ISU ECON 101 - Econ101Exam2-Red-S16-key_Questions (6 pages)

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 is consistent 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 good a 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 price increases 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 1 6 The demand for gasoline is more elastic in the long run than in the short run The supply of gasoline 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 the long run c The equilibrium quantity of gasoline would decrease in the short run and return part of the way 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 more productive 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 for addictive 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 currently a 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 set a above the equilibrium price causing a shortage b above the equilibrium price causing a surplus c below the equilibrium price causing a shortage d below the equilibrium price causing a surplus 2 12 Initially there is a binding price ceiling in the competitive market for a good Assuming that the 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 for a 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 the government 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 the price 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 than supply 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 3 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 …