Econ 2113 Test #2 Dr. Rupp Fall 2008

Transcription

1 D Econ 2113 Test #2 Dr. Rupp Fall 2008 Name Pledge: I have neither given nor received aid on this exam Version A Signature: Directions: Bubble in name: Last, First Bubble in 00 in Special Codes Sign the above honor pledge (if no signature then no grade) Turn off your cell phone (if it rings, you will be ineligible to answer the extra credit question) Leave backpack and notes upfront (or in the aisle) 1. The price elasticity of demand measures a. buyers responsiveness to a change in the price of a good. b. the extent to which demand increases as additional buyers enter the market. c. how much more of a good consumers will demand when incomes rise. d. the movement along a supply curve when there is a change in demand. 2. If demand is inelastic, then a. buyers do not respond much to a change in price. b. buyers respond substantially to a change in price, but the response is very slow. c. buyers do not alter their quantities demanded much in response to advertising, fads, or general changes in tastes. d. the demand curve is very flat. 3. There are very few, if any, good substitutes for motor oil. Therefore, a. the demand for motor oil would tend to be inelastic. b. the demand for motor oil would tend to be elastic. c. the demand for motor oil would tend to respond strongly to changes in prices of other goods. d. the supply of motor oil would tend to respond strongly to changes in people s tastes for large cars relative to their tastes for small cars. 4. Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is a. 0. b. 1. c. 6. d If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a a. 0.4 percent decrease in the quantity demanded. b. 2.5 percent decrease in the quantity demanded. c. 4 percent decrease in the quantity demanded. d. 40 percent decrease in the quantity demanded. 6. Demand is inelastic if elasticity is a. less than 1. b. equal to 1. c. greater than 1. d. equal to Demand is said to be inelastic if the a. quantity demanded changes proportionately more than price. b. price changes proportionately more than income. c. quantity demanded changes proportionately less than price. d. quantity demanded changes proportionately the same as price.

2 8. For which of the following goods would demand be most elastic? a. clothing b. blue jeans c. Tommy Hilfiger jeans d. All three would have the same elasticity of demand since they are all related. Figure Refer to Figure 5-4. As price falls from P A to P B, we could use the three demand curves to calculate three different values of the price elasticity of demand. Which of the three demand curves would produce the smallest elasticity? a. D 1 b. D 2 c. D 3 d. All of the above are equally elastic. Figure Refer to Figure 5-6. A decrease in price from $15 to $10 leads to a. a decrease in total revenue of $10, so the price elasticity of demand is greater than 1 in this price range. b. a decrease in total revenue of $10, so the price elasticity of demand is less than 1 in this

3 price range. c. a decrease in total revenue of $20, so the price elasticity of demand is less than 1 in this price range. d. a decrease in total revenue of $20, so demand is elastic in this price range. 11. Eric produces jewelry boxes. If the demand for jewelry boxes is elastic and Eric wants to increase his total revenue, he should a. increase the price of his jewelry boxes. b. decrease the price of his jewelry boxes. c. not change the price of his jewelry boxes. d. None of the above answers is correct. 12. Income elasticity of demand measures how a. the quantity demanded changes as consumer income changes. b. consumer purchasing power is affected by a change in the price of a good. c. the price of a good is affected when there is a change in consumer income. d. many units of a good a consumer can buy given a certain income level. 13. If a 6 percent increase in income results in a 10 percent increase in the quantity demanded of pizza, then the income elasticity of demand for pizza is a. negative and therefore pizza is an normal good. b. negative and therefore pizza is a inferior good. c. positive and therefore pizza is an inferior good. d. positive and therefore pizza is a normal good. 14. If the cross-price elasticity of two goods is negative, then those two goods are a. necessities. b. complements. c. normal goods. d. inferior goods. 15. If the quantity supplied responds only slightly to changes in price, then a. supply is said to be elastic. b. supply is said to be inelastic. c. an increase in price will not shift the supply curve very much. d. even a large decrease in demand will change the equilibrium price only slightly. 16. Price controls a. always produce an equitable outcome. b. always produce an efficient outcome. c. can generate inequities of their own. d. produce revenue for the government. 17. A legal maximum price at which a good can be sold is a price a. floor. b. stabilization. c. support. d. ceiling.

4 Figure Refer to Figure 6-2. If the government imposes a price floor of $14 in this market, the result would be a a. surplus of 20. b. surplus of 40. c. shortage of 20. d. shortage of Refer to Figure 6-2. If the government imposes a price ceiling of $8 in this market, the result would be a a. surplus of 10. b. surplus of 20. c. shortage of 10. d. shortage of Refer to Figure 6-2. If the government imposes a price ceiling of $12 in this market, the result would be a. a surplus of 10. b. a surplus of 20. c. a shortage of 20. d. neither a surplus nor a shortage. Figure 6-6

5 21. Refer to Figure 6-6 (previous page). When the price ceiling applies in this market and the supply curve for gasoline shifts from S 1 to S 2, a. the price will increase to P 3. b. a surplus will occur at the new market price of P 2. c. the market price will stay at P 1 due to the price ceiling. d. a shortage will occur at the price ceiling of P The minimum wage is an example of a. a price ceiling. b. a price floor. c. a wage subsidy. d. a price control that is not binding. 23. The term tax incidence refers to the a. widespread view that taxes always will be a fact of life. b. ongoing debate about which types of taxes make the most economic sense. c. division of the tax burden between buyers and sellers. d. division of the tax burden between sales taxes and income taxes. Figure Refer to Figure 6-9. The effective price paid by buyers after the tax is imposed is a. $18. b. $14. c. $12. d. $ Refer to Figure 6-9. The price received by sellers after the tax is imposed is a. $18. b. $14. c. $12. d. $ Refer to Figure 6-9. The amount of the tax per unit is a. $10. b. $6. c. $4. d. $2.

6 27. Refer to Figure 6-9 (previous page). How much tax revenue does this tax produce for the government? a. $480 b. $600 c. $800 d. $1, The particular price that results in quantity supplied being equal to quantity demanded is the best price because it a. maximizes costs of the seller. b. maximizes tax revenue for the government. c. maximizes the combined welfare of buyers and sellers. d. minimizes the expenditure of buyers. 29. Consumer surplus is a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. b. the amount a buyer is willing to pay for a good minus the cost of producing the good. c. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good. d. a buyer's willingness to pay for a good plus the price of the good. Table 7-1 BUYER WILLINGNESS TO PAY MIKE $50.00 SANDY $30.00 JONATHAN $20.00 HALEY $ Refer to Table 7-1. If the table represents the willingness to pay of four buyers and the price of the product is $15, then who would be willing to purchase the product? a. Mike b. Mike and Sandy c. Mike, Sandy, and Jonathan d. Mike, Sandy, Jonathan, and Haley 31. If the cost of producing sofas decreases, then consumer surplus in the sofa market will a. increase. b. decrease. c. remain constant. d. increase for some buyers and decrease for other buyers.

7 Figure Refer to Figure 7-1. When the price is P 1, consumer surplus is a. A. b. A + B. c. A + B + C. d. A + B + D. 33. Producer surplus is a. measured using the demand curve for a good. b. always a negative number for sellers in a competitive market. c. the amount a seller is paid minus the cost of production. d. the opportunity cost of production minus the cost of producing goods that go unsold. 34. Sally sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.50 per knife for as many knives as Sally is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $1.75, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.25. Assume Sally is rational in deciding how many knives to sharpen. Her producer surplus is a. $0.25. b. $0.50. c. $1.00. d. $1.75.

8 Figure Refer to Figure At the equilibrium, total consumer surplus is represented by the area a. A. b. A + B + C. c. D + E + F. d. A + B + C + D + E + F. 36. Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when a. the tax is placed on the sellers of the product. b. the tax is placed on the buyers of the product. c. the supply of the product is more elastic than the demand for the product. d. the demand for the product is more elastic than the supply of the product. 37. When a tax is levied on a good, a. neither buyers nor sellers are made worse off. b. only sellers are made worse off. c. only buyers are made worse off. d. both buyers and sellers are made worse off.

9 Figure Refer to Figure 8-2. The price that buyers effectively pay after the tax is imposed is a. P 1. b. P 2. c. P 3. d. impossible to determine from the figure. 39. Refer to Figure 8-2. The price that sellers effectively receive after the tax is imposed is a. P 1. b. P 2. c. P 3. d. impossible to determine from the figure. 40. Refer to Figure 8-2. The amount of tax revenue received by the government is equal to the area a. P 3 A C P 1. b. A B C. c. P 2 D A P 3. d. P 1 C D P 2. Extra Credit Question: To be eligible to answer this extra credit question you must satisfy both criteria below: Your cell phone has not rung in class since test #1 You are taking this test in class at the regularly scheduled time: (Thursday, October 9 th ) 41. Refer to Figure 8-2. The amount of deadweight loss associated with the tax is equal to a. P 3 A C P 1. b. A B C. c. P 2 A D P 3. d. P 1 D C P 2.

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