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Exploring Macroeconomics 5th Edition Robert L. Sexton - Solutions
If the price of DVDs is $25, the consumer surplus Fred receives from purchasing one DVD would bea. $0.b. $5.c. $25.d. $55.e. $70.
If the price of DVDs is $20, the consumer surplus Fred receives from purchasing two DVDs would bea. $10.b. $15.c. $20.d. $55.e. $90.
In a supply and demand graph, the triangular area under the demand curve but above the market price isa. the consumer surplus.b. the producer surplus.c. the marginal cost.d. the deadweight loss.e. the net gain to society from trading that good.Use the following demand schedule to answer questions 2
The deadweight loss is greater in an agricultural price-support program than in a deficiency payment plan. True or False.
With an agricultural price-support program where the government buys up the surplus, a net benefit is realized because the benefits to producers are greater than the cost to consumers. True or False.
Any possible gains to consumers are more than offset by losses to producers when a binding price ceiling is in place. True or False.
Consumers never benefit from a binding price ceiling. True or False.
Those goods that are heavily taxed often have a relatively inelastic demand curve in the short run, so the burden falls mainly on the buyer, and the deadweight loss to society is smaller than if the demand curve were more elastic. True or False.
If either the supply or demand curve becomes more inelastic, a given tax will reduce the quantity exchanged by a greater amount. True or False.
Other things being equal, the more elastic the demand curve or the more elastic the supply curve, the smaller the deadweight loss of a tax. True or False.
The deadweight loss of a tax occurs because the tax reduces the quantity exchanged below the original output level, True or False.reducing the size of the total surplus realized from trade. True or False.
The deadweight loss of a tax is the difference between the lost consumer and producer surpluses and the tax revenue generated. True or False.
Once the equilibrium output is reached at the equilibrium price, all of the mutually beneficial trade opportunities between the suppliers and the demanders will have taken place, and the sum of consumer and producer surplus is maximized. True or False.
At the market equilibrium, both consumers and producers benefit from trading every unit up to the market equilibrium output. True or False.
If the market price of a good falls as a result of a decrease in demand, additional producer surplus is generated. True or False.
Producer surplus is shown graphically as the area under the demand curve and above the supply curve. True or False.
Because some units can be produced at a cost that is lower than the market price, the seller receives a surplus, or net benefit, from producing those units. True or False.
A lower price will increase your consumer surplus for each of the units you were already consuming and will also increase your consumer surplus from increased purchases at the lower price. True or False.
With a deficiency payment program, the deadweight loss is _____________ than with an agricultural price support program when the government buys the surplus.
With no alternative use of the government purchases from a price floor, a _____________ will result because consumers are consuming _____________ than the previous market equilibrium output and sellers are producing _____________ than is being consumed.
With a price floor where the government buys up the surplus, the cost to the government is _____________ than the gain to _____________.
With a _____________, any possible gain to consumers will be more than offset by the losses to producers.
Because the _____________ leads to the production of more than the efficient level of output, a _____________ results.
When there is a subsidy, the market _____________ relative to the efficient level of output.
The size of the deadweight loss from a tax, as well as how the burdens are shared between buyers and sellers, depends on the relative _____________.
After a tax is imposed, consumers pay a(n) ___________ price and lose the corresponding amount of consumer surplus as a result. Producers receive a _____________ price after tax and lose the corresponding amount of producer surplus as a result. The government _____________ the amount of the tax
In competitive markets, with large numbers of buyers and sellers at the market equilibrium price and quantity, the net gains to society are _____________ as possible.
The total welfare gain to the economy from trade in a good is the sum of the _____________ and _____________ created.
The demand curve represents a collection of _________ prices that consumers are willing and able to pay for additional quantities of a good or service, while the supply curve represents a collection of ____________ prices that suppliers require to be willing to supply additional quantities of that
Part of the added producer surplus when the price rises as a result of an increase in demand is due to a higher price for the quantity _____________ being produced, and part is due to the expansion of _____________ made profitable by the higher price.
We can think of the supply curve as a _____________ curve.
A _____________ is the difference between what a producer is paid for a good and the cost of producing that unit of the good.
A lower market price due to an increase in supply will _____________ consumer surplus.
Consumer surplus for the whole market is shown graphically as the area under the market _____________(willingness to pay for the units consumed) and above the _____________ (what must be paid for those units).
We can think of the demand curve as a ____________ curve.
The monetary difference between the price a consumer is willing and able to pay for an additional unit of a good and the price the consumer actually pays is called _____________.
Assume you had the following observations on U.S. intercity rail travel: Between 1990 and 1993 rail travel increased from 17.5 passenger miles per person to 19 passenger miles per person. At the same time neither per-mile railroad price or incomes changed but the per-mile price of intercity airline
If both supply curves and demand curves are more elastic in the long run than in the short run, how does the incidence of a tax change from the short run to the long run as a result? What happens to the revenue raised from a given tax over time, ceteris paribus?
Why is an increase in price more likely to decrease the total revenue of a seller in the long run than in the short run?
Using the midpoint formula for calculating the elasticity of supply, if the price of a good rose from $95 to $105, what would be the elasticity of supply if the quantity supplied changed from:a. 38 to 42?b. 78 to 82?c. 54 to 66?
Indicate whether a pair of products are substitutes, complements, or neither based upon the following estimates for the cross-price elasticity of demand:a. 0.5b. 0.5
Mayor George Henry has a problem. He doesn’t want to anger voters by taxing them because he wants to be reelected, but the town of Gapville needs more revenue for its schools. He has a choice between taxing tickets to professional basketball games or taxing food. If the demand for food is
If taxi fares in a city rise, what will happen to the total revenue received by taxi operators? If the fares charged for subway rides, a substitute for taxi rides, do not change, what will happen to the total revenue earned by the subway as a result?
Isabella always spends $50 on red roses each month and simply adjusts the quantity she purchases as the price changes.What can you say about Isabella’s elasticity of demand for roses?
A movie production company faces a linear demand curve for its film, and it seeks to maximize total revenue from the film’s distribution. At what level should the price be set? Where is demand elastic, inelastic, or unit elastic? Explain.
The Cowtown Hotel is the only first-class hotel in Fort Worth. The hotel owners hired economics advisors for advice about improving the hotel’s profitability. They suggested the hotel could increase this year’s revenue by raising prices. The owners asked, “Won’t raising prices reduce the
Assume the following weekly demand schedule for Sunshine DVD Rentals in Cloverdale.a. When Sunshine DVD Rentals lowers their rental price from $4 to $3, what happens to its total revenue?b. Between a price of $4 and a price of $3, is the demand for Sunshine DVD Rentals in Cloverdale elastic or
If the midpoint on a straight-line demand curve is at a price of $7, what can we say about the elasticity of demand for a price change from $12 to $10? What about from $6 to $4?
Evaluate the following statement: “Along a downward-sloping linear demand curve, the slope and therefore the elasticity of demand are both ‘constant.’”
If the elasticity of demand for hamburgers equals 1.5 and the quantity demanded equals 40,000, predict what will happen to the quantity demanded of hamburgers when the price increases by 10 percent. If the price falls by 5 percent, what will happen?
Why is a more narrowly defined good (pizza) likely to have a greater elasticity of demand than a more broadly defined good (food)?
Explain why using the midpoint formula for calculating the elasticity of demand gives the same result whether price increases or decreases, but using the initial price and quantity instead of the average does not.
Using the midpoint formula for calculating the elasticity of demand, if the price of a good fell from $42 to $38, what would be the elasticity of demand if the quantity demanded changed from:a. $19 to $21?b. $27 to $33?c. $195 to $205?
For each of the following pairs, identify which one is likely to exhibit more elastic demand:a. shampoo; Paul Mitchell Shampoob. air travel prompted by an illness in the family; vacation air travelc. paper clips; an apartment rentald. prescription heart medication; generic aspirin
The San Francisco Giants want to boost revenues from ticket sales next season. You are hired as an economic consultant and asked to advise the Giants whether to raise or lower ticket prices next year. If the elasticity of demand for Giants game tickets is estimated to be 1.6, what would you
How might your elasticity of demand for copying and binding services vary if your work presentation is next week versus in two hours?
In each of the following cases, indicate which good you think has a relatively more price elastic demand and identify the most likely reason, in terms of the determinants of the elasticity of demand (more substitutes, greater share of budget, or more time to adjust).a. cars or Chevroletsb. salt or
If good X has a negative cross-price elasticity of demand with good Y and good X also has a negative income elasticity of demand, thena. X is a substitute for Y, and X is a normal good.b. X is a substitute for Y, and X is an inferior good.c. X is a complement for Y, and X is a normal good.d. X is a
If the income elasticity of demand for good A is 0.5 and the income elasticity of demand for good B is 1.5, thena. both A and B are normal goods.b. both A and B are inferior goods.c. A is a normal good, but B is an inferior good.d. A is an inferior good, but B is a normal good.
If the cross-price elasticity of demand between two goods is negative, we know thata. they are substitutes.b. they are complements.c. they are both inferior goods.d. they are both normal goods.
If you observed that price increased 20 percent when the quantity traded increased by 10 percent, thena. the elasticity of demand is 2.0.b. the elasticity of demand is 0.5.c. the elasticity of supply is 2.0.d. the elasticity of supply is 0.5.
The longer the time horizon, a permanent increase in demand will tend to increase the quantity traded _____________ , and increases the price _____________.a. more; moreb. more; lessc. less; mored. less; less
A straight-line demand curve woulda. have the same elasticity along its entire length.b. have a higher elasticity of demand near its top than near its bottom.c. have a lower elasticity of demand near its bottom than near its top.d. be relatively inelastic at high prices, but relatively elastic at
An increase in demand will increase the price but not the quantity sold in a market ifa. supply is perfectly elastic.b. supply is perfectly inelastic.c. supply is relatively elastic.d. supply is relatively inelastic.
If the demand for gasoline is highly inelastic and the supply is highly elastic, and then a tax is imposed on gasoline, it will be paida. largely by the sellers of gasoline.b. largely by the buyers of gasoline.c. equally by the sellers and buyers of gasoline.d. by the government.
For a given increase in price, the greater the elasticity of supply, the greater the resultinga. decrease in quantity supplied.b. decrease in supply.c. increase in quantity supplied.d. increase in supply.
When the local symphony recently raised the ticket price for its summer concerts in the park, the symphony was surprised to see that its total revenue had actually decreased. The reason was that the elasticity of demand for tickets wasa. unit elastic.b. unit inelastic.c. inelastic.d. elastic.
Demand curves for goods tend to become more inelastica. when more good substitutes for the good are available.b. when the good makes up a larger portion of a person’s income.c. when people have less time to adapt to a given price change.d. when any of the above is true.e. in none of the above
The long-run demand curve for gasoline is likely to bea. more elastic than the short-run demand curve for gasoline.b. more inelastic than the short-run demand curve for gasoline.c. the same as the short-run demand curve for gasoline.d. more inelastic than the short-run supply of gasoline.
The price-elasticity-of-demand coefficient for herbal tea is estimated to be equal to 0.5. It is expected, therefore, that a 10 percent decrease in price would lead to _____________ in the quantity of herbal tea demanded.a. a 5 percent decreaseb. a 5 percent increasec. a 10 percent decreased. a 10
If recent sharp increases in the price of insulin have had only a small effect on the amount of insulin purchased, then the demand for insulin isa. elastic.b. inelastic.c. unit elastic.d. perfectly elastic.
Price elasticity of demand is said to be greatera. the shorter the period of time consumers have to adjust to price changes.b. the longer the period of time consumers have to adjust to price changes.c. when there are fewer available substitutes.d. when the elasticity of supply is greater.
Iron Mike’s steel mill finds that a 10 percent increase in its price leads to a 14 percent decrease in the quantity it is able to sell. The demand curve for the mill’s output isa. elastic.b. inelastic.c. unit elastic.d. perfectly elastic.
Which of the following would tend to have the most elastic demand curve?a. automobilesb. Chevrolet automobilesc. a and b would be the samed. none of the above
Which of the following will not tend to increase the elasticity of demand for a good?a. an increase in the availability of close substitutesb. an increase in the amount of time people have to adjust to a change in the pricec. an increase in the proportion of income spent on the goodd. all of the
Using the midpoint formula for the elasticity of demand, if a price increase from $57 to $63 reduces quantity demanded from 66 units to 54 units, the elasticity of demanda. equals 0.5.b. equals 1.c. equals 2.d. cannot be determined from the information given.
When demand is inelastic,a. price elasticity of demand is less than 1.b. consumers are not very responsive to changes in price.c. the percentage change in quantity demanded resulting from a price change is less than the percentage change in price.d. all of the above are correct.
For a given decrease in price, the greater the elasticity of demand, the greater the resultinga. increase in quantity demanded.b. increase in demand.c. decrease in quantity demanded.d. decrease in demand.
Demand is said to be _____________ when the quantity demanded is not very responsive to changes in price.a. independentb. inelasticc. unit elasticd. elastic
Price elasticity of demand is defined as the _____________ change in quantity demanded divided by the _____________ change in price.a. total; percentageb. percentage; marginalc. marginal; percentaged. percentage; percentagee. total; total
Who bears the burden of a tax has nothing to do with who actually pays the tax at the time of the purchase. True or False.
If demand has a lower elasticity than supply in the relevant region, the largest portion of a tax is paid by the producer. True or False.
Unlike demand, supply tends to be more elastic in the long run than in the short run. True or False.
Goods with a supply elasticity that is less than 1 are called relatively inelastic in supply. True or False.
A perfectly elastic supply curve would be vertical, but a perfectly inelastic supply curve would be horizontal. True or False.
When supply is relatively elastic, a 10 percent change in price will result in a greater than 10 percent change in quantity supplied. True or False.
The price elasticity of supply measures the relative change in the quantity supplied that results from a change in price. True or False.
A straight-line demand curve will have a constant elasticity of demand along its length. True or False.
If demand is inelastic, the price and total revenue will move in opposite directions along the demand curve. True or False.
Along a demand curve, if the price rises and total revenue falls as a result, then demand must be relatively elastic along that range of the demand curve. True or False.
The short-run demand curve is generally more elastic than the long-run demand curve. True or False.
Based on the percentage of a person’s budget devoted to a particular item, you would expect that the elasticity of demand for salt would be greater than the elasticity of demand for attending a university. True or False.
We would expect that the elasticity of demand for Ford automobiles would be greater than the demand for insulin by diabetics. True or False.
Goods with close substitutes tend to have more elastic demands, while goods without close substitutes tend to have less elastic demands. True or False.
Along a segment of a demand curve that is unit elastic, quantity demanded would change by 10 percent as a result of a 10 percent change in the price. True or False.
Using the formula, the same elasticity results whether going from a higher (lower) price to a lower (higher) price. True or False.
A perfectly elastic demand curve would be horizontal, but a perfectly inelastic demand curve would be vertical. True or False.
A segment of a demand curve has an elasticity less than 1 if the percentage change in quantity demanded is less than the percentage change in price that caused it. True or False.
If a small change in quantity demanded results from a huge change in price, then demand is said to be elastic. True or False.
The relative _____________ determines the distribution of the tax burden for a good.
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