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Practice Midterm 2 1 The price elasticity of demand is computed as the percentage change in the divided by the percentage change in A quantity demanded the quantity supplied B price the quantity demanded C quantity demanded income D quantity demanded the price 2 If the estimated price elasticity of demand for foreign travel is 4 A a 20 decrease in the price of foreign travel will increase quantity demanded by 80 the demand for foreign travel is inelastic B C a 10 increase in the price of foreign travel will increase quantity demanded by D a 20 increase in the price of foreign travel will increase quantity demanded by 40 80 3 If the price of chocolate covered peanuts decreases from 1 10 to 0 95 and the quantity demanded increases from 190 bags to 215 bags then the price elasticity of demand by the midpoint method is A 1 25 B 0 5 C 0 8 D 2 Use the following to answer question 4 Table Price Elasticity Page 1 4 Table Price Elasticity Look at the table Price Elasticity What is the price elasticity of demand between 1 00 and 0 75 A 0 54 B 0 66 C 0 75 D 1 00 elasticity of demand for Big Macs is A 0 B 1 C greater than 1 D less than 1 but greater than 0 response A an inelastic B an elastic C a unit elastic D a perfectly elastic 5 Each month Jessica buys exactly 15 Big Macs regardless of the price Jessica s price 6 If a 20 price increase generates a 20 decrease in quantity demanded then this is 7 When a public transit system such as a subway or bus line raises its fares its total revenue may increase This suggests that demand is A unstable B price inelastic C price elastic D price unit elastic 8 There are several close substitutes for Bayer aspirin but fewer substitutes for a complete medical examination Therefore all other things equal you would expect the demand for A medical exams to be more price elastic B Bayer aspirin to be more price elastic C Bayer aspirin to be more price inelastic D the two to be equally price elastic Page 2 9 Suppose the cross price elasticity of demand for butter and margarine is equal to 0 96 but the cross price elasticity for water and lemons is 0 13 This means that butter and margarine are while water and lemons are A complements substitutes B substitutes complements C inelastic goods elastic goods D elastic goods complements 10 Nico rents 10 more DVDs when his income increases by 20 Based on this information we know that DVDs A are a normal good B are an inferior good C have many substitutes D have come down in price Use the following to answer question 11 11 Table Market for Pizza If income changes from 1 000 to 1 400 per month by the midpoint method the income elasticity of demand at a price of 10 per pizza is A 1 2 B 1 2 C 0 825 D 0 40 Page 3 12 Suppose the government imposes a 10 excise tax on the sale of sweaters by charging suppliers 10 for each sweater sold If the demand curve is downward sloping and the supply curve is upward sloping A B consumers of sweaters will bear the entire burden of the tax C D the price of sweaters will increase by less than 10 the price of sweaters will decrease by 10 the price of sweaters will increase by 10 13 Assuming a normal upward sloping supply curve and downward sloping demand curve if the government imposes a 5 excise tax on leather shoes and collects the tax from the suppliers the price of leather shoes will A B C D increase by 5 increase by more than 5 increase by less than 5 increase but we cannot determine by how much 14 A higher rate is most likely to decrease the amount of revenue that the government collects from an excise tax if demand is and supply is A elastic elastic B elastic inelastic C inelastic elastic inelastic inelastic D 15 As part of an antiobesity program the government levies an excise tax on high fat foods We expect consumers to pay almost all of this tax if demand is and supply is A B C elastic elastic D elastic inelastic inelastic inelastic inelastic elastic Page 4 Use the following to answer question 16 Figure Tax Incidence 16 Figure Tax Incidence Look at the figure Tax Incidence All other things unchanged when a good or service is characterized by a relatively elastic demand as shown in panel the greater share of the burden of an excise tax on it is borne by A D buyers B D sellers C C sellers D C buyers Page 5 Use the following to answer questions 17 18 Figure The Market for Blue Jeans 17 Figure The Market for Blue Jeans Look at the figure The Market for Blue Jeans The government recently levied a 10 tax on the producers of blue jeans What area or areas in the graph identify tax revenue A a b c B b d C c e D d e f 18 Figure The Market for Blue Jeans Look at the figure The Market for Blue Jeans The government recently levied a 10 tax on the producers of blue jeans What is the deadweight loss A 1 000 B 500 C 250 D 1 250 Page 6 Use the following to answer question 19 Figure The Market for Tea in Sri Lanka 19 Figure The Market for Tea in Sri Lanka Look at the figure The Market for Tea in Sri Lanka In autarky the price is P1 consumer surplus equals and producer surplus equals A F G H I J K B F G H I J K C F I J K D F G H J K 20 If a country s price in the absence of trade is lower than the price with trade then the domestic quantity supplied with trade is the domestic quantity demanded A greater than B less than C equal to D not comparable to Page 7 Use the following to answer questions 21 22 Figure The Domestic Market for Digital Cameras 21 Figure Domestic Market for Digital Cameras Look at the figure The Domestic Market for Digital Cameras Assume that PA is the autarky price and PW is the world price Total surplus before international trade is equal to the area A A B C B A B C A B D E D A 22 Figure Domestic Market for Digital Cameras Look at the figure The Domestic Market for Digital Cameras Assume that PA is the autarky price and PW is the world price Consumer surplus after international trade is equal to the area A A B A B C A B D E D A B D E C 23 In 2002 the steel industry argued that higher tariffs on steel were necessary to help fight infant industry the war on terrorism …


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CU-Boulder ECON 2010 - Practice Midterm 2

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