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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 |

|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

[pic]

|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 |

|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

[pic]

|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. |

|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:

[pic]

|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. |

Use the following to answer question 14:

Figure: The Gas Market

[pic]

|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. |

| | |

|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

[pic]

|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!

Answer Key

|1. |B |

|2. |C |

|3. |B |

|4. |C |

|5. |C |

|6. |C |

|7. |C |

|8. |B |

|9. |B |

|10. |C |

|11. |B |

|12. |B |

|13. |B |

|14. |A |

|15. |C |

|16. |C |

|17. |D |

|18. |A |

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