Summer Exam 2 Flashcards
Choose each of the following options that correctly describes the results of a binding price ceiling.
More transactions occur.
The price rises.
Fewer transactions occur.
Quantity supplied decreases.
A shortage.
The price falls.
Quantity demanded decreases.
Quantity demanded increases.
Quantity supplied increases.
A surplus.
Fewer transactions occur.
Quantity supplied decreases.
A shortage.
The price falls.
Quantity demanded increases.
The market for bowling balls is described below. If the government adopts a $80 price ceiling on bowling balls, how large will the resulting shortage be?
Price Qd Qs
$120 16 21
$100 18 18
$80 20 16
$60 22 14
4
True or false: consider the example of the price ceiling on textbooks from class. When the price ceiling at $50 is implemented below the original equilibrium price of $100, the equilibrium price falls.
False
Which of the following CANNOT reduce the equilibrium quantity sold in a market?
A price floor
Both
A price ceiling
Neither
Neither
Suppose the going rate (i.e., the price) for a room at Hotel Madison is $50 per night. At that price, the hotel has an average of 40 occupants per night. After raising the rate to $150, this average decreases to 10 occupants. What is the elasticity of demand for hotel rooms at these rates? If necessary, round your answer to the nearest tenth and include leading zeros in a decimal. (That is, if you find an answer of 0.932, type “0.9”).
1.2 OR -1.2 (neg assumed)
For a demand curve that always maintains a slope of -1:
demand is elastic at some prices, but inelastic at others.
demand is always unit elastic.
consumers always increase quantity demanded by one unit when the price rises by $1
a firm maximizes revenue by charging the highest possible price.
demand is elastic at some prices, but inelastic at others.
Harrisonburg Electric Cooperative raises the price of one kilowatt of electricity by 10%, leading to a 5% reduction in quantity demanded. From these facts, demand for electricity is:
Unit elastic.
Elastic.
Perfectly elastic.
Inelastic.
Inelastic.
In raising its price from $6 to $7, the quantity demanded of burritos from Chipotle falls from 12 units to 11. What is the overall change in revenue? If revenue shrinks, include a negative sign in your answer.
5
In raising its price from $6 to $7, the quantity demanded of burritos from Chipotle falls from 12 units to 11. What is the overall change in revenue? If revenue shrinks, include a negative sign in your answer.
6 or -6 (neg assumed)
When season dues for the adult Harrisonburg soccer league increase from $175 to $225, demand for adult league basketball memberships increases from 50 people to 350 people. What is the cross-price elasticity between soccer and basketball league memberships? If necessary, round your answer to the nearest tenth and include leading zeros in a decimal. (That is, if you find an answer of 0.932, type “0.9”).
6
Cross-price elasticity between soccer and basketball league memberships? 6
Using only information provided in the last question, what is true about basketball and soccer leagues?
The two are complements.
The two are substitutes.
The two are luxury goods.
The two are necessary goods.
The two are substitutes.
The following table describes Hamilton’s Harmonicas production costs for harmonicas.
Quantity Cost to produce
1 10
2 30
3 60
4 100
5 150
For example, producing the first unit costs $10. Producing the second unit costs $30 (and therefore the total costs of producing two units is $40). How much producer surplus does Hamilton’s Harmonicas earn if the price of harmonicas is $120? Your answer should be a whole number - no rounding is necessary.
280
When income increases from $9,400 to $10,600, JMU graduate students purchase 490 pizzas per week instead of 510. What is the income elasticity for pizza? If necessary, round your answer to the nearest tenth and include leading zeros in a decimal. (That is, if you find an answer of 0.932, type “0.9”).
-0.3
Which of the following events would cause demand for burritos to decrease? IF MORE THAN ONE ANSWER APPLIES, CHECK MULTIPLE BOXES.
A shortage of burritos.
A new tax on burrito consumption is introduced.
An outbreak of salmonella (food poisoning) at these restaurants.
An decrease in income if burritos are an inferior good
An increase in the price of hamburgers.
A new tax on burrito consumption is introduced.
An outbreak of salmonella (food poisoning) at these restaurants.
The elasticity of demand measures:
how sensitive changes in quantity demanded are to changes in demand for a product.
how responsive consumers’ quantity demanded is to changes in a good’s price.
the slope of the demand curve.
how frequently a product’s price changes, in percentage terms.
how responsive consumers’ quantity demanded is to changes in a good’s price.
Suppose the government imposes a tax on iPhones. Initially, the market is in equilibrium. The tax causes a decrease in the quantity traded in the market and results in a deadweight loss. Which of the following statements is correct?
Deadweight loss represents the inefficiency in the market due to the tax and is the loss of potential economic surplus.
Deadweight loss is the decrease in producer surplus caused by the tax.
Deadweight loss represents the tax revenue collected by the government.
Deadweight loss is the decrease in consumer surplus caused by the tax.
Deadweight loss represents the inefficiency in the market due to the tax and is the loss of potential economic surplus.
Consider the market for pens. Two things happen: 1) students increasingly take notes on computers instead of paper and 2) ink prices rise. Choose the two correct options result.
The quantity increases.
The quantity change is ambiguous.
The price increases.
The price decreases.
The price change is ambiguous.
The quantity decreases.
The price change is ambiguous.
The quantity decreases.
An increase in price will lead to an increase in revenue:
if the income elasticity is greater than zero.
only when demand is inelastic.
regardless of the elasticity of demand.
only when demand is elastic.
only when demand is inelastic.
Suppose the following describes your willingness to pay for pizza:
$7 for the first piece
$5 for the second piece
$4 for the third piece
$3 for the fourth piece
$2 for the fifth piece.
If each piece of pizza costs $3, then:
you would consume five pieces of pizza.
consumer surplus would rise when the price rises.
you would be satisfied after the first two pieces of pizza and not buy a third piece.
your consumer surplus from eating pizza would be $7
your consumer surplus from eating pizza would be $7
If the demand for a good decreases, then producer surplus:
decreases.
changes indeterminately.
does not change.
increases.
decreases.
Consider the market for Ramen noodles, an inferior good. Two things happen in Harrisonburg: 1) Incomes rise and 2) the number of Ramen restaurants rises. Choose the two following options that are correct according to the supply and demand model.
Quantity change is ambiguous
Price falls
Quantity rises
Price change is ambiguous
Quantity falls
Price rises
Quantity change is ambiguous
Price falls
Local legislators pass a new tax on cigarettes to try to decrease the prevalence of smoking. What effects will the tax have on the quantity of cigarettes consumed, the price consumers pay, and the amount sellers make for each unit sold?
Consumption increases, consumer price increases, producer price decreases.
Consumption decreases, consumer price increases, producer price increases.
Consumption decreases, consumer price decreases, producer price decreases.
Consumption decreases, consumer price increases, producer price decreases.
Consumption decreases, consumer price increases, producer price decreases.
If the supply of a good increases, then consumer surplus:
does not change.
decreases.
changes indeterminately.
increases.
increases.
If the elasticity of demand for winter break packages to Massanutten is -3 and you notice that there are 15% more visitors than there were last year, then by what percent did the price change this year? Round your answer to the nearest tenth and do not include the percentage sign.
-5 or 5
