Question 1

American Tennishoe, Inc., is concerned because Congress has proposed an excise tax of $1 on each pair of tennis shoes sold in the United States. They are lobbying against the tax through an advertising campaign that says the tax will raise the price of tennis shoes by $1. Use supply and demand graphs to show how much of the tax will actually be passed on to consumers.

Accepted Answer

The answer of American Tennishoe, Inc., is concerned because Congress...

Question 2

Which of the following are least likely to be substitutes?

Accepted Answer

A)  Chicken and beef. 
B)  Cars and trucks. 
C)  Automobile and housing. 
D)  Automobile and gasoline.

Question 3

An excise tax of $1.00 per gallon of gasoline placed on the suppliers of gasoline in a market with downward sloping demand and upward sloping supply would raise the equilibrium price

Accepted Answer

A)  exactly $1.00 per gallon. 
B)  by less than $1.00 per gallon. 
C)  by more than $1.00 per gallon. 
D)  too little information to determine the impact on the equilibrium price.

Question 4

Suppose supply decreases and demand increases. What effect will this have on the quantity?

Accepted Answer

A)  It will fall. 
B)  It will rise. 
C)  It may rise or fall. 
D)  It will remain the same.

Question 5

Good X is an inferior good if a decrease in income leads to

Accepted Answer

A)  an increase in the supply of good X. 
B)  a decrease in the supply of good X. 
C)  an increase in the demand for good X. 
D)  a decrease in the demand for good X.

Question 6

Graphically, a decrease in advertising will cause the demand curve to:

Accepted Answer

A)  become steeper. 
B)  shift rightward. 
C)  become flatter. 
D)  shift leftward.

Question 7

Suppose the demand for X is given by Qxd = 100 - 2PX + 4PY + 10M + 2A, where PX represents the price of good X, PY is the price of good Y, M is income and A is the amount of advertising on good X. Based on this information, we know that good X is a

Accepted Answer

A)  substitute for good Y and a normal good. 
B)  complement for good Y and an inferior good. 
C)  complement for good Y and a normal good. 
D)  substitute for good Y and an inferior good.

Question 8

Apples and oranges are substitutes. A freeze in Florida destroys most of the orange crop. What would you expect to happen to the market for the following:
a. Oranges?
b. Apples?
c. Orange juice?

Accepted Answer

The answer of Apples and oranges are substitutes. A freeze...

Question 9

Suppose the market demand for good X is given by QXd = 20 - 2PX. If the equilibrium price of X is $5 per unit then consumers' expenditure on X is

Accepted Answer

A)  $5. 
B)  $25. 
C)  $50. 
D)  cannot be determined from the information contained in the question.

Question 10

Given a linear demand function of the form QXd = 100 - 0.5PX, find the inverse linear demand function.

Accepted Answer

A)  PX = 200 - 2QX. 
B)  PX = 100 - 0.5QX. 
C)  PX = 100 - 2QX. 
D)  PX = 100QX - 0.5PX.

Question 11

A floor price is

Accepted Answer

A)  the minimum legal price that can be charged in a market. 
B)  the maximum legal price that can be charged in a market. 
C)  below the initial market equilibrium price. 
D)  equal to the initial market equilibrium price.

Question 12

Consider a market characterized by the following inverse demand and supply functions: PX = 10 - 2QX and PX = 2 + 2QX. Compute the equilibrium price and quantity in this market.

Accepted Answer

A)  $24 and 24 units, respectively. 
B)  $4 and 4 units, respectively. 
C)  $2 and 6 units, respectively. 
D)  $6 and 2 units, respectively.

Question 13

In a competitive market, the market demand is Qd = 60 - 6P and the market supply is Qs = 4P. A price floor of $9 will result in a

Accepted Answer

A)  shortage of 30 units. 
B)  shortage of 12 units. 
C)  surplus of 30 units. 
D)  surplus of 12 units.

Question 14

Other things held constant, the lower the price of a good

Accepted Answer

A)  the lower the producer surplus. 
B)  the greater the producer surplus. 
C)  the higher the supply. 
D)  the lower the supply.

Question 15

You are an economic advisor to the Treasurer of the United States. Congress is considering increasing the sales tax on gasoline by $.03 per gallon. Last year motorists purchased 10 million gallons of gas per month. The demand curve is such that every $.01 increase in price decreases sales by 100,000 gallons per month. You also know that for every $.01 increase in price, producers are willing to provide 50,000 more gallons of gasoline to the market. The legislature has stated that the $.03 tax will increase government revenues by $300,000 per month and raise the price of gasoline by $.03 per gallon. Is this correct?

Accepted Answer

The answer of You are an economic advisor to the...

Question 16

Suppose good X is a normal good. Then a decrease in income would lead to

Accepted Answer

A)  an outward shift of the demand curve. 
B)  an inward shift of the demand curve. 
C)  no shift of the demand curve. 
D)  a movement along the demand curve.

Question 17

In a competitive market, the market demand is Qd = 70 - 3P and the market supply is Qs = 6P. A price ceiling of $4 will result in a

Accepted Answer

A)  shortage of 24 units. 
B)  shortage of 34 units. 
C)  surplus of 58 units. 
D)  surplus of 34 units.

Question 18

Consider a market characterized by the following inverse demand and supply functions: PX = 10 - 2QX and PX = 2 + 2QX. Compute the number of units exchanged and the price at which those units will be exchanged when there is an $8 per unit price floor.

Accepted Answer

A)  1 unit and $6 per unit. 
B)  1 unit and $8 per unit. 
C)  3 units and $6 per unit. 
D)  3 units and $8 per unit.

Question 19

Which of the following is probably not a normal good?

Accepted Answer

A)  designer dresses. 
B)  lobster. 
C)  macaroni and cheese. 
D)  expensive automobiles.

Question 20

The law of supply states that, holding all else constant, as the price of a good falls:

Accepted Answer

A)  quantity demanded rises. 
B)  quantity supplied falls. 
C)  quantity supplied rises. 
D)  quantity demanded falls.

Exam 2: Market Forces: Demand and Supply

Which of the following are least likely to be substitutes?

An excise tax of $1.00 per gallon of gasoline placed on the suppliers of gasoline in a market with downward sloping demand and upward sloping supply would raise the equilibrium price

Suppose supply decreases and demand increases. What effect will this have on the quantity?

Good X is an inferior good if a decrease in income leads to

Graphically, a decrease in advertising will cause the demand curve to:

Suppose the demand for X is given by Q_x^d = 100 - 2P_X + 4P_Y + 10M + 2A, where P_X represents the price of good X, P_Y is the price of good Y, M is income and A is the amount of advertising on good X. Based on this information, we know that good X is a

Apples and oranges are substitutes. A freeze in Florida destroys most of the orange crop. What would you expect to happen to the market for the following: a. Oranges? b. Apples? c. Orange juice?

Suppose the market demand for good X is given by Q_X^d = 20 - 2P_X. If the equilibrium price of X is $5 per unit then consumers' expenditure on X is

Given a linear demand function of the form Q_X^d = 100 - 0.5P_X, find the inverse linear demand function.

A floor price is

Consider a market characterized by the following inverse demand and supply functions: P_X = 10 - 2Q_X and P_X = 2 + 2Q_X. Compute the equilibrium price and quantity in this market.

In a competitive market, the market demand is Q^d = 60 - 6P and the market supply is Q^s = 4P. A price floor of $9 will result in a

Other things held constant, the lower the price of a good

Suppose good X is a normal good. Then a decrease in income would lead to

In a competitive market, the market demand is Q^d = 70 - 3P and the market supply is Q^s = 6P. A price ceiling of $4 will result in a

Consider a market characterized by the following inverse demand and supply functions: P_X = 10 - 2Q_X and P_X = 2 + 2Q_X. Compute the number of units exchanged and the price at which those units will be exchanged when there is an $8 per unit price floor.

Which of the following is probably not a normal good?

The law of supply states that, holding all else constant, as the price of a good falls: