Econ 2113 - Test 2B
Dr. Rupp – Tuesday, March 3, 2009
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Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
____
____
1. The benefit that government receives from a tax is measured by
a. the change in the equilibrium quantity of the good.
b. the change in the equilibrium price of the good.
c. tax revenue.
d. total surplus.
2. In which of the following situations will total revenue increase?
a. Price elasticity of demand is -1.2 and the price of the good decreases.
b. Price elasticity of demand is -0.5 and the price of the good increases.
c. Price elasticity of demand is -3.0 and the price of the good decreases.
d. All of the above are correct.
Table 7-1
BUYER
MIKE
SANDY
JONATHAN
HALEY
____
WILLINGNESS TO PAY
$50.00
$30.00
$20.00
$10.00
3. Refer to Table 7-1. If the table represents the willingness to pay of four buyers and the price of the product is
$18, then their total consumer surplus is
a. $38.
b. $42.
c. $46.
d. $72.
Figure 8-4
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____
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____
4. Refer to Figure 8-4. The benefit to the government is
a. measured by tax revenue and is represented by area A + B.
b. measured by tax revenue and is represented by area B + D.
c. measured by the net gain in total surplus and is represented by area B + D.
d. measured by the net gain in total surplus and is represented by area D + E.
5. Refer to Figure 8-4. The tax causes a reduction in consumer surplus that is represented by area
a. A.
b. B + C.
c. D + E.
d. F.
6. Refer to Figure 8-4. The loss in total welfare that results from the tax is represented by area
a. A + B + D + F.
b. A + B + C.
c. D + E + F.
d. C + E.
7. When a good is taxed, the burden of the tax
a. falls more heavily on the side of the market that is more inelastic.
b. falls more heavily on the side of the market that is more elastic.
c. falls more heavily on the side of the market that is closer to unit elastic.
d. is distributed independently of relative elasticities of supply and demand.
Figure 5-4
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____
8. Refer to Figure 5-4. As price falls from PA to PB, 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. D1
b. D2
c. D3
d. All of the above are equally elastic.
9. Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline
demanded would fall substantially over a ten-year period because
a. buyers tend to be much less sensitive to a change in price when given more time to react.
b. buyers tend to be much more sensitive to a change in price when given more time to react.
c. buyers will have substantially more income over a ten-year period.
d. the quantity supplied of gasoline increases very little in response to an increase in the price
of gasoline.
Figure 6-5
____ 10. Refer to Figure 6-5. If the government imposes a price ceiling of $2.00 in this market, the result is a
a. surplus of 30 units of the good.
b. shortage of 20 units of the good.
c. shortage of 30 units of the good.
d. shortage of 50 units of the good.
____ 11. The price elasticity of supply measures how responsive
a. sellers are to a change in price.
b. sellers are to a change in buyers' income.
c. buyers are to a change in production costs.
d. equilibrium price is to a change in supply.
____ 12. In the case of perfectly inelastic demand,
a. the change in quantity demanded equals the change in price.
b. the percentage change in quantity demanded equals the percentage change in price.
c. infinitely-large changes in quantity demanded result from very small changes in the price.
d. quantity demanded stays the same whenever price changes.
____ 13. Demand is said to be inelastic if
a. buyers respond substantially to changes in the price of the good.
b. demand shifts only slightly when the price of the good changes.
c. the quantity demanded changes only slightly when the price of the good changes.
d. the price of the good responds only slightly to changes in demand.
____ 14. Total surplus is equal to
a. value to buyers minus profit to sellers.
b. value to buyers minus cost to sellers.
c. consumer surplus minus producer surplus.
d. (consumer surplus plus producer surplus) times equilibrium quantity.
____ 15. When a payroll tax is enacted,
a. the wage received by workers falls and the wage paid by firms rises.
b. the wage received by workers falls and the wage paid by firms falls.
c. the wage received by workers rises and the wage paid by firms falls.
d. the wage received by workers rises and the wage paid by firms rises.
____ 16. Under rent control, tenants can expect
a. lower rent and higher quality housing.
b. lower rent and lower quality housing.
c. higher rent and a shortage of rental housing.
d. higher rent and a surplus of rental housing.
Figure 7-12
____ 17. Refer to Figure 7-12. At the quantity Q2,
a. the value to buyers and the cost to sellers are both P2.
b. the value to buyers is P2 and the cost to sellers is P3.
c. the value to buyers and the cost to sellers are both P3.
d. the value to buyers is P3 and the cost to sellers is P2.
____ 18. A legal minimum price at which a good can be sold is
a. exemplified by rent-control laws.
b. usually intended to enhance efficiency in a market.
c. called a price ceiling.
d. called a price floor.
____ 19. Which of the following expressions represents a cross-price elasticity of demand?
a. percentage change in quantity demanded of apples divided by percentage change in
quantity supplied of apples
b. percentage change in quantity demanded of apples divided by percentage change in price
of pears
c. percentage change in price of apples divided by percentage change in quantity demanded
of apples
d. percentage change in quantity demanded of apples divided by percentage change in
income
Figure 7-11. On the graph below, Q represents the quantity of the good and P represents the good's price.
____ 20. Refer to Figure 7-11. At the equilibrium, producer surplus amounts to
a. $32.
b. $48.
c. $72.
d. $144.
____ 21. Refer to Figure 7-11. At the equilibrium, total surplus is measured by the area
a. ACG.
b. AFG.
c. DBG.
d. CFG.
____ 22. Refer to Figure 7-11. At the equilibrium, consumer surplus is measured by the area
a. ACG.
b. AFG.
c. DBG.
d. CFG.
____ 23. At a minimum wage that exceeds the equilibrium wage,
a. the quantity demanded of labor will exceed the quantity supplied.
b. the quantity supplied of labor will exceed the quantity demanded.
c. the minimum wage will not be binding.
d. the market for skilled workers is affected, but the market for unskilled workers remains
unaffected.
____ 24. If an increase in income results in a decrease in the quantity demanded of a good, then for that good,
a. the cross-price elasticity of demand is negative.
b. the price elasticity of demand is negative.
c. the income elasticity of demand is negative.
d. an increase in the market supply will increase the equilibrium price of the good.
____ 25. The price elasticity of demand measures how much
a. quantity demanded responds to a change in price.
b. quantity demanded responds to a change in income.
c. price responds to a change in demand.
d. demand responds to a change in supply.
____ 26. The demand for Chocolate Chip Cookie Dough ice cream is likely quite elastic because
a. ice cream must be eaten quickly.
b. this particular flavor of ice cream is viewed as a necessity by many ice-cream lovers.
c. the market is broadly defined.
d. other flavors of ice cream are good substitutes for this particular flavor.
____ 27. Shannon buys a new CD player for her car for $135. She receives consumer surplus of $25 on her purchase if
her willingness to pay is
a. $25.
b. $110.
c. $135.
d. $160.
Figure 6-13
____ 28. Refer to Figure 6-13 The per-unit burden of the tax on sellers is
a. P2 minus P0.
b. P2 minus P1.
c. P1 minus P0.
d. Q1 minus Q0.
____ 29. Refer to Figure 6-13. The effective price that will be paid by buyers after the tax is
a. P0.
b. P1.
c. P2.
d. impossible to determine.
Figure 6-2
____ 30. 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.
____ 31. If the price elasticity of demand for a good is -1.65, then a 1 percent decrease in price results in a
a. $1.65 increase in the quantity demanded.
b. 1.65 percent increase in the quantity supplied.
c. 1.65 percent increase in the quantity demanded.
d. 1.65 percent decrease in the quantity demanded.
____ 32. The distinction between efficiency and equity can be described as follows:
a. Efficiency refers to maximizing the number of trades among buyers and sellers; equity
refers to maximizing the gains from trade among buyers and sellers.
b. Efficiency refers to minimizing the price paid by buyers; equity refers to maximizing the
gains from trade among buyers and sellers.
c. Efficiency refers to maximizing the size of the pie; equity refers to producing a pie of a
given size at the least possible cost.
d. Efficiency refers to maximizing the size of the pie; equity refers to distributing the pie
fairly among members of society.
Figure 6-1
____ 33. Refer to Figure 6-1. In which panel(s) of the figure would there be a shortage of the good at the ceiling
price?
a. panel (a) but not panel (b)
b. panel (b) but not panel (a)
c. panel (a) and panel (b)
d. neither panel (a) nor panel (b)
____ 34. Muriel's income elasticity of demand for football tickets is 1.50. All else equal, this means that if her income
increases by 20 percent, she will buy
a. 150 percent more football tickets.
b. 50 percent more football tickets.
c. 30 percent more football tickets.
d. 20 percent more football tickets.
____ 35. The decrease in total surplus that results from a market distortion, such as a tax, is called a
a. wedge loss.
b. revenue loss.
c. deadweight loss.
d. shrinkage of consumer surplus.
____ 36. When a tax is placed on the buyers of a product, a result is that, relative to the pre-tax situation,
a. buyers pay more and sellers receive more.
b. buyers pay more and sellers receive less.
c. buyers pay less and sellers receive more.
d. buyers pay less and sellers receive less.
____ 37. 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.
____ 38. An increase in price causes an increase in total revenue when
a. demand is elastic.
b. demand is inelastic.
c. demand is unit elastic.
d. All of the above are possible.
____ 39. A tax on the sellers of cell phones will
a. reduce the size of the cell phone market.
b. place a burden on the sellers of cell phones but not on the buyers of cell phones.
c. affect the price paid by buyers of cell phones, but not the size of the market.
d. affect the size of the market, but it will have no effect on the effective price received by
sellers of cell phones.
Figure 5-7
____ 40. Refer to Figure 5-7. Total revenue when the price is P1 is represented by the area(s)
a. B + D.
b. A + B.
c. C + D.
d. D.
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
•
You are taking this test in class at the regularly scheduled time: Tuesday, March 3rd
____ 41. The current market price of a 16 oz. soda is $1.00. If the government decides to pass a $0.25 tax on each 16
oz. soda sold, how much should consumers expect to pay for a soda?
a. $0.75
b. $0.76 - $0.99
c. $1.00
d. $1.01 - $1.24
e. $1.25