ECON1000: Basic Microeconomics - 2018

Sample Test 2
Time allowed: 75 minutes
Student name: ___________________ Student ID: ____________________
Instruction: Write only the best choice for each question in the table below. You are NOT allowed to use your cellphone
during the test. If you are caught using phone, you will get a grade of zero. You are allowed to use a paper dictionary and
non-programmable calculator. You have on average 2.5 minutes for each question.
1. A key determinant of the price elasticity of supply is the time period under consideration. Which of the following
statements best explains this fact?
a. Supply curves are steeper over long periods of time than over short periods of time.
b. Buyers of goods tend to be more responsive to price changes over long periods of time than over short periods
of time.
c. The number of firms in a market tends to be more variable over long periods of time than over short periods of
time.*
d. Firms prefer to change their prices in the short run rather than in the long run.

2. If the price elasticity of supply is 1.5, and a price increase led to a 1.8% increase in quantity supplied, then the price
increase is about
a. 0.67%.
b. 0.83%.
c. 1.20%.*
d. 2.70%.

Figure 8-22

3. Refer to Figure 8-22. Suppose the government changed the per-unit tax on this good from $3.00 to $1.50. Compared to
the original tax rate, this lower tax rate would
a. increase tax revenue and increase the deadweight loss from the tax.
b. increase tax revenue and decrease the deadweight loss from the tax.
c. decrease tax revenue and increase the deadweight loss from the tax.
d. decrease tax revenue and decrease the deadweight loss from the tax.*

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4. Refer to Figure 8-22. Suppose the government changed the per-unit tax from $3.00 to $4.50. Compared to the original
tax rate, this higher tax rate would
a. increase tax revenue and increase the deadweight loss from the tax.*
b. increase tax revenue and decrease the deadweight loss from the tax.
c. decrease tax revenue and increase the deadweight loss from the tax.
d. decrease tax revenue and decrease the deadweight loss from the tax.

5. A tax levied on the sellers of a good shifts the

a. supply curve upward (or to the left).*
b. supply curve downward (or to the right).
c. demand curve upward (or to the right).
d. demand curve downward (or to the left).

6. If a tax shifts the supply curve upward (or to the left), we can infer that the tax was levied on
a. buyers of the good.
b. sellers of the good.*
c. both buyers and sellers of the good.
d. We cannot infer anything because the shift described is not consistent with a tax.

7. The discovery of a new hybrid wheat would increase the supply of wheat. As a result, wheat farmers would realize an
increase in total revenue if the
a. supply of wheat is elastic.
b. supply of wheat is inelastic.
c. demand for wheat is inelastic.
d. demand for wheat is elastic.*

8. When a binding price ceiling is imposed on a market,

a. price no longer serves as a rationing device.*
b. the quantity supplied at the price ceiling exceeds the quantity that would have been supplied without the price
ceiling.
c. all buyers benefit.
d. All of the above are correct.

9. When a binding price ceiling is imposed on a market to benefit buyers,

a. every buyer in the market benefits.
b. every buyer and seller in the market benefits.
c. every buyer who wants to buy the good will be able to do so, but only if he waits in long lines.
d. some buyers will not be able to buy any amount of the good.*

10. If the government removes a tax on a good, then the price paid by buyers will
a. increase, and the price received by sellers will increase.
b. increase, and the price received by sellers will decrease.
c. decrease, and the price received by sellers will increase.*
d. decrease, and the price received by sellers will decrease.

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11. A tax on the sellers of coffee will increase the price of coffee paid by buyers,
a. increase the effective price of coffee received by sellers, and increase the equilibrium quantity of coffee.
b. increase the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.
c. decrease the effective price of coffee received by sellers, and increase the equilibrium quantity of coffee.
d. decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.*

12. Which of the following statements is correct concerning the burden of a tax imposed on take-out food?
a. Buyers bear the entire burden of the tax.
b. Sellers bear the entire burden of the tax.
c. Buyers and sellers share the burden of the tax.*
d. We have to know whether it is the buyers or the sellers that are required to pay the tax to the government in
order to make this determination.

13. Suppose that in a particular market, the supply curve is highly elastic and the demand curve is highly inelastic. If a tax
is imposed in this market, then the
a. buyers will bear a greater burden of the tax than the sellers.*
b. sellers will bear a greater burden of the tax than the buyers.
c. buyers and sellers are likely to share the burden of the tax equally.
d. buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater
burden of the tax without more information.

14. The tax burden will fall most heavily on sellers of the good when the demand curve
a. is relatively steep, and the supply curve is relatively flat.
b. is relatively flat, and the supply curve is relatively steep.*
c. and the supply curve are both relatively flat.
d. and the supply curve are both relatively steep.

Figure 6-21

15. Refer to Figure 6-21. What is the amount of the tax per unit?
a. $1
b. $2
c. $3
d. $4*

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16. Refer to Figure 6-21. The price that buyers pay after the tax is imposed is
a. $8.00.
b. $9.00.
c. $10.50.
d. $12.00.*

17. Refer to Figure 6-21. How is the burden of the tax shared between buyers and sellers? Buyers bear
a. three-fourths of the burden, and sellers bear one-fourth of the burden.*
b. two-thirds of the burden, and sellers bear one-third of the burden.
c. one-half of the burden, and sellers bear one-half of the burden.
d. one-fourth of the burden, and sellers bear three-fourths of the burden.

18. Refer to Figure 6-21. In the after-tax equilibrium, how much revenue does the government collect from the tax on
this good?
a. $210
b. $345
c. $420*
d. $480

19. Refer to Figure 6-21. Suppose buyers, rather than sellers, were required to pay this tax (in the same amount per unit
as shown in the graph). Relative to the tax on sellers, the tax on buyers would result in
a. buyers bearing a larger share of the tax burden.
b. sellers bearing a smaller share of the tax burden.
c. the same amount of tax revenue for the government.*
d. Both a) and b) are correct.

20. Total surplus is represented by the area below the

a. demand curve and above the price.
b. price and up to the point of equilibrium.
c. demand curve and above the supply curve, up to the equilibrium quantity.*
d. demand curve and above the horizontal axis, up to the equilibrium quantity.

21. When a buyer’s willingness to pay for a good is equal to the price of the good, the
a. buyer’s consumer surplus for that good is maximized.
b. buyer will buy as much of the good as the buyer’s budget allows.
c. price of the good exceeds the value that the buyer places on the good.
d. buyer is indifferent between buying the good and not buying it.*

22. Consumer surplus

a. is the amount a buyer pays for a good minus the amount the buyer is willing to pay for it.
b. is represented on a supply-demand graph by the area below the price and above the demand curve.
c. measures the benefit sellers receive from participating in a market.
d. measures the benefit buyers receive from participating in a market.*

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23. A seller is willing to sell a product only if the seller receives a price that is at least as great as the
a. seller’s producer surplus.
b. seller’s cost of production.*
c. seller’s profit.
d. average willingness to pay of buyers of the product.

24. A supply curve can be used to measure producer surplus because it reflects
a. the actions of sellers.
b. quantity supplied.
c. sellers' costs.*
d. the amount that will be purchased by consumers in the market.

25. When the supply of a good decreases and the demand for the good remains unchanged, consumer surplus
a. decreases.*
b. is unchanged.
c. increases.
d. may increase, decrease, or remain unchanged.

Figure 7-25

26. Refer to Figure 7-25. At the equilibrium price, total surplus is

a. $288.
b. $576.
c. $1,152.*
d. $2,304.

27. Refer to Figure 7-25. Suppose the government imposes a price ceiling of $16 in this market. If the buyers with the
highest willingness to pay purchase the good, then total surplus will be
a. $256.
b. $768.
c. $1,024.*
d. $1,280.

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28. Refer to Figure 7-25. Suppose the government imposes a price floor of $28 in this market. If the sellers with the
lowest cost are the ones who sell the good and the government does not purchase any excess units produced, then total
surplus will be
a. $400.
b. $800.
c. $1,120.*
d. $1,184.

29. A decrease in the size of a tax is most likely to increase tax revenue in a market with
a. elastic demand and elastic supply.*
b. elastic demand and inelastic supply.
c. inelastic demand and elastic supply.
d. inelastic demand and inelastic supply.

30. Which of the following statements correctly describes the relationship between the size of the deadweight loss and the
amount of tax revenue as the size of a tax increases from a small tax to a medium tax and finally to a large tax?
a. Both the size of the deadweight loss and tax revenue increase.
b. The size of the deadweight loss increases, but the tax revenue decreases.
c. The size of the deadweight loss increases, but the tax revenue first increases, then decreases.*
d. Both the size of the deadweight loss and tax revenue decrease.

31. Which of the following scenarios is consistent with the Laffer curve?
a. The tax rate is 1 percent, and tax revenue is very low.*
b. The tax rate is 1 percent, and tax revenue is very high.
c. The tax rate is 99 percent, and tax revenue is very high.
d. The tax rate is moderate (between very high and very low), and tax revenue is very low.

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