Howard University

Department of Economics
Instructor Augustine
Spring 2020-Exak 2- Econ2-
Modules 10-14
Due 3-12-2020

Name……………………………………………………………………………………………………

1. A price control is:

  a. control of the price of a good by the firm that produces it.
  b. a legal restriction on how high or low a price in a market may go.
  c. an upper limit on the quantity of some good that can be bought or sold.
  d. a tax on the sale of a good that controls the market price.

2. (Ref 10-1 Figure: Rent Controls) Use Figure 10-1: Rent Controls. Without rent controls, the
equilibrium quantity is:
  a.  Q4.
  b. Q1.
  c.  Q2.
  d. Q3.

3. (Ref 10-1 Figure: Rent Controls) Use Figure 10-1: Rent Controls. Suppose that rent controls
are imposed. If the government wanted a rent control ceiling to be effective immediately, what is
one possible price to set?
  a.  Rent3
  b. Rent4
  c.  Rent1
  d. Rent2

4. (Ref 10-1 Figure: Rent Controls) Use Figure 10-1: Rent Controls. If rent controls are set at
Rent0, renters would be willing to pay a price at least as high as:
  a.  Rent4 for Q0 units.
  b. Rent4 for Q1 units.
  c.  Rent3 for Q1 units.
  d. No one would be willing to pay a higher actual price than Rent0.

5. (Ref 10-1 Figure: Rent Controls) Use Figure 10-1: Rent Controls. Without rent controls, the
equilibrium rent is:
  a.  Rent4.
  b. Rent1.
  c.  Rent2.
  d. Rent3.

6. (Ref 10-1 Figure: Rent Controls) Use Figure 10-1: Rent Controls. If rent controls are imposed
and the government wants them to be immediately effective, they will most likely be set at either
_____ or _____.
  a.  Rent0; Rent1
  b. Rent1; Rent3
  c.  Rent3; Rent4
  d. Rent2; Rent4

7. (Ref 10-1 Figure: Rent Controls) Use Figure 10-1: Rent Controls. If rent controls are set at
Rent0:
  a.  the shortage of rental units is the distance Q1 - Q3.
  b. some renters will be willing to pay a price as high as Rent4 for Q0 units.
  c.  no one will have to pay a higher actual price than Rent0, nor will anyone be willing to
do so.
  d. there will be a surplus of rental units.
8. (Ref 10-1 Figure: Rent Controls) Use Figure 10-1: Rent Controls. If rent controls are set at
Rent1:
  a.  the shortage of rental units is the distance Q3 - Q1.
  b. some renters will be willing to pay a price as high as Rent4 for Q1 units.
  c.  no one will have to pay a higher actual price than Rent0, nor will anyone be willing to
do so.
  d. there will be a surplus of rental units, but it is impossible to tell how large the surplus
is based on the information provided.

9. (Ref 10-1 Figure: Rent Controls) Use Figure 10-1: Rent Controls. If rent controls are set at
Rent3:
  a.  the shortage of rental units is the distance Q3 - Q1.
  b. some renters will be willing to pay a price as high as Rent4 for Q3 units.
  c.  no one will have to pay a higher actual price than Rent0, nor will anyone be willing to
do so.
  d. rent will remain at Rent2.

10. (Ref 10-1 Figure: Rent Controls) Use Figure 10-1: Rent Controls. If rent controls are set at
Rent1:
  a. rental apartments may be of inefficiently low quality.
  b. there will be an efficient allocation of rentals.
  c. some landlords may break the law by renting below the mandated price.
  d. new apartments will be constructed.

11. The market for apples is in equilibrium at a price of $0.50 per pound. If the government
imposes a price floor in the market at a price of $0.40 per pound:
  a. quantity demanded will decrease.
  b. quantity supplied will increase.
  c. there will be a shortage of apples.
  d. the price floor will not affect the market price or output.

12. A binding price ceiling is usually designed to:

  a. keep prices below the equilibrium level.
  b. increase the quality of the good.
  c. prevent shortages.
  d. increase efficiency.
13. Rapidly increasing health costs have been a major political concern since at least 1992.
Suppose the government sets the maximum price for a normal doctor visit at $20 to control rising
health costs but the current market price is $40. What is most likely to happen?
  a. More people will try to visit the doctor, but there will be fewer doctors willing to see
patients at that price.
  b. The same number of people will try to visit the doctor, and the same number of
doctors are willing to see patients at that price.
  c. More people will be able to see the doctor, since the price is lower.
  d. Fewer people will try to see the doctor, and fewer doctors are willing to see patients at
that price.

14. The government decides to impose a price ceiling on a good because it thinks the market-
determined price is too high. If the government imposes the price ceiling below the equilibrium
price:
  a. consumers will respond to the lower price and wish to purchase more of the good than
at the equilibrium price.
  b. producers will respond to the lower price and offer more units for sale.
  c. consumers will be able to purchase more of the good after the price ceiling is
imposed.
  d. it will not be binding.

15. The government imposes a price ceiling below the equilibrium price. The price ceiling will
cause:
  a. demand to decrease.
  b. supply to increase.
  c. a shortage of the good.
  d. an increase in the quality of the good.

16. Suppose the NFL wants to give the "common fan" the opportunity to attend the Super Bowl,
so it sets Super Bowl prices "low" - let's say they set ticket prices for a regular seat at Super
Bowl LI to cost just $400. People who have tickets, however, can turn around and sell them
online for $1,500 or more. If there are no transaction costs for fans with tickets to sell them, the
true cost to a fan of attending Super Bowl LI is:
  a. at most $400.
  b. at least $1,500.
  c. the monetary price paid to obtain the ticket.
  d. $1,100 less than the opportunity cost of a ticket.

17. Rent controls set a price ceiling below the equilibrium price, and therefore:
  a. quantity supplied exceeds the quantity demanded.
  b. quantity demanded exceeds the quantity supplied.
  c. a surplus of rental units will result.
  d. all poor people will be helped.

18. A price ceiling will have no immediate effect if:

  a. it is set above the equilibrium price.
  b. the equilibrium price is above the price ceiling.
  c. it is set below the equilibrium price.
  d. it creates a shortage.

19. (Ref 10-2 Table: The Market for Soda) Use Table 10-2: The Market for Soda. If the
government does NOT impose a price control, the price of a can of soda will equal:
  a. $0.50.
  b. $0.75.
  c. $1.00.
  d. $1.25.
b

20. The price elasticity of demand measures the responsiveness of the change in the:
  a. quantity demanded to a change in the price.
  b. price to a change in the quantity demanded.
  c. slope of the demand curve to a change in the price.
  d. slope of the demand curve to a change in the quantity demanded.

21. When the price goes down, the quantity demanded goes up. The price elasticity of demand
measures:
  a. how much the price goes down.
  b. how much the equilibrium price goes up.
  c. the responsiveness of the price change to an income change.
  d. the responsiveness of the quantity change to the price change.

22. If the price of a good increases by 20% and the quantity demanded changes by 15%, then
the price elasticity of demand is equal to:
  a. 0.75.
  b. approximately 0.33.
  c. approximately 1.33.
  d. 1.

23. The price elasticity of demand is computed as the percentage change in the _____ divided
by the percentage change in _____.
  a. quantity demanded; the quantity supplied
  b. price; the quantity demanded
  c. quantity demanded; income
  d. quantity demanded; the price

24. The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price
elasticity of demand is equal to _____, and demand is described as _____.
  a. 0.2; inelastic
  b. 5; inelastic
  c. 0.2; elastic
  d. 5; elastic

25. The ratio of the percentage change in quantity demanded to the percentage change in price
is the _____ elasticity of demand.
  a. price
  b. quantity
  c. income
  d. cross-price

26. The price elasticity of demand measures the:

  a. responsiveness of the change in quantity demanded to a change in price.
  b. change in price versus a change in quantity demanded.
  c. responsiveness of the change in the slope of the demand curve to a change in price.
  d. change in the slope of the demand curve versus a change in the quantity demanded.

27. The price elasticity of demand is measured by _____ the percentage change in _____ the
percentage change in _____.
  a. dividing; price by; quantity demanded
  b. dividing; quantity demanded by; price
  c. subtracting; price from; quantity demanded
  d. adding; price to; quantity demanded

28. For a normal demand curve, the price elasticity of demand will:

  a. always be positive.
  b. always be greater than 1.
  c. usually be equal to 1.
  d. always be negative.

29. The price elasticity of demand can be found by:

  a. examining only the slope of the demand curve.
  b. measuring absolute changes in price and quantity demanded.
  c. comparing the percentage change in quantity demanded to the percentage change in
price.
  d. knowing that when price changes, quantity demanded goes in the opposite direction.

30. (Ref 11-1 Table: Price Elasticity) Use Table 11-1: Price Elasticity. What is the price
elasticity of demand (using the midpoint formula) between $2.50 and $2.25?
  a. 9
  b. 19
  c. 119
  d. 0.5
31. (Ref 11-5 Figure: The Demand for Shirts) Use Figure 11-5: The Demand for Shirts. The
price elasticity of demand for the segment AB, by the midpoint method, is:
  a. 13.
  b. 11.
  c. 0.91.
  d. 0.1.

32. If the absolute value of the price elasticity of demand is greater than 1:
  a. small percentage changes in the price will lead to much larger percentage changes in
the quantity demanded.
  b. small percentage changes in the price will lead to even smaller changes in the
percentage change in the quantity demanded.
  c. percentage changes in the price will lead to equal percentage changes in the quantity
demanded.
  d. changes in the price will have no impact on changes in the quantity demanded.

33. The university hopes to raise more revenue by increasing parking fees. This plan will work
only if:
  a. the price effect is larger than the quantity effect.
  b. the price effect is smaller than the quantity effect.
  c. the price effect and quantity effect are the same.
  d. there is no price or quantity effect.

34. Suppose the price elasticity of demand for fishing lures equals 1.5 in South Carolina and 0.63
in Alabama. To increase revenue, fishing lure manufacturers should:
  a. lower prices in each state.
  b. raise prices in each state.
  c. lower prices in South Carolina and raise prices in Alabama.
  d. leave prices unchanged in South Carolina and raise prices in Alabama.
35. If the demand for golf is price-inelastic and your local public golf course increases the greens
fees for using the course, you expect:
  a. a decrease in total revenue received by the course.
  b. an increase in total revenue received by the course.
  c. an increase in the amount of golf played on the course.
  d. no change in the amount of golf played on the course.

36. (Ref 12-1 Figure: Demand for Notebook Computers) Use Figure 12-1: The Demand for
Notebook Computers. The change in total revenue resulting from a change in price from P to T
suggests that demand is:
  a. inelastic.
  b. price-elastic.
  c. price-inelastic.
  d. price unit-elastic.

37 The cross-price elasticity of electricity with respect to the price of natural gas has been
estimated as being equal to 0.2. This implies that:
  a. natural gas and electricity are both normal goods.
  b. electricity and natural gas are complements.
  c. electricity and natural gas are substitutes.
  d. one of the two goods is inferior and the other is normal, but we need additional information to
 determine which of them is normal.

38. For which goods is the cross-price elasticity of demand most likely a large positive number?
  a. hockey pucks and hockey sticks
  b. DVDs and milk
  c. french fries and onion rings
  d. all of these because the cross-price elasticity is always a positive number

39. Suppose the cross-price elasticity of demand for butter and margarine is equal to
0.96 but the cross-price elasticity for water and lemons is -0.13. This means that
butter and margarine are _____, while water and lemons are _____.
  a. complements; substitutes
  b. substitutes; complements
  c. inelastic goods; elastic goods
  d. elastic goods; complements

40. The cross-price elasticity of demand of complementary goods is:

  a. less than 0.
  b. equal to 0.
  c. greater than 0.
  d. between 0 and 1.

41. If the price of chocolate-covered peanuts increases and the demand for
strawberry-flavored soft drinks decreases, this indicates that these two goods are
_____ goods.
  a. unrelated
  b. complementary
  c. inferior
  d. substitute

42. The cross-price elasticity of demand of substitute goods is:

  a. less than 0.
  b. greater than 0.
  c. equal to 0.
  d. impossible to determine without more information.

43. Suppose the government imposes a $10 excise tax on the sale of sweaters by charging
suppliers $10 for each sweater sold. If the demand curve is downward-sloping and the supply
curve is upward-sloping:
  a. the price of sweaters will increase by $10.
  b. consumers of sweaters will bear the entire burden of the tax.
  c. the price of sweaters will increase by less than $10.
  d. the price of sweaters will decrease by $10.

44. An excise tax that the government collects from the producers of a good:
  a. shifts the supply curve upward.
  b. reduces revenue for the government.
  c. has an effect similar to that of a tax subsidy.
  d. shifts the supply curve downward.

45. Recently, the government considered adding an excise tax on CDs that can be used to record
music and CD players that can record discs. If this tax were enacted, the most likely effect would
be:
  a. that consumers would pay a higher price and producers would sell fewer of these CDs
and CD players than before the tax.
  b. no change in consumption or the prices paid by consumers of these CDs and CD
players.
  c. that consumers would pay a lower price and producers would receive a higher price
for these CDs and CD players than before the tax.
  d. an increase in economic activity due to the tax.

46. The incidence of a tax:

  a. is a measure of the revenue the government receives from it.
  b. refers to who writes the check to the government.
  c. refers to how much of the tax is actually paid by consumers and producers.
  d. is a measure of the deadweight loss from the tax.

47. (Ref 14-1 Table: The Market for Fried Twinkies) Use Table 14-1: The Market for Fried
Twinkies. The government decides to tax fried Twinkies at a rate of $0.30 per Twinkie and
collect that tax from the producers. According to the table, consumers will pay _____ per
Twinkie and buy _____ Twinkies after the tax.
  a. $1.20; 8,000
  b. $1.30; 7,000
  c. $1.40; 6,000
  d. $1.50; 5,000

48. (Ref 14-1 Table: The Market for Fried Twinkies) Use Table 14-1: The Market for Fried
Twinkies. Of the $0.30 tax per fried Twinkie, consumers actually pay _____, while producers
actually pay _____.
  a. $0.30; $0.00
  b. $0.15; $0.15
  c. $0.20; $0.10
  d. $0.00; $0.30

Figure: An Excise Tax

49. (Ref 14-2 Figure: An Excise Tax) Use Figure 14-2: An Excise Tax. If an excise tax equal to
$1.10 is imposed on this good, then the price paid by consumers will:
  a. rise by $1.10.
  b. rise by $1.33.
  c. not rise.
  d. rise by $0.50.

50. Prior to any taxes, the equilibrium price of gasoline is $3 per gallon. Then a $1-per-gallon tax
is levied. As a result, the price of gasoline rises to $3.75 per gallon. The incidence of the $1 tax is
_____ paid by consumers and _____ paid by producers.
  a. $0.25; $0.75
  b. $0.50; $0.50
  c. $0; $1.00
  d. $0.75; $0.25