Download Econ 101, section 3, F06

Econ 101, section 3, F06
Schroeter
Makeup Exam
Choose the single best answer for each question.
1. Which of the following is a positive statement?
a. Sales taxes impose an unfairly high burden on the poor.
b. The income tax structure should be changed so that wealthy households would pay
more.
*. Iowa has one of the lowest cigarette excise tax rates in the nation.
d. Elderly homeowners deserve property tax relief.
Questions 2, 3, and 4 are based on the following information. Two small countries,
Allamakee and Monona, use their labor resources to produce goods of two types:
manufactured goods and agricultural goods. The table below gives the number of hours
of labor needed to produce one unit of each type of good in each country.
Allamakee
Monona
Hours needed to produce one unit of
manufactured goods
agricultural goods
4
3
2
1
2. The resource cost of 1 unit of agricultural goods in Allamakee is
a. 3/4 hours per unit of agricultural goods.
b. 4/3 hours per unit of agricultural goods.
*. 3 hours per unit of agricultural goods.
d. none of the above.
3. The opportunity cost of 1 unit of manufactured goods in Monona is
a. 1 unit of agricultural goods per unit of manufactured goods.
*. 2 units of agricultural goods per unit of manufactured goods.
c. 3 units of agricultural goods per unit of manufactured goods.
d. none of the above.
4. Which of the following is true?
a. Monona has the comparative advantage in the production of manufactured goods.
b. Allamakee has the comparative advantage in the production of agricultural goods.
c. Allamakee has the absolute advantage in the production of both goods.
*. None of the above is true.
5. Which of the following would cause a rightward shift in the demand for a good?
a. a decrease in the good's own price.
b. a decrease in income (assuming the good is a normal good).
*. an increase in the price of a substitute.
d. none of the above.
2
6. In a competitive market for a good, there are simultaneous increases in demand and
supply. The change in the good's equilibrium price will be
a. an increase but the change in equilibrium quantity will be ambiguous.
b. a decrease but the change in equilibrium quantity will be ambiguous.
*. ambiguous but the change in equilibrium quantity will be an increase.
d. ambiguous but the change in equilibrium quantity will be a decrease.
7. In a competitive market for a good, when price is above the equilibrium level,
a. there is excess demand.
*. there is a surplus.
c. there is a shortage.
d. both a and b.
8. Suppose that the elasticity of demand for a certain good is -2.0. Under these
circumstances, if the price of the good were to increase by 4%, the quantity demanded
would decrease by
a. 2%.
b. 4%.
*. 8%.
d. 10%.
9. When the ISU Bookstore raised its price for Cyclone logo coffee mugs from $4.50 to
$5.00, the number of Cyclone logo coffee mugs it sold each month, on average, fell from
16 to 12. The elasticity of demand for the Bookstore's Cyclone logo coffee mugs
(calculated by the "midpoint method") is
a. -3.33.
*. -2.71.
c. -1.47.
d. -0.37.
10. Which of the following is correct?
a. Rent control and the minimum wage are both examples of price ceilings.
b. Rent control and the minimum wage are both examples of price floors.
*. Rent control is an example of a price ceiling and the minimum wage is an example of a
price floor.
d. Rent control is an example of a price floor and the minimum wage is an example of a
price ceiling.
11. Most economists believe that the burden of cigarette excise taxes falls more heavily
on buyers than on sellers. This is because
a. cigarette buyers, not sellers, are the ones required to send the tax payment to the state
or federal government.
b. the demand for cigarettes is more elastic than the supply of cigarettes.
*. the supply of cigarettes is more elastic than the demand for cigarettes.
d. Congress has mandated that 90% of the federal excise tax on cigarettes be tacked onto
the buyer's price.
3
Questions 12 and 13 refer to the following information. The table lists willingness to pay
for the first, second, and third pizzas of the month for three hypothetical consumers. All
three have zero willingness to pay for pizzas after the third of the month.
Joe
Sherry
Nick
First pizza
$18.00
$15.00
$20.00
Second pizza
$12.00
$14.00
$16.00
Third pizza
$6.00
$12.00
$10.00
12. If the price of pizzas were $13.00 each, the numbers of pizzas purchased each month
by each consumer would be
a. Joe - 2; Sherry - 3; Nick - 2.
b. Joe - 1; Sherry - 1; Nick - 2.
c. Joe - 3; Sherry - 3; Nick - 1.
*. Joe - 1; Sherry - 2; Nick - 2.
13. If the price of pizzas were to decrease from $13.00 to $11.00, who would experience
the largest gain in consumer surplus?
a. Joe.
*. Sherry.
c. Nick.
d. All three would experience the same gain in consumer surplus.
14. Suppose that the imposition of a $2.00/unit excise tax on the competitive market for
widgets reduces the number of widgets traded each month from 8,000 to 5,000.
Assuming that the widget demand and supply curves are straight lines, the deadweight
loss of this excise tax would be
*. $3,000/month.
b. $5,000/month.
c. $8,000/month.
d. Impossible to determine without knowing the original (pre-tax) price of widgets.
15. The Laffer curve shows how _________ changes as ________ increases.
a. the marginal tax rate; household income.
b. tax incidence; demand elasticity.
*. total income tax revenue; the income tax rate.
d. deadweight loss; the height of the "tax wedge"
16. A small country initially prohibits international trade in cotton. When the trade ban is
repealed, the country becomes an exporter of cotton. As a result of the repeal of the trade
ban, domestic consumers of cotton
a. gain and domestic producers of cotton gain.
b. gain and domestic producers of cotton lose.
*. lose and domestic producers of cotton gain.
d. lose and domestic producers of cotton lose.
4
Questions 17 and 18 refer to the following figure. It depicts the domestic demand (Dd)
and supply (Sd) of honey, a homogeneous product, in Franistan, a small country. (When
we say that Franistan is a "small" country, we mean that the price of honey in the rest-ofthe-world will not be affected by changes in Franistan's trade policy.)
($/lb.)
7
Sd
4
3
2
Dd
1
3000
6000
9000
12,000 15,000
(lbs./day)
17. If the world market price of honey were $2/lb., in a free trade situation, consumer
surplus in the domestic market would be
a. $13,500/day.
b. $24,000/day.
*. $37,500/day.
d. none of the above.
18. Starting from a free trade situation with a world market price of $2/lb., the
government of Franistan imposes a $1/lb. tariff on honey imports. The change in
domestic producer surplus that results from the imposition of the tariff is an increase of
*. $4,500/day.
b. $6,000/day.
c. $7,500/day.
d. none of the above.
19. The competitive market for widgets is subject to a positive externality and transaction
costs prevent the affected parties from reaching an efficient solution via Coasian
bargaining. The market equilibrium quantity of widgets will be
*. less than the efficient quantity.
b. more than the efficient quantity.
c. equal to the efficient quantity.
d. impossible to determine with knowing whether the positive externality is the result of
the production or consumption of widgets.
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20. A common resource is
a. rival and excludable.
*. rival and non-excludable.
c. non-rival and excludable.
d. non-rival and non-excludable.
21. For a particular tax, the amount of tax owed, as a fraction of income, decreases as
income increases. This tax is
a. progressive.
*. regressive.
c. proportional.
d. impossible to determine without more information.
Questions 22 and 23 refer to Schedule Y-1 below. Arnold and Rachel are a married
couple (using the "married, filing jointly" tax filing status) with taxable income of
$85,000 on total income of $105,000.
Schedule Y-1. Use if your filing status is married, filing jointly.
If your taxable but not over
your tax is
of the amount
income is over
over
$0
$14,600
--------- 10%
$0
14,600
59,400
$1,460 + 15%
14,600
59,400
119,950
8,180 + 25%
59,400
119,950
182,800
23,317.50 + 28%
119,950
182,800
326,450
40,915.50 + 33%
182,800
326,450
---------88,320.00 + 35%
326,450
22. According to Schedule Y-1, Arnold and Rachel's federal income tax is
a. $6,400.
*. $14,580.
c. $19,580.
d. $21,250.
23. According to Schedule Y-1, Arnold and Rachel's average tax rate is
*. 13.9%
b. 17.2%
c. 21.3%
d. 25.0%
24. A competitive firm faces a price of $12/unit for its output and is currently producing
where marginal cost is $15/unit and average variable cost is $10/unit. To maximize
profit (or minimize loss) in the short-run, the firm should
a. increase output.
*. decrease output but not shut down.
c. shut down.
d. impossible to determine without more information.
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25. Which of the following is an implicit cost for a firm?
*. the salary that the firm's owner could earn if she were working for someone else.
b. interest payments on a business loan from a bank.
c. monthly rental payments by the firm to lease office space.
d. all of the above.
26. Marginal cost is
*. the change in total cost when output is increased by one unit.
b. the change in output when labor employment is increased by one worker.
c. the change in profit when one more unit is produced and sold.
d. total cost divided by the number of units of output produced.
27. At its current output level, a monopolist's price is $5/unit. Marginal cost is $2.50/unit
and average variable cost is $1.50/unit. To maximize profit (or minimize loss) in the
short-run, the monopolist should
a. increase output.
b. decrease output but not shut down.
c. shut down.
*. impossible to determine without more information.
28. A monopolist can sell 200 units of output per week if it charges a price of
$36.00/unit. In order to sell 201 units of output per week, it would have to reduce price
to $35.80/unit. The marginal revenue of the 201st unit of output is
*. -$4.20/unit
b. -$0.20/unit.
c. $4.20/unit.
d. $35.80/unit.
29. A monopolist faces two groups of potential customers. There are 200 potential
customers with willingness-to-pay (WTP) of $4 for the first unit of the monopolist's
product, and $0 for additional units. There are also 200 potential customers with a WTP
of $3 for the first unit and $0 for additional units. The monopolist produces the product
at zero fixed cost and a constant marginal cost of $1/unit. If the monopolist were able to
price discriminate, what is the maximum profit it could earn?
a. $800.
*. $1000.
c. $1200.
d. none of the above.
30. In a homogeneous product oligopoly, the market outcome is likely to look most like
that of a competitive industry if the number of firms is
a. large and they all cooperate.
*. large and they do not cooperate.
c. small and they all cooperate.
d. small and they do not cooperate.