Question

Question 1

A per unit tax on a good which is levied on the consumer will usually cause which of the following?

a. The price to rise by somewhat less than the per unit tax

b. The price to rise by the amount of the per unit tax

c. A rotation in the demand curve which changes its slope.

Question 2

Which of the following is/are held constant when writing a demand equation for a good in the form         Q_d = a + b*P?

a. The own price of the good.

b. The quantity demanded of the good.

c. The income of the potential consumers of the good.

Question 3

When a government imposes a price ceiling below the market price on a product or service, which of the following happens?

a. Total consumer surplus rises because consumers now pay less for the product

b. A shortage of supply relative to demand results

c. The total amount of the product or service that is traded in the market rises due to the lower price

Question 4

The demand function for a pair of a popular new brand of athletic shoe has been estimated to be as follows:

Q_d = 500 – 2.5*Po + 1.5*Pc + .5*I + .02*A

Where Po is the own price of the pair of shoes, Pc is the price of a pair of close competitor’s shoes, I is the average income in the area measured in thousands of dollars, and A is spending on advertising measured in millions of dollars. At the current time, the new shoes are priced at $125 a pair, a pair of the competitor’s shoe is selling for $100, I = 37.5 and A = 5 .

The approximate price elasticity of demand for the new shoe is:

a. -2.5

b. -.87

c. 1.0

Question 5

A ‘Slide’ along a demand curve for a good is the result of which of the following?

a. A change in the own price of the good

b. An increase in the cost of producing the good

c. A change in the quality of the good

Question 6

The demand function for a pair of a popular new brand of athletic shoe has been estimated to be as follows:

Q_d = 500 – 2.5*Po + 1.5*Pc + .5*I + .02*A

Where Po is the own price of the pair of shoes, Pc is the price of a pair of close competitor’s shoes, I is the average income in the area measured in thousands of dollars, and A is spending on advertising measured in millions of dollars. At the current time, the new shoes are priced at $125 a pair, a pair of the competitor’s shoe is selling for $100, I = 37.5 and A = 5 .

The income elasticity of demand indicates that the new shoe is:

a. An inferior good

b. A normal good

c. A luxury good

Question 7

Producer surplus is:

a. The area above the supply curve below the equilibrium price line

b. The area above the supply curve and beneath the demand curve to the left of the equilibrium point

c. Revenue minus fixed costs

Question 8

If a supply curve of a product is a vertical line, what does that suggest about the supply of that product?

a. Supply is fixed at a given quantity and cannot be increased despite changes in the price of the product

b. There is no supply available for the product

c. Supply of the product is infinitely elastic

Answer 1

1)

Answer: (A)

Since here burden of tax is divided between the buyer and seller. Hence price rises but somewhat less than the per unit tax.

2)

Answer: (A)

It showing relationship between quantity demanded and price of substitutes. Hence, it is assumed that own price of good is constant.

3)

Answer: (B)

Shortage of supply relative to demand will result. Since price is below the equilibrium level, hence producers do not have incentives to supply right quantity at this level, hence supply shortage emerges.