Test 1 Chapters 3, 4, 6, 19, 20

Sandy's Sandwich Sitdown priced its lunch treats at ​$2.00​, they sold 250 per week. When the price was ​$3.00​, they sold 200 per week. Based on this​ information, the absolute value of the price elasticity of demand for lunch treats is ______ Based on the above​ calculation, demand for lunch treats is considered to be

0.56 inelastic

Remembering that the price elasticity of demand is evaluated in terms of absolute​ values, which of the following is an example of an elastic​ demand?

1.5

We observe a 12 percent decrease in units purchased and​ a(n) 5 percent increase in price. The price elasticity of demand in terms of absolute values is

2.4

When Jennifer consumes one​ apple, her total utility is 6 utils. When she consumes two​ apples, her total utility increases to 10 utils. What is​ Jennifer's marginal utility from consuming the second​ apple?

4 utils

Corporate income taxes account for

7 percent of all federal taxes collected and make up about 2 percent of all state and local taxes collected.

Which of the following will cause an outward​ (rightward) shift in​ supply?

A technological improvement.

The maximum sales tax rates for selected​ states, including county and municipal​ taxes, occur in

Arkansas, Louisiana, and Arizona.

Governments that wish to maximize their tax revenues should always assess a high tax rate.

False

In​ general, the less organized the​ market, the lower the transaction costs.

False

What is the relationship between tax rates and tax​ revenues?

Increasing tax rates will initially increase tax revenues. Eventually an increase in the tax rate will erode the tax base and revenues will decrease.

Why is the price of diamonds usually so much higher than the price of water even though people cannot survive long without​ water?

Marginal​ utility, not total​ utility, determines how much a person is willing to pay for a good.

Which of the following explains the difference between the average tax rate and the marginal tax​ rate?

The average tax rate uses total income while the marginal tax rate refers to the tax rate of the last dollar earned.

In a market​ system, how are the terms of exchange​ established?

The forces underlying supply and demand interact to set a price.

The price of milk increases. Which of the following is not part of the likely chain of events that follows from this price​ change?

The manufacturers of milking machines lay off some workers

Suppose that at first the price of a pair of shoes is ​$15 and the price of a t−shirt is ​$9. ​Then, the price of a pair of shoes changes to ​$30 and the price of a t−shirt changes to ​$21. What has happened the money prices and relative prices of these two​ goods?

The money price of a pair of shoes and a t−shirt have risen and the relative price of a pair of shoes has fallen while relative price of a t−shirt has risen.

Hospital Room​ (1 day) (2003) ​$250 ​(2005) $275 Hotel Suite​ (1 night) ​( 2003) $350 ​(2004) $375 Based on the table above which of the following is true?

The money prices of both goods​ increased, the relative price of hospital rooms​ increased, and the relative price of hotel suites decreased.

Last​ year, the price of steak was ​$4 per pound and the price of salmon was ​$5 per pound. This​ year, the price of steak is ​$6 per pound and the price of salmon is ​$7 per pound. All other things​ equal, and assuming that David purchased both items​ before, what would you expect to happen to his purchases of steak ​(relative to salmon​) this​ year?

The relative price of steak has​ increased, so David would be expected to purchase less.

What does the price elasticity of demand​ measure?

The responsiveness of quantity demanded to a change in the price of a good.

Middlemen specialize in lowering transaction costs.

True

Voluntary exchange refers to an act of trading between individuals that makes both parties to the trade subjectively better off.

True

Which of the following will cause the demand curve to​ shift?

a change in consumer income

The publication Car and Driver reduces transactions costs for​ high-performance car buyers

by providing reliable information so that car buyers do not have to spend as much time doing their own research.

Consider in the graph to the right the demand curve for bananas. The movement from point C to A represents a change in

demand

If an analyst has concluded that tax revenues may eventually decline if the tax rate is raised​ sufficiently, this analyst is using

dynamic tax analysis.

Buyers and sellers receive information about what should be bought and what should be produced

from prices in a market system.

Consider the chewing gum market shown in the graph at right. An increase in the demand for chewing gum will​ ________ the equilibrium price and​ _________ the equilibrium quantity.

increase, increase

A firm sells 2 million units of a good when price is ​$4.00 and 1.8 million units when price is ​$4.50. The price elasticity of demand is

inelastic.

Voluntary exchange

makes both parties to a trade better off.

The market price people are willing to pay for a unit of a particular commodity is determined by

marginal utility

If a government wants to obtain the maximum tax revenue it should

not assess the highest possible tax rate

The most important tax in the U.S. economy is the

personal income​ tax, which accounts for 50 percent of all federal revenues.

If total utility is increasing at a decreasing​ rate, marginal utility is

positive and decreasing

Suppose the federal government replaced the current income tax system with a system that taxed all income at 40​%, but the first ​$35,000 of income was tax exempt. Such a system would be a​ ________________ tax system.

progressive

Key taxes at the federal level do not include​:

property taxes.

The law of demand states that

quantity demanded will fall as price rises​, other things being equal.

In a price​ system,

relative prices change constantly to reflect changes in supply and demand

The corporate income tax in the United States

results in​ individuals' being doubly taxed on corporate earnings.

Total utility

rises as long as marginal utility is positive. falls as long as marginal utility is negative. is at a maximum when marginal utility is zero. (All)

In a price​ system, changes in prices

signal to consumers that some goods are relatively more or less scarce.

Other things remaining​ equal, the law of demand says that higher prices will lead to a

smaller quantity demanded and lower prices to a larger quantity demanded

The federal corporate income tax structure results in double taxation because

stockholders pay taxes on dividends that were already taxed as profits of the corporation.

Suppose the price of apples falls relative to other similar​ goods, and as a result the quantity of apples demanded increases. This is caused by

substitution effect.

A proportional​ tax, or​ flat-rate tax

takes the same percentage of a​ person's taxable income in tax regardless of their level of income.

Consider the figure to the right. At a price of ​$5​,

the market has reached an equilibrium price.

Price elasticity of demand is defined as

the percentage change in quantity demanded divided by the percentage change in price.

According to the accompanying​ graph, when the government imposes a price ceiling of​ $25

the quantity of goods that will be traded is 100.

The law of diminishing marginal utility insures that

the total utility curve will eventually increase at a decreasing rate

At a consumer optimum involving goods A and​ B, the marginal utility of good A is two times the marginal utility of good B. The price of good B is ​$4.00. The price of good A is

​$8.00.