EC201 Lab Quiz 2 LAB SECTION NAME STUDENT ID 1 Suppose a rent control law is passed in the city of Raleigh If the equilibrium rent for a one bedroom apartment is 550 per month then ceteris paribus A There will be a shortage of one bedroom apartments if the rent ceiling is below 550 per month B There will be a surplus of one bedroom apartments if the rent ceiling exceeds 550 per month C There will be a surplus of one bedroom apartments if the rent ceiling is below 550 per month D There will be shortage of one bedroom apartments if the rent ceiling exceeds 550 per month 2 Consider the market for sugar illustrated in the figure below Suppose the market is perfectly competitive and initially in equilibrium at a price of P2 and a quantity of Q2 Now suppose the government applies a price floor of P3 Which of the following is NOT true after imposing the price floor A B C D Area B is the surplus transfer from producers to consumers Consumer surplus is area A The economy become less efficient since there are deadweight loss Quantity demanded is smaller than quantity supplied and creating a surplus 3 Suppose the price elasticity of demand for soft drink is 1 75 Further suppose that there is an unusually poor yield of corn this year which is an important input producing soft drink It can be foreseen that the soft drink producer will see their prices while their total revenue will A increase increase B increase decrease C decrease increase D decrease decrease 4 Suppose the price elasticity of demand for North Carolina peanuts is 1 Last year NC producers sold 12 million pounds of peanuts at a price of 2 00 per pound This year the peanut crop was damaged by Hurricane Jeanne and as a result the quantity exchanged in the market was reduced by 10 percent Ceteris paribus it follows that this year s equilibrium price of peanuts will be A 0 20 per lb B 2 10 per lb C 0 10 per lb D 2 20 per lb 5 Suppose the producer of a good with perfectly inelastic demand doubles the price of the good what will happen to producer s revenue A Revenue increases but less than two times of original revenue B Revenue increases and equal to two times of original revenue C Revenue increases but greater than two times of original revenue D Revenue decreases 6 The demand for broccoli is likely to be the demand for green vegetable in general A more elastic than B perfectly elastic compared to C less elastic than D perfectly inelastic compared to 7 Which of the following most accurately describes a key difference between the corporate form of ownership and sole proprietorship A Sole proprietorships have limited liability whereas corporations have unlimited liability B Corporations are able to raise funds by selling debt e g bonds whereas sole proprietorships only issue stock C Sole proprietors are subject to double taxation whereas corporations only pay taxes on dividends D Sole proprietorships have unlimited liability whereas corporations have limited liability 8 Suppose you read in the Wall Street Journal that Wal Mart said its profit rose 13 in the most recent quarter Ceteris paribus during that quarter you would probably have been financially better off owning Wal Mart s rather than its A stock bonds B bonds stock C pigs geese D geese pigs 9 Suppose you are analyzing the balance sheet of a commercial bank and the balance sheet shows stockholder equity or bank capital as it is sometimes called to be 50 billion Now suppose in a takeover another bank purchases the first bank for 15 billion Ceteris paribus which of the following explains this scenario A The market value of the firm s liabilities was less than the balance sheet indicated B The market value of firm s assets minus the market value of the firm s liabilities was 35 billion C The market value of firm s assets was less than the balance sheet indicated D The market value of firm s assets minus the market value of the firm s liabilities was 65 billion 10 Suppose you analyze a stock that currently pays a 1 00 annual dividend it is discounted at an annual rate of 5 and the dividend is not expected to grow Calculate the expected stock price If the actual market price of the stock is currently 18 5 are you going to buy or sell the stock right now