Exam #2
October 20th, 2016
Principles of Microeconomics – ECON 2113-002
All questions (except extra credit) are worth 2 points each.
1. The government removed subsidies for corn thus increasing its price. Corn is an input
into the production of whisky. What happened to the equilibrium price and quantity in
the whisky market?
a. Price increased, quantity decreased
b. Price increased quantity increased
c. Price decreased, quantity decreased
d. Price decreased, quantity increased
e. Both price and quantity are ambiguous
2. What happened to equilibrium prices and quantities for hybrid vehicles when oil
prices (an input into the production of gasoline, which is required for driving) rose?
a. Price increased, quantity decreased
b. Price increased quantity increased
c. Price decreased, quantity decreased
d. Price decreased, quantity increased
e. Both price and quantity are ambiguous
3. Trump built a wall and deported 10% of the US population - business owners can
stay. At the same time, another 10% of the US consumers relocated to Canada. What
happened to the market price and quantity of potato chips?
a. Price increased, quantity decreased
b. Price increased quantity increased
c. Price decreased, quantity decreased
d. Price decreased, quantity increased
e. Both price and quantity are ambiguous
4. Peru is one of the world's largest exporters of avocados, which were mostly destroyed
during a harsh winter. What happen to the world's market price and quantity for
guacamole (which is made using avocados)?
a. Price increased, quantity decreased
b. Price increased quantity increased
c. Price decreased, quantity decreased
d. Price decreased, quantity increased
e. Both price and quantity are ambiguous
5. Yahoo was hacked and access to 500 million accounts was leaked. Unfortunately, the
hack caused people to lose confidence in internet-based retail. What happened to the
equilibrium price and quantity for products in Sears stores, which are a substitute for
online shopping?
a. Price increased, quantity decreased
b. Price increased quantity increased
c. Price decreased, quantity decreased
d. Price decreased, quantity increased
e. Both price and quantity are ambiguous
6. The price of butter dropped, which is an input into the production of Insomniac
Cookies. What happened to the market price and quantity for insomniac cookies?
a. Price increased, quantity decreased
b. Price increased quantity increased
c. Price decreased, quantity decreased
d. Price decreased, quantity increased
e. Both price and quantity are ambiguous
7. Coffee demand is inelastic so for a change in the price,
a. The price effect dominates (or is larger than) the quantity effect.
b. The quantity effect dominates (or is larger than) the price effect.
c. The law of demand is violated.
d. The demand curve is upward sloping.
8. Soda demand is elastic so for a change in the price,
a. The price effect dominates (or is larger than) the quantity effect.
b. The quantity effect dominates (or is larger than) the price effect.
c. The law of demand is violated.
d. The demand curve is upward sloping.
9. Price setting behavior/market power is particularly harmful to society when demand is…
a. High
b. Low
c. Price Inelastic
d. Price Elastic
10. A table that shows the relationship between the price of a good and the quantity
demanded is called a
a. PPF
b. Demand curve
c. Demand schedule
d. Market
Table 1: Five products and their price elasticities of demand.
Product
Price Elasticity of Demand
Nuclear Weapons
0.0
Insulin
0.2
Pencils
1.0
Family vacations
1.8
Breakfast cereal
Infinity
Use the price elasticities in Table 1 to answer questions 11-15.
11. A nuclear weapon is what type of product?
a. Perfectly Inelastic
b. Inelastic
c. Unit Elastic
d. Elastic
e. Perfectly Elastic
12. Insulin is what type of product?
a. Perfectly Inelastic
b. Inelastic
c. Unit Elastic
d. Elastic
e. Perfectly Elastic
13. Pencils are what type of product?
a. Perfectly Inelastic
b. Inelastic
c. Unit Elastic
d. Elastic
e. Perfectly Elastic
14. Family vacations what type of product?
a. Perfectly Inelastic
b. Inelastic
c. Unit Elastic
d. Elastic
e. Perfectly Elastic
15. Breakfast cereal is what type of product?
a. Perfectly Inelastic
b. Inelastic
c. Unit Elastic
d. Elastic
e. Perfectly Elastic
Figure 1: Five different types of demand curves.
Use the price elasticities in Table 1 and the demand curves in Figure 1 to answer questions 16-20.
16. Identify a nuclear weapon’s demand curve from figure 1.
a. Demand curve #1.
b. Demand curve #2.
c. Demand curve #3.
d. Demand curve #4.
e. Demand curve #5.
17. Identify Insulin’s demand curve from figure 1.
a. Demand curve #1.
b. Demand curve #2.
c. Demand curve #3.
d. Demand curve #4.
e. Demand curve #5.
18. Identify pencils’ demand curve from figure 1.
a. Demand curve #1.
b. Demand curve #2.
c. Demand curve #3.
d. Demand curve #4.
e. Demand curve #5.
19. Identify family vacations’ demand curve from figure 1.
a. Demand curve #1.
b. Demand curve #2.
c. Demand curve #3.
d. Demand curve #4.
e. Demand curve #5.
20. Identify breakfast cereal’s demand curve from figure 1.
a. Demand curve #1.
b. Demand curve #2.
c. Demand curve #3.
d. Demand curve #4.
e. Demand curve #5.
Figure 2: Price controls and supply and demand.
Use Figure 2 to answer questions 21-29.
21. Which two figures have binding price controls
a. A and B
b. B and C
c. A and C
d. B and D
e. B and C
22. What is the distortion from the price ceiling in Figure 2A?
a. Shortage
b. Surplus
c. No distortion
23. What is the distortion from the price floor in Figure 2B?
a. Shortage
b. Surplus
c. No distortion
24. What is the distortion from the price ceiling in Figure 2C?
a. Shortage
b. Surplus
c. No distortion
25. What is the distortion from the price floor in Figure 2D?
a. Shortage
b. Surplus
c. No distortion
26. The government imposed a $6 price floor on cigarettes for which the equilibrium price
was $8. Which figure above best displays this case.
a. Figure 2A
b. Figure 2B
c. Figure 2C
d. Figure 2D
27. The government imposed a $20 price floor on hamburgers for which the equilibrium
price was $15. Which figure above best displays this case.
a. Figure 2A
b. Figure 2B
c. Figure 2C
d. Figure 2D
28. The government imposed a $30,000 price ceiling on BMWs for which the equilibrium
price was $45,000. Which figure above best displays this case.
a. Figure 2A
b. Figure 2B
c. Figure 2C
d. Figure 2D
29. The government imposed a $5 price ceiling on smoothies for which the equilibrium price
was $3. Which figure above best displays this case.
a. Figure 2A
b. Figure 2B
c. Figure 2C
d. Figure 2D
30. The following occurs when a tax is imposed on the consumers of a product
a. The supply curve shifts right
b. The supply curve shifts left
c. The demand curve shifts right
d. The demand curve shifts left
31. The following occurs when a tax is imposed on the producers of a product
a. The supply curve shifts right
b. The supply curve shifts left
c. The demand curve shifts right
d. The demand curve shifts left
32. Ultimately, any tax imposed on a good or service is…
a. Incurred by that product’s consumers.
b. Incurred by that product’s producers.
c. Shared by the producers and consumers of that product.
d. Incurred by the government.
Extra Credit – (11 points possible)
35. John Maynard Keynes was… (3 points)
a. Australian
b. American
c. British
d. French
e. German
2. Friedrich Hayek was… (3 points)
a. German
b. Austrian
c. Belgian
d. American
e. Slovenian
3. John Seater’s primary concern about the “State of the Economy” was… (6 points)
a. Inflation
b. Debt
c. Growth
d. Unemployment
e. Trade wars