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HW2 ECON2301 FALL10

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

 1. 
Which of the following is not a determinant of the price elasticity of demand for a good?
a.
the time horizon
b.
the steepness or flatness of the supply curve for the good
c.
the definition of the market for the good
d.
the availability of substitutes for the good
 

 2. 
If the price elasticity of demand is 1.5, regardless of which two points on the demand curve are used to compute the elasticity, then
a.
demand is perfectly inelastic, and the demand curve is vertical.
b.
demand is elastic, and the demand curve is a straight, downward-sloping line.
c.
demand is perfectly elastic, and the demand curve is horizontal.
d.
demand is elastic, and the demand curve is something other than a straight, downward-sloping line.
 
 
Figure 1

nar001-1.jpg
 

 3. 
Refer to Figure 1. The section of the demand curve from B to C represents the
a.
elastic section of the demand curve.
b.
perfectly elastic section of the demand curve.
c.
unit elastic section of the demand curve.
d.
inelastic section of the demand curve.
 

 4. 
Refer to Figure 1. If the price decreases in the region of the demand curve between points A and B, we can expect total revenue to
a.
increase.
b.
stay the same.
c.
decrease.
d.
first decrease, then increase until total revenue is maximized.
 
 
Figure 2

nar002-1.jpg
 

 5. 
Refer to Figure 2. Using the midpoint method, between prices of $12 and $18, price elasticity of demand is
a.
0.33.
b.
0.67.
c.
1.33.
d.
1.89.
 

 6. 
Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,
a.
the equilibrium quantity decreases, and the equilibrium price is unchanged.
b.
the equilibrium price increases, and the equilibrium quantity is unchanged.
c.
the equilibrium quantity and the equilibrium price both are unchanged.
d.
buyers’ total expenditure on the good is unchanged.
 

 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 3

nar003-1.jpg
 

 8. 
Refer to Figure 3. A decrease in price from $15 to $10 leads to
a.
a decrease in total revenue of $10, so the price elasticity of demand is greater than 1 in this price range.
b.
a decrease in total revenue of $10, so the price elasticity of demand is less than 1 in this price range.
c.
a decrease in total revenue of $20, so the price elasticity of demand is less than 1 in this price range.
d.
a decrease in total revenue of $20, so demand is elastic in this price range.
 

 9. 
You are in charge of the local city-owned golf course. You need to increase the revenue generated by the golf course in order to meet expenses. The mayor advises you to increase the price of a round of golf. The city manager recommends reducing the price of a round of golf. You realize that
a.
the mayor thinks demand is elastic, and the city manager thinks demand is inelastic.
b.
both the mayor and the city manager think that demand is elastic.
c.
both the mayor and the city manager think that demand is inelastic.
d.
the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.
 

 10. 
Eric produces jewelry boxes. If the demand for jewelry boxes is elastic and Eric wants to increase his total revenue, he should
a.
increase the price of his jewelry boxes.
b.
decrease the price of his jewelry boxes.
c.
not change the price of his jewelry boxes.
d.
None of the above answers is correct.
 

 11. 
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.
 

 12. 
When a supply curve is relatively flat,
a.
sellers are not at all responsive to a change in price.
b.
the equilibrium price changes substantially when the demand for the good changes.
c.
the supply is relatively elastic.
d.
the supply is relatively inelastic.
 
 
Figure 4
The following figure shows the supply curve for a particular good.

nar004-1.jpg
 

 13. 
Refer to Figure 4.  Using the midpoint method, what is the price elasticity of supply between $100 and $220?
a.
0.58
b.
0.67
c.
1.00
d.
1.73
 

 14. 
If a nonbinding price ceiling is imposed on a market, then
a.
the quantity sold in the market will decrease.
b.
the quantity sold in the market will stay the same.
c.
the price in the market will increase.
d.
the price in the market will decrease.
 

 15. 
If a binding price ceiling is imposed on the computer market, then
a.
the quantity of computers demanded will increase.
b.
the quantity of computers supplied will decrease.
c.
a shortage of computers will develop.
d.
All of the above are correct.
 

 16. 
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.
 

 17. 
Suppose the government has imposed a price floor on televisions.  Which of the following events could transform the price floor from one that is not binding into one that is binding?
a.
Firms expect the price of televisions to rise in the future.
b.
The number of firms selling televisions decreases.
c.
Consumers' income decreases, and televisions are a normal good.
d.
The number of consumers buying televisions increases.
 

 18. 
If the minimum wage exceeds the equilibrium wage, then
a.
the quantity demanded of labor will exceed the quantity supplied.
b.
the quantity supplied of labor will exceed the quantity demanded.
c.
the minimum wage will not be binding.
d.
there will be no unemployment.
 
 
Table 1

Price
Quantity
Demanded
Quantity
Supplied
$0
12
0
$1
10
2
$2
8
4
$3
6
6
$4
4
8
$5
2
10
$6
0
12
 

 19. 
Refer to Table 1.  Suppose the government imposes a price ceiling of $1 on this market.  What will be the size of the shortage in this market?
a.
0 units
b.
2 units
c.
8 units
d.
10 units
 
 
Table 2

Price
Quantity
Demanded
Quantity
Supplied
$0
250
0
$5
200
75
$10
150
150
$15
100
225
$20
50
300
$25
0
375
 

 20. 
Refer to Table 2.  Which of the following statements is correct?
a.
A price ceiling set at $15 will be binding and will result in a shortage of 50 units.
b.
A price ceiling set at $15 will be binding and will result in a shortage of 100 units.
c.
A price ceiling set at $15 will be binding and will result in a shortage of 125 units.
d.
A price ceiling set at $15 will not be binding.
 
 
Figure 5

nar007-1.jpg
 

 21. 
Refer to Figure 5.  Which of the following price floors would be binding in this market?
a.
$6.
b.
$8.
c.
$10.
d.
$12.
 

 22. 
Refer to Figure 5.  If the government imposes a price ceiling of $8 on this market, then there will be a
a.
shortage of 0.
b.
shortage of 10.
c.
shortage of 20.
d.
shortage of 40.
 

 23. 
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.
 

 24. 
When a tax is imposed on the buyers of a good, the demand curve shifts
a.
upward by the amount of the tax.
b.
downward by the amount of the tax.
c.
upward by less than the amount of the tax.
d.
downward by less than the amount of the tax.
 

 25. 
A tax on the buyers of popcorn
a.
increases the size of the popcorn market.
b.
decreases the size of the popcorn market.
c.
has no effect on the size of the popcorn market.
d.
may increase, decrease, or have no effect on the size of the popcorn market.
 

 26. 
The price paid by buyers in a market will decrease if the government
a.
increases a binding price floor in that market.
b.
increases a binding price ceiling in that market.
c.
decreases a tax on the good sold in that market.
d.
More than one of the above is correct.
 
 
Figure 6

nar008-1.jpg
 

 27. 
Refer to Figure 6.  The equilibrium price in the market before the tax is imposed is
a.
$1.
b.
$2.
c.
$5.
d.
$6.
 
 
Figure 7

nar009-1.jpg
 

 28. 
Refer to Figure 7.  The amount of the tax per unit is
a.
$1.
b.
$1.50.
c.
$2.50.
d.
$3.50.
 
 
Figure 8

nar010-1.jpg
 

 29. 
Refer to Figure 8.  The price paid by buyers after the tax is imposed is
a.
$3.
b.
$4.
c.
$5.
d.
$7.
 

 30. 
Suppose that a tax is placed on books.  If the sellers pay the majority of the tax, then we know that the
a.
demand is more inelastic than the supply.
b.
supply is more inelastic than the demand.
c.
government has required that buyers remit the tax payments.
d.
government has required that sellers remit the tax payments.
 
 
Figure 6-16

Panel (a)
Panel (b)
  
nar011-1.jpgnar011-2.jpg
Panel (c)
nar011-3.jpg
 
 

 31. 
Refer to Figure 6-16.  In which market will the majority of the tax burden fall on sellers?
a.
market (a)
b.
market (b)
c.
market (c)
d.
All of the above are correct.
 

 32. 
On a graph, the area below a demand curve and above the price measures
a.
producer surplus.
b.
consumer surplus.
c.
deadweight loss.
d.
willingness to pay.
 

 33. 
Suppose Katie, Kendra, and Kristen each purchase a particular type of cell phone at a price of $80. Katie’s willingness to pay was $100, Kendra’s willingness to pay was $95, and Kristen's willingness to pay was $80. Which of the following statements is correct?
a.
For the three individuals together, consumer surplus amounts to $35.
b.
Having bought the cell phone, Kristen is better off than she would have been had she not bought it.
c.
Had the price of the cell phone been $95 rather than $80, Katie and Kendra definitely would have been buyers and Kristen definitely would not have been a buyer.
d.
The fact that all three individuals paid $80 for the same type of cell phone indicates that each one placed the same value on that cell phone.
 

 34. 
Carla would be willing to pay $500 to see Shakira, but she buys a ticket for $200. Calra values the performance at
a.
$200.
b.
$300.
c.
$500.
d.
$800.
 



 
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