Practice and Review Principles of Microeconomics Spring 2015 MULTIPLE CHOICE. 1) Suppose there are two cities that have rent controlled apartments. In one city (Albany) all apartments are subject to rent control; in the other city (Halftrack) one-half of the apartments are rent controlled. Which of the following is most likely to be true? A) It will be impossible to rent an apartment in either city at any price. B) It will be easier to find an affordable apartment in Halftrack, either a rent-controlled apartment or another apartment, at a reasonable price. C) It will be difficult to find a rent-controlled apartment in Albany or Halftrack; rents for the Halftrack apartments not subject to controls will be higher than they would be without rent control. D) It will be easier to find an affordable apartment in Albany since rents will be low across the board. Table 1 Consumer Willingness to Pay Curly $50 Moe 30 Larry 15 2)Refer to table 1. The table above lists the highest prices three consumers, Curly, Moe, and Larry, are willing to pay for a bottle of champagne. If the price of one of the bottles is $24 dollars A) Curly will receive $26 of consumer surplus from buying one bottle. B) Larry will receive $15 of consumer surplus since he will buy no bottles. C) Curly and Moe receive a total of $80 of consumer surplus from buying one bottle each. Larry will buy no bottles. Table 2 Marko's Polos Marginal Cost (dollars) 1st shirt $7 2nd shirt 10 3rd shirt 15 4th shirt 20 3)Refer to table 2.The table above lists the marginal cost of polo shirts by Marko's, a firm that specializes in producing men's clothing. If the market price of Marko's polo shirts is $18 A) producer surplus will equal $22. B) Marko's will produce four shirts. C) there will be a surplus; as a result, the price will fall to $7. D) producer surplus from the first shirt is $18. Figure 1 .0/msohtmlclip1/01/clip_image002.jpg"> 4)Refer to figure 1.What area represents producer surplus at a price ofP1? A)A +C B)A +C +E C)C +E D)C 5) Two economists from Northwestern University estimated the benefit households received from subscribing to broadband Internet service. They found that in 2006, 47 million consumers paid an average of $36 per month to subscribe to a broadband Internet service, and estimated the value of total consumer surplus for these subscribers was equal to $890.5 million. Based on these numbers, what was the average monthly consumer surplus per subscriber for broadband Internet service? A) $0.05 B) $0.77 C) $13.06 D) $18.95 Figure 2 .0/msohtmlclip1/01/clip_image004.jpg"> Figure above shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R0. 6)Refer to figure 2. What is the area that represents consumer surplus after the imposition of the ceiling? A)A +B +D +F +G B)A+B +C C)A+B +D +F D)A+B+D 7)Refer to figure 2. What is the area that represents the producer surplus after the imposition of the ceiling? A)D +F +G B)F+ G C)F D) A +B + D +F +G 8)Refer to figure 2. What area represents the deadweight loss after the imposition of the ceiling? A)C+EB)C+E + J +H C)G +H D)J +H Figure 3 .0/msohtmlclip1/01/clip_image006.jpg"> Figure 3 shows the demand and supply curves for the coffee market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at $7.00. 9)Refer to Figure 3.What is the value of the portion of consumer surplus that has been transferred to producer surplus as a result of the price floor? A) $1,200 B) $1,500 C) $1,800 D) $3,000 10)Refer to Figure 3. What is the value of consumer surplus after the imposition of the price floor? A) $1,500 B) $2,700 C) 4,500 D) $5,700 11)Refer to Figure 3. What is the value of producer surplus after the imposition of the price floor? A) $3,000 B) $3,600 C) $4,200 D) $4,500 12)Refer to Figure 3. What is the value of the deadweight loss after the imposition of the price floor? A) $600 B) $1,800 C) $2,700 D) $3,300 13) If the government implements a price ceiling on insulin, this will A) have to be set above the market equilibrium price to be effective. B) increase the price consumers will pay for insulin. C) encourage manufacturers to produce and sell more of insulin to increase their profits. D) decrease the quantity of insulin the manufacturers will be willing to supply. 14) Tax incidence is the actual division of the A) tax revenues between government agencies. B) population into different tax brackets. C) tax revenues between the federal government and state governments. D) burden of the tax between buyers and sellers in a market. Figure 4 .0/msohtmlclip1/01/clip_image008.jpg"> Figure 4 shows the market for cigarettes. The government plans to impose a unit tax in this market. 15)Refer to Figure 4. What is the size of the unit tax? A) $8 B) $5 C) $3 D) cannot be determined from the figure 16)Refer to Figure 4. How much of the tax is paid by buyers? A) $8 B) $5 C) $4 D) $3 17)Refer to Figure 4.The price buyers pay after the tax is A) $12. B) $8. C) $5. D) $3. 18)Refer to Figure 4. For each unit sold, the price sellers receive after the tax (net of tax) is A) $12. B) $8. C) $4.40. D) $3. 19)Refer to Figure 4. How much of the tax is paid by producers? A) $45 B) $8 C) $3 D) $2 20)Refer to Figure 4.As a result of the tax, is there a loss in producer surplus? A) Yes, because producers are not selling as many units now. B) No, because the consumer pays the tax. C) No, because producers are able to raise the price to cover their tax burden. 21) Which of the following best illustrates the free rider problem? A) All three homeowners in a quiet cul-de-sac have expressed the desirability of security lighting in the common parking area. One of the homeowners installs the lighting and asks you to contribute toward the cost. You choose not to contribute. B) Since no one owns elephants and elephants are valued for their hide, meat and ivory, elephants can be hunted to extinction. C) If your neighbors professionally landscape their front yards, it is likely that the market value of your property will increase. D) For every purchase of a $30 fare card, you are entitled to five free bus rides. 22) Parents who do not have their children immunized and attempt to benefit from other parents who did have their own children immunized are exhibiting an economic behavior known as A) internalizing an external cost. B) free riding. C) excludability. D) public rivalry. 23) Which of the following is an example of a common resource? A) elephants in the wild B) public transportation (passengers have to pay a fare) C) lions in a zoo D) a college education 24) In England during the Middle Ages each village had an area of pasture on which any family in the village was allowed to graze its cows and sheep without charge. Eventually, the grass in the pasture would be depleted and no family's cow or sheep would get enough to eat. The reason the grass was depleted was A) due to a policy of neglect on the part of the English government. B) self-interest motives led livestock owners to raise too many cows and sheep. C) the area of pasture was nonexcludable and the consumption of the grass was rival. D) it did not get enough rainfall. 25) The price elasticity of demand is equal to A) the value of the slope of the demand curve. B) the percentage change in quantity demanded divided by the percentage change in price. C) the change in quantity demanded divided by the change in price. D) the percentage change in price divided by the percentage change in quantity demanded. 26) A newspaper story on the effect of higher milk prices on the market for ice cream contained the following: "As a result [of the increase in milk prices], retail prices for ice cream are up 4 percent from last year. . . . And ice cream consumption is down 3 percent." Source: John Curran, "Ice Cream, They Scream: Milk Fat Costs Drive Up Ice Cream Prices," Associated Press, July 23, 2001. Based on the information given, what is the price elasticity of demand for ice cream? A) 1.33 (in absolute value) B) 0.75 (in absolute value) C) 12% D) We do not have enough information to calculate the elasticity. 27) If a 5 percent increase in income leads to a 10 percent increase in quantity demanded for airline travel, then airline travel is A) a substitute for another good. B) an inferior good. C) a necessity. D) a luxury. 28) In May 2011, the average price of gasoline in the United States was $3.76 per gallon, and consumers purchased nearly 5 percent less gasoline than they had during May 2010, when the average price of gasoline was $2.79 per gallon. Based on these figures, from May 2010 to May 2011, the demand for gasoline was A) perfectly elastic. B) unit elastic. C) elastic. D) inelastic. 29) The price elasticity of demand for beef is estimated to be 0.60 (in absolute value). This means that a 20 percent increase in the price of beef, holding every thing else constant, will cause the quantity of beef demanded to A) decrease by 12 percent. B) decrease by 26 percent. C) decrease by 32 percent. D) decrease by 60 percent. 30) When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent. This indicates that the demand for tortilla chips is A) elastic. B) perfectly inelastic. C) unit-elastic. D) inelastic. 31) Carrie Bradshaw claims that when it comes to buying shoes, "price is no object." If this is true, then her demand for shoes is A) unit-elastic. B) horizontal. C) perfectly inelastic. D) perfectly elastic. Figure 5 .0/msohtmlclip1/01/clip_image010.jpg"> 32)Refer to Figure 5.As price falls fromPA toPB, the quantity demanded increases most alongD1;therefore, A)D1 is more inelastic thanD2orD3. B)D1is unit elastic. C)D1 is more elastic thanD2orD3 D)D1 is elastic atPA but inelastic atPB. Table 3 Price Quantity $35 40 25 50 33)Refer to Table 3.Suppose you own a bookstore. You believe that you can sell 40 copies per day of the latest John Grisham novel when the price is $35. You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day. Compute the price elasticity of demand. Select the correct implication from your work. A) The demand for the John Grisham book is elastic. Revenue will rise if the price is lowered. B) The demand for the John Grisham book is inelastic. Revenue will fall if the price is lowered. C) The demand for the John Grisham book is inelastic. Revenue will rise if the price is lowered. D) The demand for the John Grisham book is elastic. Revenue will fall if the price is lowered. 34) Last year, Joan bought 50 pounds of hamburger when her household income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. Holding everything else constant, Joan's income elasticity of demand for hamburger is A) positive, so Joan considers hamburger to be a normal good and a necessity. B) positive, so Joan considers hamburger to be an inferior good. C) negative, so Joan considers hamburger to be an inferior good. D) negative, so Joan considers hamburger to be a normal good. 35) If the quantity supplied of walkie-talkies increases by 5 percent when prices increase by 12 percent, then A) the supply of walkie-talkies is inelastic. B) the walkie-talkie supply curve will shift to the left. C) the walkie-talkie supply curve will shift to the right. D) the supply of walkie-talkies is elastic. 36) Suppose when the price of jean-jackets increased by 10 percent, the quantity supplied increased by 16 percent. Based on this information the price elasticity of supply of jean-jackets is A) 0.625. B) 1.6. C) 1.6%. D) 6%. 37) The price elasticity of supply of hot dog buns is estimated to be 1.5. Holding everything else constant, this means that a 10 percent decrease in the price of hot dog buns will cause the quantity of hot dog buns supplied to decrease by A) approximately 25 percent. B) 1.5 percent. C) approximately 5 percent. D) 15 percent. 38) The cross-price elasticity between Gillette razors and a related good is -3.4. What happens to the demand for the related good if the price of Gillette razors falls by 10 percent? A) The quantity demanded of the related good falls by 34 percent. B) The quantity demanded of the related good falls by 3.4 percent. C) The quantity demanded of the related good rises by 34 percent. D) The quantity demanded of the related good rises by 3.4 percent. 39) When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent, and the sale of dips (like salsa and bean dip) fell 8 percent. This set of facts indicates that A) the cross-price elasticity between tortilla chips and dips is -0.4, so the two are complements. B) the cross-price elasticity between tortilla chips and dips is 0.4, so the two are substitutes. C) the cross-price elasticity between tortilla chips and dips is 0.8, so the two are substitutes. D) the cross-price elasticity between tortilla chips and dips is -0.8, so the two are complements. 40) Consider the following pairs of items: a. shampoo and conditioner b. iPhones and earbuds c. a laptop computer and a desktop computer d. beef and pork e. air-travel and weed killer Which of the pairs listed will have a positive cross-price elasticity? A) e only B) a and b only C) c and d only D) a, b, and c only 41) Studies show that the income elasticity of demand for wine is 5.03 and the income elasticity of demand for spirits is 1.21. This indicates that A) wine and spirits are highly price elastic. B) wine and spirits are luxury goods. C) wine is a luxury good and spirits are inferior goods. D) wine is a luxury good and spirits are necessities. 42) Economists estimated that the price elasticity of beer is -0.23 and the income elasticity of beer is -0.09. This means that A) an increase in the price of beer will lead to a decrease in the quantity demanded of beer and beer is a necessity. B) an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good. C) a decrease in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good. D) an increase in the price of beer will increase the quantity demanded of beer and beer is a normal good. 43) Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce. A) -0.66 B) 0.5 C) 1.5 D) 2 44) A service station owner in Staten Island, New York, was worried that raising the price of gasoline would cause the quantity demanded to fall by so much that he would be in a worse situation than if he did not raise the price. If raising the price of gasoline would cause the owner to receive less total revenue from the sale of gasoline, the demand for gasoline is A) unit elastic. B) inelastic. C) perfectly inelastic. D) elastic. II.Short Problem: Suppose the governor of California has proposed increasing toll rates on California's toll roads, and has presented two possible scenarios to implement these increases. Following are projected data for the two scenarios for the California toll roads: Scenario 1: Toll rate in 2012: $10.00. Toll rate in 2016: $22.50 For every 100 cars using the toll roads in 2012, only 81.6 cars will use the toll roads in 2016. Scenario 2: Toll rate in 2012: $10.00. Toll rate in 2016: $17.50 For every 100 cars using the toll roads in 2012, only 96.2 cars will use the toll roads in 2016. a. Calculate the price elasticity of demand for Scenario 1 and Scenario 2. b. Assume 10,000 cars use California toll roads every day in 2012. What would be the daily total revenue received for each scenario in 2012 and in 2016? How does the revenue received under each scenario in 2016 compares to the revenue in 2012? c. Is demand under Scenario 1 and under Scenario 2 price elastic, inelastic, or unit elastic? Briefly explain. Given the elasticity estimates, did revenue change in the expected direction? III. Essay: 6 points Write a 100-250 word essay that addresses the following issue:ChoseOnefrom the list below: 1. Describe the differences between utilitarianism and symmetry principle. According to Milton Friedman, A very different deal has begun to emerge: that everyone should be equal in income and what he has... The idea that the economic race should be so arranged that everyone ends at the finish line at the same time, rather than everyone starts at the beginning line at the same time. Explain in your own words, why Friedman would argue that redistribution of income conflicts the fairness principle. 2. Describe the problem of Tragedy of Common. Give a specific example. What are the sources of the problem? What are the negative consequences? Is there a way out of the Tragedy of the Commons? Explain giving specific examples. Describe the factors that cause demand for a product to be elastic and explain why each factor leads to elastic demand. Give Examples. Practice and ReviewPrinciples of MicroeconomicsSpring 2015MULTIPLE CHOICE.1) Suppose there are two cities that have rent controlled apartments. In one city (Albany) all apartments are subject to rent control; in the other city (Halftrack) one-half of the apartments are rent controlled. Which of the following is most likely to be true? A) It will be impossible to rent an apartment in either city at any price.B) It will be easier to find an affordable apartment in Halftrack, either a rent-controlled apartment or another apartment, at a reasonable price.C) It will be difficult to find a rent-controlled apartment in Albany or Halftrack; rents for the Halftrack apartments not subject to controls will be higher than they would be without rent control.D) It will be easier to find an affordable apartment in Albany since rents will be low across the board. Table 1Consumer Willingness to PayCurly$50Moe 30Larry 152)Refer to table 1. The table above lists the highest prices three consumers, Curly, Moe, and Larry, are willing to pay for a bottle of champagne. If the price of one of the bottles is $24 dollars A) Curly will receive $26 of consumer surplus from buying one bottle.B) Larry will receive $15 of consumer surplus since he will buy no bottles.C) Curly and Moe receive a total of $80 of consumer surplus from buying one bottle each. Larry will buy no bottles.Table 2Marko's PolosMarginal Cost(dollars)1st shirt$72nd shirt103rd shirt154th shirt203)Refer to table 2.The table above lists the marginal cost of polo shirts by Marko's, a firm that specializes in producing men's clothing. If the market price of Marko's polo shirts is $18 A) producer surplus will equal $22.B) Marko's will produce four shirts.C) there will be a surplus; as a result, the price will fall to $7.D) producer surplus from the first shirt is $18.Figure 1.0/msohtmlclip1/01/clip_image002.jpg">4)Refer to figure 1.What area represents producer surplus at a price ofP1? A)A +C B)A +C +E C)C +E D)C5) Two economists from Northwestern University estimated the benefit households received from subscribing to broadband Internet service. They found that in 2006, 47 million consumers paid an average of $36 per month to subscribe to a broadband Internet service, and estimated the value of total consumer surplus for these subscribers was equal to $890.5 million. Based on these numbers, what was the average monthly consumer surplus per subscriber for broadband Internet service? A) $0.05 B) $0.77 C) $13.06 D) $18.95Figure 2.0/msohtmlclip1/01/clip_image004.jpg">Figure above shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R0.6)Refer to figure 2. What is the area that represents consumer surplus after the imposition of the ceiling? A)A +B +D +F +G B)A+B +CC)A+B +D +F D)A+B+D7)Refer to figure 2. What is the area that represents the producer surplus after the imposition of the ceiling? A)D +F +G B)F+ GC)F D) A +B + D +F +G 8)Refer to figure 2. What area represents the deadweight loss after the imposition of the ceiling? A)C+EB)C+E + J +H C)G +H D)J +HFigure 3.0/msohtmlclip1/01/clip_image006.jpg">Figure 3 shows the demand and supply curves for the coffee market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at $7.00.9)Refer to Figure 3.What is the value of the portion of consumer surplus that has been transferred to producer surplus as a result of the price floor? A) $1,200 B) $1,500 C) $1,800 D) $3,00010)Refer to Figure 3. What is the value of consumer surplus after the imposition of the price floor?A) $1,500 B) $2,700 C) 4,500 D) $5,70011)Refer to Figure 3. What is the value of producer surplus after the imposition of the price floor?A) $3,000 B) $3,600 C) $4,200 D) $4,50012)Refer to Figure 3. What is the value of the deadweight loss after the imposition of the price floor?A) $600 B) $1,800 C) $2,700 D) $3,30013) If the government implements a price ceiling on insulin, this will A) have to be set above the market equilibrium price to be effective.B) increase the price consumers will pay for insulin.C) encourage manufacturers to produce and sell more of insulin to increase their profits.D) decrease the quantity of insulin the manufacturers will be willing to supply. 14) Tax incidence is the actual division of theA) tax revenues between government agencies.B) population into different tax brackets.C) tax revenues between the federal government and state governments.D) burden of the tax between buyers and sellers in a market.Figure 4.0/msohtmlclip1/01/clip_image008.jpg">Figure 4 shows the market for cigarettes. The government plans to impose a unit tax in this market.15)Refer to Figure 4. What is the size of the unit tax? A) $8 B) $5C) $3 D) cannot be determined from the figure16)Refer to Figure 4. How much of the tax is paid by buyers? A) $8 B) $5 C) $4 D) $317)Refer to Figure 4.The price buyers pay after the tax is A) $12. B) $8. C) $5. D) $3.18)Refer to Figure 4. For each unit sold, the price sellers receive after the tax (net of tax) is A) $12. B) $8. C) $4.40. D) $3.19)Refer to Figure 4. How much of the tax is paid by producers? A) $45 B) $8 C) $3 D) $220)Refer to Figure 4.As a result of the tax, is there a loss in producer surplus? A) Yes, because producers are not selling as many units now.B) No, because the consumer pays the tax.C) No, because producers are able to raise the price to cover their tax burden.21) Which of the following best illustrates the free rider problem? A) All three homeowners in a quiet cul-de-sac have expressed the desirability of security lighting in the common parking area. One of the homeowners installs the lighting and asks you to contribute toward the cost. You choose not to contribute.B) Since no one owns elephants and elephants are valued for their hide, meat and ivory, elephants can be hunted to extinction.C) If your neighbors professionally landscape their front yards, it is likely that the market value of your property will increase.D) For every purchase of a $30 fare card, you are entitled to five free bus rides.22) Parents who do not have their children immunized and attempt to benefit from other parents who did have their own children immunized are exhibiting an economic behavior known as A) internalizing an external cost. B) free riding.C) excludability. D) public rivalry.23) Which of the following is an example of a common resource? A) elephants in the wild B) public transportation (passengers have to pay a fare)C) lions in a zoo D) a college education24) In England during the Middle Ages each village had an area of pasture on which any family in the village was allowed to graze its cows and sheep without charge. Eventually, the grass in the pasture would be depleted and no family's cow or sheep would get enough to eat. The reason the grass was depleted was A) due to a policy of neglect on the part of the English government.B) self-interest motives led livestock owners to raise too many cows and sheep.C) the area of pasture was nonexcludable and the consumption of the grass was rival.D) it did not get enough rainfall. 25) The price elasticity of demand is equal to A) the value of the slope of the demand curve.B) the percentage change in quantity demanded divided by the percentage change in price.C) the change in quantity demanded divided by the change in price.D) the percentage change in price divided by the percentage change in quantity demanded.26) A newspaper story on the effect of higher milk prices on the market for ice cream contained the following:"As a result [of the increase in milk prices], retail prices for ice cream are up 4 percent from last year. . . . And ice cream consumption is down 3 percent."Source: John Curran, "Ice Cream, They Scream: Milk Fat Costs Drive Up Ice Cream Prices," Associated Press, July 23, 2001.Based on the information given, what is the price elasticity of demand for ice cream? A) 1.33 (in absolute value)B) 0.75 (in absolute value)C) 12%D) We do not have enough information to calculate the elasticity.27) If a 5 percent increase in income leads to a 10 percent increase in quantity demanded for airline travel, then airline travel is A) a substitute for another good. B) an inferior good.C) a necessity.D) a luxury.28) In May 2011, the average price of gasoline in the United States was $3.76 per gallon, and consumers purchased nearly 5 percent less gasoline than they had during May 2010, when the average price of gasoline was $2.79 per gallon. Based on these figures, from May 2010 to May 2011, the demand for gasoline was A) perfectly elastic. B) unit elastic.C) elastic. D) inelastic.29) The price elasticity of demand for beef is estimated to be 0.60 (in absolute value). This means that a 20 percent increase in the price of beef, holding every thing else constant, will cause the quantity of beef demanded to A) decrease by 12 percent.B) decrease by 26 percent.C) decrease by 32 percent. D) decrease by 60 percent.30) When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent. This indicates that the demand for tortilla chips is A) elastic. B) perfectly inelastic.C) unit-elastic. D) inelastic.31) Carrie Bradshaw claims that when it comes to buying shoes, "price is no object." If this is true, then her demand for shoes is A) unit-elastic. B) horizontal.C) perfectly inelastic.D) perfectly elastic.Figure 5.0/msohtmlclip1/01/clip_image010.jpg">32)Refer to Figure 5.As price falls fromPA toPB, the quantity demanded increases most alongD1;therefore, A)D1 is more inelastic thanD2orD3. B)D1is unit elastic.C)D1 is more elastic thanD2orD3 D)D1 is elastic atPA but inelastic atPB.Table 3PriceQuantity $35 40 25 5033)Refer to Table 3.Suppose you own a bookstore. You believe that you can sell 40 copies per day of the latest John Grisham novel when the price is $35. You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day. Compute the price elasticity of demand. Select the correct implication from your work. A) The demand for the John Grisham book is elastic. Revenue will rise if the price is lowered.B) The demand for the John Grisham book is inelastic. Revenue will fall if the price is lowered.C) The demand for the John Grisham book is inelastic. Revenue will rise if the price is lowered.D) The demand for the John Grisham book is elastic. Revenue will fall if the price is lowered.34) Last year, Joan bought 50 pounds of hamburger when her household income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. Holding everything else constant, Joan's income elasticity of demand for hamburger is A) positive, so Joan considers hamburger to be a normal good and a necessity.B) positive, so Joan considers hamburger to be an inferior good.C) negative, so Joan considers hamburger to be an inferior good.D) negative, so Joan considers hamburger to be a normal good.35) If the quantity supplied of walkie-talkies increases by 5 percent when prices increase by 12 percent, then A) the supply of walkie-talkies is inelastic.B) the walkie-talkie supply curve will shift to the left.C) the walkie-talkie supply curve will shift to the right.D) the supply of walkie-talkies is elastic.36) Suppose when the price of jean-jackets increased by 10 percent, the quantity supplied increased by 16 percent. Based on this information the price elasticity of supply of jean-jackets is A) 0.625. B) 1.6. C) 1.6%. D) 6%.37) The price elasticity of supply of hot dog buns is estimated to be 1.5. Holding everything else constant, this means that a 10 percent decrease in the price of hot dog buns will cause the quantity of hot dog buns supplied to decrease by A) approximately 25 percent. B) 1.5 percent.C) approximately 5 percent. D) 15 percent.38) The cross-price elasticity between Gillette razors and a related good is -3.4. What happens to the demand for the related good if the price of Gillette razors falls by 10 percent? A) The quantity demanded of the related good falls by 34 percent.B) The quantity demanded of the related good falls by 3.4 percent.C) The quantity demanded of the related good rises by 34 percent.D) The quantity demanded of the related good rises by 3.4 percent.39) When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent, and the sale of dips (like salsa and bean dip) fell 8 percent. This set of facts indicates that A) the cross-price elasticity between tortilla chips and dips is -0.4, so the two are complements.B) the cross-price elasticity between tortilla chips and dips is 0.4, so the two are substitutes.C) the cross-price elasticity between tortilla chips and dips is 0.8, so the two are substitutes.D) the cross-price elasticity between tortilla chips and dips is -0.8, so the two are complements.40) Consider the following pairs of items: a. shampoo and conditionerb. iPhones and earbudsc. a laptop computer and a desktop computerd. beef and porke. air-travel and weed killerWhich of the pairs listed will have a positive cross-price elasticity? A) e onlyB) a and b onlyC) c and d only D) a, b, and c only41) Studies show that the income elasticity of demand for wine is 5.03 and the income elasticity of demand for spirits is 1.21. This indicates that A) wine and spirits are highly price elastic.B) wine and spirits are luxury goods.C) wine is a luxury good and spirits are inferior goods.D) wine is a luxury good and spirits are necessities.42) Economists estimated that the price elasticity of beer is -0.23 and the income elasticity of beer is -0.09. This means that A) an increase in the price of beer will lead to a decrease in the quantity demanded of beer and beer is a necessity.B) an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good.C) a decrease in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good.D) an increase in the price of beer will increase the quantity demanded of beer and beer is a normal good.43) Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce. A) -0.66 B) 0.5 C) 1.5 D) 244) A service station owner in Staten Island, New York, was worried that raising the price of gasoline would cause the quantity demanded to fall by so much that he would be in a worse situation than if he did not raise the price. If raising the price of gasoline would cause the owner to receive less total revenue from the sale of gasoline, the demand for gasoline is A) unit elastic. B) inelastic. C) perfectly inelastic. D) elastic.II.Short Problem:Suppose the governor of California has proposed increasing toll rates on California's toll roads, and has presented two possible scenarios to implement these increases. Following are projected data for the two scenarios for the California toll roads:Scenario 1:Toll rate in 2012: $10.00. Toll rate in 2016: $22.50For every 100 cars using the toll roads in 2012, only 81.6 cars will use the toll roads in 2016.Scenario 2:Toll rate in 2012: $10.00. Toll rate in 2016: $17.50For every 100 cars using the toll roads in 2012, only 96.2 cars will use the toll roads in 2016.a. Calculate the price elasticity of demand for Scenario 1 and Scenario 2.b. Assume 10,000 cars use California toll roads every day in 2012. What would be the daily total revenue received for each scenario in 2012 and in 2016? How does the revenue received under each scenario in 2016 compares to the revenue in 2012?c. Is demand under Scenario 1 and under Scenario 2 price elastic, inelastic, or unit elastic? Briefly explain. Given the elasticity estimates, did revenue change in the expected direction?III. Essay: 6 pointsWrite a 100-250 word essay that addresses the following issue:ChoseOnefrom the list below:1. Describe the differences between utilitarianism and symmetry principle. According to Milton Friedman, A very different deal has begun to emerge: that everyone should be equal in income and what he has... The idea that the economic race should be so arranged that everyone ends at the finish line at the same time, rather than everyone starts at the beginning line at the same time. Explain in your own words, why Friedman would argue that redistribution of income conflicts the fairness principle.2. Describe the problem of Tragedy of Common. Give a specific example. What are the sources of the problem? What are the negative consequences? Is there a way out of the Tragedy of the Commons? Explain giving specific examples.