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,.]3 Wliich ol ihc (ollmviiig suttemeius i.s incoiisis-tent with the comniodir\ in question being inferior?

(a) au in demand raises producers re\enues

(b) an increase in consiuners incomes r.iises the price of die commodity (c) an m consiuners incomes reduces the price of the commodin (d) an in .snpp]\ reduces consumers expenditure (e) an increase in supph increases consumer expendinne.

14. . recent news item in the L..-\. Times stated diat the .\a\-\s new program for intercepting ship-L nients of illicit drugs on the high seas and in tbe air L\ has apparenth resulied in both huge seizures and \; many arrests of suppliers who otherwise would have-slipped through. This will raise the total expenditures ijon drugs if: (a) tbe elasticity of demand for illicit idrugs is greater dian 1.0 (b) the elasucitv of demand I for illicit drugs is less than 1.0 (c) the elasticit} of sup-iplv is greater than 1.0 (d) the elasticity of supply is less fcthan 1.0 (e) costs do not very much as a result.

,J5. A wage increase in the cigar industry the iprice of cigars from 50c to 75e. As a result, annual xigar consumption declines from 28 million to 20 mil-i lion. The loss of consumers 5 1 5 to cigar smokers ias a result ofthe price rise will then be about: (a) $10

million (b)S8 million (c) $5 million (d)S6 million

(e) $2 million.

16. In tbe previous question an estimate of die Iown price elasticit) of demand for cigars is: (a) 2 (b) 7/6 (c) 3-6 (d) r> 6 (e) 1.

17(H). Producers in the cement industrv are prepared feto supply an additional 100 tons of cement for each Paddidonal dollar the piice abcne zero. i.e.. thev lare prepared to supply 100 tons at SI per ton, 200 tons at$2 per ton and so on. Suppose that demand is com-jpletely inela.stic. and that i)i 1990 consiuners expendi-iture was S10,00(). In 1992 die go\einmeni imposes a xax of SIO per ton on cement. In this case consumers expenditure: (a) will to 512,000 .b) will to S15.000 (c) will rise to §40,000 d) will to I 520,000 (o) is iudetenninate.

I 18(H). In the question above, the new eqnilibrinin price would he: (a) SI.t (b) S20 (c S22 (d) S25 (e) $30.

; 19(H). For the same conditions, the uix will generate Irevenues for die government of: (a) Sl.noO (b) 510,000 I (c) $5,000 (d)0,000 (e) $40.000,

20(H). Under tbe same conditions, suppose that cement can be freely imported at a constant price of 515 per ton and no tariff exists. In this case, the new cquiiilrium price after the imposition of the tax would be: (a) $10 (b) $12 (c) $15 (d) $18 (e) $20.

21(H). Finall), with imported cement again available ai Sl. per ton, the tax revenue geiieraied by the government in taxing domestic production wou d be:

(a) .SI (b) 32000 (c) $3000 (d) $4000 (e) S5000.

22. The imposidon of a subsidy on milk production reduces the equilibrium price of milk from S2 to SI .80 per liter. If the demand for milk were unit elastic and the equilibrium quantit) of milk sold before the subsidy was imposed was 100,000 liters, then the new level of consumption would be: (a) 111,111 liters

(b) 121,111 liters (c) 103,168 liters (d) 117,268 liters (e) 112,.333 liters.

23. If a tenth of a consumers income is always de\oied to housing: (a) the income elasticit)- of demand rises as uiconie rises (b) is equal to infinity

(c) is equal to zero (d) is constant (e) none ofthese.

24. In die market for oranges in Los Angeles, 100,000 pounds were purchased in a week when the price was 80 p>er pound ajid"125,D00"were purchased when the price was 60? per pound. If other things had remained constant, then the elasticity of demand for oranges in LA would be approximately: (a) 1.2 (b) 1.0 (c) 0.777 (d) 0.6 (e) 0.5.

25. Freds income is $12 per week which he can spend on bread, beer, and movies. Bread is priced at SI per loaf, beer at 50c per borde, and mowes at S3 per ticket. For Fred the marginal udlity of each unit is as follows:

Marginal Udlit\- Isi 2nd 3rd 4th 5th 6th 7th 8tli Bread 30 28 26 24 20 16 10 4

Beer 25 24 23 20 18 14 12 10

Movies 60 20 15 3 0 0 0 0

To maximize his total utility, Fred would: (a) purchase 2 loaves, 5 bottles of beer, and go nvice to the nuMie.s (b) purchase 3 loaves. 6 bottles of beer, and go three times to the movies (c) purchase 1 loaf, 7 bottles of beer, and go once to the movies (d) purchase 1 loaf, 3 bottles of beer, and go once lo the movies (e) 5 loaves, 8 bottles of beer, and go once to the movies.

26. Good X has an income elasticity of 0.5 and has a cross elasticity with respect to good Y of-0.3. In this case: (a) X is an inferior good and Y is complementary to X (b) X is a normal good and Y is complementary to X (c) X is a normal good and Y is a substitute for X (d) X is an inferior good and Y is a subsdiute for X (e) none of the above.

27. Good Z is an inferior good and is complementary to good Y. in this case a rise in the price of Y combined with a fall in consumers incomes would definitely: (a) raise the equilibrium price of Z (b) raise the equilibrium quantity of Z (c) lower the equilibrium price of Z (d) lower the equilibrium quandty of Z (e) have no predictable effect on either equilibrium price or quantity.

28. The assumption of diminishing marginal utility states thai: (a) total utilit) diminishes as consumption of a particular commodit) increases (b) total utility increases as consumption of a pardcular commodity increases (c) the change in utilit) from consuming additional units of a particular commodity decreases

(d) the marginal utility derived from consumption of a particular commodity decreases at an increasing rate

(e) consumers suffer pain from increasing consumption.

29. An individuals demand schedule for gin and tonic on any particular evening is as follows:

Price ($) Quantit) (q)

In a bar the price of gin and tonic is $2; at a part) the) are free. If the consumer doesnt care where he drinks, the gain in consumer surplus from consiuning gin and tonic ai the party instead of the bar is then: (a) $142 (b) $9 (c) S6(d) $1 (e) $0.

30. Consumer surplus is defined as: (a) die area underneath the demand curve: (b) total expenditure on a commodit) (c) the difference between what a consumer would maximally be prepared to pay for a given amount of a good and what he actually pays (d) marginal utihty multiplied by price (e) marginal utilit) divided by price.

31. Crusoe and Friday are the only inhabitants of a desert island; Crusoe can catch a fish in six hours and catch a wild boar in eight. Friday, on the other band, can catch a fish in three hours and a wild boar in four.

In this case: (a) bodi Crusoe and Friday will ,,, Crusoe specializes in producing fish and Friday spo-cializes in producing wild boar (b) both Crusoe and Friday will gain if Crusoe speciali/.e.s in producing wild boar and Friday specializes in producing fish (c) onlv Crusoe can gain because Friday has an absolute advan- * tage in both goods (d) only Friday can gain because he has an absolute advantage in both goods (e) neither Friday nor Crusoe can gain from specialization and trade in this .situation.

32. Which of the following would not be expected] to increase the demand for tea by consinners? (a) an] increase in income (b) a rise in the price of coffee!

(c) decreases in the price of sugar, lemon, and oiherl foods commonly consumed with tea (d) a inj price of tea (e) a discovery that tea is an aphrodisiac!

33. Two straight line demand curves intersecil Then: (a) the flatter one is more elasdc at any givera price (b) the flatter one is more elastic at the point o intersection only (c) the steeper one is more elasdc au a given price (d) the steeper is more elastic only the price where they intersect (e) none of

34. A portion of Joe Gaiichos demand for piii pie is as follows:

Price Pounds purchased per year $10 2.0

$9 2.1

$8 2.2

We can conclude that Joes elasticity of demand in i range is: (a) less than 1.0 (b) equal to 1.0 (c) grealj than 1.0 (d) infinite (e) zero.

35. The price elasticity of demand on a lin< demand curve is: (a) zero where the deinand intersects the price axis (b) infinite where demand curve intersects the quantit) axis (c) where the demand curve intersects the quantit)

(d) always elastic (e) constant.

36. The elasticit)- in the viciiiit) of live diifer points on a demand curve is as follows:


A 1.6

D 1.0 0.5

E .01

At which of these points would a price decrease!

accompanied by a total revenue increase? (a) A,B, & (b) C, D, & E (c) A & (d) D & E (e) none of die above.

37. The elasdcity of demand for soap is TO. The elasdcit) of supply is infinite. If at the current equilibrium 120,000 bars are bought at a price of 50? per bar, die new equilibrium price brought about by the imposidon of a tax of 10? per bar would be; (a) 50? (b) 55? (c)60? (d) 65? (e)70?.

> 38. With the same conditions as the above ques-3. uon, the new equilibrium quantity would be: (a) 80,000 (b) 100,000 (c) 60,000 (d) 90,000 (e) 110,000.


1 39. If instead the elasticit) of demand for soap were 0.5, the new equilibrium quantit)- would be approximate!)-: (a) 50,000 (b) 70,000 (c) 100,000 l,(d) 110,000 (e) 120,000.

40. The Falkland Islands can produce oil and wool, i If all factors of production are u.sed in producing oil, :then one million barrels can be produced annually.

If the opportunity cost of a barrel of oil is constant at one half ofa bale of wool, what is the greatest amount of wool that can be produced in a year? (a) 5,000,000 bales (b) 3,000,000 bales (c) 2,000,000 bales

(d) 1,000,000 bales (e) 500,000 bales.

41. According to UCLA Professor George Hilton, the demand for mass transit S)stems is inelastic and the .ser\ice is an inferior good. If Hilton is correct, we would expect to see: (a) an increase in ridership if -fares are raised and also in economic recessions

( ) an increase in revenue if fares are raised and a decrease in ridership in recessions (c) a large response in ridership to a subsidized fares program and increasing demand as the economy grows ; (d) increasing ridership since World War II as prosperity increased (if the s)stem had been preserved)

(e) a decrease in revenue if fares are cut and an increase in ridership in recessions.

42. A consumer with an income of S22 is faced with choosing between \ goods A and B, priced at $4 and $2 respectively. The utilit) derived from the two

it. goods is as follows;

Qt)consumed/week (A) 0 1 2 3 4 5 6 7

Total utility (A) 0 20 .38 54 68 80 90 98

Qty consumed/week (B) 0 1 2 3 4 5 6 7

Tbtal utilitA (B) 0 12 23 33 42 .50 57 63

How much will be consumed per week? (a) A=-2 B=5 (b) A=3 B-5 (c) A=4 B=3 (d) A=5 B=l (e) none of the above.

43. The imposidon of a maximum price below the equilibrium price would be expected to: (a) result in deteriorating quality (b) create an excess demand for tbe commodity (c) encourage a black market to develop (d) increase discriminatory practices (e) do any or all of the above.

44. Three consumer types A, B, and demand to hold the stock of Acme Flypaper Co. as follows:

If there are 500 demanders of each type and 2,000 shares have been issued the equilibrium price would be: (a) $4 (b) $3 (c) $2 (d) SI (a) none of these.

45. If instead, supply were completely elastic at P = $1, the equilibrium quandty would be: (a) 13,000 (b) 1,000 (c) 19,000 (d) 6,500 (e) noneof diese.

46. WTiich of the following is inconsistent widi two goods, X and Y, being complements? (a) the cross elasticity of demand for X in terms of Y is negative (b) the cross elasdcity of demand for Y in terms of X is ttegative (c) a technological ad\ance in the production of Y raises the price of X (d) higher wages in the production of Y lower the price of X (e) none of the above.

47(H). According to a recent article in the L.A. Times. politicians in Sacramento intend to impose a "sin tivs." specifically, an excise tax on alcoholic beverages. If this tax is $1 per bottle, the wine supply is perfect!) elastic at $4 per botde, demand is ever)where unit elastic, and 1,000,000 bottles of wine are presently sold each week, we would predict; (a) the price of \unc would rise to $5, the government would collect $1,000,000 each week, and one million botdes would be sold (b) tbe price of wine would rise to $5, the go\-ernment would collect $800,000 weekly, and 800.000 bottles would be. sold after the tax (c) the price of wine would rise to an amount benveen $4 and $5. tbe

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