Second+midterm+answer+key

Second+midterm+answer+key - Answers to Version A of the...

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Answers to Version A of the Second Midterm Fall 2009 Professor Douglas Blair Part A Answer the next seven questions based on the following information. The market for soft drinks in New York City is given by the following demand and supply equations: Demand: P = 100 2Q Supply: P = 2Q where P is the market price measured in cents and Q is the market quantity measured in bottles of soft drinks. New York City, like many cities concerned with obesity and dental health problems, is considering imposing an excise tax on soft drink producers of 20 cents a bottle. 1. If this excise tax is imposed, the new supply curve with the excise tax will be A. P = 2Q + 20. C. P = 2(Q + 20). B. P = 2Q 20. D. P = 2(Q 20). The correct answer is A. 2. If this excise tax is imposed, the price of soft drinks in New York City will increase by _____ cents. A. 20 C. 10 B. 30 D. 0 The correct answer is C. 3. If this excise tax is imposed, the tax revenue collected by the government will equal A. $1. C. $3. B. $2. D. $4. The correct answer is D. 4. If this excise tax is imposed, the deadweight loss associated with the tax will equal A. $5. C. $1. B. $4. D. $0.50. The correct answer is D. 5. The loss described in the previous question will overstate the social cost of the soft drink tax if A. the demand elasticity equals the supply elasticity. B. the tax is collected from buyers rather than sellers. C. the economic incidence of the tax differs from its legal incidence. D. the tax results in improved health. The correct answer is D. 6. The loss in consumer surplus due to the imposition of this excise tax equals A. $6.25. C. $2.25. B. $4. D. $0.25. The correct answer is C. 7. If this excise tax is imposed, the producers’ net revenue per unit falls by A. $0.05. C. $0.15. B. $0.10. D. $0.20. The correct answer is B.
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8. To maximize profits, a manufacturer of watermelon seed sorters should produce the output at which: A. TR = STC and the difference between MR and SMC is a large as possible. B. MR = SMC and the difference between TR and STC is a large as possible. C. SMC = AVC and the difference between P and SMC is a large as possible. D. SMC = SATC and the difference between P and SATC is a large as possible. The correct answer is B. 9. Unless economic profits are zero, firms have an incentive: A. to enter or leave the industry. B. to change the level of capital employed. C. to change the level of labor employed. D. to change the quantity of output produced. The correct answer is A. 10. When the price of gasoline falls or rises, consumers respond by changing the quantity of gasoline they purchase. The part of this change in quantity demanded known as the income effect refers to consumers’ response to: A. the change in their money incomes. B.
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Second+midterm+answer+key - Answers to Version A of the...

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