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ECON 2106 TEST REVIEW SI date: Tuesday 10/12 EXAM DAY 10/14 1. The benefits principle says that: A) the amount of tax paid depends on the measure of value. B) those that benefit from public spending should bear the burden of the tax that pays for that spending. C) those with greater ability to pay should pay more tax. D) those that benefit from the tax should pay the same percentage of the tax base as those who do not benefit. 2. Pauli's Pizza offers the following prices: one slice for $2, two slices for $3.50, three slices for $4.50, four slices for $5.00. The marginal cost to the customer of the third slice is: A) $4.50. B) $10. C) $1. D) $2. 3. The Cozy Chair Company believes it can sell 200 chairs at $200 per chair, or 300 chairs at $150 per chair. Using the midpoint formula, you can calculate that the price elasticity of demand (to the nearest tenth) for Cozy Chairs is: A) 2.5. B) 1.4. C) 0.7. D) 0.5. 4. George owns a gun range in Texas. He pays $32,000 per year in insurance, $408,000 in wages, $23,000 in supplies, and he forgoes $32,000 per year he could make as a police officer. His total revenue last year equaled $460,000. That means his economic ________ equaled ________. A) profit; $3,000 B) losses; $3,000 C) losses; $35,000 D) profit; $35,000 Page 1 5. Chuck spends all his income on two goods: tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. If Chuck purchases 10 milkshakes, he can purchase ________ tacos. A) 10 B) 50 C) 8 D) 18 Use the following to answer question 6: Figure: Gains from Trade 6. (Figure: Gains from Trade) If the government imposes a tax of $1 in this market, producers will receive ________ less per unit and sell ________ fewer units. A) $1; 5 B) $1; 25 C) $0.50; 5 D) $0.50; 20 7. In Westlandia, personal income up to and including $30,000 is not taxed, income greater than $30,000 and less than or equal to $60,000 is taxed at a rate of 10%, and income over $60,000 is taxed at a rate of 25%. A family earning income equal to $100,000 in Westlandia will pay ________ in personal taxes. A) $6,000 B) $10,000 C) $13,000 D) $25,000 Page 2 8. The cross-price elasticity of demand for Coke with respect to the price of Pepsi has been estimated to be 0.61. If the price of Pepsi falls by 10% in a period, how will that affect the demand for Coke in that period, all other things unchanged? A) The demand for Coke will decrease but by less than 6.1%. B) The demand for Coke will decrease by 6.1%. C) The demand for Coke will not change because many people prefer Coke over Pepsi. D) The demand for Coke will rise. 9. Paying a tax of $10 on an income of $100, a tax of $20 on an income of $200, and a tax of $30 on an income of $300 is an example of a: A) regressive tax. B) proportional tax. C) progressive tax. D) benefits tax. Use the following to answer question 10: Figure: Demand Curve 10. (Figure: Demand Curve) Using the midpoint method, you can calculate that the price elasticity of demand between $6 and $8 is approximately: A) 0.23. B) 0.45. C) 2.33. D) 4.5. Page 3 11. Suppose Ivy buys only two things, books and coffee, and receives the same satisfaction from the last book bought as she did from the last coffee bought. Books cost twice as much as coffee, and she has spent all her money. If she is trying to maximize her utility, A) Ivy should buy more books and less coffee. B) Ivy should buy more coffee and fewer books. C) Ivy should buy more coffee and books. D) Ivy is making the right choice. Use the following to answer question 12: 12. (Table: Utility from Candy Bars and Sodas) Stan is choosing between two goods, candy bars and sodas, and his marginal utility from each is as shown in the table. If he consumes two candy bars and two sodas, his total utility will be equal to: A) 15 utils. B) 33 utils. C) 18 utils. D) 78 utils. 13. Suppose the absolute value of the price elasticity of demand for blueberries is 1.5. If climate change destroys one-fourth of the nation's blueberry crop (and thus reduces supply), how will that affect total revenue, all other things unchanged? (Hint: Consider which direction blueberry prices will go.) A) Total revenue will rise. B) Total revenue will fall. C) Total revenue will remain unchanged. D) Not enough information is given to answer the question. Page 4 Use the following to answer question 14: Figure: The Gas Market 14. (Figure: 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 15. You go to an all-you-can-eat buffet. If you maximize utility, the marginal utility of the last bite that you eat will be: A) equal to the price of the buffet. B) as high as possible. C) zero. D) dependent on how much you like the buffet. 16. If Mega Corp. borrows $8,000 and agrees to pay the lender $9,000 in one year, the interest rate on the loan is approximately: A) 9.0%. B) 10.5%. C) 12.5%. D) There is not enough information given to determine the rate. Page 5 17. For a good to be considered a normal good, then _____ must be ________. A) income elasticity of demand; between 1 and 0 B) cross-price elasticity of demand; less than 0 C) cross-price elasticity of demand; equal to 0 D) income elasticity of demand; greater than 0 Use the following to answer question 18: Figure: Optimal Quantity 18. (Figure: Optimal Quantity) If the demand for lawn-mowing increased, the ________ curve in the figure would shift to the ________ and the optimal quantity would be ________ five lawns mowed. A) marginal benefit; right; greater than B) marginal cost; right; less than C) marginal benefit; left; less than D) marginal cost; left; greater than Don’t forget a calculator for the test! Page 6 Answer Key 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. B C B C C C C B B C B B B A C C D A Page 7