm among consumers for Adidas as an exercise shoe
If the price of a good increases by 10%, and the quantity demanded changes by 15%, then the price elasticity of demand is equal to:
1.5
(Figure: Supply of Bananas) Use Figure: Supply of Bananas. A fall in the price of bananas would be represented in the figure as a movement from:
A to B.
(Figure: The Incidence of Tax and Elasticities) Use Figure: The Incidence of Tax and Elasticities. Each panel below shows the application of an excise tax that raises the price from P1 to P2. When a good or service is characterized by a relatively elastic supply, as shown in panel _____, a greater share of the burden of an excise tax is borne by _____.
A; buyers
Apple and Huawei both produce smartphones—the iPhone and the P30, respectively. Each is constantly trying, through expensive advertising and product innovation, to persuade customers to buy its brand. Is the smartphone market a competitive one in an economic sense? Why or why not?
Although Apple and Huawei compete for customers through advertising and the development of new features on their devices, the market for smartphones is not competitive. In an economic sense, a competitive market has many buyers and sellers, such that no single buyer or seller can influence price. In a competitive market, then, each producer accounts for a very small share of the total output, which is not the case in the market for smartphones. In addition, the products in a competitive market are exactly the same, regardless of who produces them. P30 phones and iPhones are similar, but they have different operating systems and other features, so the products are not identical.
In the market for chimichangas, a normal good, you observe that the equilibrium price and quantity have increased. This can be caused only by:
an increase in the incomes of people who love to eat chimichangas.
Which statement is TRUE regarding an inferior good?
When income decreases, demand increases.
A politician says that a tax on motorcycles will not increase the price of motorcycles paid by consumers. Is there any way that this can be an accurate statement?
Yes. If the demand curve is perfectly elastic, then a tax on suppliers shifts the supply curve upward, but the equilibrium price for the consumer is unchanged. This is also the case if supply is perfectly inelastic.
A competitive market is
a market in which there are many buyers and many sellers of the same good or service.
Producers may seek to sell a good below the mandated price if the government imposes a:
binding price floor.
If demand is perfectly inelastic, and the supply curve is upward-sloping, then the burden of an excise tax is:
borne entirely by consumers.
The demand for bottled water decreases at a time when people believe bottled water prices will soon fall. The change in demand is most likely attributable to a change in:
consumer expectations.
Which tax reflects the ability-to-pay principle?
the federal income tax
A shift of the demand curve for fried chicken would NOT be caused by a change in:
the price of fried chicken
Suppose the government imposes a $23 excise tax on the sale of running shoes by charging suppliers $23 for each sweater sold. If the demand curve is downward-sloping and the supply curve is upward-sloping:
the price of running shoes will increase by less than $23.
When price rises, quantity demanded falls. The price elasticity of demand measures:
the responsiveness of a quantity change to a price change.
Harrison is willing to buy the last ticket to the Billy Elliot play for $15, while Stefania is willing to pay $25. Harrison is first in line and buys a ticket for $15. He then resells his ticket to Stefania for $20. By reselling the ticket instead of going to the play himself, Harrison caused:
the sum of the consumer and producer surplus to increase.
The benefits principle says that:
those who benefit from public spending should bear the burden of the tax that pays for that spending.
The ability-to-pay principle says that:
those with a greater ability to pay should pay more tax.
Tax incidence refers to:
who really pays the tax.
If the price of beef decreases, you can usually expect the:
quantity of beef supplied to decrease.
Under what supply and demand conditions would an excise tax impose a large incidence on suppliers and a small incidence on consumers? Explain how this works.
If the supply curve is relatively inelastic and the demand curve is relatively elastic, the burden of a tax will fall mainly on suppliers. When demand is elastic, a price increase will prompt a decrease in quantity demanded. But because the supply curve is inelastic, the quantity supplied cannot change by much. Therefore, most of the tax is paid by suppliers, the group least responsive to a price change.
Well-defined property rights:
allow for mutually beneficial trades.
With perfectly inelastic demand and an upward-sloping supply curve:
consumers will bear the entire burden of a tax.
With perfectly elastic demand and an upward-sloping supply curve:
consumers will not bear any of the burden of a tax.
Because an excise tax discourages mutually beneficial transactions, the number of transactions in the market is reduced. There is therefore a(n) _____ from a tax.
deadweight loss
If demand and supply are both very inelastic, a decrease in the rate of an excise tax will likely:
decrease the amount of revenue collected by the government.
If an excise tax is imposed on new SUVs and collected from consumers, the:
demand curve will shift downward by the amount of the tax.
There is a trade-off between _____ and efficiency in that policies designed to promote equity often come at the cost of _____ efficiency.
equity; decreased
A consumer's willingness to pay for an additional unit of a good depends on the:
expected additional benefit of consuming that unit of the good.
Suppose the New York City housing market is in equilibrium. A recession causes local household incomes to decline. At the same time, construction of a series of new apartment buildings has just been completed. Given these two changes, and assuming that apartment housing is a normal good, we can predict that the price of apartments will _____, and the quantity of apartments bought and sold will _____.
fall; rise or fall
Economic signals:
guide decision makers in their transactions in the marketplace.
The Chicago Tribune recently reported that the price of new cars, a normal good, has increased and that the quantity of new cars sold has risen. The new price and quantity could have been caused by a(n):
increase in buyers' incomes.
Suppose the equilibrium rent of apartments in New York City is $2,600. If the city of New York imposes a price ceiling of $1,600, there will be a(n):
increase in consumer surplus for New Yorkers who can find apartments at $1,600.
A major input in the production of vanilla ice cream is cream. A(n) _____ in the price of cream will _____ the quantity of vanilla ice cream supplied as well as _____ the supply of vanilla ice cream
increase, decrease, decrease
Assume that Californian and Italian wines are substitutes in consumption. If the American government imposes a quota on the amount of Italian wine allowed into the United States, with the quota set at a quantity below the equilibrium quantity, the price of Italian wine in the United States will _____, while the price of California-produced wine will _____.
increase; increase
The price elasticity of demand along a linear demand curve:
increases in absolute value as the price rises.
If quantity supplied does not respond substantially to a relatively large change in price, supply is:
inelastic
The percentage change in quantity demanded divided by the percentage change in price is the _____.
price elasticity of demand
Suppose the price of matcha tea in Chicago coffee shops increases by 10%, and the quantity of matcha tea demanded in Chicago coffee shops drops by 5% per day. Demand for matcha tea in Chicago is:
price inelastic.
The burden of a tax on a good is said to fall completely on the producers if the:
price paid by consumers does not change.
If the government imposes a $15 excise tax on new cell phones, and the price of new cell phones does not change:
producers are paying all of the tax.
A tax of $200 on an income of $2,000, $400 on an income of $3,000, and $800 on an income of $4,000 is:
progressive
A quantity control on milk production is a ____. It is set _____ the equilibrium quantity.
quota; below
Brian and Luisa must pay an income tax. Both Brian and Luisa pay $10,000 in taxes each year, but Brian earns $200,000, and Luisa earns $100,000. From this information, you can infer that this tax is:
regressive
If the marginal tax rate is lower than the average tax rate, the tax system is:
regressive
Because of tax competition, state and local taxes tend to be _____, while federal taxes tend to be _____.
regressive; progressive
Which situation demonstrates the benefits principle?
revenue from the federal tax on gasoline used to maintain and improve the interstate highway system
For consumers, hot dogs and hamburgers are substitutes. A rise in the price of hot dogs causes a _____ in the equilibrium price of hamburgers and a _____ in the equilibrium quantity of hamburgers.
rise; rise
An excise tax that the government collects from the consumers of a good:
shifts the demand curve downward.
If spaghetti and meatballs are complements, when the price of spaghetti rises, the demand curve for meatballs:
shifts to the left.
You notice that the price of computers has risen and that the quantity of computers sold has decreased. These observations suggest that the _____ curve for computers has shifted to the _____.
supply; left
If goods A and Z are complements, a decrease in the price of good Z will cause:
the demand for good A to increase
If ratatouille and Hungarian goulash are substitutes, a decrease in the price of Hungarian goulash will cause:
the demand for ratatouille to decrease.
(Table: Willingness to Pay for Hockey Tickets) The table Willingness to Pay for Hockey Tickets shows each consumer's willingness to pay for tickets to a New York Rangers game. Assume that each consumer wants to buy, at most, one pair of tickets. If the price of hockey tickets is $130, how many pairs will be purchased?
two