Quiz # 3-1

1. In an unregulated, competitive market consumer surplus exists because some
a. sellers are willing to take a lower price than the equilibrium price.
b. consumers are willing to pay more than the equilibrium price.
c. sellers will only sell at prices above equilibrium price (or actual price).
d. consumers are willing to make purchases only if the price is below the actual price.

2. In an unregulated, competitive market producer surplus exists because some
a. consumers are willing to pay more than the equilibrium price.
b. producers are willing to take more than the equilibrium price.
c. producers are willing to sell at less than the equilibrium price.
d. consumers are willing to purchase, but only at prices below equilibrium price.

3. When government intervenes in a competitive market by imposing an effective price ceiling, we would expect the quantity supplied to _______ and the quantity demanded to ________.
a. fall; rise
b. fall; fall
c. rise; rise
d. rise; fall

4. Price ceilings can result in a net loss in consumer surplus when the ______ curve is ________.
a. demand; very elastic
b. demand; very inelastic
c. supply; very inelastic
d. none of the above; price ceilings always increase consumer surplus.

5. Consider the following statements when answering this question
I. Overall, the sick will always gain from a price ceiling on prescription drugs.
II. The reduction of supply caused by the imposition of a price ceiling is greater the more inelastic the market supply curve.

a. I and II are true.
b. I is true, and II is false.
c. I is false, and II is true.
d. I and II are false.

6. Eliminating price supports for all US agricultural producers will hurt the farmers who cultivate products that have
a. a high own price elasticity of demand and a high price elasticity of market supply.
b. a high own price elasticity of demand and a low price elasticity of market supply.
c. a low own price elasticity of demand and a high price elasticity of market supply.
d. a low own price elasticity of demand and a low price elasticity of market supply.

7. What is the difference between a price support and a price floor?
a. A price support is below equilibrium; a price floor is above it.
b. A price support is above equilibrium; a price floor is below it.
c. Government buys the excess supply to maintain a price floor, but not a price support.
d. Government buys the excess supply to maintain a price support, but not for a price floor.
e. There is no difference between the two.

8. A price support may be pictured by
a. shifting the demand curve to the right by the amount of the government purchase.
b. shifting the demand curve to the left by the amount of the government purchase.
c. shifting the supply curve to the right by the amount of the government purchase.
d. shifting the supply curve to the left by the amount of the government purchase.
e. Drawing a horizontal line below equilibrium price at the supported price.

Quiz # 3-2

Figure 9.6: A Price Support Problem

Draw the appropriate lines you need to answer questions 9-13 which are based on Figure 9.6

9. Refer to Figure 9.6. As a result of this policy, quantity will
a. fall to 300.
b. rise to 400.
c. stay at 400.
d. fall to 400.
e. rise to 600.

10. Refer to Figure 9.6. As a result of this policy, consumer surplus will
a. fall to $15.
b. fall to $2250.
c. rise to $2500.
d. fall to $5000.
e. rise to $5000.

11. Refer to Figure 9.6. As a result of this policy, producer surplus will be
a. $2000.
b. $3375.
c. $4500.
d. $6000.
e. $12,000.

12. Refer to Figure 9.6. The amount the government pays in the market to implement this policy is
a. $20.
b. $3000.
c. $4000.
d. $6000.
e. $12,000.

13. Refer to Figure 9.6. Including the consumers' expected tax burden, the total change in welfare from this policy is
a. -$6000.
b. -$5250.
c. -$4500.
d. $4500.
e. $5250.


14. Compared to a tariff, an import quota, which restricts imports to the same amount as the tariff, will leave the country as a whole
a. worse off than a comparable tariff.
b. not as bad off as a comparable tariff.
c. about the same as a comparable tariff.
d. any of the above can be true.

Quiz # 3-3

Figure 9.8: A Foreign Trade Problem

Draw the appropriate lines to answer questions 15-20. Here, Pw = the world price of sugar.

15. Refer to Figure 9.8. With no government interference, the country pictured will
a. import 500 tons of sugar.
b. import 300 tons of sugar.
c. import 200 tons of sugar.
d. import no sugar.
e. export sugar.

16. Refer to Figure 9.8. A $50 tariff would result in domestic consumption of
a. 600, domestic production of 100, and imports of 500.
b. 500, domestic production of 200, and imports of 300.
c. 400, domestic production of 300, and imports of 100.
d. 300, domestic production of 400, and exports of 100.
e. 200, domestic production of 500, and exports of 300.

17. Refer to Figure 9.8. If free trade in sugar is allowed, consumer surplus will be
a. $175.
b. $250.
c. $30,625.
d. $61,250.
e. $62,500.

18. Refer to Figure 9.8. If free trade in sugar is replaced by a $50 tariff in sugar, consumer surplus will
a. fall by $50.
b. fall by $26,250.
c. fall by $22,500.
d. rise by $50.
e. rise by $17,500.

19. Refer to Figure 9.8. If free trade in sugar is replaced by a $50 tariff on sugar, the effect on domestic producer surplus will be to
a. lower it by $50.
b. lower it by $12,500.
c. leave it unchanged.
d. raise it by $50.
e. raise it by $12,500.

20. Refer to Figure 9.8. If free trade in sugar is replaced by a $50 tariff in sugar, government revenue from the tariff will be
a. $50.
b. $5000.
c. $15,000.
d. $17,500.
e. $25,000.

Quiz # 4

2. Which of the following is true at the output level where P=MC?
a. The monopolist is maximizing profit.
b. The monopolist is not maximizing profit and should increase output.
c. The monopolist is not maximizing profit and should decrease output.
d. The monopolist is earning a positive profit.

3. Compared to the equilibrium price and quantity sold in a competitive market, a monopolist will charge a ______________ price and sell a ______________ quantity.
a. higher; larger
b. lower; larger
c. higher; smaller
d. lower; smaller
e. none of these

4. As the manager of a firm you calculate the marginal revenue is $152 and marginal cost is $200. You should
a. expand output.
b. do nothing without information about your fixed costs.
c. reduce output until marginal revenue equals marginal cost.
d. expand output until marginal revenue equals zero.
e. reduce output beyond the level where marginal revenue equals zero.

5. The monopolist has no supply curve because
a. the quantity supplied at any particular price depends on the monopolist's demand curve.
b. the monopolist's marginal cost curve changes considerably over time.
c. the relationship between price and quantity depends on both marginal cost and average cost.
d. there is a single seller in the market.
e. although there is only a single seller at the current price, it is impossible to know how many sellers would be in the market at higher prices.

6. Use the following two statements to answer this question:
I. For a monopolist, at every output level, average revenue is equal to price.
II. For a monopolist, at every output level, marginal revenue is equal to price.

a. Both I and II are true.
b. I is true, and II is false.
c. I is false, and II is true.
d. Both I and II are false.
e. Statements I and II could either be true or false depending upon demand.

7. A monopolist has determined that at the current level of output the price elasticity of demand is -0.15. Which of the following statements is true?
a. The firm should cut output.
b. This is typical for a monopolist; output should not be altered.
c. The firm should increase output.
d. None of the above is necessarily correct.

8. Assume that a firm's marginal cost is $10 and the elasticity of demand is -2. We can conclude that the firm's profit maximizing price is approximately
a. $20.
b. $5.
c. $10.
d. The answer cannot be determined without additional information.

Scenario 2:

A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product:
Q = 200 - 2P
MR = 100 - Q
TC = 5Q
MC = 5

9. Refer to Scenario 2. What is the profit maximizing level of output?
a. 0
b. 90
c. 95
d. 100
e. none of the above

10. Refer to Scenario 2. What is the profit maximizing price?
a. $95.00.
b. $5.00.
c. $52.50.
d. $10.00.

11. Refer to Scenario 2. How much profit does the monopolist earn?
a. $4512.50.
b. $4987.50.
c. $475.00.
d. $5.00.

12. Refer to Scenario 2. Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing level of output?
a. 0
b. 90
c. 95
d. 100
e. none of the above

13. Refer to Scenario 2. Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing price?
a. $90.00.
b. $10.00.
c. $55.00.
d. $52.50.

14. Refer to Scenario 2. Suppose that a tax of $5 for each unit produced is imposed by state government. How much profit does the monopolist earn?
a. $4050.
b. $4950.
c. $450.
d. $5.

15. Refer to Scenario 2. Suppose that in addition to the tax, a business license is required to stay in business. The license costs $1000. What is the profit maximizing level of output?
a. 0
b. 90
c. 95
d. 100
e. none of the above