Econ 2113 – Test #2
Dr. Rupp – Spring 2008
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Directions:
• Bubble in name: Last, First
• Write your name on this test
• Sign the honor pledge
• Turn off your cell phone (if it rings, you will be ineligible to answer the extra credit question)
• Leave backpack and notes upfront
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1. In general, elasticity is
a. the friction that develops between buyers and sellers in a market.
b. a measure of how much government intervention is prevalent in a market.
c. a measure of how competitive a market is.
d. a measure of how much buyers and sellers respond to changes in market conditions.
2. The price elasticity of demand measures how responsive
a. buyers are to a change in income.
b. sellers are to a change in price.
c. buyers are to a change in price.
d. sellers are to a change in buyers' incomes.
3. When quantity demanded responds only slightly to changes in price, demand is said to be
a. unit elastic.
b. elastic.
c. inelastic.
d. perfectly inelastic.
4. Demand for a good would tend to be more inelastic the
a. fewer the available substitutes.
b. longer the time period considered.
c. more the good is considered a luxury good.
d. more narrowly defined the market is.
5. Demand is elastic if elasticity is
a. less than 1.
b. equal to 1.
c. equal to 0.
d. greater than 1.
6. A perfectly elastic demand curve will be
a. vertical.
b. horizontal.
c. downward sloping to the right.
d. upward sloping to the right.
7. In any market, total revenue is price
a. divided by the price elasticity of demand.
b. multiplied by quantity.
c. plus quantity.
d. multiplied by quantity minus the costs of production.
Figure 5-4
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8. Refer to Figure 5-4. As price falls from PA to PB, which demand curve is least elastic?
a. D1
b. D2
c. D3
d. All of the above are equally elastic.
Figure 5-6
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9. Refer to Figure 5-6. If price increases from $10 to $15, total revenue will
a. increase by $20, so demand must be inelastic.
b. increase by $5, so demand must be inelastic.
c. decrease by $20, so demand must be elastic.
d. decrease by $10, so demand must be elastic.
____ 10. If the demand for donuts is elastic, a decrease in the price of donuts will
a. increase total revenue of donut sellers.
b. decrease total revenue of donut sellers.
c. not change total revenue of donut sellers.
d. There is not enough information to answer this question.
____ 11. 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.
____ 12. If an increase in income results in a decrease in the quantity demanded of a good, then the good is
a. an inferior good.
b. a necessity.
c. a normal good.
d. a luxury.
____ 13. Cross-price elasticity of demand is calculated as the
a. percentage change in quantity demanded of good 1 divided by the percentage change in
the price of good 2.
b. total percentage change in quantity demanded divided by the total percentage change in
price.
c. percentage change in quantity demanded divided by the percentage change in income.
d. percentage change in the price of good 1 divided by the percentage change in the price of
good 2.
____ 14. If two goods are substitutes, their cross-price elasticity will be
a. positive.
b. negative.
c. zero.
d. 1.
____ 15. The price elasticity of supply measures how responsive
a. sellers are to a change in price.
b. buyers are to a change in income.
c. buyers are to a change in price.
d. sellers are to a change in buyers' income.
Figure 6-3
____ 16. Refer to Figure 6-3. In panel (b), at the actual price there will be
a. a shortage of wheat.
b. equilibrium in the market.
c. a surplus of wheat.
d. an excess demand for wheat.
Figure 6-6
____ 17. Refer to Figure 6-6. With a price ceiling present in this market, when the supply curve for gasoline shifts from
S1 to S2
a. the price will increase to P3.
b. a surplus will occur at the new market price of P2.
c. the market price will stay at P1 due to the price ceiling.
d. a shortage will occur at the price ceiling of P2.
____ 18. Refer to Figure 6-6. Without the price ceiling in this market for gasoline, when the supply curve shifts from
S1 to S2 the price will
a. increase to P3, but a shortage will still exist.
b. increase to P3 and the market will clear.
c. remain at P1 and a shortage will still exist.
d. eventually move to P2 without government assistance.
____ 19. Minimum wage laws dictate the
a. average price employers must pay for labor.
b. highest price employers may pay for labor.
c. lowest price employers may pay for labor.
d. quality of labor which must be supplied.
____ 20. The equilibrium wages of teenagers tend to be
a. low because teenagers are among the least skilled and least experienced workers.
b. high because teenagers are among the strongest and most energetic workers.
c. low because most teenagers live at home and do not require high wages.
d. high because teenagers tend to join unions.
____ 21. When government imposes price ceilings and floors in a market
a. price no longer serves as a rationing device.
b. efficiency in the market is increased.
c. shortages and surpluses are eliminated.
d. buyers and sellers are both better off.
____ 22. Price controls imposed by policymakers
a. often hurt those they are trying to help.
b. are designed to provide more stability in the market.
c. allow the market to equate quantity demanded and quantity supplied.
d. may improve market efficiency, but may cause greater inequity.
____ 23. The term tax incidence refers to the
a. Boston Tea Party.
b. "flat tax" movement.
c. division of the tax burden between buyers and sellers.
d. division of the tax burden between sales taxes and income taxes.
____ 24. A tax placed on the seller of a good
a. raises the price buyers pay and lowers the price sellers receive.
b. lowers the price buyers pay and raises the price sellers receive.
c. raises both the price buyers pay and the price sellers receive.
d. lowers both the price buyers pay and the price sellers receive.
____ 25. Positive analysis refers to what
a. is.
b. should be.
c. could be.
d. is politically correct.
____ 26. A demand curve measures
a. a buyer's willingness to pay.
b. the actual price a buyer must pay to get the product.
c. the difference between a buyer's willingness to pay and the actual price of the product.
d. All of the above are correct.
____ 27. Consumer surplus equals the
a. Value to buyers - Amount paid by buyers.
b. Amount received by sellers - Costs of sellers.
c. Value to buyers - Costs of sellers.
d. Value to buyers - Amount paid by buyers + Amount received by sellers - Costs of sellers.
Figure 7-2
____ 28. Refer to Figure 7-2. Which area represents consumer surplus at a price of P2?
a. ABD
b. ACF
c. BCDE
d. DEF
e. BCFD
____ 29. Dallas buys strawberries, and would be willing to pay more than he now has to pay. Suppose that Dallas has a
change in his tastes such that he values strawberries more than before. If the market price is the same as
before, then
a. Dallas's consumer surplus would be unaffected.
b. Dallas's consumer surplus would increase.
c. Dallas's consumer surplus would decrease.
d. Dallas would be wise to buy fewer strawberries than before.
Figure 7-3
____ 30. Refer to Figure 7-3. Which area represents producer surplus at a price of P1?
a. BCE
b. ACF
c. ABED
d. DEF
e. AFEB
Figure 7-4
____ 31. Refer to Figure 7-4. What area represents total surplus in the market when the price is P1?
a. A + B
b. B + C
c. C + D
d. A + B + C + D
____ 32. Suppose the demand for nachos increases. What will happen to producer surplus in the market for nachos?
a. It increases.
b. It decreases.
c. It is unaffected by this change in market forces.
d. It decreases briefly, then increases.
____ 33. In 1776, the American Revolution was sparked by
a. the lack of religious freedom in America.
b. anger over British taxes.
c. Britain's attempt to control American trade.
d. a select few who craved political power.
____ 34. Buyers of a product will pay the majority of a tax placed on a product when
a. the tax is placed on the seller of the product.
b. the demand is more elastic than supply.
c. supply is more elastic than demand.
d. the tax is placed on the buyer of the product.
____ 35. Suppose a tax is imposed on the buyers of a product. The burden of the tax will fall
a. entirely on the buyers.
b. entirely on the sellers.
c. entirely on the government.
d. on both the buyers and the sellers.
____ 36. A tax has a deadweight loss because
a. it induces the government to spend more.
b. it induces buyers to consume less and sellers to produce less.
c. it causes a disequilibrium in the market.
d. the loss to buyers is greater than the loss to sellers.
Figure 8-3
____ 37. Refer to Figure 8-3. The price that will be paid after the tax is
a. $24.
b. $16.
c. $10.
d. $8.
____ 38. Refer to Figure 8-3. The price sellers receive after the tax is
a. $24.
b. $14.
c. $10.
d. $8.
____ 39. Refer to Figure 8-3. The per unit burden of the tax on buyers is
a. $16.
b. $14.
c. $8.
d. $6.
____ 40. Since the amount of land is fixed, the total supply of land is
a. relatively elastic.
b. perfectly elastic.
c. perfectly inelastic.
d. relatively inelastic.
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: (Monday, June 9th @ 8 a.m.)
41. Which of the following U.S. Presidential candidate is the biggest advocate for free trade?
a. Hillary Clinton
b. John McCain
c. Barack Obama