Economics 1021A/B Study Guide - Midterm Guide: Diminishing Returns, Substitute Good, Allocative Efficiency
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.
Use the figure below to answer the following questions.
Figure 1
1) Refer to Figure 1. If the demand for rental housing decreases and the demand curve shifts leftward
from D1 to D0, and there is a strictly enforced rent ceiling of $150 per room,
A) the number of rooms rented will increase to 2,000.
B) the number of rooms rented is 1,500.
C) there is a housing shortage of 500 rooms.
D) both B and C.
E) the number of rooms rented decreases.
2) Refer to Figure 1. Suppose the demand for rental housing is shown by demand curve D1, and there
is a rent ceiling of $150 per room. What is the maximum value of the social loss that could result
from this rent ceiling?
A) $6,250 B) $37,500 C) $75,000 D) $43,750 E) $81,250
3) A rent ceiling
A) results in a shortage of housing if the rent ceiling is below the equilibrium rent.
B) results in a surplus of housing if the rent ceiling is above the equilibrium rent.
C) always results in a shortage of housing.
D) always results in a surplus of housing.
E) Both A and B are correct.
A-1
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4) An effective minimum wage
A) increases producer surplus.
B) increases consumer surplus.
C) creates a deadweight loss.
D) increases the supply of labour.
E) decreases the supply of labour.
5) Suppose a minimum wage of $4 an hour is in force, resulting in unemployment of 10 million
hours. Then the demand for labour increases such that supply and demand intersect at a wage rate
of $5 per hour. What will happen to the equilibrium wage rate and employment?
A) The wage rate is $4 an hour and there will be unemployment.
B) The wage rate is $4 an hour and there will be a surplus of labour.
C) The wage rate is $5 an hour and there will be a surplus of labour.
D) The wage rate is $5 an hour and there will be no unemployment.
E) The wage rate is $4 an hour and there will be no unemployment.
Use the table below to answer the following question.
Table 1
The Market for Widgets.
Price
(dollars)
Quantity Demanded
(units)
Quantity Supplied
(units)
5 700 100
6 600 200
7 500 300
8 400 400
9 300 500
10 200 600
11 100 700
6) Refer to Table 1. If a $2-per-unit tax is imposed on sellers, the new equilibrium quantity is
________ units and buyers now pay ________ per unit.
A) 400, $7 B) 300 , $9 C) 300, $7 D) 400, $10 E) 400, $8
7) If the demand for a good is perfectly elastic, then a tax on the good will be paid
A) completely by the buyers.
B) completely by the sellers.
C) equally by the buyers and sellers.
D) mostly but not completely by the buyers.
E) mostly but not completely by the sellers.
A-2
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8) If a penalty is imposed on buyers of an illegal good, the
A) price change is uncertain and quantity bought decreases.
B) price paid to sellers and quantity bought decrease.
C) price paid to sellers rises and quantity bought decreases.
D) price paid to sellers and quantity bought increase.
E) price paid to sellers falls and quantity bought increases.
9) If the penalty on sellers of an illegal good is less than the penalty on buyers of an illegal good, then
supply of the good will ________ by ________ demand and the price of the good will ________.
A) increase; less than; rise
B) decrease; more than; rise
C) decrease; more than; fall
D) decrease; less than; rise
E) decrease; less than; fall
Use the figure below to answer the following question.
Figure 2
10) Refer to Figure 2. If the government eliminates the tax shown in the graph and instead imposes a
$2-per-unit cost of breaking the law on buyers, what is the new equilibrium quantity?
A) zero.
B) 200.
C) 300.
D) 100
E) not possible to calculate without additional information.
A-3
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ECON 1021A/B Full Course Notes
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Document Summary
Choose the one alternative that best completes the statement or answers the question. Suppose the demand for rental housing is shown by demand curve d1, and there is a rent ceiling of per room. Then the demand for labour increases such that supply and demand intersect at a wage rate of per hour. If a -per-unit tax is imposed on sellers, the new equilibrium quantity is. If the government eliminates the tax shown in the graph and instead imposes a. -per-unit cost of breaking the law on buyers, what is the new equilibrium quantity: zero, 200, 300, 100, not possible to calculate without additional information. Suppose martha"s income doubles and the prices of cake and. The budget equation is: qw = qx + (4/5)y, qx = qw + (4/5)y, qx = 100 + (4/5)qw, 100 = 4qx + 5qw, 100 = qx + (4/5)qw, sarah has an income of .
