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Mehmet S. Tosun
ECON 102 Homework 2 (Due Friday, June 1, 2012) (Answer All Questions on Scantron Form No. 882-E) 1. Which of the following is an example of an excise tax? A) a tax of $0.41 per gallon of gas B) a tax on the value of your property C) a one-time local government tax of $50 D) a tax of 12.4% of your wages
2. State governments place excise taxes on cigarettes because: A) they want to reduce deadweight loss. B) they want to discourage cigarette smuggling. C) they want to subsidize tobacco farming. D) it is an easy way to raise tax revenue while discouraging smoking.
3. The incidence of a tax: A) is a measure of the revenue the government receives from the tax. B) refers to who writes the check to the government. C) refers to who in reality pays the tax to the government. D) is a measure of the deadweight loss from the tax.
4. Suppose the price elasticity of demand for yachts equals 4.04, while the price elasticity of supply for yachts equals 0.22. If Congress reinstates a luxury tax on yachts, who will pay more of the tax? A) Yacht builders will pay more. B) Yacht buyers will pay more. C) Yacht builders and buyers will pay equally. D) It's impossible to tell without additional information.
C) increase from $2 to $2. D) increase from $2 to $2.25. Page 2 . but we cannot determine by how much. the government assesses a tax of $0. C) borne entirely by producers. If demand is perfectly inelastic and the supply curve is upward-sloping.75 on each latte. with the burden falling mainly on consumers. D) borne entirely by consumers.50. The deadweight loss will be least when: A) both demand and supply curves are elastic. C) the demand is elastic and supply is inelastic. D) the demand is inelastic and supply is elastic. B) shared by consumers and producers. in the market for lattes shown in the figure. 6. Tosun Use the following to answer question 5: Figure: Market for Lattes 5.ECON 102.Principles of Microeconomics Mehmet S. B) change. The governor wants to impose a $1 excise tax on some good—he doesn't care which— but he does want to minimize the deadweight loss. the price the consumer pays for a latte after the tax will: A) increase from $2 to $2. 7. B) both demand and supply are inelastic.003 .75. then the burden of an excise tax is: A) shared by consumers and producers. (Figure: Market for Lattes) If. with the burden falling mainly on producers.
003 . C) greater in Panel D than in Panel A. the deadweight loss of an excise tax is likely to be: A) greater in Panel B than in Panel A. B) greater in Panel C than in Panel D.ECON 102. D) greater in Panel C than in Panel A. Page 3 .Principles of Microeconomics Mehmet S. Tosun Use the following to answer question 8: Figure: Tax Incidence 8. (Figure: Tax Incidence) Based on the figure.
A tax that takes a larger share of the income of high-income taxpayers than of lowincome taxpayers is called a: A) progressive tax. Page 4 .003 .ECON 102. B) $1.50. (Figure: The Gas Market) The figure represents the market for gasoline. Based on the graph. the incidence of the tax on suppliers is: A) $15. Tosun Use the following to answer question 9: Figure: The Gas Market 9. 10. An excise tax has been levied on each gallon of gasoline supplied by producers. B) regressive tax. B) low revenue yield. C) flat tax.000. 11. D) $1. D) ability to pay and benefits received.Principles of Microeconomics Mehmet S.50. Criteria that economists use in selecting a tax system include: A) only benefits received. D) sales tax. C) $0. C) only ability to pay.
D) proportional.000 is not taxed. D) regressive tax principle.ECON 102.000. while accounting costs do not. economic profit is: A) negative. 14. Page 5 .003 . C) regressive tax. a tax of $20 on an income of $200. Paying a tax of $10 on an income of $100. Accounting profit differs from economic profit because: A) economic costs include depreciation.Principles of Microeconomics Mehmet S. 15. D) benefits tax. B) benefits principle. C) of differences in the manner in which revenue is calculated. 13. while accounting costs include explicit costs only. Suppose Governor Meridias initiates a payroll tax of 10% on all income up to $50. and a tax of $30 on an income of $300 is an example of a: A) proportional tax. while economic costs include only explicit costs. B) greater than accounting profit. D) less than accounting profit. Any income above $50. C) ability-to-pay principle. Paying a fee every time you use the municipal golf course is an example of the: A) progressive tax principle. 16. D) economic costs are generally higher than accounting costs because economic costs include all opportunity costs. B) structural. B) accounting costs are generally higher than economic costs because accounting costs include explicit and implicit costs. This payroll tax will be: A) regressive. For most firms. B) progressive tax. C) progressive. C) equal to accounting profit. Tosun 12.
B) –$12. cooks. Page 6 . meat.000. and vegetables used to produce the items on your menu D) your monthly utility bill 18. D) a value that is most appropriately identified in a footnote. C) the explicit cost of capital that the firm might have used but didn't need to. utilities. The implicit cost of capital is: A) the opportunity cost of the capital used by a business. C) net benefit. The amount by which an additional unit of an activity increases total benefit is: A) marginal cost. Which of the following is an implicit cost of the business? A) wages paid to part-time employees B) the job offer you did not accept at a local catering service C) bread. B) utility. and soup to the community. activity. Until recently Rosemarie worked as an accountant. or marginal. B) the cost of human capital.000 for food. D) $230. D) marginal benefit.000 annually. Then she inherited a piece of commercial real estate that had been renting for $12. You own a small deli that sells sandwiches. 21. Rosemarie decided to leave her job and operate a Peruvian restaurant in the space she inherited.000 annually. Her economic profit at the end of one year is: A) $30.000. C) the value associated with one more unit of an activity. In economics a ―marginal‖ value refers to: A) the value associated with an unimportant. B) a value entered as an explanatory item in the margin of a balance sheet or other accounts. salads. C) $0.000 and total costs of $230. Tosun 17.Principles of Microeconomics Mehmet S. 19. D) depreciation.000. and other supplies.003 . her books showed total revenues of $260. earning $30. 20. At the end of the first year.ECON 102.
Principles of Microeconomics Mehmet S. Whenever MB > MC. the decision maker should do ________ of the activity. Page 7 . The ________ is the amount by which an additional unit of an activity increases its total benefit.ECON 102. A) average benefit B) top benefit C) net benefit D) marginal benefit 23. MB represents the additional points on an economics exam for each hour of studying economics. A) none B) less C) more D) the same amount Use the following to answer questions 24-25: Figure: Marginal Benefits and Marginal Costs In the graph. and MC represents the loss of points on an accounting test for each hour of studying economics.003 . Tosun 22.
(Figure: Marginal Benefits and Marginal Costs) As shown. 10 D) 20.ECON 102. 30 25. D) 2. Tosun 24. C) MB > MC. When the student studies economics for 4 hours. when the student studies for 6 hours.Principles of Microeconomics Mehmet S. At 4 hours of study the student will ―maximize‖ because: A) the difference between total benefits and total costs is maximized. B) sunk costs are minimized. B) 4. C) 3. D) MB = 20 and MC = 5. 10 C) 30. the marginal benefit is ________ points. Page 8 .003 . Use the following to answer questions 26-27: 26. the marginal benefit is ________ points. A) 20. (Figure: Marginal Benefits and Marginal Costs) As shown. more time spent studying economics adds points to economics scores but subtracts points from accounting scores. more time spent studying economics adds points to economics scores but subtracts points from accounting scores. 0 B) 20. (Table: Tutoring) Sigmund's optimal number of tutoring hours is: A) 5.
D) $100. D) $50. According to the optimal output rule. B) her marginal benefit of studying begins to decrease. If he installs seven systems per day. Page 9 . C) $400. D) exceeds marginal cost. D) her marginal cost of studying reaches zero. B) $30. 30.Principles of Microeconomics Mehmet S.003 . William installs custom sound systems in cars. an activity should be reduced. B) $50. William will install only eight sound systems per day if the eighth customer is willing to pay at least: A) $300. 28. B) is less than marginal cost. (Table: Tutoring) At the optimal hours of tutoring. Sigmund's total net gain is: A) $60. an activity should be reduced.ECON 102. net benefit is maximized. If he installs eight systems per day. To maximize her grade in economics. his total costs are $300. Stacey should study until: A) her marginal cost of studying begins to increase. 29. his total costs are $400. Tosun 27. C) is equal to marginal cost. C) her marginal benefit of studying equals her marginal cost of studying. an activity should be reduced. C) $15. if marginal benefit: A) exceeds marginal cost.
(Figure: Marginal Analysis of Good X) You are considering consuming units of Good X. You have won the lottery and have been given the choice of receiving $5 million today or $10 million after 10 years. since that is a larger amount than the present value of $5 million paid after 10 years. since it is the larger amount. if the $5 million earned interest at the rate of 10% per year.Principles of Microeconomics Mehmet S. Assume that the interest rate remains fixed at 10% per year for the entire 10-year period. The graph represents your marginal benefit and marginal cost curves.ECON 102. C) $10 million after 10 years.003 . Page 10 . D) $10 million after 10 years. You should choose: A) $5 million today. Tosun Use the following to answer question 31: Figure: Marginal Analysis of Good X 31. B) $10 million after 10 years. since it would be worth more than $10 million after 10 years. since this is more than you would get if you invested $5 million for 10 years at an annual rate of interest of 10%. How many units of Good X will you consume? A) 1 B) 3 C) 4 D) 2 32.
D) consumption line. while in New York City. lower B) lower. lower Page 11 . is a(n): A) income consumption curve.Principles of Microeconomics Mehmet S. quiet evenings would carry a ________ marginal utility than on a deserted island. On a small island with only few people. higher C) higher. if the interest rate were 2%. high-speed Internet service would have a ________ marginal utility than in New York City. The marginal utility of coffee consumption for Steve is the change in ________ generated by consuming an additional unit of coffee. B) indifference curve. A line representing all the possible combinations of two commodities that a consumer can purchase at a particular time. C. A) total utility B) total consumption C) total demand D) price 36. and D) Given the information in the accompanying table.ECON 102.003 . C) budget line. given the market prices of the commodities and the consumer's income. B. which project would you choose? A) A B) B C) C D) D 34. A) higher. higher D) lower. 35. Tosun Use the following to answer question 33: 33. (Table: Present Value of Projects A.
C) rising. A) second B) sixth C) fourth D) first 40. 41. D) the total utility obtained will eventually fall. 39. C) satisfaction consumers derive from their consumption of goods and services. B) the total utility obtained will eventually become negative.003 . B) at its average value. When total utility is at a maximum. D) at a maximum.ECON 102. Use the following to answer questions 38-39: 38. (Table: Utility) The marginal utility for the second unit is: A) 5. Utility is the: A) lowest price that buyers are willing to pay for a given quantity of a good. C) 10. C) the marginal utility will eventually become negative. marginal utility is: A) zero. D) 15. B) difference between a firm's total revenue and its total economic cost. Page 12 . D) good not adequately provided by a free market and usually provided by the government. Tosun 37. The principle of diminishing marginal utility states that as an individual consumes more of a good: A) the addition to total utility obtained from the nth unit of the good will be less than that obtained from the (n – 1) unit of the good. (Table: Utility) Total utility is maximized at the ________ unit.Principles of Microeconomics Mehmet S. B) 35.
Chuck spends all his income on two goods: tacos and milkshakes. His income is $100.003 . the price of tacos is $10. utility B) maximizes. and the price of milkshakes is $2.Principles of Microeconomics Mehmet S. If Chuck purchases 10 milkshakes. D) –1/5. he can purchase ________ tacos. the optimum consumption bundle is the one that ________ his ________. utility D) minimizes. A) 8 B) 50 C) 18 D) 10 44. the price of tacos is $10. opportunity cost Page 13 . For Darryl. A) maximizes. opportunity cost C) minimizes. His income is $100. Put tacos on the horizontal axis and milkshakes on the vertical axis. given his budget constraint. and the price of milkshakes is $2. Chuck spends all his income on two goods: tacos and milkshakes. B) 5. Tosun 42.ECON 102. C) 1/5. 43. The slope of Chuck's budget line is equal to: A) –5.
toward B) decrease. toward D) decrease. horizontal. Tosun Use the following to answer question 45: Figure and Table: The Budget Line 45. vertical.003 . marginal utility D) unlimited. budget Page 14 .Principles of Microeconomics Mehmet S. horizontal. marginal utility B) limited. toward C) increase. vertical. A) increase. away from 46. A) limited. budget C) unlimited.ECON 102. a(n) ________ in the price of clams would rotate the budget line along the ________ axis ________ the origin. (Figure and Table: The Budget Line) In the figure. a consumer's spending will be ________ by his or her ________. Whatever the time period involved.
Tosun 47.Principles of Microeconomics Mehmet S. D) consumption of Good X equals consumption of Good Y. (Table: Marginal Utility per Dollar) According to data in the table. and this consumer has $9 to spend on potatoes and clams. A) 2. 2 C) 0.ECON 102. if the price of clams is $3 per pound. while the price of potatoes is $1 per pound. 9 D) 1. Use the following to answer question 48: 48. because she is on her budget constraint and: A) MUx/Px = MUy/Py. C) MUx = MUy. 6 Page 15 .003 . Suzy knows she has maximized her utility. then the utility-maximizing combination is ________ pound(s) of clams and ________ pounds of potatoes. B) what is spent on Good X equals what is spent on Good Y. 3 B) 2.
Page 16 .003 . We can conclude that cauliflower is: A) expensive.ECON 102. B) an inferior good. Tosun 49. D) A Giffin good must be such that the substitution effect outweighs the income effect for an inferior good. C) a normal good. 50. C) A Giffin good must be such that the income effect and the substitution effect move in opposite directions. Assume that as the price of cauliflower falls. and the income effect outweighs the substitution effect. A Giffin good is not correctly described by which of the following? A) A Giffin good must be an inferior good. D) nasty tasting. B) A Giffin good must have an upward-sloping demand curve. the income effect causes consumers to buy less cauliflower.Principles of Microeconomics Mehmet S.
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