ECON101 Exam 2 key Test Form: A

Note: Total points is 100. I. Multiple Choices (2 pts each, 70 pts total) 1. Refer to the accompanying figure. At what price would there be the least pressure to form a black market? a. $5 b. $8 c. $13 d. $15 e. ...

Note: Total points is 100. I. Multiple Choices (2 pts each, 70 pts total) 1. Refer to the accompanying figure. At what price would there be the least pressure to form a black market? a. $5 b. $8 c. $13 d. $15 e. $20 ANS: B 2. What is the long-run consequence of a price ceiling law? a. A surplus will continue to exist and will grow larger over time. b. A surplus will continue to exist and will grow smaller over time. c. A shortage will continue to exist and will grow larger over time. d. A shortage will continue to exist and will grow smaller over time. e. The amount of the surplus will not change. ANS: C 3. Refer to the accompanying figure, which shows both short-run and long-run demand and supply curves. If there is a $4 binding price ceiling imposed on a pharmaceutical drug, what will be the amount of the disequilibrium in the short run? 2 a. There will be a shortage of 1,500,000 units. b. There will be a shortage of 800,000 units. c. There will not be a shortage; there will be a surplus. d. There will be a shortage of 2,000,000 units. e. There will be a shortage of 500,000 units. ANS: B Refer to the accompanying figure for the next two questions. 4. The accompanying figure describes the market for gasoline in a local community. If the government were to place a price floor at P1, predict the resulting surplus or shortage. a. There would be a shortage of 75,000 units. b. There would be a surplus of 75,000 units. c. There would be neither a shortage nor a surplus. d. There would be a shortage of 150,000 units. e. There would be a surplus of 150,000 units. ANS: C 5. The accompanying figure describes the market for gasoline in a local community. If the government were to place a price floor at P3, predict the resulting surplus or shortage. a. There would be a shortage of 75,000 units. b. There would be a surplus of 75,000 units. c. There would be neither a shortage nor a surplus. d. There would be a shortage of 150,000 units. 3 e. There would be a surplus of 150,000 units. ANS: B 6. As the time frame shifts from the short run to the long run, what happens to producers who are subject to a binding price floor? a. They are increasingly willing to substitute away from producing the good, and the supply curve becomes less elastic. b. There are no changes, and their elasticity of supply remains unchanged. c. They are increasingly willing to substitute away from producing the good, and the supply curve becomes more elastic. d. They are less willing to substitute away from producing the good, and the supply curve becomes less elastic. e. They are less willing to substitute away from the good, and the supply curve becomes more elastic. ANS: C 7. A tax on apples would cause consumers to suffer because: a. consumer surplus would increase. b. the price of apples would increase and fewer apples would be purchased. c. revenues for apple growers would decrease. d. the government would collect revenue from the tax. e. producer surplus would decrease. ANS: B 8. In most cases, taxes reduce economic efficiency because: a. they lower prices for consumers and cause firms to suffer. b. they increase firms’ profits at the expense of consumers. c. taxes are perceived as unfair by some taxpayers. d. the government often spends tax revenues on programs that some voters don’t like. e. they reduce consumer surplus and producer surplus. ANS: E 9. A tax on apples would cause the price paid by consumers to ___________ and the price received by producers to _____________. a. increase; increase b. increase; decrease c. decrease; increase, then decrease d. decrease; decrease e. increase, then decrease; increase ANS: B 10. Taxes almost always cause producer prices to decrease. How much they decrease depends on: a. the elasticities of supply and demand. b. the amount of the tax. c. who is legally obligated to pay the tax. d. who pays the tax out of pocket. e. how often the government collects the tax