How To Calculate The Price Of A Bottle Of Wine

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1 Name: Class: Date: Econ224_Test02_Review_ Multiple Choice Identify the choice that best completes the statement or answers the question. 1. In the housing market, rent control causes a. quantity supplied and quantity demanded to fall. b. quantity supplied to fall and quantity demanded to rise. c. quantity supplied to rise and quantity demanded to fall. d. quantity supplied and quantity demanded to rise. 2. A price floor will be binding only if it is set a. equal to the equilibrium price. b. above the equilibrium price. c. below the equilibrium price. d. either above or below the equilibrium price. 3. Suppose sellers of liquor are required to send $1.00 to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $0.60 per bottle. Which of the following statements is correct? a. The effective price received by sellers is $0.40 per bottle less than it was before the tax. b. Sixty percent of the burden of the tax falls on sellers. c. This tax causes the demand curve for liquor to shift downward by $1.00 at each quantity of liquor. d. All of the above are correct. 4. If a tax is levied on the buyers of a product, then the supply curve a. will not shift. b. will shift up. c. will shift down. d. will become flatter. 1

2 Name: Figure 6-13 The vertical distance between points A and B represents the tax in the market. 5. Refer to Figure The price that buyers pay after the tax is imposed is a. $8. b. $10. c. $16. d. $ A key lesson from the payroll tax is that the a. tax is a tax solely on workers. b. tax is a tax solely on firms that hire workers. c. tax eliminates any wedge that might exist between the wage that firms pay and the wage that workers receive. d. true burden of a tax cannot be legislated. 7. Suppose that in a particular market, the demand curve is highly elastic and the supply curve is highly inelastic. If a tax is imposed in this market, then a. the buyers will bear a greater burden of the tax than the sellers. b. the sellers will bear a greater burden of the tax than the buyers. c. the buyers and sellers are likely to share the burden of the tax equally. d. the buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information. 2

3 Name: Table 7-2 This table refers to five possible buyers' willingness to pay for a case of Vanilla Coke. Buyer Willingness To Pay David $8.50 Laura $7.00 Megan $5.50 Mallory $4.00 Audrey $ Refer to Table 7-2. If the market price is $5.50, the consumer surplus in the market will be a. $3.00. b. $4.50. c. $ d. $ Suppose there is an early freeze in California that reduces the size of the lemon crop. What happens to consumer surplus in the market for lemons? a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus is not affected by this change in market forces. d. We would have to know whether the demand for lemons is elastic or inelastic to make this determination. 10. A seller is willing to sell a product only if the seller receives a price that is at least as great as the a. seller s producer surplus. b. sellers s cost of production. c. seller s profit. d. average willingness to pay of buyers of the product. 3

4 Name: Figure Refer to Figure At the equilibrium price, producer surplus is a. $200. b. $400. c. $450. d. $ Refer to Figure If the government imposes a price ceiling of $70 in this market, then the new producer surplus will be a. $50. b. $100. c. $175. d. $350. 4

5 Name: Figure Refer to Figure At equilibrium, producer surplus is represented by the area a. F. b. F+G. c. D+H+F. d. D+H+F+G+I. 5

6 Name: Figure Refer to Figure This graph represents the tobacco industry. The industry creates a. positive externalities. b. negative externalities. c. no externalities. d. no equilibrium in the market. 15. Refer to Figure This graph represents the tobacco industry. The socially optimal price and quantity are a. $1.90 and 38 units, respectively. b. $1.80 and 35 units, respectively. c. $1.60 and 42 units, respectively. d. $1.35 and 58 units, respectively. 16. Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government impose a $5 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced? a. They are equal. b. The after-tax equilibrium quantity is greater than the socially optimal quantity. c. The after-tax equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question. 17. When a good is rival in consumption, a. one person's use of the good diminishes another person's ability to use it. b. people can be prevented from using the good. c. no more than one person can use the good at the same time. d. everyone will be excluded from obtaining the good. 6

7 Name: 18. A cable television broadcast of a movie is a. excludable and rival in consumption. b. excludable and not rival in consumption. c. not excludable and rival in consumption. d. not excludable and not rival in consumption. Table 11-1 Consider the town of Tritown with only three residents, Ed, Jim, and Tony. The three residents are trying to determine how large, in acres, they should build the public park. The table below shows each resident s willingness to pay for each acre of the park. Acres Ed Jim Tony 1 $12 $16 $ Refer to Table Suppose the cost to build the park is $30 per acre. How many acres should the park be to maximize total surplus from the park in Tritown? a. 2 acres b. 3 acres c. 4 acres d. 5 acres 20. Many species of animals are common resources, and many must be protected by law to keep them from extinction. Why is the cow not one of these endangered species even though there is such a high demand for beef? a. Cows reproduce at a high rate and have adapted well to their environment. b. Public policies protect cows from predators and diseases. c. Cows are privately owned, whereas many endangered species are owned by no one. d. There is a natural ecological balance between the birth rate of cows and human consumption. 7

8 Econ224_Test02_Review_ Answer Section MULTIPLE CHOICE 1. ANS: B PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Rent control Quantity demanded Quantity supplied 2. ANS: B PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors 3. ANS: A PTS: 1 DIF: 3 REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: Taxes MSC: Analytical 4. ANS: A PTS: 1 DIF: 2 REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: Taxes Supply 5. ANS: D PTS: 1 DIF: 2 REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: Taxes 6. ANS: D PTS: 1 DIF: 2 REF: 6-2 NAT: Analytic LOC: Labor markets TOP: Payroll taxes Tax incidence 7. ANS: B PTS: 1 DIF: 2 REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: Tax incidence Elasticity 8. ANS: B PTS: 1 DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus 9. ANS: B PTS: 1 DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus 10. ANS: B PTS: 1 DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Cost 11. ANS: A PTS: 1 DIF: 3 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus MSC: Analytical 12. ANS: A PTS: 1 DIF: 3 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus MSC: Analytical 13. ANS: C PTS: 1 DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Producer surplus 1

9 14. ANS: B PTS: 1 DIF: 2 REF: 10-1 NAT: Analytic LOC: Markets, market failure, and externalities TOP: Externalities 15. ANS: B PTS: 1 DIF: 2 REF: 10-1 NAT: Analytic LOC: Markets, market failure, and externalities TOP: Externalities 16. ANS: A PTS: 1 DIF: 2 REF: 10-2 NAT: Analytic LOC: Markets, market failure, and externalities TOP: Corrective taxes Negative externalities MSC: Analytical 17. ANS: A PTS: 1 DIF: 1 REF: 11-1 NAT: Analytic LOC: The study of economics and definitions in economics TOP: Rivalry in consumption MSC: Definitional 18. ANS: B PTS: 1 DIF: 2 REF: 11-1 NAT: Analytic LOC: The study of economics and definitions in economics TOP: Public goods 19. ANS: B PTS: 1 DIF: 2 REF: 11-2 NAT: Analytic LOC: Understanding and applying economic models TOP: Public goods 20. ANS: C PTS: 1 DIF: 2 REF: 11-3 NAT: Analytic LOC: Markets, market failure, and externalities TOP: Common resources 2