5) Suppose that as the price of some product increases from $4.00 to $5.00 per unit the quantity supplied rises from 500 to 1000 units per month.

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1 Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Suppose that the quantity demanded of skipping ropes rises from ) to 1750 units when the price falls from $1.25 to $0.75 per unit. The price elasticity of demand for this product is A) 1. B) 2. C) 1/3. D) 2/3. E) 3/2. 2) Which of the following illustrates elastic demand? 2) A) a price elasticity of 1.0 B) A 10 percent increase in price causes a 5 percent decrease in quantity demanded. C) A 10 percent increase in price causes a 10 percent reduction in quantity demanded. D) A 10 percent increase in price causes a 20 percent decrease in quantity demanded. E) a price elasticity of 0.8 FIGURE 4-1 3) Refer to Figure 4-1. In diagram 1, the price elasticity of demand 3) A) is equal at points A, B, and C. B) at point A is less than at point C. C) at point A is equal to that at point C. D) at point A is greater than at point C. E) none of the above. 4) If the total expenditure on perfume increases when the price of perfume falls, the price elasticity of demand is A) exactly zero. B) greater than one (demand is elastic). C) not determinable from the information given. D) less than one (demand is inelastic). E) unity (demand is unit elastic). 5) Suppose that as the price of some product increases from $4.00 to $5.00 per unit the quantity supplied rises from 500 to 1000 units per month. 4) Th price e elasticity

2 of supply for this product is 5) A) 2.0. B) 1.0. C) 3.0. D) 2.5. E) ) An upward-sloping straight-line supply curve through the origin has an elasticity of A) infinity. B) one. C) zero. D) greater than one. E) less than one. 6) 7) Consumers will bear a larger burden of an excise tax if 7) A) demand is relatively inelastic and supply is relatively elastic. B) both demand and supply are relatively elastic. C) demand is relatively elastic and supply is relatively inelastic. D) the tax is collected by firms rather than remitted directly to the government by consumers. E) both demand and supply are relatively inelastic. 8) Nancy's income has just risen from $950 per week to $1,050 per week. As a result, she decides to double the number of movies she attends each week. Nancy's demand for movies is A) price elastic. B) difficult to comprehend if she is rational. C) price inelastic. D) income inelastic. E) income elastic. 8) 9) An inferior good has 9) A) a negative income elasticity of demand. B) an income elasticity of demand greater than zero but less than 1. C) a positive income elasticity of demand and a price elasticity of demand greater than 1. D) a positive income elasticity of demand. E) a negative price elasticity of demand. 10) If two goods, X and Y, have a positive cross-elasticity of demand, then we know that they A) are substitutes. B) are both inferior goods. C) are complements. D) each have a price elasticity greater than one. E) are both normal goods. 10) 11) If pizza and beer are complementary goods, we can conclude that 11) A) their cross-elasticity of demand is positive. B) the income elasticity of demand is positive. C) both goods are inferior goods. D) their cross-elasticity of demand is negative.

3 E) the income elasticity of demand is negative. 12) During the 1970s, OPEC's output restrictions caused gasoline prices to increase sharply. Coincidentally, demand for gas-guzzling cars fell. A likely explanation for these observations is that gasoline and cars had a elasticity of demand that was. A) income; negative B) price; negative C) cross; positive D) cross; negative E) income; positive 13) At a price of $15, Jack demands the same amount of good A as when the price rises to $16. Therefore, Jack's demand for good A is A) unit elastic. B) perfectly inelastic. C) elastic. D) perfectly elastic. E) inelastic. 12) 13) Use the figure below to answer the following question(s). Figure ) Figure 4.2 illustrates a linear demand curve. If the price falls from $13 to $11, we know A) total revenue will remain unchanged. B) the effect on total revenue cannot be determined. C) the effect on total revenue can be determined only with information on the quantities. D) total revenue will decrease. E) total revenue will increase. 15) The demand equation for widgets is P = 200-5QD. The price elasticity of demand between quantity demanded of 23 and 27 is A) zero. B) 1.0. C) 0.6. D) E) ) 15)

4 16) Suppose there is an increase in the cost of resources used in the production of good A. Then A) if the price of A rises, we know the demand for A is elastic. B) if the total revenue from sales of A rises, we know the demand for A is elastic. C) total revenue will increase since the price of A must rise. D) total revenue must fall since the quantity bought and sold of A must fall. E) if the total revenue from sales of A falls, we know the demand for A is elastic. 17) A technological breakthrough lowers the cost of photocopiers. If the demand for photocopiers is price inelastic, we predict that photocopier sales will A) fall and total revenue will fall. B) rise and total revenue will rise. C) rise and total revenue will fall. D) fall and total revenue will rise. E) rise, but changes in total revenue will depend on elasticity of supply. 18) If the supply equation for smurfs is P = 5Qs, then the elasticity of supply between the quantity supplied of 100 and 120 is A) B) C) D) E) ) 17) 18) Table ) Consider Table 4.3. The cross elasticity of demand for Jolt with respect to the price of Coke is A) 1.5. B) 10. C) D) E) not determinable, given all the variables are changing. 20) In a competitive market, a legal price ceiling set above the free-market equilibrium price will result in A) the quantity supplied exceeding quantity demanded and thus a surplus in the market. B) a continuation of the free-market equilibrium price and quantity. C) increased profits to the firms in the industry. D) the quantity demanded exceeding quantity supplied and thus a shortage in the market. E) a new free-market equilibrium at a higher price and lower output 19) 20)

5 level. FIGURE ) Refer to Figure 5-2. A price floor set at $2.50 will result in 21) A) a surplus of 5 units. B) a shortage of 5 units. C) a shortage of 10 units. D) a surplus of 10 units E) no change to the market outcomes. 22) One measure of market inefficiency is 22) A) how far quantity exchanged deviates from equilibrium. B) the size of the deadweight loss. C) the difference between total economic surplus and deadweight loss. D) how far market price deviates from equilibrium. E) the size of the economic surplus. Table ) Refer to Table 6.2. What is the level of unemployment (in millions of hours) if the minimum wage is set at $3 per hour? 23)

6 A) 70 B) 40 C) 20 D) zero E) 30 Table 6.3 A 10 percent tax on milk, beer, wheat bread, and meat resulted in the following price increases. 24) Which good in Table 6.3 has the most elastic demand curve? 24) A) wheat bread B) beer C) meat D) milk E) All have equal elastic demands. Use the figure below to answer the following question(s). Figure ) Consider Figure 6.5. The amount of the tax per unit is 25) A) $0. B) $1. C) $0.50. D) $2.00. E) $ ) Consider Figure 6.5. The buyers' share of the tax is 26) A) $0. B) $1.50. C) $0.50. D) $2. E) $1. 27) Consider Figure 6.5. Government revenue from the sales tax is 27)

7 A) $300. B) $400. C) $600. D) $0. E) $ ) Consider Figure 6.5. The deadweight loss from the sales tax is 28) A) $150. B) $50. C) $200. D) $1,000. E) $100. Table 6.3 A 10 percent tax on milk, beer, wheat bread, and meat resulted in the following price increases. 29) Which good in Table 6.3 has the most inelastic demand curve? 29) A) beer B) milk C) wheat bread D) meat E) All have equal inelastic demands. 30) For which good in Table 6.3 is the heaviest portion of the tax paid by the sellers? A) meat B) beer C) milk D) wheat bread E) all of the above 30)

8 FIGURE ) Refer to Figure 5-2. A price floor set at a price of $1.00 will result in 31) A) a surplus of 20 units. B) a shortage of 20 units. C) a shortage of 10 units. D) a surplus of 10 units E) no change in the market outcomes. 32) Refer to Figure 5-2. A price ceiling set at a price of $1.00 per unit will result in A) a surplus of 10 units B) a shortage of 20 units. C) a shortage of 10 units. D) a surplus of 20 units. E) no change to the market outcomes. 32) Table ) Consider Table 4.3. The income elasticity of Jolt is 33) A) B) C) D) E) not determinable, given all the variables are changing.

9 FIGURE ) Refer to Figure 4-1. The price elasticity of demand is equal to one along the entire demand curve in A) diagram 1 only. B) diagram 2 only. C) both diagrams. D) neither diagram. 34) FIGURE ) Refer to Figure 6-1. The marginal utility of the second unit of the good consumed is A) 20. B) 10. C) 30. D) 40. E) ) Toffee (bars) Cashews (bags) Units Marginal Total Marginal Total Utility Utility Utility Utility

10 TABLE ) Refer to Table 6-1. If this consumer purchases 3 toffee bars and 4 bags of cashews per week, his/her total utility will be A) 7 B) 23 C) 31 D) 54 E) 57 36) Table ) Refer to Table 7.4. Henry is maximizing his utility by consuming 3 bags of popcorn and 3 bottles of pop. What is the ratio of the price of popcorn to the price of pop? A) 6/5 B) 1/2 C) 4/3 D) 3/4 E) 1 38) Samir consumes apples and bananas and is in consumer equilibrium. The marginal utility of the last apple is 10 and the marginal utility of the last banana is 5. If the price of an apple is $0.50, then what is the price of a banana? A) $0.25 B) $0.10 C) $0.05 D) $1.00 E) $ ) 38) Table ) Refer to Table 7.6. If both X and Y are free goods, how many of each should be consumed to maximize total utility? A) 10 units of X and 10 units of Y 39)

11 B) 1 unit of X and 1 unit of Y C) 5 units of X and 8 units of Y D) 2 units of X and 2 units of Y E) 9 units of X and 8 units of Y 40) A consumer maximizes his utility by purchasing 2 units of good X at $5/unit and 3 units of good Y at $7/unit. What is the ratio of the marginal utility of X to the marginal utility of Y? A) 3/2 B) 7/5 C) 5/7 D) 2/3 E) 10/21 40) Table ) Suppose Ally spends her entire income of $10 on law books and miniskirts. Law books cost $2 and miniskirts cost $4. The marginal utility of each good is independent of the amount consumed of the other good, and is shown in Table 7.7. If Ally is maximizing her utility, how many miniskirts does she buy? A) 4 B) 0 C) 3 D) 1 E) 2 42) If Ms. Petersen is maximizing her utility in the consumption of goods A and B, which one of the following statements must be true? A) TUA/PA = TUB/PB. B) MUA = MUB. C) MUA/PB = MUB/PA. D) MUA/PA = MUB/PB. E) TUA = TUB. 43) The tax share paid by producers will be greater the more (1) elastic is demand. (2) inelastic is demand. (3) elastic is supply. (4) inelastic is supply. A) (1) and (4) B) (2) C) (2) and (3) D) (2) and (4) E) (1) and (3) 41) 42) 43) Use the figure below to answer the following question(s).

12 Figure ) Consider Figure 6.6. Suppose a sales tax of $1 is imposed. In which market would the seller pay the highest portion of the tax? A) (a) B) (b) C) (c) D) (d) E) all markets equally 45) Consider Figure 6.6. Suppose a sales tax of $1 is imposed. In which market would the buyer pay the highest portion of the tax? A) (a) B) (b) C) (c) D) (d) E) all markets equally 44) 45)

13 The diagram below shows a competitive market with no externalities. A $20/unit is imposed on the seller. tax of P Q 46. With the tax is imposed, the consumer surplus (in $) in this market will be - a b. 60,000 c. 18,000 d. 90, With the tax is imposed, the producer surplus (in $) in this market will be - a b. 60,000 c. 18,000 d. 90, With the tax is imposed, the government s tax revenue (in $) received from this market will be- a. 120,000 b. 60,000 c. 30,000 d. 90,000

14 49. With the tax imposed, dead weight loss (in $) in this market will be - a. 20,000 b. 60,000 c. 80,000 d. 40, For my ECON101 course in Fall 2011, I have attended. of the class lectures so far. a. 100% c. less than 50% b. more than 80% d. 0% 1) D 2) D 3) D 4) B 5) C 6) B 7) A 8) E 9) A 10) A 11) D 12) D 13) B 14) E 15) C 16) E 17) C 18) E 19) A 20) B 21) D 22) B 23) D 24) C 25) D 26) C 27) B 28) E 29) B 30) A 31) E 32) B 33) A 34) B 35) A 36) E 37) C 38) A 39) E

15 40) C 41) E 42) D 43) A 44) C 45) D 46) D 47) D 48)A 49)A & 50) E