Econ Final Exam ch5-8

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elasticity

a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

price elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage in the quantity demanded divded by the percentage change in price

total revenue

the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold

income elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income

cross-price elasticity of demand

a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good

price elasticity of supply

a measure of how much the quantity supplie of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

price ceiling

a legal maximum on the price at which a god can be sold

price floor

a legal minimum on the price at which a good can be sold

tax incidence

the manner in which the burden of a tax is shared among participants in a market

welfare economics

the study of how the allocation of resources affects economic well-being

willingness to pay

the maximum amount that a buyer will pay for a good

consumer surplus

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

cost

the value of everything a seller must give up to produce a good

producer surplus

the amount a seller is paid for a good minus the seller's cost of providing it

efficiency

the property of a resource allocation of maximizing the total surplus received by all members of society

equality

The property of distributing economic prosperity uniformly among the members of society

deadweight loss

the fall in total surplus that results from a market distortion, such as a tax

the price of elasticity of supply measures how much...

the price of the good responds to changes in supply

a key determinant of the price elasticity of supply is the...

length of the time period

suppose the government has imposed a price ceiling on televisions. which of the following events could transform the price ceiling from one that is not binding into one that is binding?
a. firms expect the price of televisions to fall in the future
b. the number of firms selling televisions decreases
c. consumers' income decreases, and televisions are a normal good
d. the number of consumers buying televisions decreases

b. the number of firms selling televisions decreases

suppose the government has imposed a price floor on televisions. which of the following events could transform the price floor from one that is not binding into one that is binding?
a. firms expect the price of televisions to rise in the future
b. the number of firms seling televisions decreases
c. consumers' income decreases, and televisions are a normal good
d. the number of consumers buying televisions increases

c. consumers' income dereases, and televisions are a normal good

if the demand for a good or service increases, producer surplus...

increases

efficiency in a market is achieved when...

the sum of producer surplus and consumer surplus is maximized

when a tax is placed on a product, the price paid by buyers

rises, and the price received by sellers falls

the loss in total surplus resulting from a tax is called

deadweight loss

a deadweight loss is a consequence of a tax on a good because the tax

induces buyers to consume less, and sellers to produce less

the price elasticities of supply and demand affect

both the size of the deadweight loss from a tax and the tax incidence

when a country allows international trade and becomes an importer of a good

the gains of the winners exceed the losses of the losers

benefits of international trade

1.increase in total surplus
2. trade enhances flow of ideas, facilitates the spread of technology
3. consumers enjoy increased variety of goods
4. competition from abroad may reduce market power of domestic firms, increase total welfare

if the price of natural gas rises, when is the price elasticity of demand likely to be the lowest?

immediately after the price increase

the price elasticity of supply measures how much

the quantity supplied responds to changes in the price of the good

a price ceiling is binding when it is set

below the equilibrium price, causing a shortage

suppose the government has imposed a price ceiling on cellular phones. which of the following events could transform the price celing from one that is binding to one that is not binding?
a. cellular phones become more popular
b. traditional land line phones become more expensive
c. the components used to produce cellular phones become more expensive
d. a technological advance makes cellular phone production less expensive

d. a technological advance makes cellular phone production less expensive

suppose the demand for nachos increases. what will happen to producer surplus in the market for nachos?
a. it increases
b. it decreases
c. it remains unchanged
d. it may increase, decrease, or remain unchanged

a. it increases

what happens to the total surplus in a market when the government imposes a tax?
a. total surplus increases by the amount of the tax
b. total surplus increases but by less than the amount of the tax
c. total surplus decreases
d. total surplus is unaffected by the tax

c. total surplus decreases

the deadweight loss from a $1 tax will be smallest in a market with
a. inelastic supply and elastic demand
b. inelastic supply and inelastic demand
c. elastic supply and elastic demand
d. elastic supply and inelastic demand

b. inelastic supply and inelastic demand

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