ECO201 Practice Exam #2

If the price elasticity of demand is elastic, we know that a 1% change in price leads to a __________ change in quantity demanded.

• More than 1%

• Less than 1%

• Exactly 1%

• Insufficient information

• None of the above

A city government wants to boost subway ridership by 12%. If the elasticity of demand is -1.8, the government must adjust fares by:

• Decreasing fares by 6.67%

• Increasing fares by 6.67%

• Increasing fares by 12%

• Decreasing fares by 12%

• None of the above.

Producer surplus is best defined as:

• The difference between a consumer’s willingness to pay and the market price.

• The quantity of goods supplied that exceeds demand.

• The difference between a producer’s willingness to accept and the market price

• The loss in market efficiency due to taxation.

A binding price floor will always result in:

• An increase in consumer surplus

• A shortage in the market

• A decrease in total surplus

• A decrease in producer surplus.

A good with very few substitutes in consumption is likely to have a demand curve that is:

• Nearly horizontal

• Perfectly elastic

• Upward sloping

• Steeply downward sloping

Social welfare is maximized when:

• Consumer surplus is maximized

• Producer surplus is minimized

• The sum of consumer and producer surplus is maximized

• The government intervenes to set prices.

A binding price ceiling can be expected to:

• Create a shortage

• Increase producer surplus

• Lower prices for all consumers and increase output

• Have no effect on market efficiency.

If at a price of $2, demand for a product is 20 units and demand is elastic, the slope of the demand curve is:

• Greater than -10

• Less than -10

• Equal to -10

• None of these

Tags

CCSS.8.EE.B.5

If a firm operates where price elasticity of demand is unitary (-1), it means:

• The firm is maximizing total revenue

• The firm is maximizing total profit

• The firm should increase price to boost revenue

• The firm should decrease price to boost revenue.

Assume that at a price of $200 per unit, the price elasticity of demand for a good is -2, and the slope of the demand curve is -5. The quantity demanded at that price is:

• 40

• 100

• 500

• We cannot determine