1 ECON 21 (Summer 215 Sections 7 & 8) Exam #2C Multiple Choice Questions: (3 points each) 1. I am taking of the exam. C. Version C 2. A Price Control generally refers to A. who bears the burden of a tax, in terms of decreased surplus. B. a legal restriction on the at which trade can take place. C. a measure of how sensitive supplied is to changes in. D. the difference between maximum possible Total Social Surplus and realized Total Social Surplus. 3. My brother manages a city-owned golf course in Wilkes-Barre, PA. He wants to increase the total revenue generated by the golf course in order to more easily cover operating expenses. The mayor suggests that total revenue could be increased by increasing the of a round of golf. The parks and recreations manager believes that changing will not alter (will not increase and will not decrease) total revenue. Based upon this information it appears as if the mayor believes that demand is while the parks and recreations manager believes demand is. A. elastic; unit elastic. B. inelastic; unit elastic. C. elastic; inelastic. D. inelastic; elastic. 4. refers to a measure of the benefit realized by a seller from making a sale, defined as the difference between the received for the item and the seller s reservation for the item. A. The Incidence of a Tax B. Deadweight Loss C. Consumer s Surplus D. Producer s Surplus 5. When the of corn is $3, the demanded of corn is 2. If the falls to $2 and demanded increases, it follows that Total Consumers Surplus A. does not change. B. decreases by more than $2. C. increases by less than $2. D. increases by more than $2. 6. Madison is contemplating the purchase of a new tennis racket. Her reservation as a buyer of this item is r b 6. Target is selling tennis rackets for p 5. If Madison buys a tennis racket at Target she would realize a Consumer s Surplus of: A. 6/5 = 1.2. B. 6 5 = 1. C. 6+5 = 11. D. (6)(5) = 3,.
2 7. A good with an income elasticity of demand which is negative is called A. a necessity. B. a luxury. C. a normal good. D. an inferior good. 8. Ed and Fred currently work in a state with no minimum wage. Ed earns $7.5 per hour, and Fred earns $8.85 an hour. Imposing a minimum wage of $12. an hour: A. would be certain to make both Ed and Fred better off. B. would be certain to make Ed better off but make Fred worse off. C. would be certain to make Fred better off but make Ed worse off. D. could possibly make Ed either better off or worse off, and could possibly make Fred either better off or worse off. 9. Matt pays Alex $2 to mow his lawn every week. When the government imposes a $4 tax on Alex for providing this service he increases his to $23. Matt continues to hire Alex at this higher. As a result of this tax, Matt s Consumer s Surplus and Alex s Producer s Surplus. A. decreases by $7; increases by $3. B. increases by $3; decreases by $7. C. decreases by $3; decreases by $1. D. decreases by $1; decreases by $3. 1. The Law of Demand and Law of Supply imply that Price Elasticity of Demand should be and Price Elasticity of Supply should be. A. negative; positive. B. positive; negative. C. positive; positive. D. negative; negative. For questions 11 and 12, consider a firm facing demand given by the linear function illustrated below: 11. Demand is along this demand curve. A. elastic at high s and inelastic at low s B. inelastic at high s and elastic at low s C. elastic at all s D. inelastic at all s 5, 12. Increasing sold from 3,5 to 3,51 would total consumer expenditures. A. increase B. decrease C. not change D. None of the above answers are correct (since the graph does not convey enough information to determine how total consumer expenditures will change).
3 13. When a per unit tax is imposed on a good, the burden of the tax falls mainly on sellers if A. the tax is levied on buyers (i.e., buyers must legally pay the tax). B. the tax is levied on sellers (i.e., sellers must legally pay the tax). C. supply is inelastic and demand is elastic. D. supply is elastic and demand is inelastic. 14. Which of the following observations would support a claim that Good X is a complement for Good Y? A. The Cross Price Elasticity of Demand for Good X with Respect to the Price of Good Y is (.47). B. The Cross Price Elasticity of Demand for Good X with Respect to the Price of Good Y is (.63). C. The Price Elasticity of Demand for Good X ( 1.65) is more negative than the Price Elasticity of Demand for Good Y ( 1.27). D. The Price Elasticity of Demand for Good X (.87) is less negative than the Price Elasticity of Demand for Good Y ( 1.48). 15. At the efficient level of trade is maximized. A. Total Consumers Surplus plus Total Producers Surplus. B. Total Consumers Surplus minus Total Producers Surplus. C. Total Consumers Surplus. D. Total Producers Surplus. 16. Suppose that the income elasticity of demand for Swiss Cheese is equal to.32. If consumer income were to increase, then A. it would be necessary for the government to impose a control in order to restore equilibrium. B. demand for Swiss Cheese would increase. C. Total Producers Surplus in the market for Swiss Cheese would increase. D. More than one (perhaps all) of the above answers is correct. 17. Consider the demand for lamps. At a of $4, the slope of the demand curve is.2 and demanded is 8. It follows that elasticity of demand is equal to. A. 5 B..25 C..2 D Rent Controls are an example of ; a Minimum Wage is an example of. A. a wall; a curtain. B. a curtain; a wall. C. a floor; a ceiling. D. a ceiling; a floor. 19. Consider a market in which the maximum value of Total Social Surplus is $1,2, (which is realized if 32, units are traded). If instead 28,5 units are traded realized Total Social Surplus is $9,. Thus, when 28,5 units are traded Deadweight-Loss is equal to A. $2,1, B. $9, C. $3, D. $3,
4 2. Demand tends to be relatively elastic A. over longer time horizons. B. for goods with no close substitutes. C. for necessities (i.e., things that people need and cannot live without). D. for items that constitute a small share of a consumer s budget. 21. Suppose that the current exchange rate between U.S. Dollars and Mexican Pesos is 1 Mexican Peso is equal to.6427 U.S. Dollars, and suppose that the elasticity of demand for chicken in Mexico is Consider a situation in which Mexico, Canada, and the U.S. were to adopt a single currency (the Amero ), the value of which was initially set equal to the value of the U.S. dollar. After converting all demand curves in Mexico from Mexican Pesos to Ameros, the value of the elasticity of demand for chicken in Mexico would be equal to. A..346 B C D For questions 22 through 24, consider a market with demand and supply as illustrated below: 3 Supply 29.2 a b c d e f g Demand 1,85 3,86 5,145 11, The level of trade which maximizes Total Social Surplus in this market is units. A. 1,85 B. 3,86 C. 5,145 D. 11, Imposing a floor of $29.2 would result in a Deadweight-Loss equal to A. areas b+d. B. area g. C. areas d+e. D. areas d+e+f. 24. Imposing a ceiling of $26.7 would A. increase Total Consumers Surplus by areas c+e. B. change Total Consumers Surplus by areas c d. C. change Total Consumers Surplus by areas b e. D. decrease Total Consumers Surplus by areas b+d.
5 25. Manny, Moe, and Jack are debating the potential effectiveness of decreasing drinking by imposing higher per unit taxes on alcohol. Manny states that, The most effective way to substantially decrease consumption would be to impose the tax on buyers if supply is very inelastic and instead impose the tax on sellers if demand is very inelastic. Moe argues that, The only way to reduce consumption would be to tax buyers directly, because if the tax is imposed on sellers it is hidden from buyers and nobody will change their behavior in the marketplace. Jack claims that, In terms of discouraging consumption, it doesn t matter if we tax buyers or sellers. In either case a per unit tax of $T would decrease consumption by the exact same amount. Based upon our discussion in lecture, A. Jack s statement is the only correct statement. B. Moe s statement is the only correct statement. C. Manny s statement is the only correct statement. D. None of the statements are correct. 26. Suppose that the value of Price Elasticity of Supply for pens is.8. This value would suggest that a 1% increase in the of pens would result in supplied A. increasing by approximately 8%. B. increasing by approximately 12.5%. C. decreasing by approximately 8%. D. decreasing by approximately 12.5%. For questions 27 and 28, consider the two different demand curves illustrated below: Demand B 14 Demand A 12 Demand A Demand B 27. If the value of Price Elasticity of Demand along Demand A at a of $14 is ( 1.54), then the value of Price Elasticity of Demand along Demand B at a of $14 must A. be less than (i.e., more negative than) ( 1.54). B. also be exactly equal to ( 1.54). C. be greater than (i.e., closer to zero than) ( 1.54). D. None of the above answers are correct, since the above graph does not convey enough information to make this type of comparison. 28. If a drop in from $14 to $12 were to increase Total Consumer Expenditures by $4, along Demand B, then along Demand A a drop in from $14 to $12 would A. increase Total Consumer Expenditures, but by less than $4,. B. also increase Total Consumer Expenditures by exactly $4,. C. increase Total Consumer Expenditures, but by even more than $4,. D. decrease Total Consumer Expenditures.
6 29. At the market equilibrium outcome, which of the following is/are typically positive in value? A. Total Producers Surplus and Total Consumers Surplus (but not Total Social Surplus). B. Total Producers Surplus and Total Social Surplus (but not Total Consumers Surplus). C. Total Social Surplus (but not Total Consumers Surplus or Total Producers Surplus). D. Total Producers Surplus, Total Consumers Surplus, and Total Social Surplus. 3. Consider the market for hats. The Social Surplus from trading the 58 th hat is illustrated by: A. the vertical distance between the demand curve and the supply curve at the 58 th unit. B. the sum of the heights of the demand curve and the supply curve at the 58 th unit. C. the vertical distance between and the supply curve at the 58 th unit. D. the vertical distance between the demand curve and at the 58 th unit. For questions 31 through 33, consider a market with demand and supply as illustrated below. Supply 63.1 a c 58.5 f b d 55. e 5.2 Demand 2, 2,75 3, Imposing a per unit tax of $8.1 on buyers would create a Deadweight Loss A. equal to areas a+b+c+d. B. equal to areas c+d. C. equal to areas c+d+e. D. equal to area f. 32. Imposing a per unit tax of $3.5 on sellers would generate of tax revenue for the government. A. $9,625 B. less than $9,625 but more than $7, C. $7, D. less than $7, 33. Consider two potential policies: Policy One is a per unit tax of $2 imposed on buyers and Policy Two is a per unit tax of $2 imposed on sellers. The resulting decrease in Total Consumers Surplus would be A. greater under Policy One than under Policy Two. B. greater under Policy Two than under Policy One. C. exactly the same under Policy One as under Policy Two. D. None of the above answers are correct (since the graph does not convey enough information to determine which policy would result in a larger decrease in Total Consumers Surplus).
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