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Section 9 Practice Test Multiple Choice Identify the choice that best completes the statement or answers the question. 1. If the price of a good is increased 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. e. zero. 2. If the demand curve is downward sloping, as calculated the price elasticity of demand is: a. always positive. b. always greater than 1. c. usually equal to 1. d. always negative. e. always equal to zero. 3. Gas prices recently increased by 25%. In response, purchases of gasoline decreased by 5%. Based on this data, the price elasticity of demand for gas is: a. 5. b. 2. c. 0.2. d. 0.5. e. 1.5. Figure 47-1: Demand for Shirts 4. (Figure 47-1: Demand for Shirts) The absolute value of the price elasticity of demand for the segment AB is: a. less than the price elasticity of demand for segment BC. b. c. d. e. is less than the price elasticity of demand for segment EF. is zero. is equal to the price elasticity of demand for segment BC. is greater than the price elasticity of demand for segment BC. 5. Suppose the price of barley increases by 16.53%. If breweries buy 3.28% less barley after the price increase, the total revenue for barley producers will ________ due to the ________ effect being greater than the ________ effect. a. decrease; quantity; price b. increase; price; quantity c. not change; quantity; price d. increase; quantity; price e. decrease; price; quantity 6. If total revenue goes down when price falls, the price elasticity of demand is said to be: a. price-inelastic. b. price unit-elastic. c. price-elastic. d. perfectly price-elastic. e. equal to one. 7. Suppose the price of cereal rose by 25% and the quantity of milk sold decreased by 50%. Then we know that the: a. cross-price elasticity between cereal and milk is –2. b. cross-price elasticity between cereal and milk is –0.5. c. price elasticity of demand for milk is 2. d. cross-price elasticity of demand for milk is 2. e. price elasticity of demand for cereal is 0.5. 8. If your purchases of shoes decrease from 11 pairs per year to 9 pairs per year when the price of shirts increases from $8 to $12, then, for you, shoes and shirts are considered: a. inferior goods. b. luxury goods. c. substitute goods. d. complementary goods. e. unrelated goods. Table 48-1: Johnson’s Income and Expenditures Quantity Purchased per Month Monthly Income Steaks Magazines Movies Pizzas $2,000 2 4 6 8 $3,000 2 6 6 6 Table 48-1: Johnson's Income and Expenditures 9. (Table 48-1: Johnson's Income and Expenditures) Johnson's income elasticity of demand for magazines is: a. negative. b. 0. c. greater than 0 but less than 1. d. 1. e. greater than 1. Table 49-1: Consumer Surplus and Phantom Tickets Student Willingness to Pay Jessica $150 Jacquelyn 125 Brad 105 Robert 60 Gwen 25 Table 49-1: Consumer Surplus and Phantom Tickets 10. (Table 49-1: Consumer Surplus and Phantom Tickets) If the box-office price of a ticket to see Phantom of the Opera is $50, and there is no other market for tickets, then total consumer surplus for the five students is: a. $100. b. $175. c. $230. d. $240. e. $200. This table shows some Atlanta college students' willingness to pay to see The Nutty Nutcracker, by the Atlanta Ballet. Student Willingness to Pay Lois $100 Miguel 90 Narum 65 Oscar 50 Pat 15 Table 49-2: Consumer Surplus 11. (Table 49-2: Consumer Surplus) If the price of a ticket to see The Nutty Nutcracker is $50, then Narum's consumer surplus is: a. $60. b. $50. c. $15. d. $240. e. $115. Figure 49-2: Consumer Surplus II 12. (Figure 49-2: Consumer Surplus II) At a price of P1, consumer surplus equals the area: a. ABP2. b. AFP1. c. AQ30. d. P1P2BF. e. 0P1FQ1. 13. 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 for sweaters is downward sloping, we would predict that: a. the price of sweaters will increase by $10. b. consumers of sweaters will bear the entire burden of the tax. c. the quantity of sweaters purchased will increase. d. the price of sweaters will decrease by $10. e. the price of sweaters will increase by less than $10. Scenario 50-1: Market for Taxi Rides Fare (per ride) $7.00 6.50 6.00 5.50 5.00 4.50 4.00 3.50 3.00 Quantity Demanded (millions of rides per year) 6 7 8 9 10 11 12 13 14 Quantity Supplied (millions of rides per year) 14 13 12 11 10 9 8 7 6 14. (Scenario 50-1: Market for Taxi Rides) The figure represents a competitive market for taxi rides. If the government now imposes an excise tax of $3 per ride (causing the supply curve to shift upward by that amount), then the government will collect tax revenues of ________, which might be used for worthwhile purposes, but there will be a deadweight loss to society of ________ caused by this tax. a. $9 million; $1 million b. $16 million; $2 million c. $21 million; $4.5 million d. $24 million; $6 million e. $12 million; $4 million Figure 50-6: Market for Yachts 15. (Figure 50-6: Market for Yachts) If the government imposes a $30,000 tax on yachts (collected from the producers), consumers will pay ________ of the tax and producers will pay ________. a. $20,000; $10,000 b. $15,000; $15,000 c. $10,000; $20,000 d. $5,000; $25,000 e. $30,000; $0 Figure 50-8: The Gas Market 16. (Figure 50-8: The Gas Market) The figure represents the market for gasoline. An excise tax has been levied on each gallon of gasoline supplied by producers. What is the tax rate? a. $1.50 per gallon b. $1 per gallon c. $22,500 d. $15,000 e. $4 per gallon. 17. Assume that the marginal utilities for the first three units of a good consumed are 200, 150, and 125, respectively. The total utility for the first unit is: a. 125. b. 150. c. 200. d. 350. e. 475. Units Total Utility 0 0 1 2 3 4 20 35 45 50 Table 51-1: Utility 5 50 6 45 7 35 18. (Table 51-1: Utility) The marginal utility for the fifth unit is: a. 15. b. 10. c. 5. d. 0. e. 50. Hours of Exercise Total Utility 0 0 1 5 2 15 3 23 4 29 5 33 Table 51-2: Exercise and Total Utility 19. (Table 51-2: Exercise and Total Utility) The table shows a consumer's total utility from consuming hours of exercise at the gym. Given this information, what can be said about this consumer's marginal utility curve for exercise? a. Marginal utility initially decreases, but eventually increases as more exercise is consumed. b. Marginal utility always decreases as more exercise is consumed. c. Marginal utility always increases as more exercise is consumed. d. Marginal utility initially increases, but eventually stays constant as more exercise is consumed. e. Marginal utility initially increases, but eventually decreases as more exercise is consumed. Figure 51-1: Budget Lines for Tea and Scones 20. (Figure 51-1: Budget Lines for Tea and Scones) For months now, Agnes has had $20 per month to spend on tea and scones. The price of each cup of tea and each scone has been $1. Which chart(s) in the figure show(s) what will happen to her budget line if her income decreases to $10? a. Chart A b. Chart B c. Chart C d. Chart D e. Chart B and C