Name:_________________________ Class:______________ Date: _____________ ID: A

Exam 1 Fall 2012-13

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

Figure: Supply and Demand. Treat every question which references this figure as independent.

1. Refer to Figure: Supply and Demand. What is the lowest willingness to pay of consumers
who purchase this product in equilibrium? Difficulty 1/3
a. $9 c. $12
b. $11 d. $10

2. Refer to Figure: Supply and Demand. If a price ceiling of $9 is imposed on this good, what
is the consequence? Difficulty 2/3
a. A shortage of 6,000 units c. A deadweight loss of $6,000
b. A surplus of 6,000 units d. Nothing, the ceiling is not binding
Name:_________________________ Class:______________ Date: _____________ ID: A

3. Refer to Figure: Supply and Demand. If a tax of $6 is imposed on this good, what is the
deadweight loss? Difficulty 2/3
a. $24,000 c. $12,000
b. $6,000 d. $18,000

4. Refer to Figure: Supply and Demand. What is producer surplus in equilibrium? Difficulty
2/3
a. $75,000 c. $100,000
b. $25,000 d. $50,000

5. Refer to Figure: Supply and Demand. Use the midpoint method to calculate the price
elasticity of supply between prices of $11 and $13. Difficulty 2/3
a. 0.92 c. 1.00
b. 0.67 d. 1.09

6. Refer to Figure: Supply and Demand. Which of the following is the equation for the
demand curve? Difficulty 2/3
a. PD = 16 – 2QD c. PD = 16 + 0.5QD
b. PD = 16 – 0.5QD d. PD = 16 + 2QD

7. Refer to Figure: Supply and Demand. Using the point-slope formula, what is the price
elasticity of demand if 12,000 units of the good are sold? Difficulty 2/3
a. 5/12 c. 12/5
b. 3/5 d. 5/3

8. Refer to Figure: Supply and Demand. What is the proportion of tax incidence on sellers for
a tax of less than $15 per unit? Difficulty 2/3
a. 1/3 c. 2/3
b. 1/2 d. 3/4

9. Refer to Figure: Supply and Demand. Suppose the figure represents the rental market for
efficiency apartments in Jersey City, dollars given in hundreds. What is the minimum
surplus available to lessees (those who rent an apartment) if there is rent control on
efficiencies of $800 per month? Difficulty
a. $1,225,000 c. $975,000
b. $2,500,000 d. $1,750,000

10. Refer to Figure: Supply and Demand. Suppose the price of an important raw material to
make this good decreases and the number of buyers increases. Which of the following
combinations of equilibrium price and quantity are possible? Difficulty 3/3
a. p = $12, q = 6,000 c. p = $15, q = 12,000
b. p = $9, q = 11,000 d. p = $14, q = 14,000
Name:_________________________ Class:______________ Date: _____________ ID: A

Scenario: Supply and Demand. Suppose demand is given by the equation PD = 90 − 2QD and
supply is given by the equation PS = 10 + 3QS . Price is in dollars, quantity is given in thousands
of units.

11. Refer to Scenario: Supply and Demand. What is the equilibrium price? Difficulty 2/3
a. $58 c. $45
b. $62 d. $54

12. Refer to Scenario: Supply and Demand. What is total surplus in equilibrium? Difficulty 2/3
a. $320,000 c. $640,000
b. $1,280,000 d. $960,000

13. Refer to Scenario: Supply and Demand. Which curve is more inelastic in equilibrium?
Difficulty 1/3
a. supply c. their elasticities are equal
b. demand d. cannot be determined

14. Refer to Scenario: Supply and Demand. What is the deadweight loss associated with a tax
of $20 per unit? Difficulty 2/3
a. $80,000 c. $40,000
b. $30,000 d. $60,000

15. Refer to Scenario: Supply and Demand. Suppose there is a tax of $6.80 per unit on this
good. If the cost of each supplier increases by $4.65 per unit and the tax remains in place,
what happens to deadweight loss as a result of the change in cost? Difficulty 2/3
a. decreases c. stays the same
b. increases d. cannot be determined

16. Refer to Scenario: Supply and Demand. Suppose the supply curve becomes more elastic
but equilibrium is unchanged. What happens to the tax incidence on sellers? Difficulty 2/3
a. decrease c. stay the same
b. increase d. cannot be determined without more info

17. Refer to Scenario: Supply and Demand. Suppose a tax of $1.50 per unit is placed on buyers,
and a tax of $3 per unit is placed on sellers. What is the proportion of tax incidence on
buyers? Difficulty 3/3
a. 1/2 c. 2/5
b. 2/3 d. 3/5

18. Refer to Scenario: Supply and Demand. Suppose the cost of each supplier increases by 1
cent per unit. What happens to total revenue (in equilibrium) in this market? Difficulty 3/3
a. stays the same c. decreases
b. increases d. cannot be determined without more info
Name:_________________________ Class:______________ Date: _____________ ID: A

19. Suppose the government has adopted a tax at the peak of the Laffer curve. Which of the
following statements is false? Difficulty 2/3
a. An increase in the tax will increase tax revenue.
b. A decrease in the tax will decrease tax revenue.
c. Tax revenue is maximized at the current tax.
d. The slope of the Laffer curve is zero at the current tax.

20. What is the income elasticity of demand if a 10% increase in income results in a decrease
from 22,000 to 18,000 units sold per week? Difficulty 2/3
a. -2.0 c. 0.5
b. 2.0 d. -0.5

21. Suppose the equilibrium price of a good is $50. If sellers are taxed $5 per unit and the new
equilibrium price of the good is $52, what is the tax incidence on sellers? Difficulty 2/3
a. $5 per unit c. $2 per unit
b. $3 per unit d. $1 per unit

22. Suppose the “willingness to pays” of six potential buyers are $25, $12, $16, $20, $26, and
$18. Suppose the costs of eight potential sellers are $20, $8, $14, $22, $18, $12, $15, and
$23. Which of the following represents an equilibrium price for this market? Difficulty 3/3
a. $14 c. $12
b. $17 d. $19

23. What is a likely consequence of a binding minimum wage? Difficulty 1/3

a. Unemployment
b. Cash (i.e., “under the table”) salaries
c. Decreased total surplus
d. All of the above.

24. If deadweight loss is $24,000 under a tax of $4 per unit, what is deadweight loss under a tax
of $2 per unit? Difficulty 2/3
a. $6,000 c. $12,000
b. $8,000 d. $4,000

25. What is the cross-price elasticity of demand for complements? Difficulty 1/3
a. Greater than 1 c. Equal to zero
b. Greater than 0 d. Less than zero
Name:_________________________ Class:______________ Date: _____________ ID: A

Exam 1 Fall 2012-13

Answer Section

Multiple Choice

1. ANS: B DIF: 1/3 Ref: Ch. 4

2. ANS: A DIF: 2/3 Ref: Ch. 6
3. ANS: C DIF: 2/3 Ref: Ch. 8
4. ANS: D DIF: 2/3 Ref: Ch. 7
5. ANS: D DIF: 2/3 Ref: Ch. 5
6. ANS: B DIF: 2/3 Ref: Math Review
7. ANS: D DIF: 2/3 Ref: Ch. 5
8. ANS: C DIF: 2/3 Ref: Ch. 6
9. ANS: A DIF: 3/3 Ref: Ch. 8
10. ANS: D DIF: 3/3 Ref: Ch. 4
11. ANS: A DIF: 2/3 Ref: Ch. 4
12. ANS: C DIF: 2/3 Ref: Ch. 7
13. ANS: A DIF: 1/3 Ref: Ch. 5
14. ANS: C DIF: 2/3 Ref: Ch. 8
15. ANS: C DIF: 2/3 Ref: Ch. 8
16. ANS: A DIF: 2/3 Ref: Ch. 8
17. ANS: C DIF: 3/3 Ref: Ch. 8
18. ANS: C DIF: 3/3 Ref: Ch. 5
19. ANS: A DIF: 2/3 Ref: Ch. 8
20. ANS: A DIF: 2/3 Ref: Ch. 5
21. ANS: B DIF: 2/3 Ref: Ch. 5
22. ANS: B DIF: 3/3 Ref: Ch. 7
23. ANS: D DIF: 1/3 Ref: Ch. 6
24. ANS: A DIF: 2/3 Ref: Ch. 8
25. ANS: D DIF: 1/3 Ref: Ch. 5