Econ 210 Quiz 2 Fall 2002 Folland (20 points)



Econ 210 Quiz 2 Fall 2002 Folland (20 points)

1. The price elasticity of demand is defined by which of the following?

A. the slope of the demand curve

B. the ratio of the price to the quantity

(C. the ratio of percentage change in quantity demanded to percentage change in price

D. the ratio of the change in quantity to the change in price

2. Which of the following is the best example of a detrimental externality in production

A. the apple orchard and the beekeeper

B. traffic congestion after work on Fridays

(C. acid rain caused by factory smoke

D. national defense

E. Rochester Municipal Park

3. Which should government do (if anything) were a market for college education to fail to recognize the side benefit to society of an educated citizenry?

(A. raise the output of college education to above the private market output

B. lower the output of college education to below the private market output

C. leave the college education market alone, the private market is always efficient

D. increase government ads for military careers

E. hire more people direct out of high school to become government employees

4. If the price elasticity of demand in a given case is less than one in absolute value, which of the following strategies would be the most likely to increase firm revenues?

(A. raise price

B. lower price

C. leave price as is

D. one cannot tell given this information

5. Which of the following would likely be the least price elastic?

(A. emergency medical services

B. Breyer's ice cream

C. houses

D. ice cream in general

E. luxury cruises

6. In the case of a paint product where the factories emit a great deal of toxic smoke, economic analysis suggests that the market quantity of paint will be

(A. greater than the socially optimal quantity of paint

B. equal to the socially optimal quantity of paint

C. less than the socially optimal quantity of paint

7. On a linear demand curve, where price is $7 quantity demanded is 20, and where price is $5 quantity demanded is 25. Between these two points, the price elasticity in absolute value when rounded to two digits is

A. 0.14

B. 0.22

(C. 0.67

D. 1.80

E. 2.22

8. In the case of a honeybee farm that inadvertantly helps to pollinate the apple orchard nearby, economic analysis suggests that the market output of honey will be

A. greater than the socially optimal quantity of honey

B. the socially optimal quantity of honey

(C. less than the socially optimal quantity of honey

9. Which of the following was the most logical economic rationale for choosing that government should regulate auto emissions standards

A. automobiles are a public good

B. (the emissions entail a detrimental externality

C. it would be too expensive for private enterprise to do it

A. it is a good way for government to make money

D. private markets sometimes fail by excessively discounting the future

10. Which pair of goods is most likely to have a negative cross elasticity of demand?

(A. sugar and tea

B. paperback novels and hardcover novels

C. pencils and pens

D. coffee and tea

11. Graphically, when calculating the area representing the total tax collected from an excise tax, we multiply the distance representing the quantity sold times which of the following?

A. the distance between the equilibrium point and the vertical axis

B. the horizontal distance between the two supply curves

(C. the vertical distance between the two supply curves

D. the distance from the horizontal axis to the equilibrium point

E. the distance from the supply curve to the demand curve at the equilibrium point

12. The more price inelastic demand for cigarettes is, the more an excise tax increase will be

A. quantity reducing

B. (tax revenue enhancing

C. effective in curbing smoking

D. tax neutral—tax revenue will not change

13. We know that the price elasticity changes as you move along a linear demand curve, but in what way does it change?

(A. price elasticities are larger in absolute value on the upper part of the curve

B. price elasticities are highest in absolute value in the middle of the curve

C. price elasticities are smaller in absolute value on the upper part of the curve

D. it's a trick question, because price elasticity really is constant along a linear demand curve

14. Assuming that each of the following advertising campaigns works to increase demand for your product, which one is the least likely to also make your demand less elastic?

A. ads showing that your product is needed for good health

B. ads that show admired famous people and suggest that your product is essential to be like them and even to maintain your self-esteem

C. ads that seek to tie the consumer irrationally to your product and subliminally encourages them to ignore factual data on product drawbacks

(D. ads that promote your "continued low prices" in the community

15. In analyzing the effect of an excise tax, which of the following is a true statement?

A. the horizontal distance between the two supply curves measures the tax

B. generally, the tax is paid entirely by the demander

(C. perfectly elastic demand implies that the tax will not cause the price to rise at all

D. total tax collection is a triangular area on the graph

E. if the price rises following the tax rise then the supplier generally pays the entire tax

16. If an anti-smoking campaign on TV were successful in lowering cigarette demand and also in making that demand more elastic, then which of the following would be true?

(A. an excise tax hike would become more effective in curbing smoking than before

B. an excise tax hike would become more effective at raising tax revenue than before

C. the remaining smokers in the community are apparently more addicted on average than before

D. it has now become impossible to reduce smoking in the community further

E. both A and B above

17. When analyzing the effect of an excise tax in a market with an upward sloping supply curve, which of the following is true?

A. the tax hike can be shown as a vertical shift in the supply curve

B. price will generally rise unless the demand curve is flat

C. the tax cost will fall partly on the supplier unless the demand curve is vertical

D. total tax collections are represented by a rectangle

(E. all of the above

18. In the case of the charitable beneficial externality, on whom does the external benefit fall?

A. on the poor person who wasn't getting sufficient medical care

B. on the government bureaucrat

C. only on the person who donates

(D. on the person who donates as well as charitable-minded people who were "free-riders"

E. on the medical doctor who delivered care to the poor person

19. Suppose that the price elasticity for your product were -0.87 and that the income elasticity for your product were 1.39. Which of the following statements would then be true?

A. your product is a luxury in this market

B. your product is inelastic in this market

C. raising your price would tend to increase your revenues

D. an example of a product like yours might be a food that is quite expensive but has substantial brand loyalty among your consumers

(E. all of the above

20. Which of the following customers is most likely indicating buying habits that are inelastic for your product?

(A. "I gotta have it"

B. "I can take it or leave it"

C. "I would like to shop around a bit more first"

D. "This seems a bit pricey, have you got anything else?"

E. all of the above

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