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Economics Ch 5 Pre and Post Test

Economics Ch 5 Pre and Post Test - The correct answer for...

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The correct answer for each question is indicated by a . 1 CORRECT In 1991 Congress imposed a 10 percent luxury tax on luxury boats. Because of the uproar from consumers, the tax was repealed in 1993. What was the effect of the two events on equilibrium price and quantity of luxury boats? A) Price rose and then fell; quantity sold also rose and then fell. B) Price rose and then fell; quantity sold fell and then rose. C) Price fell and then rose; quantity sold rose and then fell. D) Price fell and then rose; quantity sold also fell and then rose. Feedback: Taxes raised prices for consumers and discouraged market activity, reducing quantity. 2 CORRECT An increase in price and quantity is consistent with a: A) rightward shift in demand and no shift in supply. B) leftward shift in supply and no shift in demand. C) leftward shift in supply and a leftward shift in demand. D) rightward shift in supply and a rightward shift in demand. Feedback: Choice B would increase price but reduce quantity; choices C and D would involve at least one ambiguous change since both curves would be moving. 3 CORRECT Suppose you wish to purchase a blanket at a shop in Mexico. If the cost of one peso is \$0.10 and the cost of the blanket is 200 pesos, then the dollar cost of the blanket is: A) \$2,000 B) \$1,000 C) \$10 D) \$20 Feedback: If one peso = \$0.10, then 200 pesos = 200 × \$0.10 = \$20. 4 CORRECT If a price ceiling is set above the equilibrium price: A) a surplus of the product will occur. B) a shortage of the product will occur. C) a black market will emerge. D) neither equilibrium price nor quantity will be affected. Feedback: Price ceilings that are set above the equilibrium price are not binding , because the equilibrium price does not violate the regulation. 5 CORRECT Students at State U pay \$60 per year for a parking permit, but many complain that they are not able to find a parking place in designated university lots. This suggests that: A) \$60 is above the equilibrium price. B) \$60 is below the equilibrium price.

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