Practice Exam
1) A city government hopes to decrease the quantity of sugary drinks consumed,
and is planning to implement a tax on the drinks. Should the government tax
companies that sell sugary drinks, or the consumers who purchase them?
The companies that sell the drinks
See correct answer for explanation.
The consumers who purchase the drinks
See correct answer for explanation.
The impact of the tax will be the same regardless of who pays the tax
correct
Prices will adjust so that the impact on consumers and producers will be the same
regardless of who officially pays the tax.
The quantity of drinks consumed will not decrease as a result of the tax
The quantity will decrease since demand is unlikely to be perfectly inelastic.
2) Which of the following statements is true?
If demand is linear, slope will vary across different points on the demand curve whereas the
elasticity will be the same at all points on the curve.
A linear demand curve has a constant slope, but each point on the curve has a different
elasticity.
Elasticity does not depend on units whereas slope does.
correct
A demand curve's slope might change if the units demand is measured in change.
The data needed to know the demand curve's entire slope are more likely to be available than
the data needed to calculate elasticity at a given price.
Elasticity at a point on the demand curve can be approximated if you know how quantity
demanded changes with a small price change.
Price elasticity of demand and slope are two names for the same concept.
Slope measures how much quantity changes as price changes, but elasticity gives a
unit-less measure of how significant that change is.
, 3) Suppose that the table below shows the daily demand for high-speed train tickets
from London to Paris. As the price increases from £250 to £350, what is the price
elasticity of demand?
Price of one-way ticket Quantity demanded
£150 2,500
£250 1,500
£350 500
1/7
Elasticity is the absolute value of the percent change in quantity demanded divided by
the percent change in price.
3/5
Elasticity is the absolute value of the percent change in quantity demanded divided by
the percent change in price.
5/3
correct
Elasticity is the absolute value of the percent change in quantity demanded divided by
the percent change in price. Quantity demanded decreases by 1000, or 2/3 of 1500.
Price increases by £100, or 2/5 of £250. Elasticity is 2/3 divided by 2/5, or 5/3.
7
7 would be the elasticity if price decreased from £350 to £250.
, 4) The table below shows a Red Sox fan's demand for tickets to a game:
Price Quantity Demanded
$100 1
$90 5
$80 5
$70 5
$60 5
Which of the following statements is true?
WTP for the third ticket is $100.
At a price of $100, the fan only purchases one ticket. WTP therefore cannot be more
than $100 for the third ticket—otherwise the fan would purchase at least 3 tickets at that
price.
WTP for the third ticket is between $90 and $100.
correct
Since the third ticket is purchased at $90 but not at $100, the fan must have WTP
between $90 and $100 for it.
WTP for the fifth ticket is $0.
The fan is willing to purchase a five tickets at a price of $90, so WTP for the fifth ticket
must be at least $90.
The fan is willing to pay any amount greater than $90 for the second ticket.
The fan is willing to pay at least $90 for the second ticket, but not ANY amount greater
than $90. Since the fan purchases only 1 ticket at a price of $100, we know that the fan
is not willing to pay $100 for the second ticket.
1) A city government hopes to decrease the quantity of sugary drinks consumed,
and is planning to implement a tax on the drinks. Should the government tax
companies that sell sugary drinks, or the consumers who purchase them?
The companies that sell the drinks
See correct answer for explanation.
The consumers who purchase the drinks
See correct answer for explanation.
The impact of the tax will be the same regardless of who pays the tax
correct
Prices will adjust so that the impact on consumers and producers will be the same
regardless of who officially pays the tax.
The quantity of drinks consumed will not decrease as a result of the tax
The quantity will decrease since demand is unlikely to be perfectly inelastic.
2) Which of the following statements is true?
If demand is linear, slope will vary across different points on the demand curve whereas the
elasticity will be the same at all points on the curve.
A linear demand curve has a constant slope, but each point on the curve has a different
elasticity.
Elasticity does not depend on units whereas slope does.
correct
A demand curve's slope might change if the units demand is measured in change.
The data needed to know the demand curve's entire slope are more likely to be available than
the data needed to calculate elasticity at a given price.
Elasticity at a point on the demand curve can be approximated if you know how quantity
demanded changes with a small price change.
Price elasticity of demand and slope are two names for the same concept.
Slope measures how much quantity changes as price changes, but elasticity gives a
unit-less measure of how significant that change is.
, 3) Suppose that the table below shows the daily demand for high-speed train tickets
from London to Paris. As the price increases from £250 to £350, what is the price
elasticity of demand?
Price of one-way ticket Quantity demanded
£150 2,500
£250 1,500
£350 500
1/7
Elasticity is the absolute value of the percent change in quantity demanded divided by
the percent change in price.
3/5
Elasticity is the absolute value of the percent change in quantity demanded divided by
the percent change in price.
5/3
correct
Elasticity is the absolute value of the percent change in quantity demanded divided by
the percent change in price. Quantity demanded decreases by 1000, or 2/3 of 1500.
Price increases by £100, or 2/5 of £250. Elasticity is 2/3 divided by 2/5, or 5/3.
7
7 would be the elasticity if price decreased from £350 to £250.
, 4) The table below shows a Red Sox fan's demand for tickets to a game:
Price Quantity Demanded
$100 1
$90 5
$80 5
$70 5
$60 5
Which of the following statements is true?
WTP for the third ticket is $100.
At a price of $100, the fan only purchases one ticket. WTP therefore cannot be more
than $100 for the third ticket—otherwise the fan would purchase at least 3 tickets at that
price.
WTP for the third ticket is between $90 and $100.
correct
Since the third ticket is purchased at $90 but not at $100, the fan must have WTP
between $90 and $100 for it.
WTP for the fifth ticket is $0.
The fan is willing to purchase a five tickets at a price of $90, so WTP for the fifth ticket
must be at least $90.
The fan is willing to pay any amount greater than $90 for the second ticket.
The fan is willing to pay at least $90 for the second ticket, but not ANY amount greater
than $90. Since the fan purchases only 1 ticket at a price of $100, we know that the fan
is not willing to pay $100 for the second ticket.
