Download Exam Review 2 Answer key

Exam 2 Review
Supplemental Instruction
Iowa State University
Leader:
Course:
Instructor:
Date:
Sean C
Econ 101
Rudik
3/8/16
1. A price floor with binding constraint will cause
a. A rightward shift to the demand curve
b. A leftward shift in the supply curve
c. A shortage of the good
d. A surplus of the good
2. If the equilibrium price of a good is $5 what will be a binding price ceiling?
a. $5
b. $10
c. $2
d. We need to know the equilibrium quantity
3. A $1 tax is put in place on buyers of pizza, which of the following are true?
a. The buyer has to pay an extra dollar for pizza
b. The quantity demanded decreases
c. The buyer and supplier split the tax incidence
d. All the above
e. Just B and C
Price
Q Demand Q Supply
4. The following table shows the quantity demanded
$3
50
10
and supplied for donuts. Use this to answer a-c.
$4
40
20
a. What is the Equilibrium price and quantity?
$5
30
30
i.
$3 and a quantity of 30
$6
20
40
ii.
$5 and a quantity of 30
$7
10
50
iii.
$5 and a quantity of 40
iv.
$7 and a quantity of 50
b. Now say the government thinks not enough consumers are able to purchase donuts, so
to fix this problem they put in place a price ceiling of $4. Which is true?
i.
There is an excess supply of 20
ii.
There is an excess supply of 40
iii.
There is a shortage of 20
iv.
There is a shortage of 40
c. The demand curve for donuts is more elastic than the supply curve of donuts. The
government decides to put in place a tax of $2 on buyers of donuts. Which is true?
i.
The sellers will take on more of the tax incidence than the buyers
ii.
The buyers will take on more of the tax incidence than the sellers
iii.
They will both pay the same amount of the tax
iv.
Not enough information to answer this question
5. It costs Jim $20 a month to mow lawns for his neighbors. Which price will make it worth
his time to mow lawns?
a. $15
b. $10
c. $29
d. $19
6. An efficient allocation of resources maximizes
a. Consumer surplus
b. Producer surplus
c. Consumer surplus plus Producer surplus
d. Consumer surplus minus Producer surplus
7. Producing a quantity greater than the equilibrium is inefficient because
a. Buyers willingness to pay is less than sellers cost
b. Sellers cost is less than buyers willingness to pay
c. Sellers are under producing
d. Buyers are willing to pay too much
Buyer
Willingness to Pay
Use the chart of hats to the left for questions 8 and 9
Ryan
$10
8. At $21 who would buy a hat?
Sydney
$25
a. Sydney
Matt
$15
b. Matt
Kate
$20
c. Emily
James
$18
d. All the above
Emily
$22
e. Just A and C
9. At $15 what would the consumer surplus be?
a. $30
b. $25
c. $5
d. $20
10. If the producer surplus for shoes is $25 and the consumer surplus is $10 what is the total
surplus?
a. $15
b. $25
c. $10
d. $35
11. When are markets most efficient?
a. When price is the lowest
b. When quantity produced is the highest
c. At the equilibrium
d. When there is so much of a product being produced that it can’t all be consumed
12. If policy makers want to minimize deadweight loss, they should:
a. Make a large tax
b. Tax only the sellers
c. Tax only the buyers
d. Tax the good that’s the most inelastic
13. Taxes
a. Increase consumer and producer surplus
b. Decrease consumer and producer surplus
c. Decrease consumer surplus and increase producer surplus
d. Increase consumer surplus and decrease producer surplus
14. The Laffer curve shows that in some cases, the government can reduce a tax on a good
and increase the:
a. Deadweight loss
b. Government’s tax revenue
c. Equilibrium quantity
d. Price paid by consumers
15. If the world price of corn is $7 and the domestic price for the U.S. is $5 then
a. The U.S. will export corn
b. The U.S. will import corn
c. The U.S. will import and export corn
d. They will stop producing corn
16. If a country imposes a tariff on a good it was importing then,
a. Deadweight loss will increase
b. The Quantity demanded will decrease
c. The domestic quantity supplied will increase
d. Just A and C
e. All the above
17. If a country is exporting a good it’s,
a. Producer surplus is larger than its consumer surplus
b. Consumer surplus is larger than is producer surplus
c. Deadweight loss is higher
d. Total surplus is larger than if they were importing that good
18. The only time to restrict trade is when
a. You are trying to keep local jobs
b. The business is just starting
c. The competition in the market is unfair
d. None of the above
19-21. Two companies, Company A and Company B pollute into a river near them. The
government’s goal is to reduce pollution from 50 tons to 40 tons. It costs Company A $50/ ton to
reduce pollution and Company B $25/ ton. The government has two choices on what they want
to do to reduce pollution.
19. The government in the first option says the two companies must reduce pollution from 50
to 40 tons. How much does it cost the companies to reduce pollution?
a. $250
b. $500
c. $375
d. $750
20. Now the other option is to issue 20 permits to each company that they can sell amongst
each other. Company B uses 15 permits and sells the other 5 to company A for $40 each.
How much does it cost the companies to reduce pollution?
a. $250
b. $500
c. $375
d. $750
21. Which is more efficient?
a. First option
b. Second option
c. They both produce the same result
d. Not enough info to know
22. Which is a positive externality?
a. Getting a flu shot
b. Second hand smoke
c. Drunk driving
d. Air pollution
23. To reduce negative externalities the government will
a. Make a subsidy
b. Tax that good
c. Nothing at all and let the market work
d. Lower the price of the good
24. What goods are rival?
a. Private and public
b. Private and common resources
c. Public and common resources
d. Public and club
25. Public goods are
a. Over-consumed
b. Not produced enough
c. The best type of good
d. Excludable
26. A common resource is
a. Cable TV
b. National Defense
c. Tacos
d. Fish in the ocean
27. A tax system is considered best when
a. It is only the most efficient
b. Brings in the same revenue at less cost to taxpayers
c. Generates the most revenue
d. Increases administrative burden
28. The benefits principle is
a. The idea that taxes should be levied according to how well a person can handle that
tax burden
b. The tax system that says the higher your income the higher amount of taxes you
should be paying
c. If you use that good then you should be taxed for it
d. Deadweight loss should be at a minimum when making taxes