ISU ECON 101 - Econ101Exam2-Red-S16-key_Questions

1 Econ 101, Section 5, S16, Schroeter Exam #2, Red Choose the single best answer for each question. Do all of your scratch-work on the exam. 1. If the own-price elasticity of demand for a good is -0.8, then which of the following events isconsistent with a 4% decrease in the quantity demanded of the good? a. a 0.2% increase in the price of the good.b. a 3.2% increase in the price of the good.c. a 4.8% increase in the price of the good.d. a 5% increase in the price of the good. 2. A good will tend to have more elastic demand,a. the greater the availability of close substitutes. b. the more broadly the good is defined.c. in the short-run than in the long-run.d. the more it is regarded as a necessity.3. If the income elasticity of demand for a good is positive it means that the gooda. has few substitutes.b. is a normal good. c. is an inferior good.d. is a necessity.4. Bill’s Bagel Shop sells an average of 120 plain bagels per day when the price is $1.80/bagel.A small increase in the price of flour leads Bill to increase his price for plain bagels to $2.00/bagel. As a result, his average daily sales of plain bagels decreases to 106 per day. Over this range of prices, the elasticity of demand (calculated by the midpoint method) for Bill’s plain bagels is a. -0.667.b. -0.850.c. -1.177. d. -1.500.5. In the competitive market for widgets, supply decreases and, as a result, equilibrium priceincreases by 10% and total expenditure on widgets increases by 4%. Based on this information, we can conclude that a. the supply of widgets is elastic.b. the supply of widgets is inelastic.c. the demand for widgets is elastic.d. the demand for widgets is inelastic.2 6. The demand for gasoline is more elastic in the long-run than in the short-run. The supply ofgasoline has the same elasticities in the long-run and the short-run. What would be the impact on the competitive market for gasoline if supply decreased and remained at the new lower level permanently? a. The equilibrium quantity of gasoline would decrease in the short-run, and decrease further in the long-run. b. The equilibrium price of gasoline would increase in the short-run, and increase further in thelong-run. c. The equilibrium quantity of gasoline would decrease in the short-run, and return part of theway toward its original level in the long-run. d. Both b and c.7. In the competitive market for wheat, demand is inelastic. The development of a new moreproductive hybrid wheat would a. increase equilibrium price and increase the total revenue of wheat farmers.b. increase equilibrium price and decrease the total revenue of wheat farmers.c. decrease equilibrium price and increase the total revenue of wheat farmers.d. decrease equilibrium price and decrease the total revenue of wheat farmers. 8. Which of the following statements explains why government interdiction efforts in markets foraddictive, illegal drugs tend to increase “drug-related” crime (in other words, crimes committed to get the money to buy the drugs)? a. The direct impact of interdiction is on buyers, not sellers.b. Successful drug interdiction policies decrease the demand for illegal drugs.c. Interdiction efforts will reduce the quantity of illegal drugs but, in percentage terms, price will increase more than quantity decreases. d. The demand for illegal addictive drugs is elastic.9. The Iowa minimum wage is currentlya. less than the federal minimum wage.b. equal to the federal minimum wage. c. greater than the federal minimum wage.d. None of the above. (Iowa does not have a state minimum wage.)10. The minimum wage is an example of a _______. Rent control is an example of a _______.a. price floor; price floor.b. price floor; price ceiling. c. price ceiling; price floor.d. price ceiling; price ceiling.11. A price ceiling is binding when it is seta. above the equilibrium price, causing a shortage.b. above the equilibrium price, causing a surplusc. below the equilibrium price, causing a shortage. d. below the equilibrium price, causing a surplus.3 12. Initially there is a binding price ceiling in the competitive market for a good. Assuming thatthe ceiling price remains at the same level, which of the following events could convert the price ceiling from one that is binding to one that is not binding? a. an increase in demand.b. a decrease in supply.c. Both a and b.d. None of the above. 13. Which of the following would we expect to see in a market with a binding price ceiling?a. The government would step in and purchase the surplus at the ceiling price.b. Sellers would offer discounts in an effort to compete more effectively for the limited demand.c. Non-price rationing mechanisms would arise as a means of determining who gets to buy. d. All of the above.14. The federal government uses the revenue from the FICA tax to pay fora. the cost of providing Food Stamps to the poor.b. subsidies to public schools.c. wages and salaries of military personnel.d. Medicare and Social Security. 15. Equilibrium price in the competitive market for a particular good is $5.00/unit. If thegovernment were to impose an excise tax of $1.00/unit, under which of the following circumstances would the impact on sellers’ price be greatest? a. The elasticity of demand is -2.0 and the elasticity of supply is 2.0.b. The elasticity of demand is -2.0 and the elasticity of supply is 0.5. c. The elasticity of demand is -0.5 and the elasticity of supply is 2.0.d. None of the above. (Sellers’ price would remain unchanged at $5.00/unit in all three cases.)16. There is a excise tax of $1.00/unit on the competitive market for a good and, as a result, theprice buyers pay (inclusive of the tax) is $3.50/unit. Which of the following would occur if the tax were repealed? a. The price buyers pay would remain unchanged.b. The price buyers pay would fall to some level between $2.50/unit and $3.50/unit. c. The price buyers pay would fall to exactly $2.50/unit.d. The price buyers pay would fall to some level below $2.50/unit.17. Studies of the competitive market for gasoline have shown that demand is less elastic thansupply. This means that the burden of excise taxes on gasoline falls a. entirely on buyers.b. entirely on sellers.c. more heavily on buyers than sellers. d. more heavily on sellers than buyers.4 Questions 18 and 19 refer to the following demand and supply schedules for a good traded in a competitive market. Price is in $/unit and quantities demanded and supplied are in units/day. When the