econ assignments

ECON 201: Microeconomics

Textbook Assignment 3

Due Date: February 8, 2016

Multiple Choice

Identify the choice that best completes the statement or answers the question.

____ 1. If a good is subject to a binding price ceiling and you purchase it on the black market, what do you expect to happen to the price over time?

a.	The black market price will rise over time as the supply curve becomes more elastic and the demand curve becomes more inelastic.
b.	The black market price will fall over time as both the supply and demand curves become more inelastic.
c.	The black market price will rise over time as the demand curve becomes more elastic and the supply curve becomes more inelastic.
d.	The black market price will fall over time as both the supply and demand curves become more elastic.
e.	The black market price will not change over time.

____ 2. If a good is subject to a binding price ceiling and you purchase it on the black market, what do you expect to happen to the availability of the good over time?

a.	The availability of the good will rise over time as the supply curve becomes more elastic and the demand curve becomes more inelastic. (The shortage of the good will fall.)
b.	The availability of the good will fall over time as both the supply and demand curves become more elastic. (The shortage of the good will fall.)
c.	The availability of the good will fall over time as both the supply and demand curves become more elastic. (The shortage of the good will rise.)
d.	The availability of the good will rise over time as the demand curve becomes more elastic and the supply curve becomes more inelastic. (The shortage of the good will fall.)
e.	The availability of the good will not change over time.

____ 3. Let’s say that you have a friend who was caught illegally buying a good on the black market. When the judge asks you to describe your friend’s motivation as a buyer, which of the following would most likely be your reply?

a.	My friend bought the good on the black market because a binding price floor had created a shortage in the legal market and my friend really needed the good.
b.	My friend bought the good on the black market because a price ceiling caused the price to be lower on the black market.
c.	My friend bought the good on the black market because a nonbinding price floor had created a shortage on the legal market and my friend really needed the good.
d.	My friend bought the good on the black market because a binding price floor made the good too expensive to purchase on the legal market and it was cheaper on the black market.
e.	My friend bought the good on the black market because a nonbinding price floor made the good too expensive to purchase on the legal market and it was cheaper on the black market.

____ 4. Let’s say that you have a friend who was caught illegally selling a good on the black market. When the judge asks you to describe your friend’s motivation as a seller, which of the following would most likely be your reply?

a.	My friend sold the good on the black market because a binding price floor had created a shortage in the legal market and my friend was performing a public service by making the good available.
b.	My friend sold the good on the black market because a nonbinding price ceiling caused the price to be lower on the black market.
c.	My friend sold the good on the black market because a nonbinding price floor had created a shortage in the legal market and my friend was performing a public service by making the good available.
d.	My friend sold the good on the black market because a nonbinding price floor made the good too expensive to purchase in the legal market and it was cheaper on the black market.
e.	My friend sold the good on the black market because a binding price floor resulted in a surplus of the product in the legal market and he needed to get rid of the surplus.

____ 5. In some countries, a binding price ceiling is placed on prescription medicines. What would you expect the prescription medicine market to be like in these countries?

a.	The legal maximum price would mean that all consumers are able to receive the medicines they need at a price they can afford.
b.	The legal maximum price would mean that pharmaceutical companies face an incentive to sell more prescription medicines in that country.
c.	The legal maximum price would mean that it is unlikely that an illegal and dangerous black market for prescription drugs will form in that country.
d.	The legal maximum price would mean that pharmaceutical companies face an incentive to develop new prescription medicines.
e.	The legal maximum price would mean that not all consumers will have access to prescription medicines.

____ 6. You are the president of the United States. In an attempt to make prescription drug prices cheaper, you have imposed a binding price ceiling on drugs. What would you expect your critics to say?

a.	The binding price ceiling will encourage companies to overproduce drugs and will result in waste.
b.	The binding price ceiling will discourage patients from obtaining the drugs they need.
c.	The binding price ceiling will increase the likelihood that consumers will obtain needed drugs on the black market.
d.	The binding price ceiling will cause firms to spend too many resources on the research and development of new drugs.
e.	The binding price ceiling will cause firms to spend too much time making a drug without any flaws.

____ 7. You are the president of the United States. In an attempt to make gasoline prices cheaper, you have imposed a binding price ceiling on gas. What would you expect your critics to say?

a.	The binding price ceiling will encourage oil companies to deplete the resource too quickly.
b.	The binding price ceiling will discourage individuals from using their personal automobile to commute to work or school.
c.	The binding price ceiling will cause firms to minimize their spending on the research and development of alternatives to gasoline.
d.	The binding price ceiling will increase the likelihood that customers obtain needed gasoline on the black market.
e.	The binding price ceiling will cause firms to produce only gasoline of the highest quality.

____ 8. How do consumers who are subject to a binding price ceiling respond as the time frame shifts from the short run to the long run?

a.	Consumers are increasingly willing to substitute away from the good, and their elasticity of demand becomes less elastic.
b.	There are no changes, and elasticity remains unchanged.
c.	Consumers are increasingly willing to substitute away from the good, and their elasticity of demand becomes more elastic.
d.	Consumers are less willing to substitute away from the good, and their elasticity of demand becomes less elastic.
e.	Consumers are less willing to substitute away from the good, and their elasticity of demand becomes more elastic.

____ 9. How do producers who are subject to a binding price ceiling respond as the time frame shifts from the short run to the long run?

a.	Producers are increasingly willing to substitute away from producing the good, and their elasticity of supply becomes less elastic.
b.	There are no changes, and elasticity of supply remains unchanged.
c.	Producers are increasingly willing to substitute away from producing the good, and their elasticity of supply becomes more elastic.
d.	Producers are less willing to substitute away from producing the good, and their elasticity of supply becomes less elastic.
e.	Producers are less willing to substitute away from the good, and their elasticity of supply becomes more elastic.

Use the following table to answer the questions that follow.

____ 10. What will be the amount of government expenditure required if a price floor for corn is set at $4.50 and the government agrees to purchase the amount of disequilibrium?

a.	$202,500
b.	$45,000
c.	no government payment required
d.	$10,000
e.	$900,000

____ 11. Refer to the accompanying figure. If the government has a budget of $300,000 to purchase surplus shampoo, what is the maximum possible floor price that could be imposed?

a.	$1
b.	$2
c.	$3
d.	$4
e.	$5

____ 12. 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.

____ 13. As the time frame shifts from the short run to the long run, what happens to consumers who are subject to a binding price floor?

a.	They are increasingly willing to substitute away from the good, and the demand curve becomes less elastic.
b.	There are no changes, and elasticity remains unchanged.
c.	They are less willing to substitute away from the good, and the demand curve becomes less elastic.
d.	They are increasingly willing to substitute away from the good, and the demand curve becomes more elastic.
e.	They are less willing to substitute away from the good, and the demand curve becomes more elastic.

Use the following table to answer the questions that follow.

____ 14. If a minimum wage is set at $5.50, predict the amount of disequilibrium in the labor market.

a.	There would be a labor shortage of 25,515,000.
b.	There would be a labor surplus of 25,515,000.
c.	There would be neither a shortage nor a surplus.
d.	A labor surplus of 25,515,000 would be eliminated because individuals would decide to work in the illegal black market.
e.	A labor surplus of 25,515,000 would increase as individuals find work in the illegal black market.

____ 15. If a minimum wage is established at $7.50, determine the amount of disequilibrium in the labor market.

a.	There would be a shortage of labor of 20,170,000.
b.	There would be a surplus of labor of 20,170,000.
c.	There would be neither a shortage nor a surplus.
d.	A labor shortage of 20,170,000 would be eliminated because individuals would decide to work in the illegal black market.
e.	A labor shortage of 20,170,000 would increase as individuals find work in the illegal black market.

____ 16. If the local government tells gas stations that they are not allowed to change the price of gas for three weeks during hurricane season, what will be the consequence?

a.	Gas stations will be unable to sell all the gas they want at the temporary price ceiling price.
b.	Consumers will be unable to buy all the gas they want at the temporary price ceiling price.
c.	The supply curve for gas will increase and shift to the right.
d.	The demand curve for gas will increase and shift to the right.
e.	Equilibrium in the gas market will be achieved.

____ 17. Which of the following would be true in a city with rent-controlled apartments?

a.	Homelessness is reduced.
b.	Landlords face a greater incentive to provide housing.
c.	Apartments are of higher quality.
d.	Rents for those fortunate enough to find an apartment are lower than rents in nearby cities that lack rent controls.
e.	It is more difficult for the landlord to find a tenant willing to rent the apartment.

Refer to the accompanying table to answer the questions that follow.

____ 18. If rent control is established at $1,550, what would be the amount of disequilibrium in the apartment market?

a.	There would be a shortage of 28,990 apartments.
b.	There would be a surplus of 28,990 apartments that is reduced, over time, as individuals rent apartments in the illegal black market.
c.	There would be neither a shortage nor a surplus.
d.	There would be a surplus of 28,990 apartments that is eliminated through individuals renting apartments in the illegal black market.
e.	There would be a surplus of 28,990 apartments that increases as houses and condominiums are converted into apartments.

____ 19. 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?

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.

____ 20. Which of the following is true, holding all other things constant, when comparing regions that impose a higher minimum wage to regions that impose a lower minimum wage?

a.	In regions with the highest minimum wage, most of the jobs require low skills and workers are not productive enough to get paid the higher wage.
b.	In regions with the lowest minimum wage, most of the jobs require technical skills and no one works minimum wage jobs.
c.	In regions with the lowest minimum wage, the price control is nonbinding; in the regions with the highest minimum wage, the price control is binding.
d.	In regions with the lowest minimum wage, the price control is binding; in the regions with the highest minimum wage, the price control is nonbinding.
e.	In regions with the highest minimum wage, the minimum wage law is legally enforced; in regions with the lowest minimum wage, the law is not strongly enforced.

____ 21. As a tax rate grows larger and larger, eventually:

a.	supply can outweigh demand.
b.	willingness to pay can outweigh deadweight loss.
c.	demand can outweigh supply.
d.	deadweight loss can outweigh tax revenue.
e.	tax revenue can outweigh willingness to sell.

____ 22. Jamal is willing to pay $85 for a new jacket that sells for $70. Eddie is willing to pay $65 for that same jacket. What is the total consumer surplus for Jamal and Eddie?

a.	$30
b.	$15
c.	$20
d.	$25
e.	$155

____ 23. Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair. How much is total consumer surplus in this market?

a.	$2.25
b.	$3.00
c.	$0.75
d.	$5.25
e.	$15.25

____ 24. Muddy’s Bakery and Lilly’s Sweetshop both sell cupcakes. The market price of one chocolate cupcake is $2.50. Muddy’s is willing to sell a cupcake for as little as $1.65; Lilly’s is willing to sell a cupcake for as little as $1.75. What is the total producer surplus for the two firms?

a.	$0.75
b.	$1.60
c.	$0.85
d.	$2.50
e.	$3.40

____ 25. Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair.

a.	$0.15
b.	$8.15
c.	$0.85
d.	$1.00
e.	$1.85

Use the following information to answer the questions that follow.

The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers.

____ 26. What areas represent the total cost to society, in terms of lost social welfare, created as a result of the tax?

a.	B + C + F + G
b.	A + B + F
c.	C + E + G
d.	A + B + C + E
e.	F + G

____ 27. What is the amount of the tax, as measured along the y axis?

a.	PC + PS
b.	Pe – PS
c.	PC – PS
d.	PC – P*
e.	Pe + PS

____ 28. What areas represent the total tax revenue created as a result of the tax?

a.	A + C
b.	A + E
c.	B + C
d.	A + E + F + G
e.	A + B + C + D + E + F + G

____ 29. Which party is responsible for paying this tax out of pocket?

a.	consumers
b.	producers
c.	both consumers and producers
d.	some consumers and some producers, but not all consumers and producers
e.	some consumers and no producers

____ 30. In the long run, both supply and demand tend to become more elastic. This suggests that, in the long run, the:

a.	deadweight loss from a tax will be less than it is in the short run.
b.	deadweight loss will be zero.
c.	government will likely reduce tax rates.
d.	tax revenue will be lower than it is in the short run.
e.	tax revenue will be higher than it is in the short run.

____ 31. The deadweight loss from a tax is likely to be greater with a good that has:

a.	few complements.
b.	many substitutes.
c.	few substitutes.
d.	an inelastic demand.
e.	an inelastic supply.

____ 32. The deadweight loss from a tax is equal to one half of:

a.	the tax revenue multiplied by consumer surplus.
b.	producer surplus multiplied by consumer surplus.
c.	the decrease in quantity sold multiplied by the tax revenue.
d.	the amount of the tax multiplied by the decrease in quantity sold.
e.	the amount of the tax multiplied by consumer surplus.

____ 33. Gasoline and ethanol are substitute fuels. If the government increases taxes on gasoline, this will cause a(n):

a.	decrease in deadweight loss in the market for gasoline and an increase in the price of ethanol.
b.	increase in deadweight loss in the market for gasoline and a decrease in demand for ethanol.
c.	increase in deadweight loss in the market for gasoline and an increase in the price of ethanol.
d.	decrease in deadweight loss in the market for gasoline and an increase in demand for ethanol.
e.	increase in deadweight loss in the market for gasoline and a decrease in the price of ethanol.

____ 34. Butter and margarine are substitute goods. A tax on butter will have what effect on the market for margarine?

a.	The supply of margarine will increase, causing its price to fall.
b.	The demand for margarine will increase, causing its price to rise.
c.	The demand for margarine will decrease, causing its price to fall.
d.	Both the supply and demand of margarine will decrease, causing price to fall.
e.	The supply of margarine will decrease, causing price to rise.

____ 35. Which of the following statements is concerned with efficiency rather than equity?

a.	It is not fair to tax the income earned by the wealthy at higher rates than the poor.
b.	Excise taxes on tobacco products affect low-income families the most and should be reduced.
c.	Our income tax system should be more progressive than it is now.
d.	Taxes cause distortions in markets and reduce social welfare.
e.	The best type of income tax is a flat tax because it treats everyone the same.

____ 36. Which of the following statements is concerned with equity rather than efficiency?

a.	Imposing a tax on a good reduces the incentive to buy that good.
b.	The burden of a sales tax is typically shared by consumers and stores.
c.	Deadweight loss is the lost social welfare from a tax.
d.	Tax rates on middle-class households are too high and should be reduced.
e.	Taxes cause producers and consumers to lose surplus.

____ 37. When looking at a supply and demand graph, you would find consumer surplus:

a.	above the demand curve and below the supply curve.
b.	below the demand curve and above market price.
c.	to the right of equilibrium quantity and above market price.
d.	above the demand curve and above the supply curve.
e.	below market price and above the supply curve.

____ 38. When looking at a supply and demand graph, you would find producer surplus:

a.	above the demand curve and below the supply curve.
b.	below the demand curve and above market price.
c.	to the right of equilibrium quantity and above market price.
d.	above the demand curve and above the supply curve.
e.	below market price and above the supply curve.

____ 39. Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair. What is the total producer AND consumer surplus (i.e., social welfare) in this market?

a.	$7.10
b.	$5.25
c.	$1.85
d.	$23.40
e.	$4.50

____ 40. If the demand for bread is more elastic than the supply of bread, which group will bear more of the incidence of a tax on bread?

a.	consumers
b.	the government
c.	neither consumers nor producers
d.	producers
e.	both consumers and producers equally

____ 41. Producers will lose no producer surplus due to a tax if supply in their market is perfectly elastic because:

a.	consumers can effortlessly change their behavior in response to the tax.
b.	firms will decide not to pay the tax to the government.
c.	the government will decide to tax something else.
d.	the amount of the tax is relatively low.
e.	producers can effortlessly change their behavior in response to the tax.

Short Answer

42. Let’s say that you are a politician who promises cheaper gasoline for everyone in the country if you are elected. Once you are elected, you make gas cheaper by imposing a price ceiling that is one full dollar less than the market’s equilibrium price. What would be the reaction of the sellers of gasoline and of the public to your price ceiling law? Would you expect to be reelected in the long run?

43. In a 1973 paper entitled “A Living Wage,” published in Annals of the American Academy of Political and Social Science (vol. 409: 33–41), Daniel R. Fusfeld from the Department of Economics at the University of Michigan makes the following statement:

The only effective way to eliminate poverty in the United States is to pay all workers a living wage. As long as working people labor in jobs in which earnings are inadequate to meet even the poverty standards of income, their families will remain poor; furthermore, their poverty will be reproduced from one generation to the next. Our society will continue to suffer from all of the ills associated with poverty: disease, degradation, crime, hostility and anger (p. 35).

This essay is a normative assessment of the living (or minimum) wage. In your short-answer essay, include the following elements:

a. What is the purpose of a living wage?

b. Compare and contrast the effects of a living wage policy set in a labor market where the

demand for workers is relatively price inelastic and one where it is relatively price elastic. Graph and explain your results.

44. When market participants are allowed through their interactions to find the price, there will be

equilibrium where the quantity supplied by buyers equals the quantity supplied by sellers. If this is the case, why does the government intervene in certain markets by imposing a price floor? Why does the government intervene in certain markets by imposing a price ceiling? Which market participant (the buyer or the seller) will lobby the government to secure passage of a binding price floor? Which one will lobby for a binding price ceiling?

45. True or False: An excise tax will always cause consumer prices to increase. Explain.

46. Supply and demand both tend to become more elastic in the long run. What does this mean for the deadweight loss and tax revenue from a tax in the long run compared to the short run?

Contact us

Unique Essays by Expert Writers

Custom Paper Writing Service

econ assignments