Question 1
From an individual's demand curve for a good, which of the following may be determined?
i. the quantity demanded at a given price, holding all other factors constant
ii. the total expenditures on the good at a given price, holding all other factors constant
iii. how quantity demanded changes if the price of the good changes, holding all other factors constant
i
ii
iii
i and ii
i and iii
i, ii, and iii
Question 2
The market supply curve for a good is derived by:
i. summing the quantity supplied by each firm at a given price and then repeating this over the range of prices
ii. horizontally summing the supply curves of the individual firms in the market
iii. vertically summing the supply curves of the individual firms in the market
i
ii
iii
i and ii
i and iii
Question 3
Consider a firm that produces and sells units of output in a perfectly competitive market. If its supply curve is vertical, then:
the law of supply fails to hold, and producer output is completely insensitive to changes in price
the law of supply fails to hold, and producer output is highly sensitive to changes in price
the law of supply holds, and producer output is completely insensitive to changes in price
the law of supply holds, and producer output is highly sensitive to changes in price
Question 4
Using the demand and supply framework discussed in class and chapters 3 and 4 of the text, it may be concluded that in order for a good to be exchanged between a seller and a buyer, it must be that:
buyer minimum willingness-to-pay is greater than or equal to seller maximum willingness-to-accept
buyer minimum willingness-to-pay is greater than seller maximum willingness-to-accept
buyer maximum willingness-to-pay is greater than seller minimum willingness-to-accept
buyer maximum willingness-to-pay is greater than or equal to seller minimum willingness-to-accept
Question 5
An increasing concern regards the affects of sustained summer droughts (water shortages) on the domestic supply of wheat. Noting that wheat is a primary ingredient in the production of bread and that potatoes are a substitute for bread, if the supply of wheat declines then it is reasonable to expect:
the price of wheat to fall, the supply of bread to increase, and the demand for potatoes to increase
the price of wheat to fall, the supply of bread to increase, and the demand for potatoes to decrease
the price of wheat to rise, the supply of bread to decrease, and the demand for potatoes to increase
the price of wheat to rise, the supply of bread to decrease, and the demand for potatoes to decrease
the price of wheat to rise, the supply of bread to increase, and the demand for potatoes to increase
the price of wheat to rise, the supply of bread to increase, and the demand for potatoes to decrease
Question 6
Consider two goods, say X and Y, each of which possesses a downward sloping demand curve. Suppose the amount of X that consumers purchase per period depends upon its price and the price of Y; similarly, the amount of Y that consumers purchase per period depends upon its price and the price of X. Given this information, which of the following is/are true?
i. if consumers confront a decrease in the price of X, the demand for X will increase
ii. if consumers confront a decrease in the price of X, the demand for Y will increase if X and Y are substitutes
iii. if consumers confront a decrease in the price of X, the demand for Y will decrease if X and Y are substitutes
iv. if consumers confront an increase in the price of X, the demand for Y will increase if X and Y are complement goods
v. if consumers confront an increase in the price of X, the demand for Y will decrease if X and Y are complement goods
ii and iv
i, ii, and iv
iii and v
i, iii, and v
Question 7
An example of an ad valorem tax is:
i. a per-pack tax imposed by a local municipality on the sale of cigarettes, irrespective of the cigarette brand
ii. a sales tax charged by a local grocery store on products other than food
iii. the 18.3 cent federal tax charged on each gallon of gasoline purchased
iv. a residential property tax paid by a homeowner that depends upon the property's value as determined by a county tax appraiser
i
ii
iii
iv
i and iii
ii and iv
Question 8
The consumer surplus derived by an individual from a good or service:
is the difference between the maximum amount the consumer is willing to pay on each unit and the price he/she actually pays
is the difference between the maximum amount the consumer is willing to pay on each unit and the minimum prices that producers are willing to accept
is the difference between the minimum amount the consumer is willing to pay on each unit and the price he/she actually pays
will increase if price increases
Question 9
Suppose the market demand for a good is described by the equation P = 80 - 0.5Q. If a change in market supply results in price decreasing from P0 = $50 to P1 = $40, then the resulting change in consumer surplus is:
Q = 0 units of the good, because in equilibrium there is not a surplus (nor a shortage) of units
$400
$500
$700
$900
$1300
Question 10
Suppose the market supply for a good is described by the equation P = 20 + 0.5Q. If the equilibrium price in the market is P = $40, then the producer surplus is:
Q = 0 units of the good, because in equilibrium there is not a surplus (nor a shortage) of units
$400
$500
$700
$900
$1300
Question 11
Consider a perfectly competitive market described by the per-period supply function P = 20 + 0.3Q and per-period demand function P = 120 - 0.2Q. If the government intervenes in the market and imposes upon firms a specific tax of t = $5 per unit of output sold, then once the market achieves the new (regulated) market equilibrium:
$900 in tax revenues will be generated each period
$950 in tax revenues will be generated each period
$1000 in tax revenues will be generated each period
$1050 in tax revenues will be generated each period
Question 12
Consider a perfectly competitive market described by the per-period supply function P = 20 + 0.3Q and per-period demand function P = 120 - 0.2Q. If the government intervenes in the market and imposes upon firms a specific tax of t = $5 per unit of output sold, then once the market achieves the new (regulated) market equilibrium:
a deadweight loss of $25 will result each period
a deadweight loss of $50 will result each period
a deadweight loss of $75 will result each period
a deadweight loss of $100 will result each period
like with the unregulated competitive market, there will be no deadweight loss in the regulated competitive market