Question 1

The inverse demand function for video games is p = 240 - 2q and the inverse supply function is p = 3 + q. When the government imposes a $6 tax on each video game purchased,

Accepted Answer

A)  consumer's surplus falls by more than producer's surplus. 
B)  producer's surplus falls by more than consumer's surplus. 
C)  consumer's surplus and producer's surplus fall by the same amount. 
D)  consumer's surplus falls and producer's surplus increases. 
E)  producer's surplus falls and consumer's surplus increases. 
A)  consumer's surplus falls by more than producer's surplus. 
B)  producer's surplus falls by more than consumer's surplus. 
C)  consumer's surplus and producer's surplus fall by the same amount. 
D)  consumer's surplus falls and producer's surplus increases. 
E)  producer's surplus falls and consumer's surplus increases. A

Question 2

The inverse demand function for eggs is p = 125 - 6q, where q is the number of cases of eggs. The inverse supply is p = 5 + 6q. In the past, eggs were not taxed, but now a tax of 72 dollars per case has been introduced. What is the effect of the tax on the quantity of eggs supplied?

Accepted Answer

A)  Quantity drops by 7 cases. 
B)  Quantity drops by 5 cases. 
C)  Quantity drops by 6 cases. 
D)  Quantity drops by 12 cases. 
E)  None of the above. 
A)  Quantity drops by 7 cases. 
B)  Quantity drops by 5 cases. 
C)  Quantity drops by 6 cases. 
D)  Quantity drops by 12 cases. 
E)  None of the above. C

Question 3

Suppose that King Kanuta, whom you met in your workbook, demands that each of his subjects give him 2 coconuts for every coconut that they consume. The king puts all of the coconuts that he collects in a large pile and burns them. The supply of coconuts is given by S(ps) = 100ps, where ps is the price received by suppliers. The demand for coconuts by the king's subjects is given by D(pd) = 6,000 - 100pd, where pd is the price paid by consumers. In equilibrium, the price received by suppliers will be

Accepted Answer

A)  $30. 
B)  $18. 
C)  $90. 
D)  $27. 
E)  None of the above 
A)  $30. 
B)  $18. 
C)  $90. 
D)  $27. 
E)  None of the above B

Question 4

The demand function for corn is q = 200 - p and the supply function is q = 50 + .5p. The government sets the price of corn at $150 and agrees to purchase and destroy any excess supply of corn at that price. How much money does it cost the government to buy this corn?

Accepted Answer

A)  $11,250 
B)  $18,750 
C)  $7,500 
D)  $10,750 
E)  $14,500 
A)  $11,250 
B)  $18,750 
C)  $7,500 
D)  $10,750 
E)  $14,500

Question 5

An economic situation is Pareto optimal only if there is no way to make someone better off.

Accepted Answer

A) True 
 B)False

Question 6

Xaquane and Yullare are obscure but talented eighteenth-century painters. The world's stock of Xaquanes is 100 and the world's stock of Yullares is 70. The demand for each painter's work depends on its own price and the price of the other painter's work. If Px is the price of Xaquanes and Py is the price of Yullares, the demand function for Xaquanes is 101 - 3Px + 2Py and the demand function for Yullares is 72 + Px - Py. What is the equilibrium price for Yullare's paintings?

Accepted Answer

A)  $5 
B)  $11 
C)  $12 
D)  $7 
E)  None of the above. 
A)  $5 
B)  $11 
C)  $12 
D)  $7 
E)  None of the above.

Question 7

The inverse demand function for cantaloupes is defined by the equation p = 305 - 5q, where q is the number of units sold. The inverse supply function is defined by p = 8 + 4q. A tax of $45 is imposed on suppliers for each unit of cantaloupes that they sell. When the tax is imposed, the quantity of cantaloupes sold falls to

Accepted Answer

A) 28 
B) 33 
C)  21.75. 
D) 26. 
E)  30.50. 
A) 28 
B) 33 
C)  21.75. 
D) 26. 
E)  30.50.

Question 8

The market for tennis shoes has a horizontal supply curve and a linear, downward-sloping demand curve. Currently the government imposes a tax of t on every pair of tennis shoes sold and does not tax other goods. The government is considering a plan to double the tax on tennis shoes, while leaving other goods untaxed. If the tax is doubled, then

Accepted Answer

A)  the total deadweight loss caused by the doubled tax will be exactly twice the original deadweight loss. 
B)  the total deadweight loss caused by the doubled tax will be more than twice the original deadweight loss. 
C)  the total deadweight loss caused by the doubled tax will be less than twice the original deadweight loss. 
D)  to know if doubling the tax would more than double the deadweight loss, we would have to know the slope of the demand curve. 
E)  None of the above. 
A)  the total deadweight loss caused by the doubled tax will be exactly twice the original deadweight loss. 
B)  the total deadweight loss caused by the doubled tax will be more than twice the original deadweight loss. 
C)  the total deadweight loss caused by the doubled tax will be less than twice the original deadweight loss. 
D)  to know if doubling the tax would more than double the deadweight loss, we would have to know the slope of the demand curve. 
E)  None of the above.

Question 9

The quantity q of grapefruits demanded at price p is given by q = 30 - 3p and the supply schedule by q = 6p. The government imposes a quantity tax at some rate t, which it collects from buyers. What is the smallest tax rate that will result in no grapefruits being bought or sold?

Accepted Answer

A)  10% 
B)  3.33% 
C)  3.67% 
D)  11.50% 
E)  13% 
A)  10% 
B)  3.33% 
C)  3.67% 
D)  11.50% 
E)  13%

Question 10

Long ago, a kindly prince noticed the misery of his subjects. His subjects all had the same preferences and the same low incomes. The demand function of each subject for bread was q = 26 - p, where p is the price of bread and q is the number of loaves per week. The supply of bread per capita per week was given by the function q = .3p. The king declared since his subjects did not even get a loaf of bread per day, he would help them by making it illegal to sell bread for more than 10 groschens per loaf. Unhappily, a bread shortage arose and people waited in long lines to get bread.
a. Draw a graph to show why. Put numerical labels on the important points on your graph.
b. If the citizens could earn 4 groschens per hour at work that was exactly as unpleasant as waiting in line, what would be the equilibrium waiting time for a loaf of bread?

Accepted Answer

The answer of Long ago, a kindly prince noticed the...

Question 11

The demand function for orange juice is q = 247 - 8p and the supply function is q = 19 + 4p, where q is the number of units sold per year and p is the price per unit, expressed in dollars. The government decides to support the price of orange juice at a price floor of $27 per unit by buying orange juice and destroying all that it has purchased. How many units must the government destroy per year?

Accepted Answer

A)  105 
B)  104 
C)  40 
D)  96 
E)  101 
A)  105 
B)  104 
C)  40 
D)  96 
E)  101

Question 12

In a crowded city far away, the civic authorities decided that rents were too high. The long-run supply function of two-room rental apartments was given by q = 5 + 2p, and the long-run demand function was given by q = 225 - 4p, where p is the rental rate in crowns per week. The authorities made it illegal to rent an apartment for more than 30 crowns per week. To avoid a housing shortage, the authorities agreed to pay landlords enough of a subsidy to make supply equal to demand. How much would the weekly subsidy per apartment have to be to eliminate excess demand at the ceiling price?

Accepted Answer

A)  10 crowns 
B)  17 crowns 
C)  20 crowns 
D)  40 crowns 
E)  30 crowns 
A)  10 crowns 
B)  17 crowns 
C)  20 crowns 
D)  40 crowns 
E)  30 crowns

Question 13

If the supply is perfectly elastic, then an upward shift of the demand curve will lead to a higher price and a higher quantity in equilibrium.

Accepted Answer

A) True 
 B)False

Question 14

Schrecklich and Lamerde are two obscure modernist painters, who are no longer alive but whose paintings are still enjoyed by persons of dubious taste. The demand function for Schrecklichs is 200 - 4PS - 2PL and the demand function for Lamerdes is 200 - 3PL - PS, where PS and PL are respectively the price of Schrecklichs and Lamerdes. If the world supply of Schrecklichs is 100 and the world supply of Lamerdes is 70, then the equilibrium price of Schrecklichs is

Accepted Answer

A)  $46. 
B)  $4. 
C)  $25. 
D)  $42. 
E)  $8. 
A)  $46. 
B)  $4. 
C)  $25. 
D)  $42. 
E)  $8.

Question 15

The inverse demand function for mangos is defined by the equation p = 91 - 5q, where q is the number of crates that are sold. The inverse supply function is defined by p = 3 + 6q. In the past there was no tax on mangos but now a tax of $44 per crate has been imposed. What are the quantities produced before and after the tax was imposed?

Accepted Answer

A)  5 crates before and 5 crates after 
B)  16 crates before and 9 crates after 
C)  14 crates before and 7 crates after 
D)  8 crates before and 4 crates after 
E)  None of the above. 
A)  5 crates before and 5 crates after 
B)  16 crates before and 9 crates after 
C)  14 crates before and 7 crates after 
D)  8 crates before and 4 crates after 
E)  None of the above.

Question 16

The amount of a good supplied is independent of the price. If a sales tax is imposed on the good, then the price paid by consumers will not change at all.

Accepted Answer

A) True 
 B)False

Question 17

The demand curve, which is a downward-sloping straight line, crosses the supply curve, which is an upward-sloping straight line. If a tax is introduced where sellers must pay a tax of $2 per unit sold, then the equilibrium price paid by demanders will rise by more than $1 if the absolute value of the slope of the demand curve is greater than the absolute value of the slope of the supply curve.

Accepted Answer

A) True 
 B)False

Question 18

If a quantity tax is collected from competitive suppliers of a good, placing a tax on the good causes the price paid by consumers to increase more than if the tax had been collected directly from the buyers.

Accepted Answer

A) True 
 B)False

Question 19

The inverse demand function for cigars is defined by p = 240 - 2q, and the inverse supply function is defined by p = 3 + q. Cigars are taxed at $4 per box.

Accepted Answer

A)  The after-tax price paid by consumers rises by more than $2, and the after-tax price received by suppliers falls by less than $2. 
B)  The after-tax price paid by consumers goes up by less than $2, and the after-tax price received by suppliers rises. 
C)  Consumers and suppliers share the cost of the tax equally. 
D)  The after-tax price paid by consumers rises by $4, and the after-tax price received by suppliers stays constant. 
E)  The after-tax price paid by consumers rises by less than $2, and the after-tax price received by suppliers stays constant. 
A)  The after-tax price paid by consumers rises by more than $2, and the after-tax price received by suppliers falls by less than $2. 
B)  The after-tax price paid by consumers goes up by less than $2, and the after-tax price received by suppliers rises. 
C)  Consumers and suppliers share the cost of the tax equally. 
D)  The after-tax price paid by consumers rises by $4, and the after-tax price received by suppliers stays constant. 
E)  The after-tax price paid by consumers rises by less than $2, and the after-tax price received by suppliers stays constant.

Question 20

The supply curve slopes up and to the right. If the demand curve shifts upward to a new curve which is everywhere higher than the old curve (but possibly of different slope) and if the supply curve does not shift, then the equilibrium price and quantity must necessarily increase.

Accepted Answer

A) True 
 B)False

Exam 15: Equilibrium

The inverse demand function for video games is p = 240 - 2q and the inverse supply function is p = 3 + q. When the government imposes a $6 tax on each video game purchased,

The inverse demand function for eggs is p = 125 - 6q, where q is the number of cases of eggs. The inverse supply is p = 5 + 6q. In the past, eggs were not taxed, but now a tax of 72 dollars per case has been introduced. What is the effect of the tax on the quantity of eggs supplied?

The demand function for corn is q = 200 - p and the supply function is q = 50 + .5p. The government sets the price of corn at $150 and agrees to purchase and destroy any excess supply of corn at that price. How much money does it cost the government to buy this corn?

An economic situation is Pareto optimal only if there is no way to make someone better off.

The quantity q of grapefruits demanded at price p is given by q = 30 - 3p and the supply schedule by q = 6p. The government imposes a quantity tax at some rate t, which it collects from buyers. What is the smallest tax rate that will result in no grapefruits being bought or sold?

If the supply is perfectly elastic, then an upward shift of the demand curve will lead to a higher price and a higher quantity in equilibrium.

The amount of a good supplied is independent of the price. If a sales tax is imposed on the good, then the price paid by consumers will not change at all.

If a quantity tax is collected from competitive suppliers of a good, placing a tax on the good causes the price paid by consumers to increase more than if the tax had been collected directly from the buyers.

The inverse demand function for cigars is defined by p = 240 - 2q, and the inverse supply function is defined by p = 3 + q. Cigars are taxed at $4 per box.

The supply curve slopes up and to the right. If the demand curve shifts upward to a new curve which is everywhere higher than the old curve (but possibly of different slope) and if the supply curve does not shift, then the equilibrium price and quantity must necessarily increase.

Budget Constraint

A: Budget Constraint

Preferences

A: Preferences

Utility

A: Utility

Choice

A: Choice

Demand

A: Demand

Revealed Preference

A: Revealed Preference

Slutsky Equation

A: Slutsky Equation

Buying and Selling

A: Buying and Selling

Intertemporal Choice

A: Intertemporal Choice

Asset Markets

A: Asset Markets

Uncertainty

A: Uncertainty

Risky Assets

A: Risky Assets

Consumers Surplus

A: Consumers Surplus

Market Demand

A: Market Demand

A: Equilibrium

Auctions

A: Auctions

Technology

A: Technology

Profit Maximization

A: Profit Maximization

Cost Minimization

A: Cost Minimization

Cost Curves

A: Cost Curves

Firm Supply

A: Firm Supply

Industry Supply

A: Industry Supply

Monopoly

A: Monopoly

Monopoly Behavior

A: Monopoly Behavior

Factor Markets

A: Factor Markets

Oligopoly

A: Oligopoly

Game Theory

A: Game Theory

Game Applications

A: Game Applications

Behavioral Economics

Exchange

A: Exchange

Production

A: Production

Welfare

A: Welfare

Externalities

A: Externalities

Information Technology

A: Information Technology

Public Goods

A: Public Goods

Asymmetric Information