Midterm1

Multiple Choice
Identify the choice that best completes the statement or answers the question.

Table 1
Price Quantity
Demanded
Quantity
Supplied
$10 10 60
$8 20 45
$6 30 30
$4 40 15
$2 50 0

____ 1. Refer to Table 1. If the price were $8, a
a. shortage of 20 units would exist, and price would tend to rise.
b. surplus of 25 units would exist, and price would tend to fall.
c. shortage of 25 units would exist, and price would tend to rise.
d. surplus of 45 units would exist, and price would tend to fall.

Figure 1
The vertical distance between points A and B represents a tax in the market.

Supply
Demand
A
B
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Quantity
1
2
3
4
5
6
7
8
9
10
11
12
Price


____ 2. Refer to Figure 1. The loss of consumer surplus associated with some buyers dropping out of the market as
a result of the tax is
a. $0.
b. $1.50.
c. $3.
d. $4.50.


____ 3. Refer to Figure 1. The amount of deadweight loss as a result of the tax is
a. $2.50.
b. $5.
c. $7.50.
d. $10.

Figure 2



____ 4. Refer to Figure 2. Sonia completes her first week of employment working as a hairdresser at a salon. On
Friday of that week, she receives her first paycheck. To which of the arrows does this transaction directly
contribute?
a. B only
b. A and B
c. C only
d. C and D

____ 5. When government imposes a price ceiling or a price floor on a market,
a. price no longer serves as a rationing device.
b. efficiency in the market is enhanced.
c. shortages and surpluses are eliminated.
d. both buyers and sellers become better off.















Figure 3

5
7
3
50 100
D
S
quantity
price


____ 6. Refer to Figure 3. Suppose a tax of $2 per unit is imposed on this market. What will be the new
equilibrium quantity in this market?
a. less than 50 units
b. 50 units
c. between 50 units and 100 units
d. greater than 100 units

____ 7. Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result,
consumer surplus in the television market
a. decreases.
b. is unchanged.
c. increases.
d. may increase, decrease, or remain unchanged.

____ 8. Suppose the government has imposed a price floor on the market for soybeans. Which of the following
events could transform the price floor from one that is not binding into one that is binding?
a. Farmers use improved, draught-resistant seeds, which lowers the cost of growing
soybeans.
b. The number of farmers selling soybeans decreases.
c. Consumers' income increases, and soybeans are a normal good.
d. The number of consumers buying soybeans increases.

____ 9. Suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5 empty rooms for tonight.
If the marginal cost of operating one room for one night is $30 and a customer is willing to pay $60 for the
night, the hotel manager should
a. rent the room because the marginal benefit exceeds the marginal cost.
b. rent the room because the marginal benefit exceeds the average cost.
c. not rent the room because the marginal benefit is less than the marginal cost.
d. not rent the room because the marginal benefit is less than the average cost.

____ 10. A deadweight loss is a consequence of a tax on a good because the tax
a. induces the government to increase its expenditures.
b. induces buyers to consume less, and sellers to produce less.
c. increases the equilibrium price in the market.
d. imposes a loss on buyers that is greater than the loss to sellers.

____ 11. What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell
and the price of tea fell?
a. Price would fall, and the effect on quantity would be ambiguous.
b. Price would rise, and the effect on quantity would be ambiguous.
c. Quantity would fall, and the effect on price would be ambiguous.
d. Quantity would rise, and the effect on price would be ambiguous.

____ 12. Which of the following is not a reason people choose to depend on others for goods and services?
a. to improve their lives
b. to allow them to enjoy a greater variety of goods and services
c. to consume more of each good without working any more hours
d. to allow people to produce outside their production possibilities frontiers

Figure 4
S
D
10 20 30 40 50 60 70 80 90
quantity
2
4
6
8
10
12
14
16
18
20
price


____ 13. Refer to Figure 4. If there is currently a shortage of 20 units of the good, then the law of
a. demand predicts that the price will rise by $2 to eliminate the shortage.
b. supply predicts that the price will rise by $2 to eliminate the shortage.
c. supply and demand predicts that the price will rise by $2 to eliminate the shortage.
d. supply and demand predicts that the price will fall by $2 to eliminate the shortage.
















Figure 5

books
A
B
DVDs


____ 14. Refer to Figure 5. Which of the following events would explain the shift of the production possibilities
frontier from A to B?
a. The economys citizens developed an enhanced taste for books.
b. The economy experienced a technological advance in the production of books.
c. More capital became available in the economy.
d. More labor became available in the economy.

____ 15. Today's supply curve for gasoline could shift in response to a change in
a. today's price of gasoline.
b. the expected future price of gasoline.
c. the number of buyers of gasoline.
d. All of the above are correct.

Figure 6
Demand 1 Demand 2
Supply 1
Supply 2
Quantity
Price

____ 16. Refer to Figure 6. Which of the following combinations will minimize the deadweight loss from a tax?
a. supply 1 and demand 1
b. supply 2 and demand 2
c. supply 1 and demand 2
d. supply 2 and demand 1

Figure 7
Demand 1 Demand 2
Supply 1 Supply 2
A
B
C
D
Quantity
Price


____ 17. Refer to Figure 7. Which of the following movements would illustrate the effect in the market for paper
napkins as a result of a Go Green advertising campaign encouraging people to use cloth napkins?
a. Point A to Point B
b. Point C to Point B
c. Point C to Point D
d. Point A to Point D

____ 18. Which of the following is not an example of a group responding to an incentive?
a. Students attend class because of an attendance policy that reduces their grade for absences.
b. Consumers buy more of a product when it is on sale at a reduced price.
c. Universities offer fewer online classes when they generate more revenue than traditional
classes.
d. Employees work harder to earn higher commissions.

____ 19. The long-run effects of rent controls are a good illustration of the principle that
a. society faces a short-run tradeoff between unemployment and inflation.
b. the cost of something is what you give up to get it.
c. people respond to incentives.
d. government can sometimes improve on market outcomes.

____ 20. Which of the following is a determinant of the market supply curve but not a determinant of an individual
sellers supply?
a. production technology
b. expectations
c. input prices
d. the number of sellers








Figure 8

Supply
2
16
5
40
9
100
14
220
20
430
Quantity
Price


____ 21. Refer to Figure 8. Over which range is the supply curve in this figure the most elastic?
a. $16 to $40
b. $40 to $100
c. $100 to $220
d. $220 to $430

____ 22. Refer to Figure 8. Using the midpoint method, what is the price elasticity of supply between $16 and $40?
a. 0.125
b. 0.86
c. 1.0
d. 2.5

Figure9 Panel (a) Panel (b)
chairs
couches
chairs
couches

____ 23. Refer to Figure 9. The rate of tradeoff between producing chairs and producing couches depends on how
many chairs and couches are being produced in
a. Panel (a).
b. Panel (b).
c. both Panel (a) and Panel (b).
d. neither Panel (a) nor Panel (b).

Figure 10

Demand
Supply
Q1 Q2 Q3
P2
P1
P3
Quantity
Price


____ 24. Refer to Figure 10. At the quantity Q2, the marginal value to buyers
a. and the marginal cost to sellers are both P2.
b. is P2, and the marginal cost to sellers is P3.
c. and the marginal cost to sellers are both P3.
d. is P3, and the marginal cost to sellers is P2.

____ 25. Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly
elastic. A tax of $1 per frame levied on picture frames will decrease the effective price received by sellers of
picture frames by
a. less than $0.50.
b. $0.50.
c. between $0.50 and $1.
d. $1.

____ 26. The quantity sold in a market will decrease if the government
a. decreases a binding price floor in that market.
b. increases a binding price ceiling in that market.
c. increases a tax on the good sold in that market.
d. All of the above are correct.

____ 27. A country that currently does not trade with other countries could benefit by
a. restricting imports and promoting exports.
b. promoting imports and restricting exports.
c. restricting both imports and exports.
d. not restricting trade.








Table 2

Assume that Falda and Varick can switch between producing wheat and producing cloth at a constant rate.

Quantity Produced in 1 Hour
Bushels of Wheat Yards of Cloth
Falda 8 12
Varick 6 15

____ 28. Refer to Table 2. Varick has a comparative advantage in the production of
a. wheat.
b. cloth.
c. both goods.
d. neither good.

Figure 11
D
S1
price ceiling
S2
price of gasoline
quantity of gasoline
P1
P2
P3
Q1 Q3


____ 29. Refer to Figure 11. When the price ceiling applies in this market, and the supply curve for gasoline shifts
from S
1
to S
2
,
a. the market price will increase to P
3
.
b. a surplus will occur at the new market price of P
2
.
c. the market price will stay at P
1
.
d. a shortage will occur at the new market price of P
2
.

____ 30. Which of the following should be held constant when calculating an income elasticity of demand?
a. the quantity of the good demanded
b. the price of the good
c. income
d. All of the above should be held constant.