ECON 2110 Exam 3 Clemson Study Questions with Verified Solutions

ECON 2110 Exam 3 Clemson Study Questions with Verified Solutions 1. If the elasticity of demand is 2 in absolute value, and the elasticity of supply is 1 in absolute value, how much of a tax burden will the buyer bear relative to the seller? a. The buyer will bear more of the tax burden than the seller b. The seller will bear more of the tax burden than the buyer c. The buyer and seller will share the tax burden equally d. The buyer will not bear any of the tax burden because the demand curve is twice as elastic as the supply curve - ANSWER b. The seller will bear more of the tax burden than the buyer 2. At a price ceiling of $6 per sheet of drywall, quantity demanded is 100 and quantity supplied is 75. What will happen in the drywall market if there is an increased demand for drywall in the construction industry? a. Equilibrium will be restored b. The shortage of drywall will fall below 25 units c. The shortage of drywall will increase above 25 units d. The surplus of drywall will increase about 25 units - ANSWER c. The shortage of drywall will increase above 25 units 3. Setting the maximum legal price above the market price will cause a. a shortage to develop b. a surplus to develop c. quantity supplied to exceed quantity demanded d. quantity demanded to exceed quantity supplied e. the market to reach an equilibrium outcome - ANSWER e. the market to reach an equilibrium outcome 4. Because of government price controls, a business must now sell soft-serve ice cream at half its original price. This business might respond by a. offering smaller servings of ice cream b. skimping on toppings of nuts, fudge sauce, and cherries c. reducing hours of operation d. All of the above - ANSWER d. All of the above 5. Binding price floors would create all of the following effects EXCEPT a. deadweight losses b. surpluses c. misallocation of resources d. wasteful decreases in product quality - ANSWER d. wasteful decreases in product quality 6. If a minimum wage is posted in the labor market, a. the demand for labor would increase b. the supply of labor would decrease c. a surplus of labor would develop d. All of the above - ANSWER c. a surplus of labor would develop 7. Free markets ration goods with a. prices b. long lines c. ration coupons d. discrimination - ANSWER a. prices 8. The effect of the 1970s price ceiling on gasoline was a. a lot of time wasted waiting in long lines at gas stations b. a more fair distribution of gasoline c. an efficient distribution of gasoline d. Both b and c - ANSWER a. a lot of time wasted waiting in long lines at gas stations 9. To economists, prices are a. the outcome of a random process b. the result of millions of business and consumer decisions c. the responsibility of the government d. not important - ANSWER b. the result of millions of business and consumer decisions 10. What is the most likely effect of agricultural price floors, which guarantee a minimum price for such products as peanuts? a. They lead to shortages b. They lead to surpluses c. They reduce the demand for agricultural products d. They increase the supply of agricultural products - ANSWER b. They lead to surpluses 11. Suppose a fee is imposed on the development of all open land. Most of the tax will be borne by landowners (the suppliers) if a. demand is more elastic than supply b. supply is more elastic than demand c. developers keep on buying open land anyway d. the tax will always be shared equally between developer and landowner - ANSWER a. demand is more elastic than supply 12. Why are taxes so often imposed on things like land or salt? a. Because tax revenue is higher when supply or demand is inelastic b. Because neither is a necessity c. Because wealthier people have more of each d. Because demand for each is elastic, so no one minds buying less - ANSWER a. Because tax revenue is higher when supply or demand is inelastic 13. Lighting your house with oil lamps instead of electricity may be efficient a. if the quality of light from oil lamps is less than the quality of light from electricity b. only if oil lamp technology improves to the point that oil lamps produce as much light as electric lamps c. only when electricity is not available d. if the cost of lighting with oil lamps is less than the cost of lighting with electric lamps e. under no circumstances - ANSWER d. if the cost of lighting with oil lamps is less than the cost of lighting with electric lamps 14. tax on sellers of apples a. leads sellers to supply less apples at every price b. leads sellers to supply more apples at every price c. causes the supply curve to shift to the right d. leads buyers to demand more apples at every price - ANSWER a. leads sellers to supply less apples at every price 15. 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 tax burden will be shared equally between buyers and sellers d. neither the buyer nor the seller will bear the burden of the tax - ANSWER b. sellers will bear most of the burden of the tax 16. Suppose the government puts a tax of $1 on each jar of applesauce purchased. As a result of the tax, the price consumers pay for a jar of apple sauce a. will rise by exactly $1 b. will rise by less than $1 c. will rise by more than $1 d. does not change e. may rise or fall, depending on the elasticity of supply - ANSWER b. will rise by less than $1