Exam #2

Economics 2113
Principles of Microeconomics
Dr. Philip Rothman
10/19/2001

There are 25 questions on this exam. Mark all of your answers on your blue bubble sheet.
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1) The price elasticity of demand measures

A) how often the price of a good changes.

B) the slope of a budget curve.
C) how sensitive the quantity demanded is to changes in demand.
D) the responsiveness of the quantity demanded to changes in price.

2) If a rightward shift of the supply curve causes a 6 percent decrease in the price and a 5 percent increase
in the quantity demanded, the price elasticity of demand is

A) 0.30. B) 0.60. C) 0.83. D) 1.20.

3) The price elasticity of demand is 5.0 if a 10 percent increase in the price results in a

A) 2 percent decrease in quantity demanded.

B) 5 percent decrease in quantity demanded.
C) 10 percent decrease in quantity demanded.
D) 50 percent decrease in quantity demanded.

4) A good with a vertical demand curve has a demand with

A) unit elasticity. B) infinite elasticity.

C) zero elasticity. D) varying elasticity.

5) Demand is inelastic if

A) large shifts of the supply curve cause only small changes in price.
B) the good in question has close substitutes.
C) a leftward shift of the supply curve raises the total revenue.
D) the smaller angle between the vertical axis and the demand curve is less than 45 degrees.

6) A shift of the supply curve of oil raises the price from $10 a barrel to $15 a barrel and reduces the
quantity demanded from 40 million to 15 million barrels a day. You can conclude that the

A) demand for oil is elastic. B) demand for oil is inelastic.

C) supply of oil is elastic. D) supply of oil is inelastic.

7) The more substitutes available for a product,

A) the larger is its the price elasticity of demand.

B) the smaller is its income elasticity of demand.
C) the smaller is its price elasticity of demand.
D) the larger is its income elasticity of demand.
8) The increase in the demand for widgets, shown in the figure above, is caused by an increase in average
incomes. Therefore, widgets

A) are a normal good. B) are an inferior good.

C) are elastically demanded. D) are inelastically demanded.

9) If a 1 percent decrease in the price of a pound of squash causes a larger percentage decrease in the
quantity supplied,

A) demand is elastic. B) demand is inelastic.

C) supply is elastic. D) supply is inelastic.

10) Marginal benefit typically

A) increases as more is consumed.

B) remains constant as more is consumed.
C) decreases as more is consumed.
D) increases as marginal costs increase.

11) Marginal cost usually

A) increases as more is produced.

B) remains constant as more is produced.
C) decreases as more is produced.
D) decreases as marginal benefits decrease.
12) In the above figure, when the efficient amount is produced the marginal cost of the last magazine is

A) $1.
B) $3.
C) $5.
D) some amount not given in the above three answers.

13) Consider the market for hot dogs. As long as the marginal benefit of consuming hot dogs is greater
than the price of hot dogs,

A) we will receive consumer surplus from eating hot dogs.

B) the price of hot dogs will rise.
C) the value of hot dogs will rise.
D) there is no decreasing marginal benefit of eating hot dogs.

14) The above figure shows Dana's marginal benefit curve for ice cream. If the market price is $2 per
gallon, then Dana's consumer surplus from the 4th gallon of ice cream is

A) $0. B) $2. C) $3. D) $10.

15) In the above figure, if the price is $2, then the consumer surplus will be

A) triangle abc. B) triangle cef. C) trapezoid adec. D) trapezoid bdfc.

16) In the above figure, 300,000 purses per month is

A) the efficient amount to produce because consumer surplus is maximized.

B) the efficient amount to produce because the sum of consumer surplus and producer surplus is
maximized.
C) an inefficient amount to produce because consumer surplus is not maximized.
D) an inefficient amount to produce because the sum of consumer surplus and producer surplus is not
maximized.
17) In the above figure, the deadweight loss is zero if output is

A) 0 units. B) 10 units. C) 20 units. D) 30 units.

18) In the figure above, the demand curve shifts rightward from D0 to D1 so that D1 is the relevant
demand curve. Then, if the government imposes a rent ceiling of $300 per month,

A) a deadweight loss will be created.

B) there will be a reduction in renters' search activities.
C) there will be an elimination of a black market.
D) there will be an increase in the number apartments rented.

19) In the figure above, the demand curve shifts rightward from D0 to D1 so that D1 is the relevant
demand curve. Then, if the government imposes a rent ceiling of $500 per month, there will be

A) a surplus of apartments.
B) a shortage of 200,000 apartments.
C) a shortage of 300,000 apartments.
D) neither a shortage nor a surplus of apartments.
20) A rent ceiling set above the equilibrium rent

A) restricts the quantity demanded but not the quantity supplied.

B) restricts the quantity supplied but not the quantity demanded.
C) restricts both the quantity demanded and the quantity supplied.
D) has no effect.

21) In the figure above, originally the apartment rental market is in equilibrium with a rental price of $600
per month. Then the government imposes a rent ceiling of $500 per month. The deadweight loss is
borne by

A) the producers only. B) the consumers only.

C) all producers and some consumers. D) all consumers and some producers.

22) If the minimum wage is set above the equilibrium wage, a supply and demand diagram of the low-
skilled labor market will show unemployment as

A) a vertical distance. B) a horizontal distance.

C) the area of a rectangle. D) the area of a triangle.

23) An "effective" or "binding" minimum wage is a price

A) ceiling that results in a shortage of low-skilled labor.

B) ceiling that results in a surplus of low-skilled labor.
C) floor that results in a shortage of low-skilled labor.
D) floor that results in a surplus of low-skilled labor.
24) The market for unskilled labor is illustrated in the figure above. Suppose the market is initially in
equlibrium. Then, assume that a minimum wage of $5 per hour is imposed. Imposition of this
minimum wage will cause employment to fall by

A) 0 hours. B) 10 million hours per year.

C) 20 million hours per year. D) 30 million hours per year.

25) In the figure above, if a tax of $2 per widget is imposed, then the after-tax amount per widget received
by the seller will be

A) more than or equal to $8. B) between $8 and $6.

C) $6. D) less than $6.
Answer Key for Exam #2, Economics 2113, Principles of Microeconomics, Fall 2001.

1) Answer: D

2) Answer: C

3) Answer: D

4) Answer: C

5) Answer: C

6) Answer: A

7) Answer: A

8) Answer: A

9) Answer: C

10) Answer: C

11) Answer: A

12) Answer: C

13) Answer: A

14) Answer: B

15) Answer: A

16) Answer: B

17) Answer: C

18) Answer: A
19) Answer: D

20) Answer: D

21) Answer: C

22) Answer: B

23) Answer: D

24) Answer: C

25) Answer: D