Microeconomics: Midterm Study Guide Part 2

Refer to Figure 7-19. At the equilibrium price, total surplus is A. $125. B. $250. C. $450. D. $500.

B

Refer to Figure 7-2. If the price of the good is $80, then consumer surplus amounts to A. $135. B. $185. C. $160. D. $110.

B

The mayor of Workerville proposes a local payroll tax to fund a new water park for the city. The mayor proposes to collect half the tax from workers and half the tax from firms. The mayor will be able to successfully divide the burden of the tax equally if the A. demand for labor is more elastic than the supply of labor. B. supply of labor is more elastic than the demand for labor. C. demand for labor and supply of labor are equally elastic. D. It is not possible for the tax burden to fall equally on firms and workers.

C

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue? A. 0 B. 1 C. 4 D. 0.4

C

Which of the following is likely to have the most price elastic demand? A. doctor's visits B. eggs C. natural gas D. lattés

D

Which of the following will cause a decrease in producer surplus? A. the imposition of a nonbinding price ceiling in the market B. the price of a substitute increases C. buyers expect the price of a good to be higher next month D. income increases and buyers consider the good to be inferior

D

For which of the following goods is the income elasticity of demand likely lowest? A. housing B. subscriptions to premium movie channels through the local cable television provider C. champagne D. hi-definition DVD players

A

All else equal, what happens to consumer surplus if the price of a good decreases? A. Consumer surplus increases. B. Consumer surplus may increase, decrease, or remain unchanged. C. Consumer surplus is unchanged. D. Consumer surplus decreases.

A

Refer to Figure 6-20. Suppose a tax of $5 per unit is imposed on this market. Which of the following is correct? A. Sellers will bear more of the burden of the tax than buyers will. B. Buyers and sellers will share the burden of the tax equally. C. Buyers will bear more of the burden of the tax than sellers will. D. Any of the above is possible.

A

Refer to Figure 6-23. For every unit of the good that is sold, sellers are required to send A. three dollars to the government, and buyers are required to send nothing to the government. B. two dollars to the government, and buyers are required to send one dollar to the government. C. nothing to the government, and buyers are required to send two dollars to the government. D. one dollar to the government, and buyers are required to send two dollars to the government.

A

Refer to Figure 7-15. When the price falls from P2 to P1, which of the following would not be true? A. The total cost of what is now sold by sellers is actually higher than it was before the decrease in the price. B. Some sellers leave the market because they are not willing to sell the good at the lower price. C. Producer surplus would fall by area A + B. D. The sellers who still sell the good are worse off because they now receive less.

A

Suppose the demand for peanuts increases. What will happen to producer surplus in the market for peanuts? A. It increases. B. It decreases. C. It may increase, decrease, or remain unchanged. D. It remains unchanged.

A

Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the A. supply curve will shift downward by $20, and the price paid by buyers will decrease by less than $20. B. supply curve will shift downward by $20, and the price paid by buyers will decrease by $20. C. demand curve will shift upward by $20, and the effective price received by sellers will increase by $20. D. demand curve will shift upward by $20, and the effective price received by sellers will increase by less than $20.

A

Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is A. assuming that the supply of university education is elastic. B. assuming that the demand for university education is inelastic. C. assuming that the demand for university education is elastic. D. ignoring the law of demand.

B

If marijuana were legalized, it is likely that there would be an increase in the supply of marijuana. Advocates of marijuana legalization argue that this would significantly reduce the amount of revenue going to the criminal organizations that currently supply marijuana. These advocates believe that the A. demand for marijuana is elastic. B. demand for marijuana is inelastic. C. supply for marijuana is elastic. D. supply for marijuana is inelastic.

B

Market failure is the inability of A. a market to establish an equilibrium price. B. some unregulated markets to allocate resources efficiently. C. buyers to interact harmoniously with sellers in the market. D. buyers to place a value on the good or service.

B

Refer to Figure 5-2. As price falls from Pa to Pb, we could use the three demand curves to calculate three different values of the price elasticity of demand. Which of the three demand curves would produce the smallest elasticity? A. D1 B. D3 C. D2 D. All of the above are equally elastic.

B

Refer to Figure 6-7. Suppose a price ceiling of $5 is imposed on this market. As a result, A. the demand curve shifts to the left; quantity sold is now 30 units and the price is $5. B. buyers' total expenditure on the good decreases by $80. C. the quantity of the good supplied decreases by 20 units. D. the price of the good continues to serve as the rationing mechanism.

B

Refer to Figure 7-14. If the government imposes a price ceiling of $50 in this market, then producer surplus will decrease by A. $325. B. $300. C. $100. D. $200.

B

When there is a technological advance in the pork industry, consumer surplus in that market will A. not change, since technology affects producers and not consumers. B. increase. C. not change, since consumers' willingness to pay is unaffected by the technological advance. D. decrease.

B

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue? A. 1.8 B. 0.3 C. 1 D. None of the above could be correct.

B

A binding price floor will reduce a firm's total revenue A. when demand is inelastic. B. never. C. when demand is elastic. D. always.

C

Farm programs that pay farmers not to plant crops on all their land A. help farmers directly since they receive government payments but have no real effects on consumers. B. help farmers by cutting costs, which helps consumers by lowering food prices. C. help farmers by increasing total revenue in the market but hurt consumers by raising food prices. D. hurt farmers by lowering their total revenue and hurt consumers by causing shortages of some food items.

C

If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets? A. Consumer surplus will not change consumer surplus; only producer surplus changes. B. Consumer surplus depends on what event led to the increase in the price of oak lumber. C. Consumer surplus decreases. D. Consumer surplus increases.

C

PlayStations and PlayStation games are complementary goods. A technological advance in the production of PlayStations will A. decrease consumer surplus in the market for PlayStations and increase producer surplus in the market for PlayStation games. B. increase consumer surplus in the market for PlayStations and decrease producer surplus in the market for PlayStation games. C. increase consumer surplus in the market for PlayStations and increase producer surplus in the market for PlayStation games. D. decrease consumer surplus in the market for PlayStations and decrease producer surplus in the market for PlayStation games.

C

Refer to Figure 6-21. Suppose buyers, rather than sellers, were required to pay this tax (in the same amount per unit as shown in the graph). Relative to the tax on sellers, the tax on buyers would result in A. buyers bearing a larger share of the tax burden. B. sellers bearing a smaller share of the tax burden. C. the same amount of tax revenue for the government. D. Both a) and b) are correct.

C

Refer to Figure 6-28. Suppose a tax of $4 per unit is imposed on this market. Which of the following is correct? A. Sellers will bear more of the burden of the tax than buyers. B. Buyers will bear more of the burden of the tax than sellers. C. Buyers and sellers will share the burden of the tax equally. D. Any of the above is possible in this market.

C

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding? A. Consumers' income decreases, and laptop computers are a normal good. B. Improvements in production technology reduce the costs of producing laptop computers. C. The number of firms selling laptop computers decreases. D. The number of consumers buying laptop computers decreases.

C

A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will A. raise the price, reduce the quantity, decrease total revenues, and decrease crime. B. lower the price, increase the quantity, increase total revenues, and increase crime. C. raise the price, increase the quantity, decrease total revenues, and increase crime. D. raise the price, reduce the quantity, increase total revenues, and increase crime.

D

If sellers do not adjust their quantities supplied at all in response to a change in price, A. supply is perfectly elastic. B. advances in technology must be prevalent. C. the time period under consideration must be very long. D. supply is perfectly inelastic.

D

Necessities such as food and clothing tend to have A. high price elasticities of demand and low income elasticities of demand. B. high price elasticities of demand and high income elasticities of demand. C. low price elasticities of demand and high income elasticities of demand. D. low price elasticities of demand and low income elasticities of demand.

D

Refer to Figure 6-12. When the price ceiling applies in this market and the supply curve for gasoline shifts from S1 to S2, A. the market price will stay at P1. B. a surplus will occur at the new market price of P2. C. the market price will increase to P3. D. a shortage will occur at the new market price of P2.

D

Refer to Figure 6-7. Suppose a price floor of $8 is imposed on this market. As a result, A. the supply curve shifts to the left; quantity sold is now 30 units and the price is $8. B. buyers' total expenditure on the good decreases by $20. C. the price of the good continues to serve as the rationing mechanism. D. the quantity of the good demanded decreases by 10 units.

D

Suppose buyers of vodka are required to send $5.00 to the government for every bottle of vodka they buy. Further, suppose this tax causes the effective price received by sellers of vodka to fall by $3.00 per bottle. Which of the following statements is correct? A. The price paid by buyers is $2.00 per bottle more than it was before the tax. B. Sixty percent of the burden of the tax falls on sellers. C. This tax causes the demand curve for vodka to shift downward by $5.00 at each quantity of vodka. D. All of the above are correct

D

The demand for Godiva mint chocolates is likely quite elastic because A. the market is narrowly defined. B. this particular type of chocolate is viewed as a luxury by many chocolate lovers. C. there are many close substitutes. D. All of the above are correct.

D

The quantity sold in a market will increase if the government A. increases a binding price ceiling in that market. B. decreases a binding price floor in that market. C. decreases a tax on the good sold in that market. D. More than one of the above is correct.

D

The supply of oil is likely to be A. inelastic in both the short run and long run. B. elastic in both the short run and long run. C. elastic in the short run and inelastic in the long run. D. inelastic in the short run and elastic in the long run.

D

Refer to Figure 7-12. If the equilibrium price is $350, what is the producer surplus? A. $30,000 B. $15,000 C. $60,000 D. $70,000

A

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would A. be positive, and your roommate's would be negative. B. be zero, and your roommate's would approach infinity. C. approach infinity, and your roommate's would be zero. D. be negative, and your roommate's would be positive.

A

If the government removes a binding price ceiling from a market, then the price received by sellers will A. decrease, and the quantity sold in the market will decrease. B. increase, and the quantity sold in the market will increase. C. increase, and the quantity sold in the market will decrease. D. decrease, and the quantity sold in the market will increase.

B

Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms, A. supply is perfectly inelastic. B. supply is more elastic at low levels of output and less elastic at high levels of output. C. market power is substantial. D. supply is less elastic at low levels of output and more elastic at high levels of output.

B

Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result, A. buyers' total expenditure on the good is unchanged. B. the equilibrium price increases, and the equilibrium quantity is unchanged. C. the equilibrium quantity and the equilibrium price both are unchanged. D. the equilibrium quantity decreases, and the equilibrium price is unchanged.

B

When demand is perfectly inelastic, the demand curve will be A. negatively sloped, because buyers decrease their purchases when the price rises. B. vertical, because buyers purchase the same amount as before whenever the price rises or falls. C. positively sloped, because buyers increase their total expenditures when price rises. D. positively sloped, because buyers increase their purchases when price rises.

B

For which of the following goods is the price elasticity of demand most inelastic? A. large pizza B. large pepperoni pizza C. pizza D. Domino's large pepperoni pizza

C

Refer to Figure 7-29. Which of the following statements is correct? A. The market is in equilibrium at Q1. B. At Q2, the cost to sellers exceeds the value to buyers. C. At Q4, the value to buyers is less than the cost to sellers. D. At Q3, the market is producing too much output.

C

If the price elasticity of supply is zero, then A. supply is more elastic than it is in any other case. B. a change in demand will cause a relatively small change in the equilibrium price. C. the supply curve is horizontal. D. the quantity supplied is the same, regardless of price.

D

Refer to Figure 6-24. Suppose sellers, rather than buyers, were required to pay this tax (in the same amount per unit as shown in the graph). Relative to the tax on buyers, the tax on sellers would result in A. the same amount of tax revenue for the government. B. buyers bearing the same share of the tax burden. C. sellers bearing the same share of the tax burden. D. All of the above are correct.

D