ECON 251 EXAM 2 QUESTIONS AND ANSWERS
price ceilings create ________ if they are set ______ the equilibrium price - Answers -
shortages; below
Which of the following are price ceilings?
1. agricultural price support
2. price controls on prescription drugs
3. the minimum wage
4. rent control - Answers -price controls on prescription drugs and rent control
Price floors create _________ if they are set ______ the equilibrium price - Answers -
surpluses; above
Which of the following are price floors?
1. a minimum unit price on alcohol
2. price controls on staples, e.g., bread
3. an agricultural price support
4. rent control - Answers -a minimum unit price on alcohol, an agricultural price support
A quota will impact the market if the maximum quantity it allows ________ the
equilibrium - Answers -falls short of
Which of the following are quantity regulations?
1. rent control
2. taxi quotas
3. zoning laws
4. insurance mandates - Answers -taxi quotas, zoning laws, insurance mandates
The equilibrium price in a market is $55. A tax is placed on this market that results in
buyers paying $75 and sellers only getting to keep $40 of that. Which of the following is
definitely true based on this information?
1. Sellers have a more elastic response to this tax
2. the size of the tax is $55
3. Buyers and sellers have the same elasticity
4. the statutory burden of the tax is on the sellers
5. buyers have a more elastic response to this tax
6. the size of the tax is $20 - Answers -Sellers have a more elastic response to this tax
Which of the following is a normative statement?
1. Taxes should not be imposed on lower income people
2. economists can measure the impact of taxes on buyers and sellers in a market
3. if tax rates increase, tax revenue will increase
, 4. taxes impact consumption patterns - Answers -Taxes should not be imposed on
lower income people
Suppose the absolute value of the price elasticity of demand for quesadillas is 0.25,
while the price elasticity of supply for quesadillas is 0.72. If the mayor of West Lafayette
instates a tax on quesadilla sellers, who will pay more of the tax?
1. Quesadilla sellers and buyers will pay equally
2. It's impossible to tell without additional information
3. Quesadilla buyers will pay more
4. Restaurants selling quesadillas will pay more - Answers -Quesadilla buyers will pay
more
Consumer opportunities - Answers -set of possible goods and services consumers can
afford to consume
Consumer preferences - Answers -determine which set of possible goods and services
will be consumed
Marginal utility per dollar - Answers -the additional satisfaction gained from purchasing
a good given the price of the product
MU/$ - Answers -Marginal Utility/Price
The utility maximizing choice should occur where the marginal utility per dollar spent is
the same for both goods - Answers -MUx/Px = MUy/Py
indifference curve - Answers -a curve that defines the combinations of two goods that
give a consumer the same level of satisfaction
marginal rate of substitution - Answers -the rate at which a consumer is willing to
substitute one good for the other and still maintain the same level of satisfaction; the
absolute value of the slope of the indifference curve where MUx is the marginal utility of
good X and MUy is te marginal utility of good Y
Property 1 - Answers -completeness - for any two bundles of goods either:
A>B -> "A is preferred to B"
B>A -> "B is preferred to A"
A~B -> "Indifferent between A and B"
Property 2 - Answers -more is better - if bundle A has as least as much of every good
as bundle B and more of some good, bundle A is preferred to bundle B
Property 3 - Answers -transitivity - for any 3 bundles, A, B, C, either:
If A>B and B>C, then A>C
If A~B and B~C, then A~C
price ceilings create ________ if they are set ______ the equilibrium price - Answers -
shortages; below
Which of the following are price ceilings?
1. agricultural price support
2. price controls on prescription drugs
3. the minimum wage
4. rent control - Answers -price controls on prescription drugs and rent control
Price floors create _________ if they are set ______ the equilibrium price - Answers -
surpluses; above
Which of the following are price floors?
1. a minimum unit price on alcohol
2. price controls on staples, e.g., bread
3. an agricultural price support
4. rent control - Answers -a minimum unit price on alcohol, an agricultural price support
A quota will impact the market if the maximum quantity it allows ________ the
equilibrium - Answers -falls short of
Which of the following are quantity regulations?
1. rent control
2. taxi quotas
3. zoning laws
4. insurance mandates - Answers -taxi quotas, zoning laws, insurance mandates
The equilibrium price in a market is $55. A tax is placed on this market that results in
buyers paying $75 and sellers only getting to keep $40 of that. Which of the following is
definitely true based on this information?
1. Sellers have a more elastic response to this tax
2. the size of the tax is $55
3. Buyers and sellers have the same elasticity
4. the statutory burden of the tax is on the sellers
5. buyers have a more elastic response to this tax
6. the size of the tax is $20 - Answers -Sellers have a more elastic response to this tax
Which of the following is a normative statement?
1. Taxes should not be imposed on lower income people
2. economists can measure the impact of taxes on buyers and sellers in a market
3. if tax rates increase, tax revenue will increase
, 4. taxes impact consumption patterns - Answers -Taxes should not be imposed on
lower income people
Suppose the absolute value of the price elasticity of demand for quesadillas is 0.25,
while the price elasticity of supply for quesadillas is 0.72. If the mayor of West Lafayette
instates a tax on quesadilla sellers, who will pay more of the tax?
1. Quesadilla sellers and buyers will pay equally
2. It's impossible to tell without additional information
3. Quesadilla buyers will pay more
4. Restaurants selling quesadillas will pay more - Answers -Quesadilla buyers will pay
more
Consumer opportunities - Answers -set of possible goods and services consumers can
afford to consume
Consumer preferences - Answers -determine which set of possible goods and services
will be consumed
Marginal utility per dollar - Answers -the additional satisfaction gained from purchasing
a good given the price of the product
MU/$ - Answers -Marginal Utility/Price
The utility maximizing choice should occur where the marginal utility per dollar spent is
the same for both goods - Answers -MUx/Px = MUy/Py
indifference curve - Answers -a curve that defines the combinations of two goods that
give a consumer the same level of satisfaction
marginal rate of substitution - Answers -the rate at which a consumer is willing to
substitute one good for the other and still maintain the same level of satisfaction; the
absolute value of the slope of the indifference curve where MUx is the marginal utility of
good X and MUy is te marginal utility of good Y
Property 1 - Answers -completeness - for any two bundles of goods either:
A>B -> "A is preferred to B"
B>A -> "B is preferred to A"
A~B -> "Indifferent between A and B"
Property 2 - Answers -more is better - if bundle A has as least as much of every good
as bundle B and more of some good, bundle A is preferred to bundle B
Property 3 - Answers -transitivity - for any 3 bundles, A, B, C, either:
If A>B and B>C, then A>C
If A~B and B~C, then A~C
