Econ 102 - Practice Exam #2

14. Refer to Table 7-5. The market quantity of oranges demanded per day is exactly 6 if the price of an orange, P, satisfies

$0.60 < P < $0.75.

18. Refer to Figure 7-22. The efficient price is

$70, and the efficient quantity is 100.

2. 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?

an increase in the price of the good from $7.50 to $10

25. Refer to Figure 8-2. The loss of consumer surplus associated with some buyers dropping out of the market as a result of the tax is

b. $1.50

31. Refer to Figure 9-15. The amount of government revenue created by the tariff is

b. E

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

c. $0.70

30. Refer to Figure 9-15. The amount of deadweight loss created by the tariff is

c. D+F

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

d. a 15 % decrease in the price

33. Suppose Iceland goes from being an isolated country to being an exporter of coats. As a result,

producer surplus increases for producers of coats in Iceland.

Refer to Figure 6-4. 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.

(i) and (iv) only

8. If a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about

1.33, and supply is elastic.

3. Refer to Table 5-2. If income is $7,500, using the midpoint method, what is the elasticity of demand between $16 and $20?

1.80

26. The price of a good that prevails in a world market is called the

world price.

19. Total surplus in a market will increase when the government

removes a binding price ceiling from that market.

Total surplus in a market will increase when the government

removes a binding price ceiling from that market.

Refer to Table 7-1. If the price of the product is $122, then the total consumer surplus is

b. $41

32. Refer to Figure 9-15. As a result of the tariff, there is a deadweight loss that amounts to

c. D + F

Demand is said to be inelastic if

c. the quantity demanded changes only slightly when the price of the good changes.

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

d. i, ii, iii, iv

31. Refer to Figure 9-15. For the saddle market, area B represents

d. none of the other anser are correct

4. Refer to Table 5-2. 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?

0.76

6. 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

0.808.

16. 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

55 cents.

27. Suppose that Honduras opens its markets to international trade. As a result of this, the domestic price of coffee decreases. We can conclude that

Honduras has begun to import coffee into the country.

15. Refer to Table 7-5. Which of the following statements is correct?

Neither Bob's consumer surplus nor Charisse's consumer surplus can exceed Allison's consumer surplus, for any price of an orange.

21. Refer to Figure 8-3. The amount of the tax on each unit of the good is

P3 - P1.

29. Refer to Figure 9-15. A result of the tariff is that, relative to the free-trade situation, the quantity of saddles imported decreases by

Q4 - Q3 + Q2 - Q1.

24. In which of the following cases is it most likely that an increase in the size of a tax will decrease tax revenue?

The price elasticity of demand and the price elasticity of supply are both large.

9. 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?

Traditional land line phones become more expensive.

10. Refer to Figure 6-4. Which of the following statements is not correct?

When the price is $6, there is a surplus of 4 units.

13. Refer to Figure 6-14. Suppose a tax of $6 per unit is imposed on this market. What will be the new equilibrium quantity in this market?

less than 50 units

24. Refer to Figure 8-2. The per-unit burden of the tax on sellers is

a. $2

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. $2.00

Refer to Figure 7-17. 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

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

b. $125

29. 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

b. $25

Refer to figure 6-9 a price ceiling set at

b. $4 will be binding and will result in a shortage of 16 units

17. Refer to Figure 7-22. If the price decreases from $80 to $70 due to a shift in the supply curve, consumer surplus increases by

b. $750

Refer to Figure 7-22. If the price decreases from $80 to $70 due to a shift in the supply curve, consumer surplus increases by

b. $750

27. Refer to Table 8-1. 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?

markets A and C only

28. 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

b. 85,000

12. 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

between $0.50 and $1.

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

c. 0.67, and an increase in price will result in an increase in total revenue for good A

20. 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

might increase or decrease.

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

c. substitutes, and have a cross-price elasticity of 1.67

25. Refer to Figure 8-24. 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

d.

Refer to Figure 6-9 a price floor set at

d. $7 will be binding and will result in a surplus of 8 units

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

d. 2.33 , and Jim regards tickets to sporting events as normal goods.

23. Refer to Figure 8-19. 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

d. decrease govt revenue and decrease the deadweight loss from the tax.

1. If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?

one year after the price increase

5. Refer to Figure 5-2. 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?

D3

22. Refer to Figure 8-3. Which of the following equations is valid for the deadweight loss of the tax?

Deadweight loss = (1/2)(P3 - P1)(Q2 - Q1)

21. 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?

Firm A produces a monitor that David buys.

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

7. 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. d. the cross-price elasticity of demand is 1.0, and X and Y are substitutes.

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?

b. The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve.

22. Refer to Figure 7-21. Which area represents total surplus in the market when the price is P1?

b. B + C

28. 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

b. increases to $57 and the quantity of goose-down pillows purchased in Honduras decreases.

26. Refer to Figure 8-2. The loss of consumer surplus as a result of the tax is

c. $4.50

33. Refer to Figure 9-12. Producer surplus after trade is

c. $6,400

Refer to figure 5-1 Between point A and point B, price elasticity of demand is equal to

c. 1.5

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

c. price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.

30 Refer to Figure 9-15. Consumer surplus with trade and without a tariff is

d. A + B + C + D + E + F.

In general, elasticity is a measure of

d. how much buyers and sellers respond to changes in market conditions.

23. When the government places a tax on a product, the cost of the tax to buyers and sellers

exceeds the revenue raised from the tax by the government.

32. Refer to Figure 9-12. With trade allowed, this country

exports 400 units of the good.