Econ 2113 – Test 2A

Name________________________________

Dr. Rupp – Spring 2012

Pledge: “I have neither given or received aid on this exam” Signature_____________________________________

Multiple Choice Identify the choice that best completes the statement or answers the question. ____

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1. If the price elasticity of demand for a good is -6, then a 3 percent decrease in price results in a. a 20 percent increase in the quantity demanded. b. an 18 percent increase in the quantity demanded. c. a 2 percent increase in the quantity demanded. d. a 1.8 percent increase in the quantity demanded. 2. Which of the following is likely to have the most price elastic demand? a. ice cream b. frozen yogurt c. vanilla ice cream d. Häagen-Dazs® vanilla bean ice cream 3. Demand is said to be price elastic if a. the price of the good responds substantially to changes in demand. b. demand shifts substantially when income or the expected future price of the good changes. c. buyers do not respond much to changes in the price of the good. d. buyers respond substantially to changes in the price of the good. 4. There are very few, if any, good substitutes for motor oil. Therefore, the a. demand for motor oil would tend to be inelastic. b. demand for motor oil would tend to be elastic. c. demand for motor oil would tend to respond strongly to changes in prices of other goods. d. supply of motor oil would tend to respond strongly to changes in people’s tastes for large cars relative to their tastes for small cars. 5. If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then the a. demand for the good is said to be elastic. b. demand for the good is said to be inelastic. c. law of demand does not apply to the good. d. demand curve for the good shifts only slightly in response to a change in price. 6. A perfectly elastic demand implies that a. buyers will not respond to any change in price. b. any rise in price above that represented by the demand curve will result in a quantity demanded of zero. c. quantity demanded and price change by the same percent as we move along the demand curve. d. price will rise by an infinite amount when there is a change in quantity demanded. 7. A perfectly inelastic demand implies that buyers a. decrease their purchases when the price rises. b. purchase the same amount as before when the price rises or falls. c. increase their purchases only slightly when the price falls. d. respond substantially to an increase in price. Figure 5-2 Price

Pa Pb

D1 D3

D2 Quantity

____

____

8. Refer to Figure 5-2. As price falls from Pa to Pb, which demand curve represents the most elastic demand? a. D1 b. D2 c. D3 d. All of the above are equally elastic. 9. An increase in price causes an increase in total revenue when demand is a. elastic. b. inelastic. c. unit elastic. d. All of the above are possible.

____ 10. When demand is inelastic, a decrease in price will cause a. an increase in total revenue. b. a decrease in total revenue. c. no change in total revenue but an increase in quantity demanded. d. no change in total revenue but a decrease in quantity demanded. ____ 11. If a change in the price of a good results in no change in total revenue, then a. the demand for the good must be elastic. b. the demand for the good must be inelastic. c. the demand for the good must be unit elastic. d. buyers must not respond very much to a change in price. ____ 12. Holding all other forces constant, if increasing the price of a good leads to a decrease in total revenue, then the demand for the good must be a. unit elastic. b. inelastic. c. elastic. d. None of the above is correct because a price increase always leads to an increase in total revenue. Figure 5-10 Price 55 50 45 40 35 30 25 20 15 10

Demand

5

50 100 150 200 250 300 350 400 450 500 550

Quantity

____ 13. Refer to Figure 5-10. When the price is $30, total revenue is a. $3,000. b. $5,000. c. $7,000. d. $9,000. Figure 5-11 10

Price

9 A

8

B

7 6 5

C

4

D

3 2

Demand

1

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

Quantity

____ 14. Refer to Figure 5-11. If the price rises from point D to point C, total revenue a. increases, and demand is price elastic. b. decreases, and demand is price elastic. c. increases, and demand is price inelastic. d. decreases, and demand is price inelastic. ____ 15. Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is a. negative, and the good is an inferior good. b. negative, and the good is a normal good. c. positive, and the good is a normal good. d. positive, and the good is an inferior good.

____ 16. Reta’s income elasticity of demand for steak dinners is 1.50. All else equal, this means that if her income increases by 20 percent, she will buy a. 150 percent more steak dinners. b. 50 percent more steak dinners. c. 30 percent more steak dinners. d. 20 percent more steak dinners. ____ 17. If the cross-price elasticity of demand for two goods is 1.25, then a. the two goods are luxuries. b. the two goods are substitutes. c. one of the goods is normal and the other good is inferior. d. the demand for one of the goods conforms to the law of demand, but the demand for the other good violates the law of demand. ____ 18. The price elasticity of supply measures how responsive a. sellers are to a change in price. b. sellers are to a change in buyers' income. c. buyers are to a change in production costs. d. equilibrium price is to a change in supply. Figure 6-6 20

price

18 16 S 14 12 10 8 6 D

4 2

10

20

30

40

50

60

70

80

quantity

____ 19. Refer to Figure 6-6. If the government imposes a price ceiling of $8 on this market, then there will be a. no shortage. d. a shortage of 40 units. b. a shortage of 10 units. e. a surplus of 40 units. c. a shortage of 20 units. ____ 20. Refer to Figure 6-6. If the government imposes a price ceiling of $12 on this market, then there will be a. no shortage. d. a shortage of 40 units. b. a shortage of 10 units. e. a surplus of 20 units. c. a shortage of 20 units. d. ____ 21. Refer to Figure 6-6. If the government imposes a price floor of $6 on this market, then there will be a. no surplus. d. a surplus of 40 units. b. a surplus of 20 units. e. a shortage of 40 units. c. a surplus of 30 units. ____ 22. Refer to Figure 6-6. If the government imposes a price floor of $14 on this market, then there will be a. no surplus. d. a surplus of 40 units. b. a surplus of 20 units. e. a shortage of 40 units. c. a surplus of 30 units. Table 6-3 The following table contains the demand schedule and supply schedule for a market for a particular good. Suppose sellers of the good successfully lobby Congress to impose a price floor $2 above the equilibrium price in this market. Price Quantity Quantity Demanded Supplied $0 15 0 $1 13 3 $2 11 6 $3 9 9 $4 7 12 $5 5 15 $6 3 18 ____ 23. Refer to Table 6-3. How many units of the good are sold after the imposition of the price floor? a. 5 b. 9 c. 10 d. 15

____ 24. Rent control a. is an example of a price ceiling. b. leads to a larger shortage of apartments in the long run than in the short run. c. leads to lower rents and, in the long run, to lower-quality housing. d. All of the above are correct. ____ 25. The minimum wage is an example of a a. price ceiling. b. price floor. c. wage subsidy. d. tax. Figure 6-13 10

wage

S

9 8

$7.257 6 5 4 3

$2.75 2 1 D 1

2

3

4

5

6

2.75

7

7.25

8

9

10

workers

in thousands

____ 26. Refer to Figure 6-13. In this market, a minimum wage of $7.25 is a. binding and creates a labor shortage. b. binding and creates unemployment. c. nonbinding and creates a labor shortage. d. nonbinding and creates neither a labor shortage nor unemployment. ____ 27. Refer to Figure 6-13. In this market, a minimum wage of $2.75 creates a labor a. shortage of 2,250 workers. b. shortage of 4,500 workers. c. surplus of 2,250 workers. d. neither a labor shortage nor surplus. ____ 28. When a tax is placed on the sellers of energy drinks, the a. sellers bear the entire burden of the tax. b. buyers bear the entire burden of the tax. c. burden of the tax will be always be equally divided between the buyers and the sellers. d. burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal. ____ 29. If the cost of producing sofas decreases, then consumer surplus in the sofa market will a. increase. b. decrease. c. remain constant. d. increase for some buyers and decrease for other buyers. Figure 7-2 Price

A P2

B

C

P1

D

F Demand Q2

Q1

Quantity

____ 30. Refer to Figure 7-2. When the price is P1, consumer surplus is a. A. d. A+B+D. b. A+B. e. D+F c. A+B+C.

Figure 7-4

Price 26 24 22 20 18 16 14 12 10 8 6 4 2 1

2

3

4

Quantity

____ 31. Refer to Figure 7-4. If the price of the good is $12, then consumer surplus is a. $9. b. $11. c. $13. d. $16. Figure 7-18 Price

Supply

28 26 24 22 20 18 16 14 12 10 8

Demand

6 4 2

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20

30

40

50

60

70

80

90 100 110 120 130 140 150 160 170 Quantity

____ 32. Refer to Figure 7-18. The efficient price is a. $22, and the efficient quantity is 40. b. $22, and the efficient quantity is 110. c. $16, and the efficient quantity is 80. d. $8, and the efficient quantity is 40. ____ 33. Refer to Figure 7-18. At the equilibrium price, producer surplus is a. $480. b. $640. c. $1,120. d. $1,280.

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. Price 24 22 20 18 16 14 12 10 8 6 4 2

A Supply B C D

F G

H

J K

L

M

3 6 9 12 15 18 21 24 27 30 33 36 39

Demand

Quantity

____ 34. Refer to Figure 8-8. The tax causes consumer surplus to decrease by the area a. A. b. B+C. c. A+B+C. d. A+B+C+D+F. e. C ____ 35. Refer to Figure 8-8. After the tax goes into effect, producer surplus is the area a. D+F+G+H+J. b. D+F+G+H. c. D+F+J. d. J. ____ 36. Refer to Figure 8-8. The government collects tax revenue that is the area a. L. b. B+D. c. C+F. d. F+G+L. ____ 37. Refer to Figure 8-8. The deadweight loss of the tax is the area a. B+D. b. C+F. c. A+C+F+J. d. B+C+D+F. e. There is no deadweight loss. Scenario 8-2 Tom mows Stephanie's lawn for $25. Tom’s opportunity cost of mowing Stephanie’s lawn is $20, and Stephanie's willingness to pay Tom to mow her lawn is $28. ____ 38. Refer to Scenario 8-2. If Stephanie hires Tom to mow her lawn, Stephanie’s consumer surplus is a. $3. b. $5. c. $8. d. $25. ____ 39. A tax a. lowers the price buyers pay and raises the price sellers receive. b. raises the price buyers pay and lowers the price sellers receive. c. places a wedge between the price buyers pay and the price sellers receive. d. Both b) and c) are correct. ____ 40. When a good is taxed, the burden of the tax a. falls more heavily on the side of the market that is more elastic. b. falls more heavily on the side of the market that is more inelastic. c. falls more heavily on the side of the market that is closer to unit elastic. d. is distributed independently of relative elasticities of supply and demand.

Extra Credit Questions: To be eligible to answer these extra credit questions, you must satisfy both criteria below: • Your cell phone has not rung in class • You are taking this test in class at the regularly scheduled time: (Thursday, February 23th)

____ 41. If the size of a tax increases, tax revenue a. increases. b. decreases. c. remains the same. d. may increase, decrease, or remain the same. Figure 7-7 Price

Supply

15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1

2

3

4

Quantity

____ 42. Refer to Figure 7-7. If the price of the good is $9.50, then producer surplus is a. $2.50. b. $6.50. c. $8.00. d. $10.00.

Rupp Econ 2113 – Test 2A (spring 2012) Answer Section MULTIPLE CHOICE 1. ANS: NAT: MSC: 2. ANS: NAT: MSC: 3. ANS: NAT: MSC: 4. ANS: NAT: MSC: 5. ANS: NAT: MSC: 6. ANS: NAT: MSC: 7. ANS: NAT: MSC: 8. ANS: NAT: MSC: 9. ANS: NAT: MSC: 10. ANS: NAT: MSC: 11. ANS: NAT: MSC: 12. ANS: NAT: MSC: 13. ANS: NAT: MSC: 14. ANS: NAT: MSC: 15. ANS: NAT: MSC: 16. ANS: NAT: MSC: 17. ANS:

B Analytic Analytical D Analytic Applicative D Analytic Definitional A Analytic Interpretive B Analytic Definitional B Analytic Interpretive B Analytic Interpretive A Analytic Applicative B Analytic Applicative B Analytic Applicative C Analytic Interpretive C Analytic Applicative D Analytic Interpretive C Analytic Analytical C Analytic Applicative C Analytic Applicative B

PTS: 1 LOC: Elasticity

DIF: 2 REF: 5-1 TOP: Price elasticity of demand

PTS: 1 LOC: Elasticity

DIF: 2 REF: 5-1 TOP: Elastic demand

PTS: 1 LOC: Elasticity

DIF: 2 REF: 5-1 TOP: Elastic demand

PTS: 1 LOC: Elasticity

DIF: 2 REF: 5-1 TOP: Inelastic demand

PTS: 1 LOC: Elasticity

DIF: 1 REF: 5-1 TOP: Inelastic demand

PTS: 1 LOC: Elasticity

DIF: 2 REF: 5-1 TOP: Perfectly elastic demand

PTS: 1 LOC: Elasticity

DIF: 2 REF: 5-1 TOP: Perfectly inelastic demand

PTS: 1 LOC: Elasticity

DIF: 2 REF: 5-1 TOP: Price elasticity of demand

PTS: 1 LOC: Elasticity

DIF: 2 REF: 5-1 TOP: Total revenue | Price elasticity of demand

PTS: 1 LOC: Elasticity

DIF: 2 REF: 5-1 TOP: Total revenue | Price elasticity of demand

PTS: 1 LOC: Elasticity

DIF: 2 REF: 5-1 TOP: Total revenue | Price elasticity of demand

PTS: 1 LOC: Elasticity

DIF: 2 REF: 5-1 TOP: Total revenue | Price elasticity of demand

PTS: 1 LOC: Elasticity

DIF: 1 REF: 5-1 TOP: Total revenue | Price elasticity of demand

PTS: 1 LOC: Elasticity

DIF: 3 REF: 5-1 TOP: Total revenue | Price elasticity of demand

PTS: 1 LOC: Elasticity

DIF: 2 REF: 5-1 TOP: Income elasticity of demand

PTS: 1 LOC: Elasticity

DIF: 2 REF: 5-1 TOP: Income elasticity of demand

PTS: 1

DIF:

2

REF: 5-1

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

29.

30.

31.

32.

33.

34.

35.

NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT:

Analytic Interpretive A Analytic Definitional C Analytic Applicative A Analytic Applicative A Analytic Applicative D Analytic Applicative A Analytic Applicative D Analytic Interpretive B Analytic Definitional B Analytic Interpretive D Analytic Interpretive D Analytic Interpretive A Analytic Applicative C Analytic Applicative D Analytic Applicative C Analytic Applicative B Analytic Applicative B Analytic Interpretive D Analytic

LOC: Elasticity

TOP: Cross-price elasticity of demand

PTS: 1 LOC: Elasticity

DIF: 1 REF: 5-2 TOP: Price elasticity of supply

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 6-1 TOP: Price ceilings

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 6-1 TOP: Price ceilings

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 6-1 TOP: Price floors

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 6-1 TOP: Price floors

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 6-1 TOP: Price floors

PTS: 1 DIF: 1 LOC: Supply and demand

REF: 6-1 TOP: Rent control

PTS: 1 DIF: 1 LOC: Supply and demand

REF: 6-1 TOP: Minimum wage

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 6-1 TOP: Minimum wage

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 6-1 TOP: Minimum wage

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 6-2 TOP: Tax incidence | Supply

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 7-1 TOP: Consumer surplus

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 7-1 TOP: Consumer surplus

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 7-1 TOP: Consumer surplus

PTS: 1 DIF: 1 LOC: Supply and demand

REF: 7-3 TOP: Efficiency

PTS: 1 DIF: 3 LOC: Supply and demand

REF: 7-3 TOP: Producer surplus

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 8-1 TOP: Consumer surplus

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 8-1 TOP: Producer surplus

MSC: 36. ANS: NAT: MSC: 37. ANS: NAT: MSC: 38. ANS: NAT: MSC: 39. ANS: NAT: MSC: 40. ANS: NAT: MSC: 41. ANS: NAT: MSC: 42. ANS: NAT: MSC:  

Interpretive B Analytic Applicative B Analytic Applicative A Analytic Interpretive D Analytic Applicative B Analytic Applicative D Analytic Interpretive D Analytic Applicative

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 8-1 TOP: Tax revenue

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 8-1 TOP: Deadweight loss

PTS: 1 DIF: 1 LOC: Supply and demand

REF: 8-1 TOP: Consumer surplus

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 8-1 TOP: Taxes

PTS: 1 LOC: Elasticity

DIF: 2 REF: 8-2 TOP: Tax incidence | Elasticity

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 8-3 TOP: Tax revenue

PTS: 1 DIF: 2 LOC: Supply and demand

REF: 7-2 TOP: Producer surplus