Summer Exam 2

Question 1

Choose each of the following options that correctly describes the results of a binding price ceiling.
More transactions occur.
The price rises.
Fewer transactions occur.
Quantity supplied decreases.
A shortage.
The price falls.
Quantity demanded decreases.
Quantity demanded increases.
Quantity supplied increases.
A surplus.

Answer 1

Fewer transactions occur.
Quantity supplied decreases.
A shortage.
The price falls.
Quantity demanded increases.

Question 2

The market for bowling balls is described below. If the government adopts a $80 price ceiling on bowling balls, how large will the resulting shortage be?

Price Qd Qs
$120 16 21
$100 18 18
$80 20 16
$60 22 14

Answer 2

4

Question 3

True or false: consider the example of the price ceiling on textbooks from class. When the price ceiling at $50 is implemented below the original equilibrium price of $100, the equilibrium price falls.

Answer 3

False

Question 4

Which of the following CANNOT reduce the equilibrium quantity sold in a market?
A price floor
Both
A price ceiling
Neither

Answer 4

Neither

Question 5

Suppose the going rate (i.e., the price) for a room at Hotel Madison is $50 per night. At that price, the hotel has an average of 40 occupants per night. After raising the rate to $150, this average decreases to 10 occupants. What is the elasticity of demand for hotel rooms at these rates? If necessary, round your answer to the nearest tenth and include leading zeros in a decimal. (That is, if you find an answer of 0.932, type “0.9”).

Answer 5

1.2 OR -1.2 (neg assumed)

Question 6

For a demand curve that always maintains a slope of -1:

demand is elastic at some prices, but inelastic at others.
demand is always unit elastic.
consumers always increase quantity demanded by one unit when the price rises by $1
a firm maximizes revenue by charging the highest possible price.

Answer 6

demand is elastic at some prices, but inelastic at others.

Question 7

Harrisonburg Electric Cooperative raises the price of one kilowatt of electricity by 10%, leading to a 5% reduction in quantity demanded. From these facts, demand for electricity is:
Unit elastic.
Elastic.
Perfectly elastic.
Inelastic.

Answer 7

Inelastic.

Question 8

In raising its price from $6 to $7, the quantity demanded of burritos from Chipotle falls from 12 units to 11. What is the overall change in revenue? If revenue shrinks, include a negative sign in your answer.

Answer 8

5

Question 9

In raising its price from $6 to $7, the quantity demanded of burritos from Chipotle falls from 12 units to 11. What is the overall change in revenue? If revenue shrinks, include a negative sign in your answer.

Answer 9

6 or -6 (neg assumed)

Question 10

When season dues for the adult Harrisonburg soccer league increase from $175 to $225, demand for adult league basketball memberships increases from 50 people to 350 people. What is the cross-price elasticity between soccer and basketball league memberships? If necessary, round your answer to the nearest tenth and include leading zeros in a decimal. (That is, if you find an answer of 0.932, type “0.9”).

Answer 10

6

Question 11

Cross-price elasticity between soccer and basketball league memberships? 6

Using only information provided in the last question, what is true about basketball and soccer leagues?
The two are complements.
The two are substitutes.
The two are luxury goods.
The two are necessary goods.

Answer 11

The two are substitutes.

Question 12

The following table describes Hamilton’s Harmonicas production costs for harmonicas.

Quantity Cost to produce
1 10
2 30
3 60
4 100
5 150
For example, producing the first unit costs $10. Producing the second unit costs $30 (and therefore the total costs of producing two units is $40). How much producer surplus does Hamilton’s Harmonicas earn if the price of harmonicas is $120? Your answer should be a whole number - no rounding is necessary.

Answer 12

280

Question 13

When income increases from $9,400 to $10,600, JMU graduate students purchase 490 pizzas per week instead of 510. What is the income elasticity for pizza? If necessary, round your answer to the nearest tenth and include leading zeros in a decimal. (That is, if you find an answer of 0.932, type “0.9”).

Answer 13

-0.3

Question 14

Which of the following events would cause demand for burritos to decrease? IF MORE THAN ONE ANSWER APPLIES, CHECK MULTIPLE BOXES.

A shortage of burritos.
A new tax on burrito consumption is introduced.
An outbreak of salmonella (food poisoning) at these restaurants.
An decrease in income if burritos are an inferior good
An increase in the price of hamburgers.

Answer 14

A new tax on burrito consumption is introduced.
An outbreak of salmonella (food poisoning) at these restaurants.

Question 15

The elasticity of demand measures:

how sensitive changes in quantity demanded are to changes in demand for a product.
how responsive consumers’ quantity demanded is to changes in a good’s price.
the slope of the demand curve.
how frequently a product’s price changes, in percentage terms.

Answer 15

how responsive consumers’ quantity demanded is to changes in a good’s price.

Question 16

Suppose the government imposes a tax on iPhones. Initially, the market is in equilibrium. The tax causes a decrease in the quantity traded in the market and results in a deadweight loss. Which of the following statements is correct?

Deadweight loss represents the inefficiency in the market due to the tax and is the loss of potential economic surplus.
Deadweight loss is the decrease in producer surplus caused by the tax.
Deadweight loss represents the tax revenue collected by the government.
Deadweight loss is the decrease in consumer surplus caused by the tax.

Answer 16

Deadweight loss represents the inefficiency in the market due to the tax and is the loss of potential economic surplus.

Question 17

Consider the market for pens. Two things happen: 1) students increasingly take notes on computers instead of paper and 2) ink prices rise. Choose the two correct options result.

The quantity increases.
The quantity change is ambiguous.
The price increases.
The price decreases.
The price change is ambiguous.
The quantity decreases.

Answer 17

The price change is ambiguous.
The quantity decreases.

Question 18

An increase in price will lead to an increase in revenue:
if the income elasticity is greater than zero.
only when demand is inelastic.
regardless of the elasticity of demand.
only when demand is elastic.

Answer 18

only when demand is inelastic.

Question 19

Suppose the following describes your willingness to pay for pizza:

$7 for the first piece
$5 for the second piece
$4 for the third piece
$3 for the fourth piece
$2 for the fifth piece.
If each piece of pizza costs $3, then:

you would consume five pieces of pizza.
consumer surplus would rise when the price rises.
you would be satisfied after the first two pieces of pizza and not buy a third piece.
your consumer surplus from eating pizza would be $7

Answer 19

your consumer surplus from eating pizza would be $7

Question 20

If the demand for a good decreases, then producer surplus:
decreases.
changes indeterminately.
does not change.
increases.

Answer 20

decreases.

Question 21

Consider the market for Ramen noodles, an inferior good. Two things happen in Harrisonburg: 1) Incomes rise and 2) the number of Ramen restaurants rises. Choose the two following options that are correct according to the supply and demand model.

Quantity change is ambiguous
Price falls
Quantity rises
Price change is ambiguous
Quantity falls
Price rises

Answer 21

Quantity change is ambiguous
Price falls

Question 22

Local legislators pass a new tax on cigarettes to try to decrease the prevalence of smoking. What effects will the tax have on the quantity of cigarettes consumed, the price consumers pay, and the amount sellers make for each unit sold?
Consumption increases, consumer price increases, producer price decreases.
Consumption decreases, consumer price increases, producer price increases.
Consumption decreases, consumer price decreases, producer price decreases.
Consumption decreases, consumer price increases, producer price decreases.

Answer 22

Consumption decreases, consumer price increases, producer price decreases.

Question 23

If the supply of a good increases, then consumer surplus:
does not change.
decreases.
changes indeterminately.
increases.

Answer 23

increases.

Question 24

If the elasticity of demand for winter break packages to Massanutten is -3 and you notice that there are 15% more visitors than there were last year, then by what percent did the price change this year? Round your answer to the nearest tenth and do not include the percentage sign.

Answer 24

-5 or 5

Question 25

Consider the market for sandwich rolls, which are a complement to BBQ chicken. Two things happen: 1) The price of BBQ chicken rises due to a bout of avian flu doing the rounds and 2) wages in the bread industry rise. Choose the two following options that are correct according to the supply and demand model.

Price rises
Quantity falls
Quantity rises
Quantity change is ambiguous
Price change is ambiguous
Price falls

Answer 25

Quantity falls
Price change is ambiguous

Question 26

The government of Oakland introduces a “sugar tax” on consumers of $1 on each 2-liter bottle of soda that is sold. If the elasticity of demand is 0.8, then the percent of the tax burden that is borne by consumers is definitely:
less than 80%.
unknown given the information given.
greater than 80%.
equal to 80%.

Answer 26

unknown given the information given.

Question 27

When the price of a day pass to Shenandoah National park increases from $10 to $30, quantity demanded decreases from 100 passes to 50. At these prices, what is the elasticity of demand for park passes? If necessary, round your answer to the nearest tenth and include leading zeros in a decimal. (That is, if you find an answer of 0.932, type “0.9”).

Answer 27

-0.7 or 0.7

Question 28

Arbitrageurs (people who engage in arbitrage) decide to practice their craft in the market for corn. Which of the following will happen?

Corn will become less expensive during the offseason than in previous offseasons.
Corn will become less expensive during the harvest season than in previous harvest seasons.
The offseason price of corn will be consistently less than the harvest season price.
Seasonal price fluctuations of corn will increase.

Answer 28

Corn will become less expensive during the offseason than in previous offseasons.

Question 29

A $1 tax is levied on soda in Philadelphia. Once the market re-equilibrates, the new consumer price is $0.80 above what it used to be and the new producer price is $0.20 below what it used to be. If the elasticity of supply is equal to 4, then demand for soda is:

inelastic
Not enough information is provided to know.
elastic
unit elastic

Answer 29

unit elastic

Question 30

Choose each of the following options that correctly describes the results of a binding price ceiling.

Quantity demanded increases
A surplus
Quantity supplied decreases
A shortage
The price falls
Quantity demanded decreases
The price rises
Quantity supplied increases
More transactions occur
Fewer transactions occur

Answer 30

Quantity demanded increases
Quantity supplied decreases
A shortage
The price falls
Fewer transactions occur

Question 31

When a market is in equilibrium, consumer surplus is always _____________ producer surplus.
equal to
less than
greater than.
None of the other options are correct.

Answer 31

None of the other options are correct.

Question 32

When the price of a barrel of oil increases from $97.50 to $102.50, the quantity of oil supplied increases from 9,000 barrels to 11,000. Therefore, the elasticity of supply is:

Answer 32

4

Question 33

Many airlines, including Delta, American, and Southwest, offer flights from Washington DC to New York. The demand for tickets from American for that route will be:
more elastic than overall demand for flights on that route.
less elastic than overall demand for flights on that route.
elastic for business travelers but inelastic for vacation-goers.
increased if new options such as monorail become available on the same route.

Answer 33

more elastic than overall demand for flights on that route.

Question 34

When average income in the Shenandoah valley increases from $35,000 per household to $45,000 per household, demand for Shenandoah National park passes increases from 1,000 per year to 3,000. What kind of products are park passes?
Inferior good.
Luxury good.
Complementary good.
Necessary good.

Answer 34

Luxury good.

Question 35

Consider the market for bubble gum: there are currently 100 consumers who collectively buy 300 packs when the price of each one is $2. For these 100 people, the demand for gum is perfectly inelastic. Because of population growth, the number of potential gum consumers increases by 50 to 150. What will happen to the consumer surplus enjoyed by the original 100 consumers when the market re-equilibrates?

Consumer surplus for these 100 rises
Consumer surplus for these 100 falls
There is not enough information to say.

Answer 35

Consumer surplus for these 100 falls

Question 36

Demand for iPhones is inelastic. Therefore:
increasing the price by 10% will lower the quantity demanded by more than 10%.
iPhones would be considered a luxury good.
an increase in price will increase the revenue Apple earns from selling iPhones.
demand for iPhones will not change when the Samsung Galaxy becomes more expensive.

Answer 36

an increase in price will increase the revenue Apple earns from selling iPhones.

Question 37

If the price of a Playstation 5 console were to increase from $900 to $1,100, demand for Playstation games would decrease from 2,400 to 1,600 games per month. What is the cross-price elasticity between these two products? If necessary, round your answer to the nearest tenth and include leading zeros in a decimal. (That is, if you find an answer of 0.932, type “0.9”).

Answer 37

-2

Question 38

Economists have estimated an income elasticity for sourdough bread (from the farmer’s market) to be 0.4. Therefore, an increase in income in an area will cause the price of this good to ______________, the quantity to ______________, and overall spending on this good to ____________.
Decrease, decrease, decrease.
Increase, increase, increase.
Increase, decrease, uncertain.
Decrease, increase, uncertain.

Answer 38

Increase, increase, increase.

Question 39

JMU raises the price of baseball hats at the university bookstore from $20 to $25. As a result, the quantity demanded falls from 100 units to 90 and total revenue rises from $2,000 to $2,250. Remember that this overall change masks two underlying affects. By how much does revenue change specifically due to the higher price (as opposed to the lower quantity)?

Answer 39

450

Question 40

JMU raises the price of baseball hats at the university bookstore from $20 to $25. As a result, the quantity demanded falls from 100 units to 90 and total revenue rises from $2,000 to $2,250. Remember that this overall change masks two underlying affects. By how much does revenue change specifically due to the lower quantity (as opposed to the higher price)?

Answer 40

-200