Price per pound $1.00 S. 95 S .90

Pounds Consumed

We can conclude that in this range: (a) demand is elastic (b) demand is inelasdc (c) demand is unit elasdc (d) demand is perfectly elasdc (e) not enough information to an.swer.

51. A subsidy to peanut production will:

(a) decrease price by the full amount of the subsidy if demand is somewhat elasdc (b) increase price by the full amount if demand is somewhat inelastic (c) decrease price by the full amount provided demand elasdcit) is zero (d) have no effect upon quantity pro\ided demand is perfecdy inelasdc at all prices (a) both answers (c) and (d) (f) both 2mswers

(b) and (d).

52. Reanswer (51) for an excise tax instead of a subsidy.

53. A subsidy to peanut production will: (a) shift the supply curve up by the full amount of the subsidy

(b) shift the supply curve down by less than the full amount of the subsidy (c) increase the price by more than the amount of the subsidy (d) decrease the quandty sold (e) decrease the market price by less than the subsidy, while increasing the quandty sold.

54. Suppose the University has a fixed annual budget of $1,000,000 which it allocates for gardening services. In this case the Universitys demand for gardening services is: (a) a verdcal line (b) will vary in elasticity according to the price of gardening services

(c) a horizontal line (d) unit elasdc (e) none ofthe above.

55. In #54 above, if the price of a unit of gardening services is S50 per unit, the University will purchase: (a) 5000 units (b) 20.000 units (c) .00005 units

(d) 5 million units (e) 50 million units.

56. In #54 above, if we knew the University purchased 50,000 units of lawn care services, the price would be (a) $20 (b) $200 (c) $5 (d) $50

(e) none ofthese.

57. If the government believes that automobiles are too expensive and imposes a maximum price below the equilibrium price at which cars are sold to

dealers, we would expect: (a) the number of autcjl mobile maimfacturers to increase (b) more new carsf to be sold (c) demand to increase (d) fewer new cars to be sold (e) no changes to occur.

58. If dealers prices are in turn unregulated bv thcl government we would expect: (a) dealers to sell morcl cars (b) price to consinners to increase (c) no effi.l cienq loss (d) an increase in consumer surplus as thc price of cars fails (e) no change to occur.

59. Reanswer #57, now assuming that the ma mum price lies above die equilibrium price (a) (bj] (c) (d) (e).

60. The price of apples will rise and the quandti sold fall if (a) a higher wage for apple pickers occ

(b) a spell of exceptionally good weadier occ

(c) the price of oranges increases (d) insect come under better control (e) the price of orange decreases.

61 (H). A carefully done empirical study esdmates I elasdcity of demand and supply in the beer industryl 2.0 and 1.5 respecdvely. Ifthe government impos price ceiling on beer which is 10% below the ma clearing price, then the quandty sold will fall

(a) 15% (b)20% (c)35% (d) 5% (e) none of i above.

62(H). Suppose a minimum wage is imposed ilj labor market where the elasdcity of supply and elasdcity of demand are 2.0 and 1.5 respecthely. minimum wage is 10% above the market cle wage, about what percent ofthe labor force will bc ofwork? (a) 15% (b)20% (c) 35% (d) 2% (e)

63. The elasticity of supply along a straight, supply curve arising from the origin is: (a) infi

(b) between infinit) and one (c) one (d) one and zero (e) zero.

64(H). Suppose the demand for housing in Isla has an elasticiiy of 0.5. If rent control is enactedi the maximum rental price is set at 10% below the : ket clearing level, then by approximately how tni would the quantit) of housing demanded incre (a) 10% (b) 15% (c) 17 1/2% (d) 5% (e) non the above.

65. Isla \ista currently has a water moraior

Prohibiting new water hook-ups, which in effect bans lew construction. Assuming that the moratorium iias reduced the housing stock by 10% and that the elas-ticity of demand for housing in Isla Vista is, 0.80, dien in the absence of the moratorium rents would be: (a) 10% higher (b) 12 V2% lower (c) 80% lower (d) 8% lower (e) none of die above.

i 66(H). The amount of unemployment caused by an icrease in the minimum wage will tend to be greater: (a) the more elasdc is the demand (b) the more elas-tic is the supply (c) the more elasdc are both the skemand and supply (d) the less elasdc are both the fdemand and supply (e) none of the above.

67. If industry demand shifts to the left just as .dustry supply shifts to the right, we would expect: j(a) the same price to prevail (b) the same quandt) to pirevul (c) price and quandty to fall (d) price to fall while quandty may or may not change (e) quandty to Tall while price may or may not change.

A decrease in demand decreases the equilibri-price of bananas by 20% and the equilibrium andty by 2%. In this case: (a) demand is elastic b) demand is inelasdc (c) supply is elastic (d) sup- is inelasdc (e) supply is unit elasdc.

An excise tax of $10 on compact disc players be borne endrely by the consumer if: (a) the price elasdcity of demand is 1.0 (b) the price elastici-of demand is infinite (c) the price elasticity of Semand is 0 (d) the price elasdcity of supply is 0 (e) ath answers (b) and (d).

i!0. If a premature frost reduces the expected size next years Indian tea harvest and speculators are pJlowed to function, then compared to what would lerwise occur in the tea market: (a) the current price would be higher, die current quandt) lower, the

future price higher, the future quantity lower (b) die current price would be higher, the current quantity sold lower, the future price lower, the future quaniit) higher (c) the current price would be higher, the current quantity sold higher, the future price higher, the future quandty lower (d) the current price would be lower, the current quandty sold lower, the future price lower, the future quantity lower (e) none of the above.

71. News item (1990): Iraq-threatens to close the Straits of Hormuz, through which about 20% of the worlds oil supply flows. Various experts esdmate the world elasdcity ofdemand for crude to be about 0.50. If Iraq makes good on its threat, there is no increase in oil from other regions of the world, and no specu-ladon, then the price of oil will rise by about: (a) 40% (b) 10% (c) 80% (d) 100% (e) none of the above.

72. Imagine in Question 14 in Secdon III that the government imposes an excise tax of $4 per disc. Then the new equilibrium price will be: (a) $12 (b) $10 (c) $8 (d) $14 (e) none of die above.

73. In the question above, the consumers burden of the tax will be: (a) $4 (b) $10 (c) $6 (d) $8 (e) none ofthe above.

74. In quesdon 72 above, the producers burden will be: (a) $2 (b) $4 (c) $6 (d) $8 (e) none of the above.

75. We normally sell Scantron sheets for the midterm examination at $1 per sheet, typically selling 5 or 6 for the midterm but only 1 or 2 at the final. This illustrates that: (a) demand is more elastic in the long run (b) demand is less elasdc in the long run (c) supply is less elasdc in the long run (d) supply is more elastic in the long run (e) we should switch to essay exams.

MenkriA

REVIEW QUESTIONS FOR SECTIONS IIV

1. The production possibilities frontier between guns and butter: (a) indicates what will happen to the production of guns if the producdon of butter is increased (b) indicates what should happen to the production of guns if the production of butter is increased (c) indicates what happens to gun producdon if unemployment were reduced (d) indicates the boundary between feasible and non-feasible combinations of guns and butter production (e) indicates what resources are required to produce any particular combinations of guns and butter.

2. If idle machines and unemployed workers are brought into producdve use, the opportunity cost of such action is: (a) the wages of the previously unemployed workers (b) the rental price of the machines (c) infinite (d) the additional consumption of the newly employed workers (e) nothing in terms of commodities.

3. Joes tattoo parlor has a special on tattoos this week: All tattoos are half the usual price. At the new price Joe sells more than double the usual number of tattoos. If Joe wants to increase his total revenues and he believes the reaction to his new prices will persist, he should: (a) increase his usual price because demand is elastic (b) decrease his usual price because demand is inelastic (c) increase his usual price because demand is inelastic (d) decrease his usual price because demand is elastic (e) do nothing because his revenue will be the same regardless.

4. If the price of kiwi fruit is ten times that of apples and you consume some of both fruits, then you are not in equilibrium unless: (a) you consume ten times as many apples as kiwi (b) you consume ten times more kiwi fruit than apples (c) the utility derived from switching from apples to kiwi fruit is ten times your former utilin.- (d) the marginal utility of the last apple is one teiuh the marginal utility of the last kiwi (e) none of the.se.

f). Wiich of the following wotdd not cause a decrease in demand for .\mtrak tickets? (a) a fall in the price of air travel (b) improved access to airports (c) a rise in the price of railroad travel (d) improved baggage handling at airports (e) the abolition of catering ser\ices on trains.

6. Which of the following would not ca movement along the demand curve for gasolp

(a) a cheaper method of making gasoline (b) increase in the number of gasoline refiners (c) a\ decrease in refineries (d) a decrease in the price! crude oil (e) an increase in the price of cars.

7. In which of the following situations can we pii diet whether the price of bus tickets will rise or : assuming bus travel is an inferior good? (a) when ( sumers incomes increase and the wages of bus driv increase (b) when consumers incomes decline ; gasoline prices increase (c) when the price of air i el increases and Amtrak prices decrease (d) when l wages of bus drivers increase and the price of air i el decreases (e) when bus maintenance decrease and the incomes of consumers decrease."

8. A reduction in Amtrak fares makes when: (a) trains are not full and demand is in tic (b) trains are full and demand is inelastic trains are not full and demand is elastic (d) are full and demand is elastic (e) prices are stal but never in an inflationary environment.

9. The demand for tickets to a performance Nirvana at the Universal Amphitheatre is unit elas If tickets were priced at $20, nine-hundred would sold. Given a seating capacity of six-hundred, equilibrium price of tickets would be: (a) $50

(b) $40 (c) $30 (d) $20 (e) $5.

10. If in the above question, the actual price wq $15 then: (a) the excess supply of tickets wouldf 600 (b) the excess supply of tickets would be

(c) the excess demand for tickets would be

(d) the excess demand for tickets would be

(e) none of the above.

11. If "mad cow disease" wipes out 50% of beef stock, we would expect: (a) the price of I to rise (b) the price of hamburger rolls to rise the price of lamb to fall (d) the price of charcoalj rise (e) the price of steak knives to ri.se.

12. 1 of the following might be expected increase the supph of carrots? (a) a spell of weather (b) an increase in the wages of farm wore (c) an increase in consumers incomes (d) a rise i the price of fertilizers (e) improved irrigation lecM niques.