Econ 101, Sections 3 and 4, S11, Schroeter Exam #2, Special code = 0001 Choose the single best answer for each question. Do all of your scratch-work in the side and bottom margins of pages. 1. If the demand for a good is elastic then an X% increase in the price of the good will result in a. no change in the quantity demanded. b. a decrease in the quantity demanded of X%. c. a decrease in the quantity demanded of less than X%. *. a decrease in the quantity demanded of more than X%. 2. The cross-price elasticity of demand for good A with respect to the price of good B is positive. This means that goods A and B are a. both normal goods. b. both inferior goods. *. substitutes. d. complements. 3. In the competitive market for a certain good, demand is inelastic. Then supply decreases. As a result the absolute value of the percentage change in equilibrium price will be *. greater than the absolute value of the percentage change in equilibrium quantity. b. equal to the absolute value of the percentage change in equilibrium quantity. c. less than the absolute value of the percentage change in equilibrium quantity. d. Impossible to determine without more information. (You would have to know the elasticity of supply.) 4. Consider airfares on roundtrip flights between New York and Des Moines. When the airfare is $310, the number of tickets demanded is 1000 per week. When the airfare is $340, the number of tickets demanded is 920 per week. Over this range of airfares, the elasticity of demand (calculated by the midpoint method) for roundtrip flights between New York and Des Moines is a. -0.83. *. -0.90. c. -1.11. d. -1.21.25. Suppose that a seller is able to charge different prices to two separate groups of customers. One group of customers has elastic demand, and the other group has inelastic demand for her product. Which of the following would result in the greatest increase in her sales revenue? a. increasing the price she charges to the customers with elastic demand and decreasing the price she charges to the customers with inelastic demand. *. increasing the price she charges to the customers with inelastic demand and decreasing the price she charges to the customers with elastic demand. c. increasing the price she charges to both groups of customers. d. decreasing the price she charges to both groups of customers. 6. In the competitive market for widgets, supply is more elastic in the long-run than in the short-run, however demand has roughly equal elasticities in the long-run and in the short-run. What would be the effect of a permanent decrease in demand? a. Equilibrium price decreases in the short-run, and decreases further in the long-run. *. Equilibrium quantity decreases in the short-run and decreases further in the long-run. c. Equilibrium quantity decreases in the short-run, and then returns part of the way toward its original level in the long-run. d. Both a and c. 7. Imagine two supply curves having different positive slopes at a common point of intersection. At that point of intersection, *. the supply curve with the flatter slope is more elastic than the other. b. the supply curve with the steeper slope is more elastic than the other. c. both supply curves have the same elasticity. d. It could be a, b, or c, depending on the coordinates of the point of intersection. 8. Rent control laws dictate a. the exact rent that landlords must charge tenants. *. a maximum rent that landlords may charge tenants. c. a minimum rent that landlords may change tenants. d. a range of rents (from minimum to maximum) that is permissible under the law. 9. A binding price ceiling in a competitive market *. must be at a level below the equilibrium price. b. results in a surplus. c. creates excess supply of the good. d. both a and c. 10. Which of the following would you expect to see in a housing market subject to rent control? *. Landlords skimping on routine building maintenance. b. Landlords offering special enticements (like free internet) to try to attract tenants. c. High vacancy rates; that is, a high proportion of apartments are unoccupied. d. All of the above.311. There is currently a binding price floor in the competitive market for gizmos. The government strictly enforces the price floor but does not "support" it; that is, the government does not routinely purchase the surplus that results. If the price floor is removed, then the price received by sellers will a. decrease and the quantity sold in the market will decrease. *. decrease and the quantity sold in the market will increase. c. increase and the quantity sold in the market will decrease. d. increase and the quantity sold in the market will increase. 12. As of today (February 23, 2011), the federal minimum wage is a. $5.15 per hour. b. $5.75 per hour. *. $7.25 per hour. d. $10.25 per hour. 13. The term tax incidence refers to a. whether buyers or sellers of a good are required to send the tax payment to the government. b. whether the demand curve or the supply curve shifts when the tax is imposed. c. the variation in tax rates from one state to another. *. the distribution of the tax burden between buyers and sellers. 14. Currently, the equilibrium price and quantity in the competitive market for a particular good are $1.00/unit and 1,000 units/day. If the government imposes an excise tax of $0.25/unit on the market, which of the following will occur? a. The price buyers pay (inclusive of the tax) will increase to $1.25/unit. b. The price sellers receive (net of the tax) will fall to $0.75/unit. *. The quantity of the good traded in the market will fall below 1,000 units/day. d. All of the above. 15. The fact that the demand for cigarettes is less elastic than the supply of cigarettes means that cigarette buyers a. bear the full burden of cigarette excise taxes. b. bear none of the burden of cigarette excise taxes. *. bear a larger share of the burden of cigarette excise taxes than cigarette manufacturers. d. bear a smaller share of the burden of cigarette excise taxes than cigarette manufacturers. 16. Initially, there is a binding price floor on the competitive market for a good. Assuming that the floor price remains at the same level, which of the following events could convert the price floor from one that is binding to one that is not binding? *. Supply of the good decreases. b. Demand for the good decreases. c. Both a and b. d. None of the above.417. Workers bear a larger share of the FICA
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