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Total 100 marks ( 4 marks each). Answer all questions on your scantron.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Use the figure below to answer the following questions.

Figure 6.1.2

1) Refer to Figure 6.1.2. If a rigorously enforced price ceiling is set at \$10, then 1) _______
A) 100 units will be sold at a price of \$10 each.
B) 100 units will be sold at a price of \$15 each.
C) 200 units will be sold at a price of \$10 each.
D) 150 units will be sold at a price of \$15 each.
E) 100 units will be sold at a price of \$20 each.

2) John and Sally have identical preferences except Sally's utility units are exactly 10 times that of John's. Both
have the same income and face the same prices. Choose the best response. 2) _______
A) John consumes 10 times the amount that Sally consumes.
B) John and Sally will have equal total utility.
C) John receives 1/10 the satisfaction that Sally receives.
D) Both will consume the same amount of all goods.
E) John and Sally will have equal marginal utility.

3) A consumer maximizes his utility by purchasing 2 units of good X at \$5 per unit and 3 units of good Y at \$7 per
unit. What is the ratio of the marginal utility from X to the marginal utility from Y? 3) _______
A) 5/7 B) 2/3 C) 3/2 D) 7/5 E) 10/21

Use the table below to answer the following questions.

Table 6.2.1

4) Table 6.2.1 gives the supply and demand schedules for teenage labour in Genoa City. In an unregulated market,
4) _______
A) there is no teenage unemployment and the wage rate is \$5 per hour.
B) there is no teenage unemployment and the wage rate is \$6 per hour.
C) teenage unemployment is 400 hours and the wage rate is \$5 per hour.
D) teenage unemployment is 400 hours and the wage rate is \$6 per hour.
E) the minimum wage is \$7 per hour.

5) What is the consumer surplus for the market from the production of the 100th unit of a good? 5) _______
A) the marginal social benefit from the 100th unit minus the marginal social cost of the 100th unit
B) the marginal social benefit from the 100th unit
C) the marginal social cost of the 100th unit
D) the marginal social benefit from the 100th unit minus the price paid for the 100th unit
E) the opportunity cost of producing the 100th unit

6) Suppose the demand for CDs is elastic, but not perfectly elastic, and the supply is inelastic, but not perfectly
inelastic. A tax on CDs is paid 6) _______
A) mostly by buyers.
B) by neither buyers nor sellers.
C) equally by buyers and sellers.
D) mostly by sellers.
E) totally by sellers.

7) Guy has an income (Y) of \$50 with which he can purchase DVDs (D) at \$10 each and haircuts (H) at \$20 each.
Which one of the following represents Guy's budget line? 7) _______
A) 50 = 10Q
D
+ 20Q
H
B) Y = 10Q
D
- 20Q
H
C) 20Y = Q
D
+ 10Q
H
D) Y = 50 + Q
D
+ Q
H
E) 50 = Q
D
+ Q
H

8) For a normal good, the income effect ________. 8) _______
A) is positive and the substitution effect is negative
B) is zero
C) is negative and the substitution effect is positive
D) is equal and opposite to the substitution effect
E) reinforces the substitution effect

9) Suppose the price of potatoes falls and there is a decrease in the purchases of potatoes, what can we infer?
9) _______
A) The income effect is positive and reinforces the substitution effect.
B) The income effect is positive and exceeds the substitution effect.
C) The income effect is negative and reinforces the substitution effect.
D) The income effect is negative and just about offsets the substitution effect.
E) The income effect is negative and exceeds the substitution effect.

10) A subsidy 10) ______
A) decreases total revenue received by farmers.
B) lowers the price received by farmers.
C) decreases the quantity supplied in the market.
D) prevents the deadweight loss from underproduction.
E) raises the price received by farmers.

Use the figure below to answer the following questions.

Figure 6.3.2

11) Refer to Figure 6.3.2. The seller's share of the tax is 11) ______
A) \$1.00. B) \$0.50. C) \$2.00. D) zero. E) \$1.50.

Use the table below to answer the following questions.

Table 8.2.1

12) Refer to Table 8.2.1. Consider Sam's utility from sailing and skiing. If the price of sailing is \$10 per hour and the
price of skiing is \$20 per hour, Sam will choose to spend 12) ______
A) more time sailing than skiing.
B) more time skiing than sailing.
C) all his time skiing.
D) all his time sailing.
E) the same amount of time sailing and skiing, since they give the same amount of utility.

Use the table below to answer the following questions.

Table 8.2.1
Windsurfing equipment rents for \$10 per hour, snorkeling equipment for \$5 per hour.

13) Devon enjoys windsurfing and snorkeling. His total utility from each activity is summarized in Table 8.2.1.
Devon has \$35 to spend. How long will Devon choose to windsurf and to snorkel? 13) ______
A) 3 hours windsurfing and 1 hour snorkeling
B) 4 hours windsurfing and no hours snorkeling
C) 1 hour windsurfing and 5 hours snorkeling
D) 2 hour windsurfing and 4 hours snorkeling
E) 2 hours windsurfing and 3 hours snorkeling

14) Advise Sarah how to maximize her utility if MU
A=8,
MU
B=20,
P
A=4
and P
B=5
. 14) ______
A) Raise the price of good A.
B) Consume equal amounts of both goods.
C) Consume more of good B and less of good A.
D) Consume more of good A and less of good B.
E) Lower the price of good B.

15) The burden of tax on sellers is greater the more
(1) elastic is demand
(2) inelastic is demand
(3) elastic is supply
(4) inelastic is supply 15) ______
A) (1) and (3) B) (2) and (3) C) (2) and (4) D) (1) and (4) E) (2) only

16) The paradox of value as it applies to diamonds and water can be explained by 16) ______
A) distinguishing between utility and price.
B) water having a high level of marginal utility relative to diamonds.
C) water having a low price relative to diamonds.
D) distinguishing between total utility and marginal utility.
E) the fact that utility can't be measured.

17) The price of a cup of coffee is \$2.00. The price of a cup of tea is \$1.20. The relative price of a cup of tea with
respect to a cup of coffee is 17) ______
A) 0.6 cups of coffee.
B) 1.67 cups of coffee.
C) 1.0 cup of coffee.
D) 0.75 cups of coffee.
E) 1.25 cups of coffee.

18) Producer surplus is 18) ______
A) the difference between the maximum price consumers are willing to pay and the minimum price
producers are willing to accept.
B) the total amount paid for the good.
C) the excess of the amount received from the sale of a good or service over the cost of producing it.
D) equal to the area under the supply curve.
E) equal to the marginal cost of production.

19) Marginal cost 19) ______
A) can be negative.
B) is always less than price.
C) is greater than price.
D) is the minimum price a producer must receive to induce him to offer one more unit of a good or service
for sale.
E) decreases as more of a good or service is produced.

20) An effective rent ceiling 20) ______
A) creates a deadweight loss.
B) decreases the supply of housing.
C) increases producer surplus.
D) increases the supply of housing.
E) increases consumer surplus.

21) When the efficient quantity is produced 21) ______
A) marginal social benefit equals marginal social cost.
B) the quantity demanded equals the quantity supplied.
C) the sum of consumer surplus and producer surplus is maximized.
D) resources are used in the activities in which they are most highly valued.
E) all of the above.

22) In a command system, resources are allocated by 22) ______
A) people who show interest to use the resources.
B) those people who come first in line.
C) the order of someone in authority.
D) people who are able to pay for the resources.
E) market price.

23) A consumer always has a cup of coffee with a tablespoon of sugar. What would the consumer's indifference
curves for these two goods look like? 23) ______
A) vertical along the entire length
B) L-shaped
C) horizontal along the entire length
D) upward sloping
E) downward sloping with a constant slope

24) When price rises, the substitution effect 24) ______
A) always increases consumption.
B) decreases consumption for inferior goods only.
C) decreases consumption for normal goods only.
D) increases consumption for normal goods only.
E) does none of the above.

25) Governments tend to tax items with inelastic demand because 25) ______
A) buyers pay most of the tax in these cases.
B) sellers pay most of the tax in these cases.
C) governments wish to avoid big rises in after-tax prices.
D) these goods yield the most tax revenues.
E) none of the above.