Georgia Institute of Technology
School of Economics
ECON 2106 JK1&JK2! Principles of Microeconomics!!!! Fall 2012
Instructor: Dr. Johnson Kakeu (johnson.kakeu @econ.gatech.edu)
TAs: Joseph Greene ([email protected]
"Winners must have two things: definite goals and a burning desire to achieve them."
- Brad Burden -
Hey guys :)
I strongly advise you to discuss the following questions in groups of 3 to 4
students. As you know, trading ideas with other classmates will lead to a more
efficient outcome. It will increase your total knowledge capacity surplus !!!
READY, STEADY, GO >>>>>>>>>>>>>>>>>>>>>>>
1.The university president believes that increasing student tuition by 5% will increase
revenues. If the president is correct that revenues will increase, then the tuition increase will:
A) reduce the number of students enrolling by less than 5%.
B) reduce the number of students enrolling by more than 5%.
C) reduce the number of students enrolling by exactly 5%.
D) increase the number of students enrolling by 5%.
Page 1 Use the following to answer question 2.
Figure: The Market for Yachts
2. (Figure: The Market for Yachts) Look at the figure The Market for Yachts. A quota of
________ will bring about the same price and output in the market for yachts as would an
excise tax of $30,000.
D) The answer is impossible to determine.
3. The price elasticity of demand is computed as the percentage change in the:
A) quantity demanded divided by the percentage change in the quantity supplied.
B) price divided by the percentage change in the quantity demanded.
C) quantity demanded divided by the percentage change in income.
D) quantity demanded divided by the percentage change in the price.
4. There is one gas station in a small rural town. The owner of the station claims that he will
sell the same quantity of gas no matter how high or low the price. If he is correct in this
assertion, what must be true about the demand curve for gas at his station?
A) It must be vertical with a price elasticity of zero.
B) It must be vertical with a price elasticity of infinity.
C) It must be horizontal with a price elasticity of zero.
D) It must be horizontal with a price elasticity of infinity.
Page 2 5.If two goods are complements, their cross-price elasticity of demand should be:
A) less than 0.
B) equal to 0.
C) positive yet almost equal to 0.
D) greater than 0.
6.The pair of items that is likely to have the largest positive cross-price elasticity of demand
A) coffee and tea.
B) skis and ski boots.
C) pizza and pepperoni.
D) milk and cookies.
7.Raina consumes 100% more mechanical pencils when the price of felt-tip pens increases by
50%. For Raina, pencils and pens are ________, and the cross-price elasticity of demand is
A) complements; 1/2
B) substitutes; –1/2
C) complements; 2
D) substitutes; 2
Use the following to answer question 8.
Figure: Supply Curves
8.(Figure: Supply Curves) Look at the figure Supply Curves. Which graph shows a perfectly
elastic supply curve?
Page 3 9. If the absolute value of the price elasticity of demand is greater than 1, then:
A) small percentage changes in the price will lead to much larger changes in the percentage
change in the quantity demanded.
B) small percentage changes in the price will lead to even smaller changes in the percentage
change in the quantity demanded.
C) percentage changes in the price will lead to equal percentage changes in the quantity
D) changes in the price will have no impact on changes in the quantity demanded.
Use the following to answer question 10.
Figure: The Linear Demand Curve
10. (Figure: The Linear Demand Curve) Look again at the figure The Linear Demand Curve. As a
producer, you are interested in maximizing your total revenues in this market. What is the
price at which you should sell your good? What is the corresponding total revenue?
A) $10; $100
B) $20; $200
C) $0; $100
D) $5; $100
11. Which of the following is an example of an excise tax?
A) a tax of $0.41 per gallon of gas
B) a tax of 12.4% of your wages
C) a tax on the value of your property
D) a one-time local government tax of $50
Page 4 12. If an excise tax is levied on suppliers, then the incidence of the tax:
A) is typically on the consumer more than the producer.
B) is typically on the producer more than the consumer.
C) is typically split equally between the producer and the consumer.
D) cannot be determined without more information.
13. State governments levy excise taxes on cigarettes because:
A) they want to subsidize tobacco farming.
B) they want to discourage cigarette smuggling.
C) it is an easy way to raise tax revenue while discouraging smoking.
D) they want to reduce deadweight loss.
14. If the government decides to impose a $700 tax on U.S. citizens traveling abroad, then the
deadweight loss from this tax will be:
A) relatively small.
B) relatively large.
D) absorbed by foreign governments.
Use the following to answer question 15.
Figure: Income Tax Payments
15. (Figure: Income Tax Payments) Look at the figure Income Tax Payments. Which panel or
panels best represent the effects of a progressive income tax?
D) A and B
16. ________ and ________ are the largest sources of state and local tax revenue.
A) Profit taxes; sales taxes.
B) Property taxes; sales taxes.
C) Payroll taxes; income taxes.
D) Sales taxes; income taxes.
Page 5 17. If personal income up to and including $25,000 is not taxed, income of $25,001 to $50,000 is
taxed at 10%, and income over $50,000 is taxed at 20%, then a family earning an income of
$75,000 will pay an average tax rate of:
Page 6 Use the following to answer question 18.
Figure: Tax Incidence
18. (Figure: Tax Incidence) Look at the figure Tax Incidence. All other things unchanged, the
effect of an excise tax imposed on gasoline in the long run is most likely illustrated by panel
________, and the greater share of the burden of the excise tax (shown by the tax wedge in
each panel) is borne by ________.
A) A; buyers
B) B; sellers
C) B; buyers
D) A; sellers
19. In a Ricardian model of international trade, the production possibility frontiers are
________, indicating that the opportunity cost of increasing the production of one item
relative to another ________.
A) convex; is constant
B) concave; increases
C) straight lines; is constant
D) straight lines; decreases
Page 7 20. In a single year, the Netherlands can raise 100 tons of beef or produce 1,000 boxes of tulips.
In the same growing season, Belgium can raise 50 tons of beef or produce 750 boxes of
tulips. In autarky, the price of one ton of beef in the Netherlands is:
A) 100 tons of beef.
B) 1,000 boxes of tulips.
C) 10 boxes of tulips.
D) 0.1 box of tulips.
21. Saudi Arabia has a tremendous comparative advantage in petroleum. Which of the following
is a source of this comparative advantage?
A) mild temperatures
B) large reserves of crude oil
C) no opportunity cost associated with oil production
D) high tariffs on oil from other nations
Page 8 Use the following to answer question 22.
Figure: The Domestic Supply and Demand for SUVs in the United States
22. (Figure: The Domestic Supply and Demand for SUVs in the United States) Look at the
figure The Domestic Supply and Demand for SUVs in the United States. Suppose the world
price equals $50,000 and there is free trade. Calculate the loss of consumer surplus when
there is free trade.
A) $41,250 million
B) $30,000 million
C) $52,500 million
D) $22,250 million
23. If a country has the comparative advantage in producing cloth, we would predict that in the
market for cloth, the autarky price would be ________ the world price and the country
would choose to________ cloth.
A) less than; export
B) greater than; export
C) less than; import
D) the same as; export
Page 9 24. Assume that the United States imposes a quota on Columbian coffee. Relative to the
equilibrium world price that would exist in the absence of