MicroEcon_SampleQuestions - Econ 1123 Exam 1 Sample...

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Econ 1123 Exam 1 Sample Questions 1. Consider the following: “The sharp rise in gasoline prices in the mid 1970’s lead to a sharp decline in the demand for ‘gas guzzling’ cars and large unsold inventories (surpluses) when many dealers refused to cut their sticker prices.” Use a supply/demand diagram of the ‘fuel inefficient’ or ‘gas guzzling’ car market and brief verbal descriptions to explain this quotation. 2. In 1990, Congress passed a per-unit excise tax on yachts. The tax was legally imposed on the buyers of these luxury goods. Within a year, a number of New England yacht building firms failed and their unemployed workers protested vigorously. Interestingly, yacht buyers voiced little concern about the tax. Use a supply/demand diagram of the yacht market and your knowledge about the legal and economic incidence of a per-unit excise tax to explain this episode. 3. Recently, the Clinton administration proposed a $1.00 per-unit (pack) excise tax on cigarettes (which would be imposed legally or statutorily on cigarette sellers ). Some news reports have suggested that the proposed tax would increase cigarette prices by $1.00 per pack and be paid entirely by smokers (cigarette buyers ). Using a competitive supply/demand diagram of the cigarette market, carefully show and explain the circumstances under which these new reports would be true. 4. Suppose the out-of-pocket price for driving on a freeway is zero. Now, use a competitive supply/demand diagram of the “freeway space” market to explain traffic jams at 8:00 am, but no jams at 11:00 pm. Also, use your diagram to explain the toll price that would eliminate the morning traffic jams.
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