# PAGE 1. Econ Test 2 Fall 2003 Dr. Rupp. Multiple Choice. 1. The price elasticity of demand measures

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1 PAGE 1 Econ Test 2 Fall 2003 Dr. Rupp Multiple Choice 1. The price elasticity of demand measures a. how responsive buyers are to a change in income. b. how responsive sellers are to a change in price. c. how responsive buyers are to a change in price. d. how responsive sellers are to a change in buyers' income. 2. If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price would result in a a. 4.0 percent decrease in the quantity demanded. b. 10 percent decrease in the quantity demanded. c. 40 percent decrease in the quantity demanded. d. 400 percent decrease in the quantity demanded. 3. If there are very few, if any, good substitutes for good A, then a. the supply of good A would tend to be price elastic. b. the demand for good A would tend to be price elastic. c. the demand for good A would tend to be price inelastic. d. the demand for good A would tend to be income elastic. 4. Economists compute the price elasticity of demand as a. the percentage change in the price divided by the percentage change in quantity demanded. b. the percentage change in the quantity demanded divided by the percentage change in price. c. the change in quantity demanded divided by the change in the price. d. the percentage change in the quantity demanded divided by the percentage change in income. 5. Demand is inelastic if a. elasticity is less than 1. b. elasticity is equal to 1. c. elasticity is greater than 1. d. elasticity is equal to In any market, total revenue is a. the price divided by the price elasticity of demand. b. the price multiplied by the quantity. c. the price plus the quantity. d. the price multiplied by the quantity minus the costs of production. 7. Alice says that she would buy one banana split a day regardless of the price. If she is telling the truth, a. Alice's demand for banana splits is perfectly inelastic. b. Alice's price elasticity of demand for banana splits is 1. c. Alice's income elasticity of demand for banana splits is negative. d. None of the above answers are correct.

2 PAGE 2 8. In the graph shown, as price falls from P A to P B, which demand curve is most elastic? a. D 1 b. D 2 c. D 3 d. All of the above are equally elastic.

3 PAGE 3 9. Refer to the graph shown. The total revenue at P 1 is represented by area(s) a. B + D. b. A + B. c. C + D. d. D. 10. The local pizza restaurant makes such great bread sticks that consumers do not respond much to a change in the price. If the owner is only interested in increasing revenue, he should a. lower the price of the bread sticks. b. raise the price of the bread sticks. c. leave the price of the bread sticks alone. d. reduce costs. 11. Last year, Joan bought 50 pounds of hamburger when the household income was \$40,000. This year, the household income was only \$30,000 and Joan bought 60 pounds of hamburger. All else constant Joan's income elasticity of demand for hamburger is a. positive, so Joan considers hamburger to be an inferior good. b. positive, so Joan considers hamburger to be a normal good and a necessity. c. negative, so Joan considers hamburger to be an inferior good. d. negative, so Joan considers hamburger to be a normal good. 12. Cross-price elasticity of demand measures a. how the quantity demanded of a good changes as price changes. b. how the quantity demanded of one good changes as the price of another good changes. c. how the quantity demanded of a good changes as income changes. d. how the price of a good is affected when income changes. 13. If the cross-price elasticity of demand is 1.25, then the two goods would be a. complements. b. luxuries. c. normal goods. d. substitutes.

4 PAGE 4 Suppose there is a baseball park with 10,000 seats and a demand for seats in the park as follows: Price per Ticket Quantity Demanded \$20 2, , , , , , , Referring to the given information, if the management of the baseball park charges \$8 per ticket a. there will be a shortage of tickets. b. there will be 2,000 empty seats. c. there will be 4,000 empty seats. d. revenue will be maximized. 15. Referring to the given information, the supply of seats a. is perfectly inelastic. b. is perfectly elastic. c. increases as price increases. d. decreases as price increases. 16. A legal minimum price at which a good can be sold is a a. price floor. b. price stabilization. c. price ceiling. d. price cut.

5 PAGE According to the graph shown, if the government imposes a binding price ceiling in this market at a price of \$5.00, the result would be a. a shortage of 20 units. b. a shortage of 30 units. c. a surplus of 20 units. d. a surplus of 40 units. 18. The minimum wage is an example of a. a price ceiling. b. a price floor. c. a free-market process. d. an efficient labor allocation mechanism. 19. In the figure shown, which of the panels represents a binding price floor? a. panel (a) b. panel (b) c. panel (a) and panel (b) d. neither panel (a) nor panel (b)

7 28. We can say that the allocation of resources is efficient if a. producer surplus is maximized. b. consumer surplus is maximized. c. total surplus is maximized. d. None of the above are correct. 29. Producer surplus is PAGE 7 a. the area under the supply curve to the left of the amount sold. b. the amount a seller is paid less the cost of production. c. the amount represented by the area under the supply curve. d. the cost to sellers of participating in a market. 30. Donald produces nails at a cost of \$200 per ton. If he sells the nails for \$500 per ton, his producer surplus is a. \$200 per ton. b. \$300 per ton. c. \$500 per ton. d. \$700 per ton. This table refers to five possible buyers' willingness to pay for Good Z. Buyer Willingness to Pay Cassie \$8.50 Jamie 7.00 John 5.50 Jeremy 4.00 Sarah Refer to the table shown. If the market price is \$5.50, the consumer surplus in the market will be a. \$3.00. b. \$4.50. c. \$ d. \$21.00.

8 PAGE According to the graph shown, when the price is P 2, producer surplus is a. A. b. A + C. c. A + B + C. d. D + E. 33. Economists tend to see ticket scalping as a. a way for a few to profit while producing nothing of value. b. an inequitable interference in the orderly process of ticket distribution. c. a way of increasing the efficiency of ticket distribution. d. an unproductive activity which should be made illegal everywhere. 34. Producer surplus measures all of the following EXCEPT a. the amount sellers receive above the minimum they would accept. b. the benefit to sellers of participating in a market. c. the amount sellers are paid less the amount they were willing to accept. d. the total value of a good to sellers.

9 PAGE Refer to the graph shown. When the price is P 1, consumer surplus is a. A. b. A + B. c. A + B + C. d. A + B + D.

10 PAGE In the figure shown, the equilibrium (market-clearing) price is a. P 1. b. P 2. c. P 3. d. P In the figure shown, at the market-clearing equilibrium, total consumer surplus is represented by the area a. A. b. A + B + C. c. D + E + F. d. A + B + C + D + E + F. 38. In the figure shown, at the market-clearing equilibrium, total producer surplus is represented by the area a. F. b. F + G. c. D + E + F. d. D + E + F + G + H. 39. In the figure shown, at the market-clearing equilibrium, total surplus is represented by the area a. A + B + C. b. A + B + D + F. c. A + B + C + D + E + F. d. A + B + C + D + E + F + G + H. 40. Market power refers to a. the side effects that may occur in a market. b. the government regulations imposed on the sellers in a market. c. the ability to influence price. d. the forces of supply and demand in determining equilibrium price.

11 PAGE Revenue Passenger Miles (RPM) in the airline industry for June 2002 with June 2003 reveals that: a. RPMs are increasing for both full-service airlines and discounters. b. RPMs are decreasing for both full-service airlines and discounters. c. RPMs are increasing for full-service airlines and decreasing for discounters. d. RPMs are decreasing for full-service airlines and increasing for discounters c. RPMs are constant for both full-service airlines and discounters. Note: Full-service airlines include: Continental, United, American, Northwest, Delta, US Airways. Discounters include JetBlue, Frontier, ATA, AirTran, Alaska, Southwest, America West, & Spirit.

12 1. c. how responsive buyers are to a change in price. Chapter:5 QUESTION: 2 2. c. 40 percent decrease in the quantity demanded. Chapter:5 QUESTION: c. the demand for good A would tend to be price inelastic. Chapter:5 QUESTION: b. the percentage change in the quantity demanded divided by the percentage change in price. Chapter:5 QUESTION: a. elasticity is less than 1. Chapter:5 QUESTION: b. the price multiplied by the quantity. Chapter:5 QUESTION: a. Alice's demand for banana splits is perfectly inelastic. Chapter:5 QUESTION: a. D 1 9. a. B + D. Chapter:5 QUESTION: 40 Chapter:5 QUESTION: b. raise the price of the bread sticks. Chapter:5 QUESTION: c. negative, so Joan considers hamburger to be an inferior good. Chapter:5 QUESTION: b. how the quantity demanded of one good changes as the price of another good changes. Chapter:5 QUESTION: d. substitutes. Chapter:5 QUESTION: b. there will be 2,000 empty seats. Chapter:5 QUESTION: a. is perfectly inelastic. Chapter:5 QUESTION: 90

13 16. a. price floor. 17. a. a shortage of 20 units. 18. b. a price floor. 19. b. panel (b) Chapter:6 QUESTION: 4 Chapter:6 QUESTION: 14 Chapter:6 QUESTION: 37 Chapter:6 QUESTION: d. their equilibrium wages are well above the minimum wage. Chapter:6 QUESTION: b. a common example of a price ceiling. Chapter:6 QUESTION: c. the division of the tax burden between buyers and sellers. Chapter:6 QUESTION: c. the fact that the U.S. government had imposed a price ceiling on gasoline. Chapter:6 QUESTION: a. buyers will bear most of the burden of the tax. Chapter:6 QUESTION: a. to raise revenue from rich people. Chapter:6 QUESTION: b. how much a buyer values a good. Chapter:7 QUESTION: a. \$150. Chapter:7 QUESTION: c. total surplus is maximized. Chapter:7 QUESTION: b. the amount a seller is paid less the cost of production. Chapter:7 QUESTION: b. \$300 per ton. 31. b. \$4.50. Chapter:7 QUESTION: 68 Chapter:7 QUESTION: 25

14 PAGE c. A + B + C. Chapter:7 QUESTION: c. a way of increasing the efficiency of ticket distribution. Chapter:7 QUESTION: d. the total value of a good to sellers. Chapter:7 QUESTION: c. A + B + C. 36. b. P b. A + B + C. 38. c. D + E + F. Chapter:7 QUESTION: 33 Chapter:7 QUESTION: 83 Chapter:7 QUESTION: 84 Chapter:7 QUESTION: c. A + B + C + D + E + F. Chapter:7 QUESTION: c. the ability to influence price. Chapter:7 QUESTION: Chapter:*** QUESTION: 1

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