Econ 2113 Test 2A Pledge: I have neither given or received aid on this exam Signature

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1 Econ 2113 Test 2A Dr. Rupp Fall 2012 Name 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. 1. If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of demand is a b c. -3. d The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should a. lower the price of the cinnamon rolls. b. leave the price of the cinnamon rolls unchanged. c. raise the price of the cinnamon rolls. d. reduce costs. 3. If the demand for apples is elastic, then an increase in the price of apples will a. increase total revenue of apple sellers. b. decrease total revenue of apple sellers. c. not change total revenue of apple sellers. d. There is not enough information to answer this question. 4. If the demand for textbooks is inelastic, then an increase in the price of textbooks will a. increase total revenue of textbook sellers. b. decrease total revenue of textbook sellers. c. not change total revenue of textbook sellers. d. There is not enough information to answer this question. Figure 5-10 Price Demand Quantity 5. Refer to Figure An increase in price from $20 to $30 would a. increase total revenue by $2,000. b. decrease total revenue by $2,000. c. increase total revenue by $1,000. d. decrease total revenue by $1,000.

2 6. You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. Your roommate still enjoys Ramen noodles very much and buys even more, but you plan to buy fewer Ramen noodles in favor of foods you prefer more. When looking at income elasticity of demand for Ramen noodles, yours would a. be negative and your roommate's would be positive. b. be positive and your roommate's would be negative. c. be zero and your roommate's would approach infinity. d. approach infinity and your roommate's would be zero. 7. Assume that a 4 percent decrease in income results in a 6 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 an inferior good. d. positive, and the good is a normal good. 8. Cross-price elasticity of demand measures how a. the price of one good changes in response to a change in the price of another good. b. the quantity demanded of one good changes in response to a change in the quantity demanded of another good. c. the quantity demanded of one good changes in response to a change in the price of another good. d. strongly normal or inferior a good is. 9. 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. 10. 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. 11. A legal maximum on the price at which a good can be sold is called a price a. floor. b. subsidy. c. support. d. ceiling. Figure price S D quantity

3 12. Refer to Figure 6-6. If the government imposes a price ceiling of $12 on this market, then there will be a. neither a shortage nor a surplus. b. a shortage of 10 units. c. a shortage of 20 units. d. a shortage of 40 units. e. a surplus of 10 units Figure price S D quantity 13. Refer to Figure 6-8. If the government imposes a price ceiling of $2 on this market, then there will be a. neither a shortage nor a surplus of the good. b. a shortage of 40 units of the good. c. a shortage of 60 units of the good. d. a shortage of 85 units of the good. e. a surplus of 60 units of the good 14. Refer to Figure 6-8. If the government imposes a price floor of $5 on this market, then there will be a. neither a shortage nor surplus of the good. b. a surplus of 20 units of the good. c. a surplus of 30 units of the good. d. a surplus of 55 units of the good. e. a shortage of 30 units of the good Figure price 10 9 S D quantity 15. Refer to Figure 6-9. A price ceiling set at a. $4 will be binding and will result in a shortage of 3 units. b. $4 will be binding and will result in a shortage of 6 units.

4 c. $7 will be binding and will result in a surplus of 6 units. d. $7 will be binding and will result in a surplus of 12 units. 16. A tax on the sellers of coffee mugs a. increases the size of the coffee mug market. b. decreases the size of the coffee mug market. c. has no effect on the size of the coffee mug market. d. may increase, decrease, or have no effect on the size of the coffee mug market. 17. A tax levied on the sellers of blueberries a. increases sellers costs, reduces profits, and shifts the supply curve up. b. increases sellers costs, reduces profits, and shifts the supply curve down. c. decreases sellers costs, increases profits, and shifts the supply curve up. d. decreases sellers costs, increases profits, and shifts the supply curve down. 18. If the government wants to reduce smoking, it should impose a tax on a. buyers of cigarettes. b. sellers of cigarettes. c. either buyers or sellers of cigarettes. d. whichever side of the market is less elastic. 19. The tax incidence a. is the manner in which the burden of a tax is shared among participants in a market. b. can be shifted to the buyer by imposing the tax on the buyers of a product in a market. c. can be shifted to the seller by imposing the tax on the sellers of a product in a market. d. All of the above are correct. 20. Pat bought a new car for $15,500 but was willing to pay $24,000. The consumer surplus is a. $8,500. b. $15,500. c. $24,000. d. $39,500. Table 7-10 Seller Cost LeBron $700 Kobe $600 Kevin $450 Steve $ Refer to Table You want to hire a professional photographer to take pictures of your family. The table shows the costs of the four potential sellers in the local photography market. You take bids from the sellers. Who offers the winning bid, and what does he offer to charge for the photography session? a. Steve; more than $400 but less than $450 b. Steve; $399 c. LeBron; more than $700 d. LeBron; more than $600 but less than $ Suppose the demand for peanuts increases. What will happen to producer surplus in the market for peanuts? a. It increases. b. It decreases. c. It remains unchanged. d. It may increase, decrease, or remain unchanged. 23. Total surplus in a market is equal to a. consumer surplus + producer surplus. b. value to buyers - amount paid by buyers. c. amount received by sellers - costs of sellers. d. producer surplus - consumer surplus.

5 24. Efficiency is attained when a. total surplus is maximized. b. producer surplus is maximized. c. all resources are being used. d. consumer surplus is maximized and producer surplus is minimized. Figure 7-18 Price Supply Demand Quantity 25. Refer to Figure At the equilibrium price, consumer surplus is a. $480. b. $640. c. $1,120. d. $1, Refer to Figure At the equilibrium price, producer surplus is a. $480. b. $640. c. $1,120. d. $1,280. Figure 7-19 P4 P3 Price A Supply B C P2 D H P1 F G I Demand Q1 Q2 Quantity 27. Refer to Figure At equilibrium, consumer surplus is represented by the area a. A. b. A+B+C. c. D+H+F.

6 d. A+B+C+D+H+F. 28. Refer to Figure At equilibrium, total surplus is represented by the area a. A+B+C. b. A+B+D+F. c. A+B+C+D+H+F. d. A+B+C+D+H+F+G+I. 29. The French expression used by free-market advocates, which literally translates as "allow them to do," is a. laissez-faire. b. je ne sais pas. c. si'l vous plait. d. tête-à-tête. 30. When a tax is levied on a good, the buyers and sellers of the good share the burden, a. provided the tax is levied on the sellers. b. provided the tax is levied on the buyers. c. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers. d. regardless of how the tax is levied. 31. When a tax is placed on a product, the price paid by buyers a. rises, and the price received by sellers rises. b. rises, and the price received by sellers falls. c. falls, and the price received by sellers rises. d. falls, and the price received by sellers falls. 32. The government s benefit from a tax can be measured by a. consumer surplus. b. producer surplus. c. tax revenue. d. All of the above are correct. 33. What happens to the total surplus in a market when the government imposes a tax? a. Total surplus increases by the amount of the tax. b. Total surplus increases but by less than the amount of the tax. c. Total surplus decreases. d. Total surplus is unaffected by the tax. 34. The loss in total surplus resulting from a tax is called a. a deficit. b. economic loss. c. deadweight loss. d. inefficiency. Figure 8-1 Price Supply P' P'' J K L I Y P''' M N B Demand Quantity

7 35. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus before the tax is measured by the area a. I+Y. b. J+K+L+M. c. L+M+Y. d. I+J+K+L+M+Y. 36. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus after the tax is measured by the area a. I+Y. b. J+K+L+M. c. I+Y+B. d. I+J+K+L+M+Y. 37. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The tax revenue is measured by the area a. K+L. b. I+Y. c. J+K+L+M. d. I+J+K+L+M+Y. 38. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The producer surplus after the tax is measured by the area a. M. b. L+M+N+Y+B. c. L+M+Y. d. J. 39. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The consumer surplus after the tax is measured by the area a. J+K+I. b. J. c. M. d. L+M+Y. 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 Question: To be eligible to answer this extra credit question, 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, October 11) 41. If the government levies a $5 tax per ticket on buyers of NFL game tickets, then the price paid by buyers of NFL game tickets would a. increase by less than $5. b. increase by exactly $5. c. increase by more than $5. d. decrease by an indeterminate amount.

8 Rupp Econ 2113 Test 2A Answer Section (Fall 12) MULTIPLE CHOICE 1. ANS: B PTS: 1 DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand 2. ANS: C PTS: 1 DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Total revenue Price elasticity of demand 3. ANS: B PTS: 1 DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Total revenue Price elasticity of demand 4. ANS: A PTS: 1 DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Total revenue Price elasticity of demand 5. ANS: C PTS: 1 DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Total revenue Price elasticity of demand 6. ANS: A PTS: 1 DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Income elasticity of demand 7. ANS: A PTS: 1 DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Income elasticity of demand 8. ANS: C PTS: 1 DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Cross-price elasticity of demand 9. ANS: B PTS: 1 DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Cross-price elasticity of demand 10. ANS: A PTS: 1 DIF: 1 REF: 5-2 NAT: Analytic LOC: Elasticity TOP: Price elasticity of supply 11. ANS: D PTS: 1 DIF: 1 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings 12. ANS: A PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings 13. ANS: C PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings 14. ANS: C PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors 15. ANS: B PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings 16. ANS: B PTS: 1 DIF: 2 REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: Taxes Supply 17. ANS: A PTS: 1 DIF: 2 REF: 6-2

9 NAT: Analytic LOC: Supply and demand TOP: Taxes Supply 18. ANS: C PTS: 1 DIF: 2 REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: Taxes Demand Supply 19. ANS: A PTS: 1 DIF: 2 REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: Tax incidence 20. ANS: A PTS: 1 DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus 21. ANS: A PTS: 1 DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Cost 22. ANS: A PTS: 1 DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus 23. ANS: A PTS: 1 DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Total surplus 24. ANS: A PTS: 1 DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Efficiency 25. ANS: A PTS: 1 DIF: 3 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus 26. ANS: B PTS: 1 DIF: 3 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Producer surplus 27. ANS: B PTS: 1 DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus 28. ANS: C PTS: 1 DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Total surplus 29. ANS: A PTS: 1 DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Laissez-faire policy 30. ANS: D PTS: 1 DIF: 2 REF: 8-1 NAT: Analytic LOC: Supply and demand TOP: Tax burden 31. ANS: B PTS: 1 DIF: 2 REF: 8-1 NAT: Analytic LOC: Supply and demand TOP: Taxes 32. ANS: C PTS: 1 DIF: 2 REF: 8-1 NAT: Analytic LOC: Supply and demand TOP: Tax revenue 33. ANS: C PTS: 1 DIF: 2 REF: 8-1 NAT: Analytic LOC: Supply and demand TOP: Total surplus 34. ANS: C PTS: 1 DIF: 1 REF: 8-1 NAT: Analytic LOC: Supply and demand TOP: Deadweight loss 35. ANS: D PTS: 1 DIF: 2 REF: 8-1 NAT: Analytic LOC: Supply and demand TOP: Total surplus

10 36. ANS: B PTS: 1 DIF: 2 REF: 8-1 NAT: Analytic LOC: Supply and demand TOP: Total surplus 37. ANS: A PTS: 1 DIF: 2 REF: 8-1 NAT: Analytic LOC: Supply and demand TOP: Tax revenue 38. ANS: A PTS: 1 DIF: 2 REF: 8-1 NAT: Analytic LOC: Supply and demand TOP: Producer surplus 39. ANS: B PTS: 1 DIF: 2 REF: 8-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus 40. ANS: B PTS: 1 DIF: 2 REF: 8-2 NAT: Analytic LOC: Elasticity TOP: Tax incidence Elasticity 41. ANS: A PTS: 1 DIF: 2 REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: Taxes Demand