Midterm #2 Study Guide

Charles purchased a used watch on eBay for $200. He was willing to go up to $250. Based on this, Charles’s consumer surplus from purchasing his watch is:

• Less than $49

• Exactly $50

• Exactly $200

• At least $100

If the demand curve for desktop computers shifts rightward and at the same time the supply curve shifts leftward, then:

• the equilibrium price definitely increases.

• the equilibrium price definitely decreases.

• the equilibrium quantity definitely increases.

• the equilibrium quantity definitely decreases.

Consider the market for ethanol. At the same time the cost of producing ethanol increases a marketing campaign targeted at consumers and funded by oil companies shows that use of ethanol results in more environmental damage than gasoline. Given these changes, what will happen to the equilibrium price and quantity in the market for ethanol?

• The equilibrium price will decrease and the equilibrium quantity is indeterminate.

• The equilibrium price will increase and the equilibrium quantity is indeterminate.

• The equilibrium price is uncertain and the equilibrium quantity will decrease.

• The equilibrium price is uncertain and the equilibrium quantity will increase.

If total revenue increases when the price of a product is lowered, then the price of elasticity of demand is

• inelastic.

• elastic

• neither.

• both.

Suppose that U.S. soybean farmers have great weather and as a result the supply curve for soybeans shifts out to the right, causing the price to go down. If the demand for soybeans is elastic, then:

• total revenue received by soybean farmers will increase.

• total revenue receive by soybean farmers will decrease.

• total revenue received by soybean farmers will remain the same.

• we cannot say whether total revenue will increase or decrease.

Chocolate syrup, a complement in consumption to vanilla ice cream, decreases in price, ceteris paribus. What happens in the vanilla ice cream market?

• The demand curve shifts from D0 to D1 and the market equilibrium changes from A to B.

• The demand curve shifts from D0 to D1 and the market equilibrium changes from A to F.

• The supply curve shifts from S0 to S1 and the market equilibrium changes from A to C.

• The supply curve shifts from S0 to S2 and the market equilibrium changes from B to F.

The price of sugar, an ingredient in vanilla ice cream, falls. This lowers the cost of vanilla ice cream to retailers. At the same time, the price of chocolate ice cream, a substitute, rises. Given these changes, the new equilibrium is:

• Point B

• Point F

• Point C

• Point D

Long waiting lines, which are a type of shortage, are the result of a:

• tax

• subsidy

• price support

• price ceiling

A price support is a type of a:

• Price ceiling

• Price floor

• Tax

• Rent control

At a price ceiling of $2, the actual quantity sold and purchased is:

• 75 units

• 100 units

• 125 units

• 50 units