sample first midterm Identify the choice that best completes the statement or answers the question 1 Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded Price elasticity of demand for X is a 0 b 1 c 6 d 36 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 2 When a tax is imposed on the buyers of a good the demand curve shifts 3 Which of the following is not correct a Evaluating statements about how the world should be involves values as well as facts b Positive statements can in principle be confirmed or refuted by examining evidence c Normative statements can be judged using data alone d Deciding what is good or bad policy is not just a matter of science Figure 4 9 price 18 16 14 12 10 8 6 4 2 S D 10 20 30 40 50 60 70 80 90 quantity 4 Refer to Figure 4 9 If there is currently a shortage of 20 units of the good then a b c d the law of demand predicts that the price will rise by 2 to eliminate the shortage the law of supply predicts that the price will rise by 2 to eliminate the shortage the law of supply and demand predicts that the price will rise by 2 to eliminate the shortage the law of supply and demand predicts that the price will fall by 2 to eliminate the shortage 5 If the price of a good is low a b c d firms would increase profit by increasing output the quantity supplied of the good could be zero the supply curve for the good will shift to the left firms can and should raise the price of the product 1 Figure 8 4 The vertical distance between points A and B represents a tax in the market A Supply B Demand Price 28 26 24 22 20 18 16 14 12 10 8 6 4 2 a 24 b 16 c 14 d 10 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 Quantity 6 Refer to Figure 8 4 The price that sellers effectively receive after the tax is imposed is 7 At the equilibrium price the quantity of the good that buyers are willing and able to buy a b c d is greater than the quantity that sellers are willing and able to sell exactly equals the quantity that sellers are willing and able to sell is less than the quantity that sellers are willing and able to sell a and c could both be correct Table 7 2 This table refers to five possible buyers willingness to pay for a case of Vanilla Coke Buyer David Laura Megan Mallory Audrey Willingness To Pay 8 50 7 00 5 50 4 00 3 50 8 Refer to Table 7 2 If the price of Vanilla Coke is 6 90 who will purchase the good all five individuals a b Megan Mallory and Audrey c David Laura and Megan d David and Laura 2 9 A legal maximum on the price at which a good can be sold is called a price 10 The deadweight loss from a 1 tax will be smallest in a market with inelastic supply and elastic demand inelastic supply and inelastic demand elastic supply and elastic demand elastic supply and inelastic demand Supply floor subsidy support ceiling a b c d a b c d Figure 5 14 Price 9 8 7 6 5 4 3 2 1 a 0 75 b 1 00 c 1 20 d 1 25 5 10 15 20 25 30 35 40 Quantity 11 Refer to Figure 5 14 Using the midpoint method what is the price elasticity of supply between 4 and 6 12 If the price elasticity of supply is zero then a b c d supply is more elastic than it is in any other case the supply curve is horizontal the quantity supplied is the same regardless of price a change in demand will cause a relatively small change in the equilibrium price 13 Economists generally believe that rent control is a b c d an efficient and fair way to help the poor inefficient but the best available means of solving a serious social problem a highly inefficient way to help the poor raise their standard of living an efficient way to allocate housing but not a good way to help the poor 14 Which of the following equations is valid a Consumer surplus Total surplus Cost to sellers b Producer surplus Total surplus Consumer surplus c Total surplus Value to buyers Amount paid by buyers d Total surplus Amount received by sellers Cost to sellers 15 If the quantity supplied responds only slightly to changes in price then 3 a b c d supply is said to be elastic supply is said to be inelastic an increase in price will not shift the supply curve very much even a large decrease in demand will change the equilibrium price only slightly 16 A key determinant of the price elasticity of supply is the time horizon a b income of consumers c price elasticity of demand d importance of the good in a consumer s budget Table 12 13 The following table shows the marginal tax rates for unmarried individuals for two years 2005 2006 On Taxable Income Over 0 The Tax Rate is 20 On Taxable Income 0 to 15 000 15 001 to 40 000 40 001 to 75 000 75 001 to 120 000 Over 120 000 The Tax Rate is 10 15 20 25 17 Refer to Table 12 13 Which of the following best describes the tax schedule in 2005 a Proportional tax b Progressive tax c Regressive tax d Vertical tax 18 In a market economy supply and demand are important because they a play a critical role in the allocation of the economy s scarce resources b determine how much of each good gets produced c d All of the above are correct can be used to predict the impact on the economy of various events and policies 19 When a surplus exists in a market sellers a b c d raise price which increases quantity demanded and decreases quantity supplied until the surplus is eliminated raise price which decreases quantity demanded and increases quantity supplied until the surplus is eliminated lower price which increases quantity demanded and decreases quantity supplied until the surplus is eliminated lower price which decreases quantity demanded and increases quantity supplied until the surplus is eliminated 4 Figure 8 2 The vertical distance between points A and B represents a tax in the market Supply Price A B 12 11 10 9 8 7 6 5 4 3 2 1 0 5 1 1 5 2 2 5 3 3 5 4 4 5 5 Quantity Demand 20 Refer …
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