econ exam 2

(Figure: Demand Curves) The figure shows four different demand curves for four different products: A, B, C, and D. Which of the products has a perfectly inelastic demand curve?

A

If the price elasticity of supply is greater than 1:

Supply is elastic

The price elasticity of demand along a linear demand curve

increases in absolute value as the price rises.

In the case of a price-elastic demand curve, which statement is FALSE?

 

Total revenue increases when the price falls.

 

The absolute value of the price elasticity is a fraction greater than 0 but less than 1.

 

The absolute value of the price elasticity is greater than 1.

 

The percent change in price is smaller in magnitude than the percent change in quantity demanded.

The absolute value of the price elasticity is a fraction greater than 0 but less than 1

Income elasticity of demand measures how responsive the

quantity demanded of a good is to changes in income

After North Carolina State University raised its tuition by 12%, a survey asked students whether they would transfer to another university as a result. Only about 1 in 300 indicated they would. Based on this information, the price elasticity of demand for education at the university is:

highly inelastic

In 2022, a drought in South America reduced the global supply of coffee beans by about 15%. Even so, coffee producers reported rising revenues, despite producing fewer beans. This outcome suggests that

the demand for coffee is inelastic, so even with higher prices, most consumers kept buying nearly as much coffee as before.

(Figure: Estimating Price Elasticity in the Market for Garden Gnomes) Use Figure: Estimating Price Elasticity in the Market for Garden Gnomes. Between the two prices, P₁ and P₂, which demand curve has the HIGHEST price elasticity?

D3

The price elasticity of demand measures the responsiveness of a change in:

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

The cross-price elasticity of demand measures how responsive the:

demand for one good is to a change in the price of another good.

The elasticity of supply measures the responsiveness of:

quantity supplied to changes in price.

If income rises by 20%, and the quantity demanded of an item rises by 10%, the income elasticity of demand for this item is:

0.5

Abigail purchases 10% more streaming movies when her income increases by 20%. Based on this information, it is clear that, for Abigail, streamed movies:

are a normal good

(Table: Martinez Family Household Income and Expenditures) Use Table: Martinez Family Household Income and Expenditures. The Martinez's income elasticity of demand for falafels, computed using the midpoint method, is:

approximately –0.7.

The price elasticity of supply for a good is 2 if a _____ in price leads to a 4% decrease in the quantity supplied

2% decrease

Suppose the cross-price elasticity of demand for apple sauce and avocados is 0.96, but the cross-price elasticity for soda and oranges is –0.80. This means that apple sauce and avocados are:

substitutes, whereas soda and oranges are complements

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C, and D. Which of the products has a perfectly inelastic supply curve?

A

(Figure: Market for Printed Houses) Consider the market for environmentally friendly three-dimensional printed houses that is shown in the figure. The government wants to encourage buyers to buy such houses and places a price ceiling on the market at $200,000 per house. What occurs in this market after implementation of the price ceiling?

a shortage of 300,000 houses

(Figure: The Market for Microeconomics Courseware) The figure shows the market for microeconomics courseware. Suppose the government believes that courseware licenses are too expensive and wants to make them more affordable for students. Given a price ceiling of $80, the market outcome would be a _____ of _____ courseware downloads.

shortage; 30

Which of these illustrates a quota?

 

A city sets a limit on the maximum rent that tenants pay.

 

A city awards a construction firm a monopoly on all public housing construction.

 

A city imposes a tax on all people who move into the city.

 

A city enforces zoning laws that restrict the number of housing units.

A city enforces zoning laws that restrict the number of housing units.

Assuming a normal upward-sloping supply curve and downward-sloping demand curve, if the government imposes a $25 tax on designer handbags and collects the tax from suppliers, the price of expensive handbags will:

increase by less than $25

(Figure: Market for Logs) A quota of 10,000 logs of forest wood per month is placed in the market shown in the figure. How much are buyers willing to pay after implementation of the quota?

$20,000

A maximum price legislated by the government is called

a price ceiling.

(Figure: Market for Printed Houses) Consider the market for environmentally friendly three-dimensional printed houses that is shown in the figure. The government wants to encourage buyers to buy such houses and places a price ceiling on the market at $200,000 per house. After implementation of the price ceiling, the market quantity sold falls by _____ houses.

100,000

For Uber rides, which have a highly elastic supply and a downward-sloping demand curve:

producers will bear only a small portion of the burden of a tax

The economic burden of a tax is the:

burden created by the change in after-tax prices faced by buyers and sellers.

As a result of extensive zoning and a peninsular geography, San Francisco has a highly inelastic supply of land. If the city government were to subsidize land purchases, the main beneficiaries of the subsidies would be:

property owners.

(Figure: Market for Plastic Bags) In the market for plastic bags shown here, the original equilibrium price is 50 cents per bag. In an effort to reduce plastics usage, a tax is placed on buyers of plastic bags. The economic burden of this tax on sellers is _____ cents.

10

(Figure: The Market for Accounting Courseware) The figure shows the market for accounting courseware. Suppose the government wants to make the production of college courseware profitable. To this end, it could impose a price _____ that would be binding at a price of _____.

floor; $180

(Table: The Market for Cold-brewed Coffee) The table shows the market for bottled cold-brewed coffee. If the government imposes a price floor of $3 per bottle, there will be:

a surplus of three bottles.

To limit congestion, the state of Montana establishes a toll road system. The government sets the amount charged per 37-mile stretch of road at $0.25, far too little to have any effect on congestion other than create traffic jams at toll booths. If the state were to raise the toll, which of these might occur?

Congestion on the toll roads might decrease.

A persistent shortage may occur if:

the government imposes a price ceiling that is below the equilibrium price.

(Figure: Market for Sustainable Furniture) Consider the market for furniture made from sustainable materials that is shown in the figure. To encourage buyers to buy such furniture, the government places a price ceiling of $250 on each piece. After implementation of the price ceiling, the market quantity sold falls by _____ thousand units.

200

A rent control usually sets a price ceiling that is below the equilibrium price and thus:

generates a shortage

(Figure: Supply Curve) The graph shows the supply curve for jugs of laundry detergent.

If 18 units are sold at a price of $20, what is the producer surplus on the last jug sold?

0

Which of these statements is TRUE regarding economic efficiency?

Efficient outcomes will make everyone better off.

 

Efficient outcomes are also equitable.

 

Efficient outcomes rarely make everyone happy.

 

Efficiency is associated with minimizing economic surplus.

Efficient outcomes rarely make everyone happy.

Economically efficient outcomes

hold the possibility of making everyone better off

One problem with assuming that people's willingness to pay is a measure of the marginal benefit they would receive from a product is that:

willingness to pay reflects ability to pay as well as marginal benefit

Often, some smaller retailers go out of business when Target opens a new store. The MOST likely reason for this outcome is that:

consumers in those areas receive a larger consumer surplus from shopping at Target than from smaller stores

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.

(Figure: Producer Surplus in the Market for Lattes) Consider the figure Producer Surplus in the Market for Lattes. If the price of lattes is $3, the producer surplus is:

180

In considering whether to buy a house, you bear these considerations: (i) "House prices are relatively low now but will likely rise soon." (ii) "It would be nice to have more living space and a yard." (iii) "Houses appreciate over time."

(i) reflects _____ analysis; (ii) reflects _____ analysis; and (iii) reflects _____ analysis.

positive; normative; positive

(Figure: The Market for Beyond Meat Hamburgers) The figure shows the weekly market for Beyond Meat Hamburgers in Atlanta, Georgia. If Beyond Meat franchises sell 400 Beyond Meat hamburgers, producer surplus will be:

200

According to separate analyses by the Organization for Economic Cooperation and Development (OECD) and the World Population Review, respectively, the United States ranks fifth among OECD countries in productivity, and twenty-seventh in social mobility. While one observer might commend the United States in terms of _____, that is, economic _____, another might criticize it in terms of _____, that is, its relative _____.

process; efficiency; outcome; inequality of opportunity

Which statement makes use of normative analysis?

The rate of inflation is 12%.

 

Job creation is a byproduct of high economic growth.

 

Education represents 40% of the federal government budget.

 

Health care is a right of all citizens

Health care is a right of all citizens

Which statement makes use of normative analysis?

 

The federal government is too large and wasteful and should play a smaller role in the economy.

 

The rate of unemployment has increased.

 

The president of the United States is subject to the same laws as all citizens.

 

New housing starts were up by 3% last year.

The federal government is too large and wasteful and should play a smaller role in the economy.

The market for iPhone chargers is in competitive equilibrium. If the price of iPhones temporarily falls below the equilibrium price:

producer surplus will fall

If the price of a carrots exceeds the competitive equilibrium price, then:

carrot farmers produce less than the efficient quantity

The consumer surplus a buyer receives in purchasing a good is found by computing the area _____ the _____ curve and _____ the price paid for the good.

below; demand; above

Which statement makes use of positive analysis?

 

The rate of inflation is 4%.

 

A high rate of growth in our economy will solve many of the economic woes we face.

 

Health care is a right of all citizens.

 

Professional athletes should not be paid more than world leaders

The rate of inflation is 4%

Which statement is TRUE?

 

If the income elasticity of demand is greater than zero, a good is inferior.

 

If the income elasticity of demand is less than zero, the good is normal.

 

The income elasticity of demand measures the responsiveness of quantity demanded to changes in consumers' incomes.

 

The income elasticity of demand measures the responsiveness of consumers' incomes to changes in quantity demanded.

The income elasticity of demand measures the responsiveness of quantity demanded to changes in consumers' incomes.

(Figure: Demand Curves) The figure shows four different demand curves for four products: A, B, C, and D. Which of the products has the MOST inelastic demand curve?

A

A suburban town has two laundry service businesses. Both businesses have access to the same inputs of laundry detergent and part-time employees. However, one business purchased faster machines. The machines wash large loads of laundry in half the time of the machines used by its competitor. All else equal, which business has the less elastic price elasticity of supply: the business with the standard machines or the business with the faster machines?

the business with the standard machines because it has less excess capacity

If the cross-price elasticity of demand between cheese and yogurt is positive, then:

cheese and yogurt are substitutes

A lead purchaser for a national grocery store chain is analyzing how conditions in Canada and Mexico, the primary exporters of tomatoes to the United States, may impact stores. If Mexico suffers a severe drought, the supply of tomatoes would decrease. The price elasticity of demand for fresh tomatoes is 4.6, which means that the demand for fresh tomatoes is _____. If tomato prices rise significantly, the grocery store's total revenue from tomato sales would likely _____.

elastic; fall

The cross-price elasticity of demand between Fanta and Dr. Pepper has been estimated at 0.61. If the price of Dr. Pepper falls by 10%, the quantity demanded of Fanta will:

decrease by 6.1%.

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C, and D. Which of the products has a perfectly inelastic supply curve?

A

Suppose the price of heating oil increases by 10%, and the quantity of heating oil demanded each day in Montauk drops by 5%. The demand for heating oil in Montauk is:

price inelastic

Costco follows a different model from that of most retailers. Rather than seeking high markups, Costco maintains low margins and charges customers an annual membership fee. Consumers flock to the store for bulk deals on groceries, electronics, and household goods, often leaving with more goods than they intended to buy. In formulating its business model, Costco bet that the demand for consumer goods is:

elastic

If the price of M&M peanut candies increases, and the demand for cherry-flavored soft drinks decreases, these two goods are:

complementary goods

Much like toilet paper, toothpaste is a necessity. The income elasticity of demand for toothpaste is likely to be:

positive and close to zero

Total revenue will rise if price

falls and demand is elastic

The state of Texas recently saw a gasoline price increase of 5%, which brought about a fall in the quantity of gasoline purchased of 1%. The price elasticity of demand is equal to:

0.2, and demand is inelastic.

The demand for disposable diapers is inelastic. Which statement would explain this phenomenon?

Disposable diapers are a necessity for most parents of infants.

Before a certain pop singer was famous, they decorated their apartment with commercially produced art from big box stores. After their income rose 1,000%, they preferred uniquely commissioned pieces and purchased 2,000% less commercial art. For this singer, the income elasticity of demand for commercial art is _____, and commercial art is a(n) _____ good.

 –2; inferior

When the absolute value of the price elasticity of demand is zero, demand is:

perfectly inelastic

The price elasticity of demand for a good with a horizontal demand curve is:

perfectly elastic

The total amount of a good that can be bought or sold under a quantity regulation is called a:

quota

(Table: Market for Fried Cheesecake) The table below shows the market for fried cheesecake. The government decides to tax fried cheesecake at a rate of $0.30 per cheesecake and collect the tax from producers. As a result of the $0.30 tax per fried cheesecake, the government will receive total tax revenue of:

1500

(Figure: The Market for Skateboards) The figure shows the market for skateboards. If the government imposes a $60 tax on skateboards (collected from producers), consumers will pay $_____ of the tax, and producers will pay $_____.

40; 20

Suppose the government imposes a $6 per month tax on cell phone usage. If the demand for cell phone usage is perfectly inelastic, and the supply curve is elastic (but not perfectly elastic), then the price of cell phone usage will:

increase by exactly $6.

In 2017, eBay started charging a 20% value-added tax on fees charged to small businesses in the United Kingdom. Holding other things constant, this would _____ in the United Kingdom.

raise the prices that eBay sellers charge their customers

(Figure: Market for Child Care) The figure shows the market for child care. The original equilibrium price is $10,000. A subsidy is now introduced for parents who pay for child care. The amount of the subsidy is<span> </span>$:

2000

(Figure: Market for Reusable Jute Shopping Bags) Refer to the market for reusable jute shopping bags that is shown in the figure. The original equilibrium price is $7 per bag. A subsidy is now introduced for buyers of the bags. As a result of the subsidy, the equilibrium quantity in the market _____ by _____ units.

rises; 1,000

The incidence of a tax:

refers to who bears the economic burden of the tax.

A regulation that restricts quantity is called:

a quota.

Buyers bear a smaller incidence of a tax when:

demand is more elastic than supply.

(Figure: Market for Sustainable Furniture) The graph depicts the market for furniture made from sustainable materials. The government wants to encourage buyers to buy such furniture and imposes a price ceiling of $250. What occurs as a result of the price ceiling?

a shortage of 400,000 pieces of furniture

(Figure: Market for Child Care) The figure shows the market for child care. The original equilibrium price is $10,000. A subsidy is now introduced for parents who pay for child care. After the subsidy is implemented, the amount that parents pay is $:

9,000

(Figure: Labor Market) Refer to the labor market shown here. Suppose a minimum wage of $18 per hour is introduced. After implementation of the minimum wage, the number of workers hired _____.

falls by 6,000

(Figure: Market for Reusable Jute Shopping Bags) Refer to the market for reusable jute shopping bags that is shown in the figure. The original equilibrium price is $7 per bag. After the subsidy is implemented, the amount that buyers pay is $:

5

Suppose that a binding price floor is in place in a particular market. If the market is deregulated, and the price floor is removed:

the quantity of the good that firms wish to supply will decrease.

(Figure: Market for Logs) A quota of 10,000 logs of forest wood per month is placed on the market shown in the figure. The equilibrium quantity sold in the market before implementation of the quota is _____ logs.

50

(Figure: Price Control in the Market for Gasoline) Dramatic increases in the price of gasoline have led the government to impose a price ceiling. One effective price ceiling would be the price indicated at point _____, creating a _____ equal to the difference between points _____.

d; shortage; i and h

Efficient outcomes in markets are NOT dependent on:

advanced technology.

The producer surplus on a unit sold equals:

price minus marginal cost.

Although the total economic surplus rises when your state lowers its minimum wage law, the change leads to a significant decline in the incomes of low wage workers. How could your state address the equity issue raised by the policy change? It could:

tax businesses whose profits rise as a result of the policy to pay workers adversely affected.

(Figure: Equilibrium in the Market for Mechanical Pencils) Consider the figure Equilibrium in the Market for Mechanical Pencils. At the equilibrium price, the producer surplus is equal to area:

DIF

A government leader determines that the 5% unemployment rate is too high. They ask their staff to research policy options to reduce the rate and a few weeks later are given four options. Each option would reduce the rate by a different amount and at a different cost. The leader studies the options and chooses the one they feel is best for the country. In order, what types of analysis were used in this three-stage chain of events?

normative; positive; normative

Consumer surplus equals:

marginal benefit minus price

Bae is willing to pay up to $160 for a particular pair of boots. She can buy the boots for $120. The marginal cost of producing the boots is $70. How large is the economic surplus associated with her purchase of the boots?

$90

Which statement is normative?

Scientists should not make normative statements

(Figure: Market 4) Use the graph for the grape market (with quantity in pounds) to answer the question.

When the market produces and sells a quantity of two pounds, the deadweight loss is the area between the demand and supply curves

between the quantities of two and five.

If the market for concert tickets is in equilibrium, and the fire marshal tries to reduce the number of tickets sold, all other things equal, economic surplus will:

decrease

Statements that make value judgments are:

normative

(Figure: Market 5) The graph shows the market for teddy bears

When the market produces and sells nine teddy bears, the deadweight loss is represented by the:

area between the demand and supply curves between quantities of five and nine.

Which of these statements is FALSE regarding economic efficiency?

If it is efficient, it is also equitable

When economic efficiency increases, the _____, and the benefits _____ be spread across all people.

total gains exceed the costs; may or may not

Which of these is NOT a reason for government failure?

Regulators are overly focused on efficiency

(Figure: Monthly Supply of Lattes) The figure Monthly Supply of Lattes represents the monthly supply of lattes at a local cafe. At $3 per latte, the cafe produces 120 lattes per month. The producer surplus this bakery receives is equal to:

180