ECON TEST 2
Terms in this set (50)
The price elasticity of demand measures how much
quantity demanded responds to a change in price
Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-2?
A has fewer substitutes than B
When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about
If the demand for donuts is elastic, then a decrease in the price of donuts will
increase total revenue of donut sellers.
When small changes in price lead to infinite changes in quantity demanded, demand is perfectly
elastic, and the demand curve will be horizontal.
If the demand for textbooks is inelastic, then a decrease in the price of textbooks will
decrease total revenue of textbook sellers
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.
Refer to Figure 6-4. Which of the following statements is not correct?
When the price is $6, there is a surplus of 8 units
Refer to Figure 6-4. A government-imposed price of $16 in this market could be an example of a
binding price ceiling.
non-binding price ceiling.
binding price floor.
non-binding price floor.
(ii) and (iii) only
. Refer to Figure 6-4. A government-imposed price of $12 in this market is an example of a
binding price floor that creates a surplus.
Refer to Figure 6-4. A government-imposed price of $6 in this market is an example of a
binding price ceiling that creates a shortage.
In the housing market, supply and demand are
more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.
A tax imposed on the buyers of a good will raise the
price paid by buyers and lower the equilibrium quantity.
When a tax is placed on the sellers of energy drinks, the
burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.
Suppose the government has imposed a price ceiling on cellular phones. Which of the following events could transform the price ceiling from one that is binding to one that is not binding?
A technological advance makes cellular phone production less expensive
Which of the following statements is correct concerning the burden of a tax imposed on take-out food?
Buyers and sellers share the burden of the tax
Refer to Figure 6-25. In which market will the majority of the tax burden fall on buyers?
Refer to Figure 6-25. In which market will the majority of the tax burden fall on sellers?
.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.
. A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it
maximizes the combined welfare of buyers and sellers.
All else equal, what happens to consumer surplus if the price of a good increases?
Consumer surplus decreases.
Which of the following will cause a decrease in consumer surplus?
the imposition of a binding price floor in the marke
The marginal seller is the seller who
would leave the market first if the price were any lower
Total surplus in a market is equal to
consumer surplus + producer surplus.
26. When a tax is levied on a good,
all of the above
The amount of deadweight loss from a tax depends upon the
all of the above
A tax placed on a good
causes the equilibrium quantity of the good to decrease.
Deadweight loss measures the loss
in a market to buyers and sellers that is not offset by an increase in government revenue.
Refer to Figure 8-4. The equilibrium price before the tax is imposed is
$12, and the equilibrium quantity is 70.
Refer to Figure 8-4. The per-unit burden of the tax on buyers is
Refer to Figure 8-4. The per-unit burden of the tax on sellers is
Refer to Figure 8-4. The amount of the tax on each unit of the good is
Refer to Figure 8-4. The price that buyers effectively pay after the tax is imposed is
Refer to Figure 8-4. The price that sellers effectively receive after the tax is imposed is
Refer to Figure 8-4. The amount of tax revenue received by the government is equal to
Refer to Figure 8-4. The tax results in a loss of consumer surplus that amounts to
Refer to Figure 8-4. The tax results in a loss of producer surplus that amounts to
Refer to Figure 8-4. The amount of deadweight loss as a result of the tax is
The price elasticities of supply and demand affect
both the size of the deadweight loss from a tax and the tax incidence.
Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when the
supply of the product is more elastic than the demand for the product
Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?
The greater are the price elasticities of supply and demand, the greater is the deadweight loss.
If the size of a tax increases, tax revenue
may increase, decrease, or remain the same.
.Refer to Figure 8-13. Panel (a) and Panel (b) each illustrate a $4 tax placed on a market. In comparison to Panel (a), Panel (b) illustrates which of the following statements?
When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic.
A decrease in the size of a tax is most likely to increase tax revenue in a market with
elastic demand and elastic supply.
Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?
As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises.
The Laffer curve illustrates that
tax revenue first rises, then falls as a tax increases.
The Laffer curve relates
the tax rate to tax revenue raised by the tax.
Refer to Figure 8-19. If the economy is at point B on the curve, then an increase in the tax rate will
increase the deadweight loss of the tax and decrease tax revenue.
Refer to Figure 8-19. If the economy is at point A on the curve, then a small increase in the tax rate will
increase the deadweight loss of the tax and increase tax revenue.
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