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Question
SHORT ANSWER
1. Explain the difference between an implicit cost and an explicit cost, and how both costs relate to economic and accounting profits.
Answer
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Lee says that he will always spend $20 a week on lattes. Lees demand for lattes is pricea. inelastic. b. elastic. c. perfectly inelastic.d. perfectly elastic.e. unitary elastic.
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When the price elasticity of demand is elastic, a consumer is
a. completely unresponsive to a change in price.
b. relatively unresponsive to a change in price.
c. unaffected by a change in price.
d. relatively responsive to a change in price.
e. completely responsive to a change in price.
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If the price elasticity of demand for Good A is - 0.2 and the price increases from $2.25 to $2.75, the percentage change in the quantity demanded of Good A is
a. -100 percent.
b. 100 percent.
c. 4.0 percent
d. - 4.0 percent.
e. unknown because not enough information is provided.
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A producer knows that the price elasticity for his product is -0.5. He wants to increase quantity demanded by 30 percent. By what percentage does he need to change the price?a. 10 percent b. 6 percent c. - 9.5 percentd. - 60 percente. - 6 percent
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Price gouging laws will usually result in ________ the product in the distressed market.
a. more supply of
b. more local business start-ups to supply
c. government setting up an agency to regulate supply of
d. more Craigslist postings for
e. more demand than supply of
Q:
The economic entity most likely to engage in price gouging is
a. the manufacturer of the product, such as a Honda generator.
b. a national big-box store, such as Target or Walmart.
c. a local, regular supplier of the product.
d. an individual or business who has a supply of the product somewhere else.
e. a local resident who wants to get rid of his or her own product.
Q:
The long-run effects of rent control support one of the five foundations of economics, namely, that
a. people respond to incentives.
b. society faces a trade-off between homelessness and rent control.
c. one must give up something in order to get something else.
d. social planners must think marginally in allocating housing.
e. exchange makes everyone better off.
Q:
A real-life, long-run example of a binding price ceiling isa. a minimum wage law. b. rent control. c. a price gouging law.d. a black market price.e. a ration price.
Q:
What will an individual do differently as a buyer in the black market in the long run?
a. He or she will substitute away from the product.
b. He or she will substitute toward the product.
c. When a binding price floor exists, he or she will be willing to pay a higher price.
d. When a binding price ceiling exists, he or she will be willing to pay a lower price.
e. What he or she does as a buyer in the long run will be no different from what he or she does in the short run.
Q:
What is the long-run consequence of a price ceiling law?
a. A surplus will continue to exist and will grow larger over time.
b. A surplus will continue to exist and will grow smaller over time.
c. A shortage will continue to exist and will grow larger over time.
d. A shortage will continue to exist and will grow smaller over time.
e. The amount of the surplus will not change.
Q:
Suppose Solomon lives in a community with no price controls. What do you expect will happen if his town borders a community where there is a binding price ceiling on most products?
a. Prices in the legal market in the community with a binding price ceiling will rise.
b. Prices in the legal market in the community with a binding price ceiling will fall.
c. There will be shortages in the community with a binding price ceiling.
d. More consumers will purchase products in the community with the price ceiling.
e. The black market in his community will be larger than the black market in the community with the binding price ceiling.
Q:
Roland is the president of the United States. In an attempt to make prescription drug prices cheaper, he has imposed a binding price ceiling on drugs. What would he expect his critics to say?
a. The binding price ceiling will encourage companies to overproduce drugs and will result in waste.
b. The binding price ceiling will discourage patients from obtaining the drugs they need.
c. The binding price ceiling will increase the likelihood that consumers will obtain needed drugs on the black market.
d. The binding price ceiling will cause firms to spend too many resources on the research and development of new drugs.
e. The binding price ceiling will cause firms to spend too much time making a drug without any flaws.
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One strategy someone might use to be elected mayor of a university town is to place a binding price ceiling on rent for student apartments. What will happen if he or she gets elected and is able to pass such a law?
a. The price ceiling will increase the number of apartments available for rent.
b. The price ceiling will cause the demand curve to shift.
c. The price ceiling will cause the supply curve to shift.
d. The price ceiling will decrease the number of students who want to rent an apartment.
e. The price ceiling will cause students to sleep in their cars or to move in with their friends because they wont be able to find places to live.
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Refer to the accompanying figure. At what price would there be the LEAST pressure to form a black market?a. $5 b. $8 c. $13d. $15e. $20
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Why does a shortage that occurs under a binding price ceiling increase over time?
a. Demand becomes more elastic.
b. Demand becomes more inelastic.
c. Demand and supply both become more elastic.
d. Demand and supply both become more inelastic.
e. Demand becomes more elastic, but supply becomes more inelastic.
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Suppose Kate lives in a community with no price controls. What could she expect will happen if her town borders a community where there is a nonbinding price ceiling on most products?
a. Legal market prices will rise in the community with a binding price ceiling.
b. Legal market prices will fall in the community with a binding price ceiling.
c. The price and the quantity sold in the community without a nonbinding price ceiling will be the same as the price and quantity in the community with a nonbinding price ceiling.
d. There will be more shortages in the community with a binding price ceiling.
e. The black market in the community with a binding price ceiling will not be strong because consumers will simply purchase the product in the community that has no price ceiling.
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Why would a politician find it difficult to remove a binding price ceiling?
a. because it greatly benefits firms, and they would spend a lot of money to lobby against the laws repeal
b. because it greatly benefits government, which receives additional tax revenue as a result
c. because it greatly benefits all consumers, and they are also voters
d. because it greatly benefits some consumers who are also voters
e. because it greatly benefits society as a whole, with all consumers able to buy as much as firms produce
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Which of the following is an accurate statement about the consequence of a binding price floor?
a. Binding price floors do not allow sellers to receive a higher price if they sell the product in the legal market.
b. Binding price floors encourage the formation of a black market.
c. Binding price floors discourage the formation of a black market.
d. Binding price floors create a shortage of the product.
e. Binding price floors cause consumers to want to purchase more of the product in the legal market.
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Taxing goods with very inelastic supply generates less deadweight loss than taxing goods with very elastic supply because
a. producers have to pay these taxes out of pocket.
b. the amount of the tax is larger.
c. the change in producer behavior is smaller.
d. the government does not bother collecting the revenue.
e. the change in producer behavior is greater.
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Taxing goods with very inelastic demand generates less deadweight loss than taxing goods with very elastic demand because
a. the change in consumer behavior is smaller.
b. the amount of the tax is larger.
c. consumers have to pay these taxes out of pocket.
d. the government does not bother collecting the revenue.
e. the change in consumer behavior is greater.
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The maximum amount of tax revenue is generated when the good being taxed has aa. somewhat elastic demand. b. perfectly elastic demand. c. somewhat inelastic demand.d. perfectly inelastic demand.e. decreasing demand over time.
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A(n) ________ in the elasticity of supply or demand in a market for a good that is taxed would tend to ________ who is legally responsible for paying the tax.a. decrease; broaden b. decrease; have no effect on c. increase; broadend. increase; narrowe. increase; have no effect on
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Peanut butter and jelly are complements. If a tax is imposed on peanut butter, how will that affect the market for jelly?
a. Demand for jelly will increase along with the price.
b. Demand for jelly will decrease along with the price.
c. The supply of jelly will increase and the price will decrease.
d. Both the supply and demand for jelly will increase along with the price.
e. The supply of jelly will decrease and the price will increase.
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A tax on milk would likely cause a decrease in the price ofa. ice cream. b. cheese. c. soymilk.d. nondairy creamer.e. breakfast cereal.
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A tax creates no deadweight loss only when either supply or demand isa. somewhat elastic. b. perfectly elastic. c. perfectly inelastic.d. increasing.e. decreasing.
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The deadweight loss from a tax is likely to be less with a good that hasa. few complements. b. many substitutes. c. few substitutes.d. an elastic demand.e. an elastic supply.