Econ 102 Exam #2

Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will allow the government to minimize the deadweight loss(es) from the tax: a. market A only b. markets A and C only c. markets B and D only d. market C only

B

As a result of the tariff, there is a deadweight loss that amounts to: a. B. b. E. c. D + F. d. B + D + E +

C

Suppose that the demand for picture frames is elastic and the supply of picture frames is inelastic. A tax of $1 per frame levied on picture frames will decrease the effective price received by sellers of picture frames by: a. less than $0.50. b. $0.50. c. between $0.50 and $1. d. $1.

C

The amount of deadweight loss created by the tariff is: a. B. b. E. c. D + F. d. B + D + E + F.

C

If income is $7,500, using the midpoint method, what is the elasticity of demand between $16 and $20?: a. 0.56 b. 0.75 c. 1.33 d. 1.80

D

Suppose that when the price of good X falls from $8 to $10, the quantity demanded of good Y rises from 20 units to 25 units. Using the midpoint method: a. the cross-price elasticity of demand is -1.0, and X and Y are complements. b. the cross-price elasticity of demand is -1.0, and X and Y are substitutes. c. the cross-price elasticity of demand is 1.0, and X and Y are complements. d. the cross-price elasticity of demand is 1.0, and X and Y are substitutes.

D

Caroline sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $3.00 per knife for as many knives as Caroline is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $2.00, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.50. Assume Caroline is rational in deciding how many knives to sharpen. Her producer surplus is: a. $2.00. b. $0.50. c. $1.30. d. $1.85.

A

Harry's Barber Shop increased its total monthly revenue from $1,600 to $1,800 when it raised the price of a haircut from $5 to $9. The price elasticity of demand for Harry's Haircuts is: a. 0.808. b. 0.700. c. 1.429. d. 0.206.

A

If a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about; a. 1.33, and supply is elastic. b. 1.33, and supply is inelastic. c. 0.75, and supply is elastic. d. 0.75, and supply is inelastic.

A

If the demand curve is D and the supply curve shifts right from S' to S, what is the change in producer surplus when comparing the new equilibrium with the original equilibrium?: a. Producer surplus increases by $225. b. Producer surplus increases by $675. c. Producer surplus decreases by $225. d. Producer surplus decreases by $675.

A

Suppose a tax of $6 per unit is imposed on this market. What will be the new equilibrium quantity in this market: a. less than 50 units b. 50 units c. between 50 units and 100 units d. greater than 100 units

A

The amount of the tax on each unit of the good is: a. P3 - P1. b. P3 - P2. c. P2 - P1. d. P4 - P3.

A

The market quantity of oranges demanded per day is exactly 6 if the price of an orange, P, satisfies: a. $0.60 < P < $0.75. b. $0.60 < P < $2.00. c. $0.25 < P < $0.75. d. $0.25 < P < $0.60.

A

The per-unit burden of the tax on sellers is: a. $2. b. $3. c. $4. d. $5

A

Using the midpoint method, at a price of $16, what is the income elasticity of demand when income rises from $7,500 to $11,000?: a. 0.76 b. 0.41 c. 1.00 d. 2.45

A

Which of the following statements is correct: a. Neither Bob's consumer surplus nor Charisse's consumer surplus can exceed Allison's consumer surplus, for any price of an orange. b. All three individuals will buy at least one orange only if the price of an orange is less than $0.25. c. If the price of an orange is $0.60, then consumer surplus is $4.90. d. All of the other answers are correct.

A

f a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about: a. 1.33, and supply is elastic. b. 1.33, and supply is inelastic. c. 0.75, and supply is elastic. d. 0.75, and supply is inelastic

A

A price ceiling set at: a. $4 will be binding and will result in a shortage of 8 units. b. $4 will be binding and will result in a shortage of 16 units. c. $7 will be binding and will result in a surplus of 4 units. d. $7 will be binding and will result in a surplus of 8 units.

B

Honduras is an importer of goose-down pillows. The world price of these pillows is $50. Honduras imposes a $7 tariff on pillows. Honduras is a price-taker in the pillow market. As a result of the tariff, the price of goose-down pillows in Honduras: a. remains at $50 and the quantity of goose-down pillows purchased in Honduras decreases. b. increases to $57 and the quantity of goose-down pillows purchased in Honduras decreases. c. increases to a new price between $50 and $57 and the quantity of goose-down pillows purchased in Honduras decreases. d. increases to a new price above $57 and the quantity of goose-down pillows purchased in Honduras remains the same.

B

If the price decreases from $80 to $70 due to a shift in the supply curve, consumer surplus increases by: a. $250. b. $750. c. $1000. d. $500.

B

If the price of the product is $122, then the total consumer surplus is: a. $28. b. $41. c. $43. d. $405.

B

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. The price paid by buyers increases by $2 and the after-tax price received by sellers falls by $3. The government is able to raise $750 per month in revenue from the tax. The deadweight loss from the tax is: a. $250. b. $125. c. $75. d. $50.

B

Suppose Iceland goes from being an isolated country to being an exporter of coats. As a result,: a. consumer surplus increases for consumers of coats in Iceland. b. producer surplus increases for producers of coats in Iceland. c. total surplus remains unchanged in the coat market in Iceland. d. it is reasonable to infer that other countries have a comparative advantage over Iceland in coat production.

B

Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $175. Rebecca and Susan agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. The tax has made Rebecca and Susan worse off by a total of: a. $30. b. $25. c. $10. d. $5.

B

Suppose a tax of $3 is imposed on each new garden hose that is sold, resulting in a deadweight loss of $22,500. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. Before the tax was imposed, the equilibrium quantity of garden hoses was 100,000. We can conclude that the equilibrium quantity of garden hoses after the tax is imposed is: a. 75,000 b. 85,000 c. 90,000 d. 95,000

B

Suppose that Firms A and B each produce high-resolution computer monitors, but Firm A can do so at: a lower cost. Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than Cassie. Which of the following market outcomes is efficient? a. Firm A produces a monitor that Cassie buys. David does not purchase a monitor. b. Firm A produces a monitor that David buys. c. Firm B produces a monitor that Cassie buys. David does not purchase a monitor. d. Firm B produces a monitor that David buys.

B

Suppose that Honduras opens its markets to international trade. As a result of this, the domestic price of coffee decreases. We can conclude that: a. Honduras has a comparative advantage in the production of coffee. b. Honduras has begun to import coffee into the country. c. the price of coffee in Honduras prior to the opening of trade was lower than the world price. d. Honduras should specialize in the production of coffee.

B

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct?: a. The flatter supply curve represents a supply that is inelastic relative to the supply represented by the steeper supply curve. b. The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve. c. Given two prices with which to calculate the price elasticity of supply, that elasticity would be the same for both curves. d. A decrease in demand will increase total revenue if the steeper supply curve is relevant, while a decrease in demand will decrease total revenue if the flatter supply cure is relevant.

B

Suppose the government has imposed a price floor on cellular phones. Which of the following events could transform the price floor from one that is binding to one that is not binding: a. Cellular phones become less popular. b. Traditional land line phones become more expensive. c. The components used to produce cellular phones become less expensive. d. Firms expect the price of cellular phones to fall in the future.

B

The amount of government revenue created by the tariff is: a. B. b. E. c. D + F. d. B + D + E + F.

B

The loss of consumer surplus associated with some buyers dropping out of the market as a result of the tax is: a. $0. b. $1.50. c. $3. d. $4.50.

B

Which 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

B

Which of the following statements is not correct: a. When the price is $10, quantity supplied equals quantity demanded. b. When the price is $6, there is a surplus of 4 units. c. When the price is $12, there is a surplus of 4 units. d. When the price is $16, quantity supplied exceeds quantity demanded by 12 units.

B

With trade allowed, this country: a. exports 200 units of the good. b. exports 400 units of the good. c. imports 200 units of the good. d. exports 800 units of the good

B

A government-imposed price of $6 in this market could be an example of a (i) binding price ceiling. (ii) non-binding price ceiling. (iii) binding price floor. (iv) non-binding price floor. a. (i) only b. (ii) only c. (i) and (iv) only d. (ii) and (iii) only

C

Abraham drinks Mountain Dew. He can buy as many cans of Mountain Dew as he wishes at a price of $0.55 per can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Abraham is rational in deciding how many cans to buy. His consumer surplus is: a. $0.50. b. $0.60. c. $0.70. d. $1.00.

C

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.

C

Between point A and point B, price elasticity of demand is equal to: a. 0.33. b. 0.67. c. 1.5 d. 2.67.

C

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.

C

Last month, sellers of good Y took in $100 in total revenue on sales of 50 units of good Y. This month sellers of good Y raised their price and took in $120 in total revenue on sales of 40 units of good Y. At the same time, the price of good X stayed the same, but sales of good X increased from 20 units to 40 units. We can conclude that goods X and Y are: a. substitutes, and have a cross-price elasticity of 0.60. b. complements, and have a cross-price elasticity of -0.60. c. substitutes, and have a cross-price elasticity of 1.67. d. complements, and have a cross-price elasticity of -1.67.

C

Producer surplus after trade is: a. $4,800. b. $5,600. c. $6,400. d. $7,000.

C

Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus: a. would necessarily increase even if the higher price resulted in a surplus of widgets. b. would necessarily decrease because the higher price would create a surplus of widgets. c. might increase or decrease. d. would be unaffected.

C

Suppose that when the price of wheat is $2 per bushel, farmers can sell 10 million bushels. When the price of wheat is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? The demand for wheat is: a. income inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. b. income elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. c. price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. d. price elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.

C

The efficient price is: a. $80, and the efficient quantity is 50. b. $70, and the efficient quantity is 60. c. $70, and the efficient quantity is 100. d. $50, and the efficient quantity is 60.

C

The loss of consumer surplus as a result of the tax is: a. $1.50. b. $3. c. $4.50. d. $6.

C

Total surplus in a market will increase when the government: a. imposes a tax on that market. b. imposes a binding price floor on that market. c. removes a binding price ceiling from that market. d. None of the above is correct.

C

Total surplus in a market will increase when the government: a. imposes a tax on that market. b. imposes a binding price floor on that market. c. removes a binding price ceiling from that market. d. None of the other answers are correct.

C

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.35. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?: a. a 7.5 increase in the price of the good b. a 13.33 percent increase in the price of the good c. an increase in the price of the good from $7.50 to $10 d. an increase in the price of the good from $10 to $17.50

C

When the government places a tax on a product, the cost of the tax to buyers and sellers: a. is less than the revenue raised from the tax by the government. b. is equal to the revenue raised from the tax by the government. c. exceeds the revenue raised from the tax by the government. d. Without additional information, such as the elasticity of demand for this product, it is impossible to compare the cost of a tax to buyers and sellers with tax revenue.

C

When the price of good A is $50, the total revenue is for good A is $25,000 units. When the price of good A rises to $70, the total revenue of good A is $28,000 units. Using the midpoint method, the price elasticity of demand for good A is: a. 1.50, and an increase in price will result in an increase in total revenue for good A. b. 0.34, and an increase in price will result in an increase in total revenue for good A. c. 0.67, and an increase in price will result in an increase in total revenue for good A. d. 2.94, and an increase in price will result in an increase in total revenue for good A.

C

A price floor set at: a. $4 will be binding and will result in a shortage of 8 units. b. $4 will be binding and will result in a shortage of 16 units. c. $7 will be binding and will result in a surplus of 4 units. d. $7 will be binding and will result in a surplus of 8 units.

D

A result of the tariff is that, relative to the free-trade situation, the quantity of saddles imported decreases by: a. Q2 - Q1. b. Q3 - Q2. c. Q4 - Q3. d. Q4 - Q3 + Q2 - Q1.

D

Consumer surplus with trade and without a tariff is: a. A. b. A + B. c. A + C + G. d. A + B + C + D + E + F.

D

For the saddle market, area B represents: a. government's revenue from the tariff. b. the deadweight loss of the tariff. c. the increase in producer surplus, relative to the free-trade situation, as a result of the tariff. d. None of the other answers are correct.

D

If the government changed the per-unit tax from $5.00 to $2.50, then the price paid by buyers would be $7.50, the price received by sellers would be $5, and the quantity sold in the market would be 1.5 units. Compared to the original tax rate, this lower tax rate would: a. increase government revenue and increase the deadweight loss from the tax. b. increase government revenue and decrease the deadweight loss from the tax. c. decrease government revenue and increase the deadweight loss from the tax. d. decrease government revenue and decrease the deadweight loss from the tax.

D

If the price elasticity of demand for a good is 0.8, then a 12 percent increase in the quantity demanded must be the result of: a. a 0.06 percent decrease in the price. b. a 1.5 percent decrease in the price. c. a 9.6 percent decrease in the price. d. a 15 percent decrease in the price.

D

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?: a. immediately after the price increase b. one month after the price increase c. three months after the price increase d. one year after the price increase

D

In general, elasticity is a measure of: a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive. c. how firms' profits respond to changes in market prices. d. how much buyers and sellers respond to changes in market conditions.

D

In which of the following cases is it most likely that an increase in the size of a tax will decrease tax revenue?: a. The price elasticity of demand is small, and the price elasticity of supply is large. b. The price elasticity of demand is large, and the price elasticity of supply is small. c. The price elasticity of demand and the price elasticity of supply are both small. d. The price elasticity of demand and the price elasticity of supply are both large.

D

Kristi and Rebecca sell lemonade on the corner. It costs them 17 cents to make each cup. On a certain day, they sell 40 cups, and their producer surplus for that day amounts to $15.20. Kristi and Rebecca sold each cup for: a. 31 cents. b. 38 cents. c. 45 cents. d. 55 cents.

D

Last year, Jim bought 8 tickets to sporting events when his income was $30,000. This year, his income is $33,000, and he purchased 10 tickets to sporting events. Holding other factors constant and using the midpoint method, it follows that Jim's income elasticity of demand is about: a. 0.43, and Jim regards tickets to sporting events as inferior goods. b. 0.43, and Jim regards tickets to sporting events as normal goods. c. 2.33, and Jim regards tickets to sporting events as inferior goods. d. 2.33, and Jim regards tickets to sporting events as normal goods.

D

Tax revenue would: a. decrease if the economy began at point B and then the tax rate was decreased. b. increase if the economy began at point F and then the tax rate was decreased. c. decrease if the economy began at point C and then the tax rate was increased. d. All of the above are correct.

D

The price of a good that prevails in a world market is called the: a. absolute price. b. relative price. c. comparative price. d. world price.

D

Which of the following equations is valid for the deadweight loss of the tax?: a. Deadweight loss = (1/2)(P2 - P1)(Q2 + Q1) b. Deadweight loss = (1/2)(P3 - P1)(Q2 + Q1) c. Deadweight loss = (1/2)(P3 - P2)(Q2 - Q1) d. Deadweight loss = (1/2)(P3 - P1)(Q2 - Q1)

D

Which of the following tools help us evaluate how taxes affect economic well-being? (i) consumer surplus (ii) producer surplus (iii) tax revenue (iv) deadweight loss: a. (i) and (ii) only b. (i), (ii), and (iii) only c. (iii) and (iv) only d. (i), (ii), (iii), and (iv)

D