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Unformatted text preview: Name Test Form A Economics 1 Quiz 2 May 6, 2009 True-False Questions: Fill in Bubble A for True, Bubble B for False. 1. If demanders are paid a subsidy of $10 for each unit that they purchase, the demand curve is shifted vertically upwards by $10. 2. Suppose that the demand curve is downward-sloping and the supply curve is a horizontal line. If a sales tax of $10 per unit is collected from sellers for each unit they sell, the effect of the tax will be to increase the price by $10 per unit and to reduce the number of units sold. 3. An economic activity that confers benefits on people not involved in the activity is said to produce a positive externality. 4. If the sale of a good produces a positive externality for every participant in a market for that good, the total profits of market participants can be increased by a tax on the good with the resulting tax revenue rebated to those participants. 5. Assume the supply curve for a good shifts out (more supplied at every price) and the demand curve for the good does not change. If the total revenue of suppliers falls as a result of this shift, the demand for the good is elastic. Multiple Choice Questions Economics 1 2 6. Boomtown is a growing community bounded by mountains and the sea. The remaining un- developed land in town has been subdivided into 1,000 residential lots which will be offered for sale. The demand curve for residential lots in Boomtown is described by the formula P = 900 , 000- 250 Q where P is the price and Q is the number of lots sold. The market for these lots is competitive and sellers will try to get the highest price they can for them. These lots are of no value for any use other than residential housing. If there are no taxes on the sale of a lot, what will be the competitive price per lot? (a) $495,000 (b) $900,000 (c) $10,000 (d) $650,000 (e) $3,600 7. If the city council of Boomtown imposes a sales tax of $40,000 per lot which is collected from the buyers when they purchase a lot, what will be the effect of the tax on the equilibrium...
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- Spring '07