practice exam 2 solutions B

practice exam 2 solutions B - University of Illinois at...

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1 University of Illinois at Urbana-Champaign ECON302 Intermediate Microeconomics Exam 2 April 7, 2011 Solutions Form B PA R T I: Multipl e Choi ce Qu e s tion s (48point s ) 1. Suppose that a market is initially in equilibrium. The initial demand curve is 90 d P Q  . The initial supply curve is 2 s . Suppose that the government imposes a $3 tax on this market. How much of this $3 tax is paid by consumers? a) $2. b) $1.50. c) $1. d) $3 Ans: C 2. Suppose that a market is initially in equilibrium. The initial demand curve is 90 . The initial supply curve is 2 . Suppose that the government imposes a $3 tax on this market. What is the change in consumer surplus due to the tax? a) $450. b) $420.50. c) $0.50. d) $29.50. Ans: D 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 0 200 400 Quantity Price 75 150 225 375 25 50 75 100 125 Demand Supply
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2 3. Refer to the figure above. Suppose the government sets a price ceiling of $50 in this market. What is the change in the level of consumer surplus with the price ceiling? a) It reduces by 937.5 b) It increases by 1875 c) It increases by 937.5 d) It increases by 2812.5 e) None of the above Ans: C 4. Suppose that the market for cigarettes is initially in equilibrium and is perfectly competitive. The demand curve can be expressed as 60 d P Q  ; the supply curve can be expressed as 0.5 s . Quantity is expressed in millions of boxes per month. Now suppose that the federal government imposes a production quota on cigarettes of 30 million boxes per month. What is the c hang e in consumer surplus (per million boxes) associated with the quota? a) $350. b) $450. c) $300. d) $50. Ans: A 5. Acreage limitations are used by the government because a) they induce less deadweight loss than cash transfers to farmers. b) they raise the market price of an agricultural product without the surpluses associated with price supports. c) the government wishes to lower agricultural prices. d) they are an effective way to feed poor people. Ans: B 6. Which of the following is no t a description of what a tariff can achieve in a perfectly competitive market? a) A tariff can achieve many of the same goals as an import quota. b) A tariff can create less domestic deadweight loss than a quota if the tariff revenues are redistributed domestically. c) A tariff can create greater government revenues than a quota. d) A tariff creates enough government revenue to completely offset the impact of deadweight loss, thereby increasing total surplus. Ans: D 7. Marginal product crosses the horizontal axis (is equal to zero) at the point where a) average product is maximized. b) output per worker reaches a maximum. c) diminishing returns set in. d) total product is maximized. e) all of the above are true. Ans: D
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3 8. Diminishing marginal returns occur when the total product function is a) increasing at a decreasing rate. b) decreasing. c) increasing at a constant rate.
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practice exam 2 solutions B - University of Illinois at...

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