Eco 101 830 Answer Key Exam 1 Form A Spring 2006 1. A 2. A 3. B 4. C 5. D 6. D 7. B 8. C 9. A 10. C 11. D 12. B 13. C 14. D 15. C 16. A 17. B 18. A 19. C 20. B 1. (a) Percentage change in Qd = (50-60)/55 x 100 = -18; Percentage change in P = (5-3)/4 x 100 = 50 elasticity of demand = -.18/50 = -.36 (inelastic) (b) Given that demand is inelastic, the percentage increase in price is larger than the percentage decrease in quantity demanded. So with a tax hike, total revenue and thus tax revenue will RISE. We can also see this by looking at the table. Total revenue at $3 is (3)(60)= $180 million. Total revenue at $5 is (5)(50) = $250 million. 2. Scarcity is the problem that all resources are limited while wants are unlimited. Opportunity cost is the choice forgone when we make a decision about how to use scarce resources. They are related in that because resources are scarce, we must make choices about how to use them. Since we must make choices, we always give up the use of resources in some other way, and that is the opportunity cost. 3.
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