Questions for Quiz 5 - Principles of Macroeconomics | ECON 002, Quizzes of Microeconomics

Download Questions for Quiz 5 - Principles of Macroeconomics | ECON 002 and more Quizzes Microeconomics in PDF only on Docsity! Principles of Microeconomics (Econ 2) Signature: Drake University, Summer 2008 William M. Boal Printed name: QUIZ #5 VERSION A “Market Controls and Taxes” July 31, 2008 INSTRUCTIONS: This quiz is closed-book, closed-notes. Simple calculators are permitted, but graphing calculators or calculators with alphabetical keyboards are NOT permitted. Numerical answers, if rounded, must be correct to at least 3 significant digits. Point values for each question are noted in brackets. Maximum total points are 100. I. Multiple choice: Circle the one best answer to each question. [3 pts each: 33 pts total] (1) If the free-market equilibrium price of corn is $5, but the government imposes a price floor (or legal minimum price) of $3, then that price floor a. is binding. b. is nonbinding. c. creates excess demand. d. creates excess supply. e. All of the above. (2) If a price ceiling (or legal maximum price) for bananas were binding, it would create a. excess demand for bananas. b. excess supply of bananas. c. a surplus of bananas. d. an increase in the quantity of bananas supplied. (3) Who loses if a price floor (or legal minimum price) is imposed on milk? a. All consumers of milk. b. All producers of milk. c. All consumers and producers of milk. d. No one loses—everyone gains. (4) A quota on buying wood from tropical rainforests would cause the price of wood from tropical rainforests to a. rise. b. fall. c. remain constant. d. rise or fall, depending on the shapes of the demand and supply curves. (5) Who loses if a quota is imposed on sellers of fireworks? a. All sellers of fireworks. b. All buyers of fireworks. c. All sellers and buyers of fireworks. d. No one loses—everyone gains. (6) Suppose the price elasticity of demand for hotel rooms in a small city is -3.0 and the price elasticity of supply of hotel rooms in this city is 0.6. If a tax is imposed on hotel rooms in this city, which side of the market effectively pays most of the tax? a. Sellers (hotels). b. Buyers (guests). c. Sellers and buyers each pay half of the tax. d. Answer depends on which side is legally required to remit the tax to the government. (7) Suppose the supply of coffee in Iowa were perfectly elastic. If coffee were taxed, a. buyers would pay all of the tax. b. buyers would pay most of the tax. c. sellers would pay all of the tax. d. sellers would pay most of the tax. (8) Who wins if producers of natural gas are required to pay a tax on each unit of natural gas that they sell? a. All consumers of natural gas. b. All producers of natural gas. c. Both consumers and producers of natural gas. d. Neither consumers nor producers of natural gas. (9) Suppose the price elasticity of demand for private- school education is -2.0 and the price elasticity of supply of private-school education is 0.4. If a subsidy is given for private-school education, a. Sellers (schools) will enjoy most of the benefit. b. Buyers (students and their families) will enjoy most of the benefit. c. Sellers and buyers each enjoy half of the benefit. d. Answer depends on which side is legally designated to receive the subsidy check from the government. Principles of Microeconomics (Econ 2) Drake University, Summer 2008 Quiz 5 Version A Page 2 of 6 (10) The amount of gasoline actually sold would decrease if the government enacted a. a quota on sellers of gasoline. b. a quota on buyers of gasoline. c. a price floor (or legal minimum price) for gasoline. d. a price ceiling (or legal maximum price) on gasoline. e. all of the above. f. none of the above. (11) The number of bicycle helmets actually sold would increase if the government enacted a a. a quota on sellers of bicycle helmets. b. a quota on buyers of bicycle helmets. c. a price floor (or legal minimum price) for bicycle helmets. d. a price ceiling (or legal maximum price) on bicycle helmets. e. all of the above. f. none of the above. II. Problems: Insert your answer to each question below in the box provided. Feel free to use the margins for scratch workonly the answers in the boxes will be graded. Work carefullypartial credit is not normally given for questions in this section. (1) [Price controls: 12 pts] The following graph shows the market for corn. Suppose a price ceiling (or legal maximum price) of $3 is imposed on this market. No corn may be sold for more than $3. $0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 $11 $12 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Millions of bushels P ri ce p er b u sh el Demand Supply a. Is this price ceiling binding or nonbinding? b. Find the quantity of corn actually sold with this price ceiling. million bushels c. Will this price ceiling result in excess demand or excess supply of corn? d. How much? million bushels Principles of Microeconomics (Econ 2) Drake University, Summer 2008 Quiz 5 Version A Page 5 of 6 (5) [Subsidies: 12 pts] Suppose the market for infant car seats is described by the curves graphed below. $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $70 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Quantity (millions) P ri ce Demand Supply Suppose the government offers a subsidy of $15 per car seat. a. Compute the equilibrium number of infant car seats that will be sold. million b. Compute the equilibrium net price of an infant car seat paid by buyers (excluding the subsidy). $ c. Compute the equilibrium total price of an infant car seat received by sellers (including the subsidy). $ d. Compute the direct cost of the subsidy program to the government. In other words, how much should the government budget for subsidy payments? $ million Principles of Microeconomics (Econ 2) Drake University, Summer 2008 Quiz 5 Version A Page 6 of 6 III. Critical thinking: Write a one-paragraph essay answering one question below (your choice). [4 pts] (1) Suppose the government is concerned that not enough children are getting daily vitamins. Would a price ceiling (or legal maximum price) for vitamins encourage more children to get vitamins? Justify your answer with a supply-and- demand graph. (2) Consider the following statement. "It is unfair that consumers must pay the tax on gasoline. The producers of gasoline are big, rich corporations. It would be fairer if the tax were paid by gasoline producers." Does it matter who pays the tax? Justify your answer with a supply-and-demand graph. Please circle the question you are answering. Write your answer below. Full credit requires correct economic reasoning, legible writing, good grammar including complete sentences, and accurate spelling. [end of quiz]