Level 3: ECON MASTER!- version 1

1. With respect to the variables price and quantity demanded,

a. price and quantity demanded are independent of each other.

b. price is the dependent variable and quantity demanded is the independent variable.

c. price is the independent variable and quantity demanded is the dependent variable.

d. price and quantity demanded are both dependent variables, since both depend on the actions of buyers and sellers

2. An increase in the price of rubber coincides with an advance in the technology of tire production. As a result of

these two events,

a. the demand for tires increases and the supply of tires decreases.

b. the supply of tires decreases and the demand for tires is unaffected.

c. the supply of tires increases and the demand for tires is unaffected.

d. none of the above is necessarily correct.

3. Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we

expect to happen in the market?

a. The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous.

b. The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous.

c. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

d. Both equilibrium price and equilibrium quantity would increase.

4. The smaller the price elasticity of demand, the

a. steeper the demand curve will be through a given point.

b. flatter the demand curve will be through a given point.

c. more strongly buyers respond to a change in price between any two prices P1 and P2.

d. larger the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2.

5. How does total revenue change as one moves downward and to the right along a linear demand curve?

a. It always increases.

b. It always decreases.

c. It first increases, then decreases.

d. It is unaffected by a movement along the demand curve

6. If the demand curve is linear and downward sloping, which of the following statements is not correct?

a. Demand is more elastic on the lower part of the demand curve than on the upper part.

b. Different pairs of points on the demand curve can result in different values of the price elasticity of demand.

c. Different pairs of points on the demand curve cannot result in different values of the slope of the demand curve.

d. Starting from a point on the upper part of the demand curve, an increase in price leads to a decrease in total revenue.

7. When her income increased from \$10,000 to \$20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. We can conclude that for Heather,

a. macaroni and soy-burgers are both normal goods with income elasticities equal to 1.

b. macaroni is an inferior good and soy-burgers are normal goods; both have income elasticities of 1.

c. macaroni is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1.

d. macaroni and soy-burgers are both inferior goods with income elasticities equal to -1.

8. A tax on bicycles that buyers of bicycles are required to pay shifts

a. the demand curve downward, causing both the price received by sellers and the equilibrium quantity to fall.

b. the demand curve upward, causing both the price received by sellers and the equilibrium quantity to rise.

c. the supply curve downward, causing the price received by sellers to fall and the equilibrium quantity to rise.

d. the supply curve upward, causing the price received by sellers to rise and the equilibrium quantity to fall.

9. A tax on the buyers of coffee will

a. increase the effective price of coffee paid by buyers, increase the price of coffee received by sellers, and increase the equilibrium quantity of coffee.

b. decrease the effective price of coffee paid by buyers, increase the price of coffee received by sellers, and decrease the equilibrium quantity of coffee.

c. increase the effective price of coffee paid by buyers, decrease the price of coffee received by sellers, and decrease the equilibrium quantity of coffee.

d. increase the effective price of coffee paid by buyers, decrease the price of coffee received by sellers, and increase the equilibrium quantity of coffee.

10. Buyers of a good bear the larger share of the tax burden when a tax is placed on a product for which

a. the supply is more elastic than the demand.

b. the demand in more elastic than the supply.

c. the tax is placed on the sellers of the product.

d. the tax is placed on the buyers of the product.

Level 3: ECON MASTER!- version 2

1. If a tax is imposed on a market with elastic demand and inelastic supply,

a. buyers will bear most of the burden of the tax.

b. sellers will bear most of the burden of the tax.

c. the burden of the tax will be shared equally between buyers and sellers.

d. it is impossible to determine how the burden of the tax will be shared.

2. The demand for salt is inelastic and the supply of salt is elastic. The demand for caviar is elastic and the supply of caviar is inelastic. Suppose that a tax of \$1 per pound is levied on the sellers of salt and a tax of \$1 per pound is levied on the buyers of caviar. We would expect that most of the burden of these taxes will fall on

a. sellers of salt and the buyers of caviar.

b. sellers of salt and the sellers of caviar.

c. buyers of salt and the sellers of caviar.

3. Refer to Figure 6-5. When a certain price control is imposed in this market, the resulting quantity of the good that is actually bought and sold is such that buyers are willing and able to pay a maximum of P1 dollars per unit for that quantity and sellers are willing and able to accept a minimum of P2 dollars per unit for that quantity. If P1 - P2 =\$3.00, then the price control in question is

a. a price ceiling of \$2.00.

b. a price ceiling of \$5.00.

c. a price floor of \$5.00.

d. either a price ceiling of \$2.00 or a price floor of \$5.00.

4. Suppose there is currently a tax of \$50 per ticket on airline tickets. The supply curve for airline tickets slopes upward and the demand curve for airline tickets slopes downward. Sellers of tickets are required to pay the tax to the government. If the tax is reduced from \$50 per ticket to \$30 per ticket, then

a. the demand curve will shift upward by \$20 and the price paid by buyers will decrease, but the decrease will be less than \$20.

b. the demand curve will shift upward by more than \$20 and the price paid by buyers will decrease by \$20.

c. the supply curve will shift downward by \$20 and the price paid by buyers will decrease, but the decrease will be less than \$20.

d. the supply curve will shift downward by more than \$20 and the effective price received by sellers will increase by \$20.

5. A decrease in supply will cause the smallest increase in price when

a. both supply and demand are inelastic.

b. demand is inelastic and supply is unit elastic.

c. both supply and demand are elastic.

d. demand is inelastic and supply is elastic.

6. Which of the following statements is not valid when supply is perfectly elastic?

a. The elasticity of supply approaches infinity.

b. The supply curve is horizontal.

c. Very small changes in price lead to large changes in quantity supplied.

d. The time period under consideration is more likely a short period rather than a long period.

7. If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is

a. 0.5 and supply is elastic.

b. 0.5 and supply is inelastic.

c. 2 and supply is inelastic.

d. 2 and supply is elastic.

8. Pens are normal goods. What will happen to the equilibrium price of pens if the price of pencils rises, consumers experience an increase in income, writing in ink becomes fashionable, people expect the price of pens to rise in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-makers increase?

a. Price will rise.

b. Price will fall.

c. Price will stay exactly the same.

d. The price change will be ambiguous.

9. Which of the following sets of events would most likely cause an increase in the price of a new house?

a. higher wages for carpenters, higher wood prices, increases in consumer incomes, higher apartment rents, increases in population and expectations of higher house prices in the future

b. lower wages for carpenters, lower wood prices, increases in consumer incomes, higher apartment rents, increases in population and expectations of higher house prices in the future

c. lower wages for carpenters, higher wood prices, decreases in consumer incomes, higher apartment rents, decreases in population and expectations of higher house prices in the future

d. higher wages for carpenters, lower wood prices, decreases in consumer incomes, lower apartment rents, decreases in population and expectations of lower house prices in the future

10. What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages?

a. Price will fall and the effect on quantity is ambiguous.

b. Price will rise and the effect on quantity is ambiguous.

c. Quantity will fall and the effect on price is ambiguous.

d. Quantity will rise and the effect on price is ambiguous.

Level 3: ECON MASTER!- version 3

1. Music compact discs are normal goods. What will happen to the equilibrium price and quantity of music compact discs if musicians accept lower royalties, compact disc players become cheaper, more firms start producing music compact discs and music lovers experience an increase in income?

a. Price will fall and the effect on quantity is ambiguous.

b. Price will rise and the effect on quantity is ambiguous.

c. Quantity will fall and the effect on price is ambiguous.

d. Quantity will rise and the effect on price is ambiguous.

2. Suppose that a decrease in the price of good X results in fewer units of good Y being sold. This implies that X and Y are

a. complementary goods.

b. normal goods.

c. inferior goods.

d. substitute goods.

3. When there is a shortage of 100 units of a particular good,

a. the law of supply predicts upward pressure on the price of the good from its current level.

b. the law of demand predicts downward pressure on the price of the good from its current level.

c. we say that there is a scarcity of 100 units of the good.

d. None of the above is correct.

4. Refer to Figure 4-8. If there is currently a shortage of 30 units of the good, then

a. the law of demand predicts that the price will rise by \$5 to eliminate the shortage.

b. the law of supply predicts that the price will rise by \$5 to eliminate the shortage.

c. the law of supply and demand predicts that the price will rise by \$3 to eliminate the shortage.

d. the law of supply and demand predicts that the price will fall from its current level by an indeterminate amount, exacerbating the shortage.

5. What will happen to the equilibrium price and quantity of traditional camera film if traditional cameras become more expensive, digital cameras become cheaper, the cost of the resources needed to manufacture traditional film

falls and more firms decide to manufacture traditional film?

a. Price will fall and the effect on quantity is ambiguous.

b. Price will rise and the effect on quantity is ambiguous.

c. Quantity will fall and the effect on price is ambiguous.

d. The effect on both price and quantity is ambiguous.

6. For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

a. There are no close substitutes for this good.

b. The good has close substitutes.

c. The market has lots of complements.

d. The relevant time horizon is short.

7. Refer to Figure 5-1. Assume the section of the demand curve labeled A corresponds to prices between \$6 and \$12. Then, when the price increases from \$8 to \$10,

a. the percent decrease in the quantity demanded exceeds the percent increase in the price.

b. the percent increase in the price exceeds the percent decrease in the quantity demanded.

c. sellers’ total revenue increases as a result.

d. it is possible that the quantity demanded fell from 550 to 500 as a result.

8. Refer to Figure 5-1. Assume, for the good in question, two specific points on the demand curve are (Q = 1,000, P = \$40) and (Q = 1,500, P = \$30). Then which of the following scenarios is possible?

a. Both of these points lie on section C of the demand curve.

b. The vertical intercept of the demand curve is the point (Q = 0, P = \$60).

c. The horizontal intercept of the demand curve is the point (Q = 1,800, P = \$0).

d. Any of these scenarios is possible.

9. Refer to Figure 5-1. Assume, for the good in question, two specific points on the demand curve are (Q = 2,000, P= \$15) and (Q = 2,400, P = \$12). Then which of the following scenarios is possible?

a. Both of these points lie on section C of the demand curve.

b. The vertical intercept of the demand curve is the point (Q = 0, P = \$22).

c. The horizontal intercept of the demand curve is the point (Q = 5,000, P = \$0).

d. Any of these scenarios is possible.

10. If a tax is imposed on a market with inelastic demand and elastic supply,

a. buyers will bear most of the burden of the tax.

b. sellers will bear most of the burden of the tax.

c. the burden of the tax will be shared equally between buyers and sellers.

d. it is impossible to determine how the burden of the tax will be shared.