Introduction to Microeconomics
Introduction to Microeconomics
Multiple Choice Directions: Read each question and their corresponding answers carefully
and completely. Choose the answer that best fits the question. You need to submit your
answers online via oncourse. This assignment is due at midnight on Friday, October 04,
2013
1. The price elasticity of demand is defined as the percentage change in price divided by the
percentage change in quantity demanded.
a) True
b) False
2. Goods with many close substitutes tend to have
a) more elastic demand.
b) less elastic demand.
c) price elasticity of demand that is unit elastic.
d) income elasticity of demand that is negative.
3. A person who takes a prescription drug to control high cholesterol most likely has a
demand for that drug that is
a) inelastic.
b) unit elastic.
c) elastic.
d) highly responsive to changes in income
4. If the price elasticity of demand for a good is 4.0, then a 1 percent increase in price results
in a
a) 0.4 percent decrease in the quantity demanded.
b) 2.5 percent decrease in the quantity demanded.
c) 4 percent decrease in the quantity demanded.
d) 40 percent decrease in the quantity demanded.
5. Suppose the price of Twinkies decreases from $1.45 to $1.25 and, as a result, the quantity
of Twinkies demanded increases from 2,000 to 2,200. Using the midpoint method, the
price elasticity of demand for Twinkies in the given price range is
a) 2.00.
b) 1.55.
c) 1.00.
d) 0.64.
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ECON 201 Introduction to Microeconomics
Fall 2013, Assignment 3
Multiple Choice Directions: Read each question and their corresponding answers carefully
and completely. Choose the answer that best ?ts the question. You need to submit your
answers online via oncourse. This assignment is due at midnight on Friday, October 04,
2013
1. The price elasticity of demand is de?ned as the percentage change in price divided by the
percentage change in quantity demanded.
a) True
b) False
2. Goods with many close substitutes tend to have
a) more elastic demand.
b) less elastic demand.
c) price elasticity of demand that is unit elastic.
d) income elasticity of demand that is negative.
3. A person who takes a prescription drug to control high cholesterol most likely has a
demand for that drug that is
a) inelastic.
b) unit elastic.
c) elastic.
d) highly responsive to changes in income
4. If the price elasticity of demand for a good is 4.0, then a 1 percent increase in price results
in a
a) 0.4 percent decrease in the quantity demanded.
b) 2.5 percent decrease in the quantity demanded.
c) 4 percent decrease in the quantity demanded.
d) 40 percent decrease in the quantity demanded.
5. Suppose the price of Twinkies decreases from $1.45 to $1.25 and, as a result, the quantity
of Twinkies demanded increases from 2,000 to 2,200. Using the midpoint method, the
price elasticity of demand for Twinkies in the given price range is
a) 2.00.
b) 1.55.
c) 1.00.
d) 0.64.
1
6. 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
a) the buyers will bear a greater burden of the tax than the sellers.
b) the sellers will bear a greater burden of the tax than the buyers.
c) the buyers and sellers are likely to share the burden of the tax equally.
d) the buyers and sellers will not share the burden equally, but it is impossible to deter-
mine who will bear the greater burden of the tax without more information.
7. When the price of a good is $5, the quantity demanded is 100 units per month; when the
price is $7, the quantity demanded is 80 units per month. Using the midpoint method,
the price elasticity of demand is about
a) 0.22.
b) 0.67.
c) 1.33.
d) 1.50.
8. IUPUI is contemplating an increase in tuition to increase revenue. If IUPUI believes that
raising tuition would increase revenue, it is
a) ignoring the law of demand.
b) assuming that the supply of higher education at IUPUI is inelastic.
c) assuming that the demand for higher education at IUPUI is elastic.
d) assuming that the demand for higher education at IUPUI is inelastic.
9. If a 25% change in price results in a 40% change in quantity supplied, then the price
elasticity of supply is
a) 0.63, and supply is elastic.
b) 0.63, and supply is inelastic.
c) 1.60, and supply is elastic.
d) 1.60, and supply is inelastic.
10. Suppose Purdue University increases tuition by 10% for the 2010/2011 academic year. If
for the same academic year, revenue from tuition for Purdue University increases by 2%
then demand for higher education at Purdue is:
a) elastic
b) unit elastic
c) inelastic
d) both elastic and inelastic
2
11. When a tax is levied on sellers of tea,
a) Consumer surplus and producer surplus are una?ected.
b) Producer surplus decreases and consumer surplus is una?ected.
c) Producer surplus decreases and consumer surplus is increases
d) Both consumer and producer surplus decrease
12. If a 40% change in price results in a 25% change in quantity supplied, then the price
elasticity of supply is
a) 0.63, and supply is elastic.
b) 0.63, and supply is inelastic.
c) 1.60, and supply is elastic.
d) 1.60, and supply is inelastic.
13. At a price of $1.00, a local co?ee shop is willing to supply 100 cinnamon rolls per day. At
a price of $1.20, the co?ee shop would be willing to supply 150 cinnamon rolls per day.
Using the midpoint method, the price elasticity of supply is
a) 0.45
b) 0.90
c) 1.11
d) 2.20
14. In which of the following situations will total revenue increase?
a) Price elasticity of demand is 1.2, and the price of the good decreases.
b) Price elasticity of demand is 0.5, and the price of the good increases.
c) Price elasticity of demand is 3.0, and the price of the good decreases.
d) All of the above are correct.
15. The demand for gasoline will respond more to a change in price over a period of ?ve weeks
than over a period of ?ve years.
a) True
b) False
3
Figure 1:
16. Of the $3 per pizza tax illustrated in the above ?gure, the
a) consumers pay $2 of the $3 per pizza tax.
b) sellers pay $1 of the $3 per pizza tax.
c) government collects $120 thousand in revenue from the pizza tax.
d) All of the above answers are correct.
17. Which of the following is NOT true about the $3 per pizza tax illustrated in the above
?gure?
a) It decreases consumer surplus by $90 thousand.
b) It decreases producer surplus by $45 thousand.
c) It creates a deadweight loss of $135 thousand.
d) None of the above because they are all true.
18. Refer to Figure 3 above. Deadweight loss in the market for pizza after the tax is
a) $17,000
b) $16,000
c) $15,000
d) $ 8,000
19. Refer to Figure 3 above. Producer surplus in the market for pizza after the tax is
a) $127,000
b) $160,000
c) $45,000
d) $ 80,000
4
20. The elasticity of demand for eggs is 0.1 and the elasticity of supply for these cookies is
2.3. If a tax is imposed on sellers of eggs, then the
a) sellers will pay the entire tax because the tax is imposed on them.
b) buyers will pay more of the tax compared to sellers.
c) sellers will pay more of the tax compared to buyers.
d) buyers will pay the entire tax because their demand is less elastic than supply.
21. Suppose the government of Healthyland imposes a $0.10 per pound tax on sellers of salt.
With no tax, the price of salt is $0.40 per pound. Suppose further that the demand for
salt is perfectly inelastic and the elasticity of supply of salt is 1.5. With the tax, the price
of salt paid by buyers in Healthyland would be
a) $0.40 per pound.
b) $0.45 per pound.
c) $0.35 per pound.
d) $0.50 per pound.
22. If a tax is levied on the sellers of a product, then the supply curve
a) will shift up.
b) will shift down.
c) will become ?atter.
d) will not shift.
23. Suppose sellers of liquor are required to send $1.00 to the government for every bottle of
liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise
by $0.80 per bottle. Which of the following statements is correct?
a) This tax causes the supply curve for liquor to shift upward by $1.00 at each quantity
of liquor.
b) The e?ective price received by sellers is $0.20 per bottle less than it was before the
tax.
c) Eighty percent of the burden of the tax falls on buyers.
d) All of the above are correct.
24. A tax imposed on the buyers of a good will
a) raise the price paid by buyers and lower the equilibrium quantity.
b) raise the price paid by buyers and raise the equilibrium quantity.
c) raise the e?ective price received by sellers and lower the equilibrium quantity.
d) raise the e?ective price received by sellers and raise the equilibrium quantity.
5
Figure 2:
25. Figure 2 above illustrates the market for posters. The tax on a poster is¦¦. and the
governments tax revenue from the sale of posters is ¦¦. a month.
a) $0.50; $150
b) $0.35; $105
c) $0.35; $200
d) $0.35; $140
