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Section 9 Practice Test

Multiple Choice

Identify the choice that best completes the statement or answers the question.

1. If the price of a good is increased by 20% and the quantity demanded changes by 15%, then the price elasticity of demand is equal to:

|a. |0.75. |

|b. |approximately 0.33. |

|c. |approximately 1.33. |

|d. |1. |

|e. |zero. |

2. If the demand curve is downward sloping, as calculated the price elasticity of demand is:

|a. |always positive. |

|b. |always greater than 1. |

|c. |usually equal to 1. |

|d. |always negative. |

|e. |always equal to zero. |

3. Gas prices recently increased by 25%. In response, purchases of gasoline decreased by 5%. Based on this data, the price elasticity of demand for gas is:

|a. |5. |

|b. |2. |

|c. |0.2. |

|d. |0.5. |

|e. |1.5. |

Figure 47-1: Demand for Shirts

[pic]

4. (Figure 47-1: Demand for Shirts) The absolute value of the price elasticity of demand for the segment AB is:

|a. |less than the price elasticity of demand for segment BC. |

|b. |is less than the price elasticity of demand for segment EF. |

|c. |is zero. |

|d. |is equal to the price elasticity of demand for segment BC. |

|e. |is greater than the price elasticity of demand for segment BC. |

5. Suppose the price of barley increases by 16.53%. If breweries buy 3.28% less barley after the price increase, the total revenue for barley producers will ________ due to the ________ effect being greater than the ________ effect.

|a. |decrease; quantity; price |

|b. |increase; price; quantity |

|c. |not change; quantity; price |

|d. |increase; quantity; price |

|e. |decrease; price; quantity |

6. If total revenue goes down when price falls, the price elasticity of demand is said to be:

|a. |price-inelastic. |

|b. |price unit-elastic. |

|c. |price-elastic. |

|d. |perfectly price-elastic. |

|e. |equal to one. |

7. Suppose the price of cereal rose by 25% and the quantity of milk sold decreased by 50%. Then we know that the:

|a. |cross-price elasticity between cereal and milk is –2. |

|b. |cross-price elasticity between cereal and milk is –0.5. |

|c. |price elasticity of demand for milk is 2. |

|d. |cross-price elasticity of demand for milk is 2. |

|e. |price elasticity of demand for cereal is 0.5. |

8. If your purchases of shoes decrease from 11 pairs per year to 9 pairs per year when the price of shirts increases from $8 to $12, then, for you, shoes and shirts are considered:

|a. |inferior goods. |

|b. |luxury goods. |

|c. |substitute goods. |

|d. |complementary goods. |

|e. |unrelated goods. |

Table 48-1: Johnson’s Income and Expenditures

|Monthly |Quantity Purchased per Month |

|Income | |

| |Steaks |Magazines |Movies |Pizzas |

|$2,000 |2 |4 |6 |8 |

|$3,000 |2 |6 |6 |6 |

|Table 48-1: Johnson's Income and Expenditures |

9. (Table 48-1: Johnson's Income and Expenditures) Johnson's income elasticity of demand for magazines is:

|a. |negative. |

|b. |0. |

|c. |greater than 0 but less than 1. |

|d. |1. |

|e. |greater than 1. |

Table 49-1: Consumer Surplus and Phantom Tickets

|Student |Willingness to Pay |

|Jessica |$150 |

|Jacquelyn |125 |

|Brad |105 |

|Robert |60 |

|Gwen |25 |

|Table 49-1: Consumer Surplus and Phantom Tickets |

10. (Table 49-1: Consumer Surplus and Phantom Tickets) If the box-office price of a ticket to see Phantom of the Opera is $50, and there is no other market for tickets, then total consumer surplus for the five students is:

|a. |$100. |

|b. |$175. |

|c. |$230. |

|d. |$240. |

|e. |$200. |

|This table shows some Atlanta college students' |

|willingness to pay to see The Nutty Nutcracker, by the |

|Atlanta Ballet. |

|Student |Willingness to Pay |

|Lois |$100 |

|Miguel |90 |

|Narum |65 |

|Oscar |50 |

|Pat |15 |

|Table 49-2: Consumer Surplus |

11. (Table 49-2: Consumer Surplus) If the price of a ticket to see The Nutty Nutcracker is $50, then Narum's consumer surplus is:

|a. |$60. |

|b. |$50. |

|c. |$15. |

|d. |$240. |

|e. |$115. |

Figure 49-2: Consumer Surplus II

[pic]

12. (Figure 49-2: Consumer Surplus II) At a price of P1, consumer surplus equals the area:

|a. |ABP2. |

|b. |AFP1. |

|c. |AQ30. |

|d. |P1P2BF. |

|e. |0P1FQ1. |

13. Suppose the government imposes a $10 excise tax on the sale of sweaters by charging suppliers $10 for each sweater sold. If the demand curve for sweaters is downward sloping, we would predict that:

|a. |the price of sweaters will increase by $10. |

|b. |consumers of sweaters will bear the entire burden of the tax. |

|c. |the quantity of sweaters purchased will increase. |

|d. |the price of sweaters will decrease by $10. |

|e. |the price of sweaters will increase by less than $10. |

Scenario 50-1: Market for Taxi Rides

[pic]

|Fare |Quantity Demanded |Quantity Supplied |

|(per ride) |(millions of |(millions of |

| |rides per year) |rides per year) |

|$7.00 |6 |14 |

|6.50 |7 |13 |

|6.00 |8 |12 |

|5.50 |9 |11 |

|5.00 |10 |10 |

|4.50 |11 |9 |

|4.00 |12 |8 |

|3.50 |13 |7 |

|3.00 |14 |6 |

14. (Scenario 50-1: Market for Taxi Rides) The figure represents a competitive market for taxi rides. If the government now imposes an excise tax of $3 per ride (causing the supply curve to shift upward by that amount), then the government will collect tax revenues of ________, which might be used for worthwhile purposes, but there will be a deadweight loss to society of ________ caused by this tax.

|a. |$9 million; $1 million |

|b. |$16 million; $2 million |

|c. |$21 million; $4.5 million |

|d. |$24 million; $6 million |

|e. |$12 million; $4 million |

Figure 50-6: Market for Yachts

[pic]

15. (Figure 50-6: Market for Yachts) If the government imposes a $30,000 tax on yachts (collected from the producers), consumers will pay ________ of the tax and producers will pay ________.

|a. |$20,000; $10,000 |

|b. |$15,000; $15,000 |

|c. |$10,000; $20,000 |

|d. |$5,000; $25,000 |

|e. |$30,000; $0 |

Figure 50-8: The Gas Market

[pic]

16. (Figure 50-8: 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 |

|e. |$4 per gallon. |

17. Assume that the marginal utilities for the first three units of a good consumed are 200, 150, and 125, respectively. The total utility for the first unit is:

|a. |125. |

|b. |150. |

|c. |200. |

|d. |350. |

|e. |475. |

|Units |0 |1 |2 |3 |4 |5 |6 |7 |

|Total Utility |0 |20 |35 |45 |50 |50 |45 |35 |

|Table 51-1: Utility |

18. (Table 51-1: Utility) The marginal utility for the fifth unit is:

|a. |15. |

|b. |10. |

|c. |5. |

|d. |0. |

|e. |50. |

|Hours of |Total Utility |

|Exercise | |

|0 |0 |

|1 |5 |

|2 |15 |

|3 |23 |

|4 |29 |

|5 |33 |

|Table 51-2: Exercise and Total Utility |

19. (Table 51-2: Exercise and Total Utility) The table shows a consumer's total utility from consuming hours of exercise at the gym. Given this information, what can be said about this consumer's marginal utility curve for exercise?

|a. |Marginal utility initially decreases, but eventually increases as more exercise is consumed. |

|b. |Marginal utility always decreases as more exercise is consumed. |

|c. |Marginal utility always increases as more exercise is consumed. |

|d. |Marginal utility initially increases, but eventually stays constant as more exercise is consumed. |

|e. |Marginal utility initially increases, but eventually decreases as more exercise is consumed. |

Figure 51-1: Budget Lines for Tea and Scones

[pic]

20. (Figure 51-1: Budget Lines for Tea and Scones) For months now, Agnes has had $20 per month to spend on tea and scones. The price of each cup of tea and each scone has been $1. Which chart(s) in the figure show(s) what will happen to her budget line if her income decreases to $10?

|a. |Chart A |

|b. |Chart B |

|c. |Chart C |

|d. |Chart D |

|e. |Chart B and C |

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