Download Second Homework

EC 201 Homework2-Fall 2010
1. An effective price ceiling will be placed _______the market equilibrium, and, ceteris paribus, will
cause the quantity _______ to be greater than the quantity _______.
A. Above; demanded; supplied
B. Above; supplied; demanded
C. Below; demanded; supplied
D. Below; supplied; demanded
2. An effective price floor will be placed _______ the market equilibrium, and, ceteris paribus, will
cause the quantity _______ to be greater than the quantity _______.
A. Above; demanded; supplied
B. Above; supplied; demanded
C. Below; demanded; supplied
D. Below; supplied; demanded
3. A price ceiling is likely to lead a transfer of economic surplus from _______to _______; whereas a
price floor will more likely lead to a transfer of surplus from _______ to _______, ceteris paribus.
A. Consumers, producers; consumers, producers
B. Consumers, producers; producers, consumers
C. Producers, consumers; consumers, producers
D. Producers, consumers; producers, consumers
4. The minimum wage is an example of a _______. As such it would be expected to contribute to an
increase in _______, ceteris paribus.
A. Price floor, employment
B. Price ceiling, employment
C. Price floor, unemployment
D. Price ceiling, unemployment
5. Suppose that for most smokers, tobacco is a product that composes a relatively small share of their
household budgets and for which there are no close substitutes. Which of the following figures would
most likely represent the short-run price elasticity of demand for tobacco?
A. 1.00
B. -0.50
C. -1.46
D. -2.44
The diagram below illustrates the market for gasoline after a $0.10 per gallon tax has been imposed.
Use the diagram to answer question 6 and 7.
6. Which of the following represents the deadweight loss from the tax?
A. A+B
B. C+D
C. B+D
D. B+D+F
7. Which of the following represents the tax revenue collected by the government
A. $0.10 *144 billion= $14.4 billion
B. $0.10 *140 billion= $14.0 billion
C. $3.08 *144 billion= $443.5 billion
D. $3.08 *140 billion= $431.2 billion
8. Suppose the price elasticity of demand for coffee is -0.75. Furthermore, suppose that a decrease in
the price of herbicides and pesticides used in the production of coffee results in a 1.0 percent
decrease in the price of coffee. Ceteris paribus, it follows that the quantity exchanged of coffee will
_______ by _______.
A. Decrease, 7.5 percent
B. Increase, 7.5 percent
C. Decrease, 1/7.5 percent
D. Increase, 0.75 percent
9. Refer back to the previous question. Ceteris paribus, it follows that, as a result of the change in the
coffee market, the total revenue of coffee suppliers will _______.
A. Decrease
B. Increase
C. Remain unchanged
D. Not sure
10. Suppose the demand for X is “perfectly inelastic”. Furthermore, suppose that the free market
equilibrium quantity exchanged of X is 1,000 units per day, and the price is $10 per unit. Now there
was a decrease in the supply of X. Ceteris paribus, it follows that:
A. The quantity exchanged of X will remain at 1,000 units per day, but the price will increase.
B. The equilibrium price of X will remain at $10 per unit, but the quantity exchanged will decrease.
C. The quantity exchanged of X will remain at 1,000 units per day, but the price will decrease.
D. The equilibrium price of X will remain at $10 per unit, but the quantity exchanged will increase.
11. Suppose the demand for X is “perfectly elastic”. Furthermore, suppose that the free market
equilibrium quantity exchanged of X is 1,000 units per day, and the price is $10 per unit. Now
suppose there was an increase in the supply of X. Ceteris paribus, it follows that:
A. The quantity exchanged of X will remain at 1,000 units per day, but the price will increase.
B. The equilibrium price of X will remain at $10 per unit, but the quantity exchanged will decrease.
C. The quantity exchanged of X will remain at 1,000 units per day, but the price will decrease.
D. The equilibrium price of X will remain at $10 per unit, but the quantity exchanged will increase.
12. Suppose that at your neighborhood Harris Teeter, the initial equilibrium for Cheerios is $4.00 per
box and 100 boxes are sold per week; now suppose as a result of a decrease in supply, the new
equilibrium is $5.00 per box and 50 boxes are sold per week. Using the “midpoint formula” for the
price elasticity of demand, which of the following would yield the elasticity?
A. [(100-50)/((100+50)/2)]/[(5.00-4.00)/((5.00+4.00)/2)]
B. [(100+50)/((100-50)/2)]/[(5.00+4.00)/((5.00-4.00)/2)]
C. [100/((100+50)/2)]/[5.00/((5.00+4.00)/2)]
D. [(100-50)/((100+50)/2)]/[(4.00-5.00)/((5.00+4.00)/2)]
13. Suppose the price elasticity of demand for Cheerios is -1.5. Furthermore, suppose that a decrease
in the price of machinery used to produce Cheerios results in a 5.0 percent decrease in the price of
Cheerios. Ceteris paribus, it follows that the quantity exchanged of Cheerios will _______ by
_______.
A. Decrease, 0.3 percent
B. Increase, 7.5 percent
C. Decrease, 30 percent
D. Increase, 3 percent
14. Suppose the price of milk decreases by 5.0 percent, and the quantity demanded of milk increases
by 2.5 percent, Ceteris paribus, it follows that the price elasticity of demand for milk is _______.
A. 0.5
B. -0.5
C. -2.0
D. -0.02
15. Which of the following statement about income elasticity of demand is NOT true?
A. It measures the responsiveness of quantity demanded of one good to changes in income
B. Normal goods have positive income elasticity of demand and inferior goods have negative income
elasticity of demand
C. Luxury goods have income elasticity of demand greater than 1 and necessary goods have income
elasticity of demand between 0 and 1.
D. Some necessary good could be inferior goods.
16. In the United States there are more _______ than there are _______; at the same time, on
average, _______ tend to be larger than _______, as measured by total revenue.
A. Proprietorships, corporations; proprietorships, corporations
B. Corporations, proprietorships; proprietorships, corporations
C. Proprietorships, corporations; corporations, proprietorships
D. Corporations, proprietorships; corporations, proprietorships
17. Suppose a bank purchases a bond for $X using discount rate i%. Now suppose that after
purchasing the bond, the bank decreases the discount rate on that bond. Ceteris paribus, it follows
that:
A. The value of the bank’s liabilities will increase
B. The value of the bank’s liabilities will decrease
C. The value of the bank’s assets will decrease
D. The bank’s capital will increase
18. Suppose a bank purchase a “mortgage-backed security”- i.e. a bond- for $X using discount rate
i%. Now suppose that after purchasing the bond, the bank increases the discount rate on that bond.
Ceteris paribus, it follows that:
A. The value of the bank’s liability will increase
B. The value of the bank’s liability will decrease
C. The value of the bank’s assets will increase
D. The bank’s capital will decrease
19. Suppose firm X, in which you invested, is losing money. Ceteris paribus, you would be
financially better off if you owned the firm’s _______ rather than its _______. Suppose you also
invested in firm Y when it was small and unprofitable, but it become large and profitable. Ceteris
paribus, you would have been better off financially if you had purchased the firm’s _______ rather
than its _______.
A. Bonds, stock; bonds, stock
B. Stock, bonds; stock, bonds
C. Stock, bonds; bonds, stock
D. Bonds, stock; stock, bonds
20. Suppose you have been hired as a financial consultant, and your job is to price two bonds, A and
B. The bonds are identical in every way (e.g. they have the same coupon payment, maturity date,
etc.), except that B is “riskier” than A-i.e. you think the probability of full payment of principal and
interest is lower for B than it is for A. Ceteris paribus, it follows that the discount rate (or simply the
interest rate, as your text calls it) you employ for pricing bond A will be _______ than that of bond
B; thus the price of bond A will be _______ than that of bond B.
A. Greater; less
B. Less; less
C. Less; greater
D. Greater; greater