Question 1

Suppose the price of candy bars is $$1.00 and the quantity demanded is 500 per day. When the price falls to 0.80$$, the quantity demanded increases to 700 per day. Using the midpoint method, what is the price elasticity of demand for candy bars?

Accepted Answer

$$\frac{(700-500)}{(700+500)/2} \div \frac{(0.80-1.00)}{(0.80+1.00)/2}$$

Question 2

If the price elasticity of demand for candy bars is calculated to be greater than 1, what does this imply about the demand?

Accepted Answer

Demand is elastic.

Question 3

In the figure, if rectangle D is larger than rectangle A, which statement is NOT correct?

Accepted Answer

An increase in price from $$P_1 to$$ $$P_2$$ will cause a decrease in total revenue.

Question 4

A tax of $5 per unit is imposed in a market. Which of the following is correct?

Accepted Answer

Buyers will bear more of the burden of the tax than sellers will.

Question 5

Given the willingness to pay for oranges: Allison ($$2.00$$ for first, $$1.50$$ for second), Bob ($$1.50$$ for first, $$1.00$$ for second), Charisse ($$0.75$$ for first, $$0.25$$ for second). If only one orange can be supplied per day, what is the highest price at which the market quantity demanded per day is exactly one?

Accepted Answer

$$P \u003c 2.00$$

Question 6

If the cost of producing a product is $$1,150$$, who would be willing to sell the product given the following seller costs: Abby ($$1,000$$), Bobby ($$1,200$$), Dianne ($$1,150$$), Evaline ($$1,100$$), Carl ($$1,300$$)?

Accepted Answer

Abby, Dianne, and Evaline

Question 7

If the supply curve shifts from $$S to$$ $$S'$$ and the demand curve shifts from $$D to$$ $$D'$$, what is the increase in producer surplus to existing producers if the area increases from $$100 to$$ $$150$$?

Accepted Answer

$$50$$

Question 8

If the government imposes a $$10$$ per unit tax on a good, and the tax causes consumer surplus to decrease by the area $$B + C$$, what does this represent?

Accepted Answer

The loss in consumer surplus due to the tax.

Question 9

If a $$4$$ tax is imposed and demand is relatively elastic, what happens to the deadweight loss compared to when demand is relatively inelastic?

Accepted Answer

Deadweight loss of a tax is larger when demand is relatively elastic.

Question 10

When a tariff is imposed in the market, what is the effect on domestic producer surplus?

Accepted Answer

Domestic producer surplus increases.

Question 11

If the price elasticity of demand is less than 1, what happens to total revenue when price increases?

Accepted Answer

Total revenue increases.

Question 12

Suppose a tax is imposed and the supply curve is perfectly inelastic. Who bears the entire burden of the tax?

Accepted Answer

Sellers bear the entire burden.

Question 13

If the government imposes a tax and the deadweight loss is represented by area $$D + F$$, what does this area signify?

Accepted Answer

The reduction in total surplus due to the tax.

Question 14

If the supply curve is relatively elastic and a tax is imposed, what happens to the deadweight loss compared to a relatively inelastic supply curve?

Accepted Answer

Deadweight loss is larger with a relatively elastic supply curve.

Question 15

If the price of a good increases and the demand is perfectly inelastic, what happens to the quantity demanded?

Accepted Answer

Quantity demanded remains unchanged.

Question 16

If a market has three buyers with willingness to pay of $$2.00$$, $$1.50$$, and $$0.75$$ for the first unit, what is the market demand at a price of $$1.00$$?

Accepted Answer

2 units

Question 17

If a tax is imposed and the area $$B + C + D + F is $$lost from consumer surplus, what does this represent?

Accepted Answer

The total loss in consumer surplus due to the tax.

Question 18

If the government imposes a tariff, what is the likely effect on the quantity of imports?

Accepted Answer

Quantity of imports decreases.

Question 19

If the price elasticity of demand is exactly 1, what happens to total revenue when price changes?

Accepted Answer

Total revenue remains unchanged.

Elasticity, Tax Incidence, Surplus, and Market Effects: Midterm 2 Review

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