**I REMOVED QUESTIONS THAT I DID NOT THINK WERE IMPORTANT TO KNOW FOR YOUR TEST OR WERE POORLY WRITTEN. Numbers include: 13, 15 & 25. Also there was a typo for number 19, answer c is supposed to be 10 pencils not 20.

Answers for 28 & 29 are B & C 1. A local Restaurant has estimated that the price elasticity of demand for meals is equal

to -2. If the restaurant increases menu prices by 5%, they can expect the number of customers to decrease by ______ and total revenue to __________.

a) 10%; increase b) 5%; stay constant c) 10%; fall d) 5%; fall

2. The publisher of an economics textbook finds that when the book’s price is lowered from $70 to $60, sales rise from 10,000 to 15,000. Using the midpoint method, the price elasticity of demand is:

a) -.38 b) -3.5 c) -5 d) -2.6

3. The demand for product X is likely to be less elastic if: a) There are many substitutes for X rather than a few b) Consumers have more time to adjust to price changes c) X is a luxury good rather than an inferior good d) A consumer needs X to survive e) Both a and b

4. A men’s tie store sold an average of 30 ties per day when the price was $5 per tie but sold 50 of the same ties per day when the price was $3 per tie. The price elasticity of demand, using the midpoint method, is:

a) Less then zero but greater than -1. b) Equal to -1 c) Less than -1 but greater then -3 d) Less then -3

5. Each month Jane spends exactly $50 on ice cream regardless of the price of each container. Jane’s price elasticity of demand for ice cream is:

a) 0 b) -1 c) Less then -1 d) Greater then -1 but less then 0

6. Suppose the government imposes a $10 excise tax on the sale of sweaters by charging suppliers $10 for each sweater sold. Using economics analysis, we would predict that:

a) The price of sweaters will increase by $10 b) Consumers of sweaters will bear the entire burden of the tax c) The price of sweaters will increase but by less than $10 d) The price of sweaters will decrease by $10

Exam 2 Review Supplemental Instruction Iowa State University

Leader: Veronica Course: Econ 101

Instructor: Kreider Date: 10-21-14

**I REMOVED QUESTIONS THAT I DID NOT THINK WERE IMPORTANT TO KNOW FOR YOUR TEST OR WERE POORLY WRITTEN. Numbers include: 13, 15 & 25. Also there was a typo for number 19, answer c is supposed to be 10 pencils not 20.

7. If an excise tax is imposed on cars and collected from consumers, a) The demand curve will shift downward by the amount of the tax b) The supply curve will shift upward by the amount of the tax c) The equilibrium quantity supplied will increase relative to the pre-tax level d) The equilibrium quantity demanded will increase relative to the pre-tax level

8. Look at the figure An Excise Tax. If an excise tax equal to $1.10 is imposed on this

good, then the price paid by consumers will: a) Rise by $1.10 b) Raise by $1.33 c) Not increase in d) Rise by $0.50

9. If an excise tax is imposed on wine and collected from the consumers, the _______ curve will shift _________ by the amount of the tax.

a) Demand; Upward (rightward) b) Demand; Downward (leftward) c) Supply; Upward (rightward) d) Supply; Downward (leftward)

10. If the government imposes a $5 excise tax on leather shoes and the price of leather shoes does not change:

a) The government will receive less tax revenue than anticipated b) Consumers are paying all of the tax c) Producers are paying all of the tax d) Consumers are paying equal amounts of the tax.

11. The demand for food is very inelastic, so if a tax is levied on the consumers of food, the tax incidence:

a) Is typically on consumers more than producers b) Is typically on producers more than consumers c) Is typically split equally between consumers and producers. d) Cannot be determined without more information

**I REMOVED QUESTIONS THAT I DID NOT THINK WERE IMPORTANT TO KNOW FOR YOUR TEST OR WERE POORLY WRITTEN. Numbers include: 13, 15 & 25. Also there was a typo for number 19, answer c is supposed to be 10 pencils not 20.

12. If the government wants to minimize the deadweight loss from taxes, it should impose taxes on goods for which:

a) The price elasticity of demand is high b) The price elasticity of demand is low c) The price elasticity of supply is high d) The demand is high

14. Paying a tax of $10 on an income of $100, a tax of $25 on an income of $200, and

a tax of $60 on an income of $300 is an example of a: a. Progressive tax. b. Proportional tax. c. Regressive tax. d. Flat tax.

16. (Table: The Utility of Macaroni and Cheese) Look at the table The Utility of Macaroni and Cheese. Carmon’s utility for eating macaroni and cheese is zero for the _____ serving.

a. Frist b. Second c. Third d. Fifth

17. (Table: The Utility of Macaroni and Cheese) Look at the table The Utility of Macaroni and Cheese. Carmon’s total utility is maximized when she eats the _____ serving.

a. Frist b. Second c. Third d. Fifth

18. Chuck spends all of his income on two goods: tacos and milkshakes. His income

is $100, the price of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and milkshakes on the vertical axis. The vertical intercept for Chuck’s budget line is equal ________ milkshakes.

a. 50 b. 10 c. 5 d. 100

**I REMOVED QUESTIONS THAT I DID NOT THINK WERE IMPORTANT TO KNOW FOR YOUR TEST OR WERE POORLY WRITTEN. Numbers include: 13, 15 & 25. Also there was a typo for number 19, answer c is supposed to be 10 pencils not 20.

19. Adam has a monthly income of $20 that can be spent on books (B) and Pencils (P). The price of a book is $5 and the price of a pencil is $0.50. Which of the following bundles of books and pencils lies on Adam’s budge line?

a. 3 books and 5 pencils b. 1 book and 40 pencils c. 3 books and 10 pencils d. Zero books and 20 pencils

20. Suzy knows she has maximized her utility, because she is on her budget constraints and:

a. Her consumption of cameras equals her consumption of coffee b. What she spends on cameras equals what she spends on coffee c. MUCameras/PCameras = MUCoffee/PCoffee d. MUCameras = MUCoffee

21. Joseph consumes pizza and soda. He is currently consuming three units of pizza and two units of soda. The price of pizza is $5 and the price of soda is $1. If he is consuming the optimal consumption bundle and his marginal utility of pizza is 50, then his marginal utility of soda is:

a. 50 b. 10 c. 5 d. 30

22. When Laurie asks Matt if he wants a large popcorn and small soda or a large soda and a small popcorn, Matt says, “Oh, I’m indifferent.” This means Matt:

a. Doesn’t want popcorn and soda b. Thinks both bundles give him the same utility c. Thinks both bundles give him no utility d. Thinks the utility he gained from popcorn and soda exactly equals their

cost 23. At the optimal consumption bundle:

a. The marginal utility of all goods consumed is equal b. The marginal utility per dollar spent is equal for the goods consumed c. The price of all goods consumed is equal d. Total utility from all goods consumed is equal

24. Suppose that Martha chooses amounts of only two goods, X and Y. Her current bundle of goods is on her current budget like and that, at the bundle, her marginal utility of good X is 2, while her marginal utility of good Y is 4. The price of X is $1. Then, Martha can increase her utility by moving along her current budget line if

a. The price of Y is greater then $2 b. The price of Y is equal to $2 c. The price of Y is less then $2 d. Her income decreases

**I REMOVED QUESTIONS THAT I DID NOT THINK WERE IMPORTANT TO KNOW FOR YOUR TEST OR WERE POORLY WRITTEN. Numbers include: 13, 15 & 25. Also there was a typo for number 19, answer c is supposed to be 10 pencils not 20.

26. The figure of the Fish Market, graphs the supply and demand curves for fish. If

the government adopts a price floor policy for fish at a floor of $3/lb., then the equilibrium:

a. Price and quantity sold will both raise b. Price will fall and quantity will raise c. Price and quantity sold will both fall d. Price will rise and quantity will fall e. Price and quantity will stay the same

27. Using the same figure of the Fish Market, if the government instead were to adopt a price ceiling policy at $3/lb., then from the equilibrium:

a. Price and quantity sold will both raise b. Price will fall and quantity will raise c. Price and quantity sold will both fall d. Price will rise and quantity will fall e. Price and quantity will stay the same

Extra Questions to understand: 28. Utility is most closely related to: (Answer is at the beginning of Key)

a. Usefulness b. Satisfaction c. Requirement d. Necessity

29. The principal of diminishing marginal utility means that when Sarah eats pizza, her satisfaction from the second slice of pizza is probably: (Answer is at the beginning of Key)

a. Greater than that from the first b. Equal to that from the first c. Less then that from the first d. Not comparable to that from the first