econ mid 2 questions

6. For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. There are many substitutes for this good. b. The good is a necessity. c. The market for the good is narrowly defined. d. The relevant time horizon is long.

b

10. Consumer surplus is equal to the a. Value to buyers - Amount paid by buyers. b. Amount paid by buyers - Costs of sellers. c. Value to buyers - Costs of sellers. d. Value to buyers - Willingness to pay of buyers.

a

8. An increase in the price of cheese crackers from $2.25 to $2.45 per box causes suppliers of cheese crackers to increase their quantity supplied from 125 boxes per minute to 145 boxes per minute. Using the midpoint method, supply is a. elastic, and the price elasticity of supply is 1.74. b. elastic, and the price elasticity of supply is 0.57. c. inelastic, and the price elasticity of supply is 1.74. d. inelastic, and the price elasticity of supply is 0.57.

a

1. Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. 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

b

13. The numbers reveal the opportunity costs of providing 10 piano lessons of equal quality. Seller Cost Marcia $200 Jan $250 Cindy $350 Greg $400 Peter $700 Bobby $800 You wish to purchase two sets of 10 piano lessons, one for yourself and one for your brother, so you take bids from each of the sellers. You will take lessons at the same time, so one teacher cannot provide lessons to both of you. You must pay the same price for both sets of lessons, and you will not accept a bid below a seller's cost because you are concerned that the seller will not provide all 10 lessons. What bid will you accept? a. $351 b. $349 c. $201 d. $199

b

7. Which of the following ideas is the most plausible? a. Reducing a high tax rate is less likely to increase tax revenue than is reducing a low tax rate. b. Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate. c. Reducing a high tax rate will have the same effect on tax revenue as reducing a low tax rate. d. Reducing a tax rate can never increase tax revenue.

b

11. The following table shows the demand schedule for a particular good. Price Quantity $20 0 $16 3 $12 6 $8 9 $4 12 $0 15 Using the midpoint method, what is the price elasticity of demand when price rises from $12 to $16? a. 0.43 b. 0.67 c. 2.33 d. 4

c

14. How does total revenue change as one moves downward and to the right along a linear demand curve? a. It always increases. b. It always decreases. c. It first increases, then decreases. d. It is unaffected by a movement along the demand curve.

c

15. Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the a. demand curve will shift upward by $20, and the price paid by buyers will decrease by less than $20. b. demand curve will shift upward by $20, and the price paid by buyers will decrease by $20. c. supply curve will shift downward by $20, and the effective price received by sellers will increase by less than $20. d. supply curve will shift downward by $20, and the effective price received by sellers will increase by $20.

c

18. If the government removes a binding price floor from a market, then the price paid by buyers will a. increase, and the quantity sold in the market will increase. b. increase, and the quantity sold in the market will decrease. c. decrease, and the quantity sold in the market will increase. d. decrease, and the quantity sold in the market will decrease.

c

20. If the price elasticity of demand for aluminum foil is 1.45, then a 2.4% decrease in the price of aluminum foil will increase the quantity demanded of aluminum foil by a. 1.66%, and aluminum foil sellers' total revenue will increase as a result. b. 1.66%, and aluminum foil sellers' total revenue will decrease as a result. c. 3.48%, and aluminum foil sellers' total revenue will increase as a result. d. 3.48%, and aluminum foil sellers' total revenue will decrease as a result.

c

21. Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because a. with rent control, the government guarantees landlords a minimum level of profit. b. they become resigned to the fact that many of their apartments are going to be vacant at any given time. c. with shortages and waiting lists, they have no incentive to maintain and improve their property. d. with rent control, it becomes the government's responsibility to maintain rental housing.

c

23. Suppose that the market for large, 64-ounce soft drinks in the town of Pudgyville is characterized by a typical, downward-sloping, linear demand curve and a typical, upward-sloping, linear supply curve. The market is initially in equilibrium with 1,000 soft drinks sold per day. The newly-elected Mayor of Pudgyville wants to tax 64-ounce soft drinks. She is considering either a $0.10 tax or a $0.30 tax. Her chief economic advisor estimates that the number of soft drinks sold after a $0.10 tax will be 900 and after a $0.30 tax will be 500. Which tax is better? a. The $0.10 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.30 tax. b. The $0.30 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.10 tax. c. It is not clear which tax is better because although the $0.30 tax raises more tax revenues, it creates a larger deadweight loss than the $0.10 tax. d. It is not clear which tax is better because although the $0.10 tax raises more tax revenues, it creates a larger deadweight loss than the $0.30 tax.

c

25. Assume the supply curve for diapers is a typical, upward-sloping straight line, and the demand curve for diapers is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for diapers is 1,000 per month when there is no tax. Then a tax of $0.50 per diaper is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct? a. After the tax is imposed, the equilibrium quantity of diapers is 900 per month. b. The demand for diapers is more elastic than the supply of diapers. c. The deadweight loss of the tax is $12.50. d. The tax causes a decrease in consumer surplus of $380.

c

4. Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount? a. The response of buyers to a change in the price of bananas is strong, and the response of sellers to a change in the price of bananas is weak. b. The response of sellers to a change in the price of bananas is strong, and the response of buyers to a change in the price of bananas is weak. c. The response of buyers and sellers to a change in the price of bananas is strong. d. The response of buyers and sellers to a change in the price of bananas is weak.

c

16. Hot dogs and hot dog buns are complements. An increase in the price of flour used to make hot dogs buns will a. increase consumer surplus in the market for hot dog buns and decrease producer surplus in the market for hot dogs. b. increase consumer surplus in the market for hot dogs and increase producer surplus in the market for hot dog buns. c. decrease consumer surplus in the market for hot dog buns and increase producer surplus in the market for hot dogs. d. decrease consumer surplus in the market for hot dog buns and decrease producer surplus in the market for hot dogs.

d

3. Motor oil and gasoline are complements. If the price of motor oil increases, consumer surplus in the gasoline market a. decreases. b. is unchanged. c. increases. d. may increase, decrease, or remain unchanged.

d

9. For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Allison, Bob, and Charisse are the only three buyers of oranges, and only three oranges can be supplied per day. First Orange Second Orange Third Orange Allison $2.00 $1.50 $0.75 Bob $1.50 $1.00 $0.60 Charisse $0.75 $0.25 $0 The market quantity of oranges demanded per day is exactly 7 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.

d