ECON 2302 EXAM #2: (Ch 5-8)

Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The per-unit burden of the tax on sellers is A. $1. B. $2. C. $4. D. $3.

A. $1.

Refer to Figure 5-12. Using the midpoint method, the price elasticity of demand between point X and point Y is A. 2.5. B. 0.4. C. 1. D. 2.

A. 2.5.

Refer to Figure 5-12. Which of the following price changes would result in no change in sellers' total revenue? A. The price decreases from $24 to $18. B. The price decreases from $27 to $24. C. The price increases from $15 to $21. D. The price increases from $18 to $21.

A. The price decreases from $24 to $18.

Buyer Willingness To Pay Calvin $150.00 Sam $135.00 Andrew $120.00 Lori $100.00 Refer to Table 7-1. If the price of the product is $110, then who would be willing to purchase the product? A. Calvin B. Calvin, Sam, and Andrew C. Calvin and Sam D. Calvin, Sam, Andrew, and Lori

B. Calvin, Sam, and Andrew

Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. Without the tax, the producer surplus is A. (P8-0) x Q2. B. 1/2 x (P8-0) x Q2. C. (P5-0) x Q5. D. 1/2 x (P5-0) x Q5.

D. 1/2 x (P5-0) x Q5.

Refer to Figure 7-21. When the price is P1, area B represents A. total surplus. B. profits. C. producer surplus. D. consumer surplus.

D. consumer surplus.

Refer to Figure 6-22. Sellers pay how much of the tax per unit? A. $5.00. B. $1.50. C. $0.50. D. $3.00.

C. $0.50.

Figure 6-18 The vertical distance between points A and B represents the tax in the market. Refer to Figure 6-18. The effective price that sellers receive after the tax is imposed is A. $10. B. $16. C. $24. D. $6.

A. $10.

Refer to Figure 7-17. Suppose the market starts out in equilibrium with demand curve D and supply curve S. Next, suppose demand shifts left so as to decrease the quantity demanded by 20 units at every price. What is the change in producer surplus as a result of this demand shift? A. $160 B. $240 C. $320 D. $80

A. $160

If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is about A. 0.5, and supply is inelastic. B. 0.5, and supply is elastic. C. 2, and supply is inelastic. D. 2, and supply is elastic.

A. 0.5, and supply is inelastic.

Seller Cost Marcia $200 Jan $250 Cindy $350 Greg $400 Peter $700 Bobby $800 Refer to Table 7-13. The equilibrium market price for 10 piano lessons is $400. What is the total producer surplus in the market? A. $700 B. $400 C. $0 D. $300

B. $400

Figure 8-2 The vertical distance between points A and B represents a tax in the market. Refer to Figure 8-2. The amount of tax revenue received by the government is A. $2.50. B. $9. C. $4. D. $5.

D. $5.

Refer to Figure 6-2. The price ceiling A. causes a shortage of 45 units. B. causes a shortage of 85 units. C. causes a shortage of 40 units. D. is not binding, because it is set above the equilibrium price.

B. causes a shortage of 85 units.

Refer to Figure 6-1. A binding price ceiling is shown in A. panel (b) only. B. both panel (a) and panel (b). C. panel (a) only. D. neither panel (a) nor panel (b).

A. panel (b) only.

If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about A. 0.63, and supply is elastic. B. 0.63, and supply is inelastic. C. 1.60, and supply is inelastic. D. 1.60, and supply is elastic.

D. 1.60, and supply is elastic.

Refer to Figure 6-4. A government-imposed price floor of $12 in this market results in A. 12 units sold. B. a surplus of 2 units. C. 10 units sold. D. a surplus of 4 units.

D. a surplus of 4 units.

When a binding price ceiling is imposed on a market, A. price no longer serves as a rationing device. B. the quantity supplied at the price ceiling exceeds the quantity that would have been supplied without the price ceiling. C. all buyers benefit. D. All of the above are correct.

A. price no longer serves as a rationing device.

Suppose the tax on automobile tires is increased so that the tax goes from being a "medium" tax to being a "large" tax. As a result, it is likely that A. tax revenue decreases, and the deadweight loss increases. B. tax revenue increases, and the deadweight loss increases. C. tax revenue increases, and the deadweight loss decreases. D. tax revenue decreases, and the deadweight loss decreases.

A. tax revenue decreases, and the deadweight loss increases.

Caroline sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.95 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. $1.30. B. $1.85. C. $1.15. D. $0.95

B. $1.85.

Refer to Figure 8-15. Panel (a) and Panel (b) each illustrate a $4 tax placed on a market. In comparison to Panel (a), Panel (b) illustrates which of the following statements? A. When supply is relatively inelastic, the deadweight loss of a tax is smaller than when supply is relatively elastic. B. When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic. C. When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic. D. When supply is relatively elastic, the deadweight loss of a tax is larger than when supply is relatively inelastic.

B. When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic.

Figure 8-19 The vertical distance between points A and B represents the original tax. 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 A. increase government revenue and increase the deadweight loss from the tax. B. decrease government revenue and decrease the deadweight loss from the tax. C. increase government revenue and decrease the deadweight loss from the tax. D. decrease government revenue and increase the deadweight loss from the tax.

B. decrease government revenue and decrease the deadweight loss from the tax.

Refer to Figure 6-21. The price that buyers pay after the tax is imposed is A. $10.50. B. $8.00. C. $12.00. D. $9.00.

C. $12.00.

Refer to Figure 7-2. If the price of the good is $100, then consumer surplus amounts to A. $100. B. $75. C. $125. D. $50.

C. $125.

Refer to Figure 6-23. How much tax revenue does this tax produce for the government? A. $36. B. $6. C. $18. D. $30.

C. $18.

A tax imposed on the sellers of a good will lower the A. price paid by buyers and lower the equilibrium quantity. B. effective price received by sellers and raise the equilibrium quantity. C. effective price received by sellers and lower the equilibrium quantity. D. price paid by buyers and raise the equilibrium quantity

C. effective price received by sellers and lower the equilibrium quantity.

To determine whether a good is considered normal or inferior, one could examine the value of the A. price elasticity of supply for that good. B. cross-price elasticity of demand for that good. C. income elasticity of demand for that good. D. price elasticity of demand for that good.

C. income elasticity of demand for that good.

Scenario 5-4 Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 5-4. The equilibrium price will A. increase in the milk market and decrease in the beef market. B. decrease in both the milk and beef markets. C. increase in both the milk and beef markets. D. decrease in the milk market and increase in the beef market.

C. increase in both the milk and beef markets.

Scenario 5-4 Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 5-4. Total consumer spending on milk will A. decrease, and total consumer spending on beef will increase. B. decrease, and total consumer spending on beef will decrease. C. increase, and total consumer spending on beef will decrease. D. increase, and total consumer spending on beef will increase

C. increase, and total consumer spending on beef will decrease.

Refer to Figure 8-17. Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the largest in the market represented by A. D2. B. D3. C. D4. D. D1.

C. D4.

Figure 8-3 The vertical distance between points A and C represents a tax in the market. Refer to Figure 8-3. The per unit burden of the tax on buyers is A. P2 - P1. B. P4 - P3. C. P3 - P2. D. P3 - P1

C. P3 - P2.

Refer to Figure 7-7. What happens to the consumer surplus if the price rises from $100 to $150? A. The new consumer surplus is 25 percent of the original consumer surplus. B. The new consumer surplus is double the original consumer surplus. C. The new consumer surplus is half of the original consumer surplus. D. The new consumer surplus is triple the original consumer surplus.

A. The new consumer surplus is 25 percent of the original consumer surplus.

Refer to Figure 7-4. Which area represents the increase in consumer surplus when the price falls from P1 to P2? A. ABC B. ABDG C. BDF D. AFG

B. ABDG

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. Refer to Figure 8-5. The tax causes a reduction in consumer surplus that is represented by area A. C+H. B. B+C. C. F. D. A.

B. B+C.

Refer to Table 5-11. Which scenario describes the market for oil in the short run in comparison to the long run? A. Scenario D describes both the short run and the long run. B. Scenario D describes the short run, whereas scenario A describes the long run. C. Scenario C describes the short run, whereas scenario B describes the long run. D. Scenario A describes both the short run and the long run.

B. Scenario D describes the short run, whereas scenario A describes the long run.

Refer to Figure 6-5. If the horizontal line on the graph represents a price floor, then the price floor is A. binding and creates a surplus of 40 units of the good. B. binding and creates a surplus of 60 units of the good. C. not binding, and there will be no surplus or shortage of the good. D. binding and creates a surplus of 20 units of the good.

B. binding and creates a surplus of 60 units of the good.

Refer to Figure 5-11. If price increases from $10 to $20, total revenue will A. decrease by $120, so demand must be elastic in this price range. B. increase by $120, so demand must be inelastic in this price range. C. increase by $320, so demand must be inelastic in this price range. D. decrease by $320, so demand must be elastic in this price range.

B. increase by $120, so demand must be inelastic in this price range.

Necessities such as food and clothing tend to have A. high price elasticities of demand and low income elasticities of demand. B. low price elasticities of demand and high income elasticities of demand. C. low price elasticities of demand and low income elasticities of demand. D. high price elasticities of demand and high income elasticities of demand.

C. low price elasticities of demand and low income elasticities of demand.

Refer to Figure 7-18. Suppose the willingness to pay of the marginal buyer of the 3rd unit is $125. Then total surplus is maximized if A. 4 units of the good are produced and sold. B. 2 units of the good are produced and sold. C. 1 unit of the good is produced and sold. D. 3 units of the good are produced and sold.

D. 3 units of the good are produced and sold.

In which of the following circumstances would a buyer be indifferent about buying a good? A. The price of the good is equal to the value the buyer places on the good. B. The price of the good is equal to the buyer's willingness to pay for the good. C. The amount of consumer surplus the buyer would experience as a result of buying the good is zero. D. All of the above are correct.

D. All of the above are correct.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the A. loss in consumer surplus due to the tax. B. total surplus before the tax. C. loss in producer surplus due to the tax. D. deadweight loss due to the tax.

D. deadweight loss due to the tax.