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Sample Review Questions for Midterm 2

These are just some sample questions that involve concepts from the chapters in class. Please make sure that you study more than this sheet, the question on the test will be different from these ones, they are just for you to test your understanding.

1. Yesterday, the price of envelopes was $3 a box, and Julie was willing to buy 10 boxes. Today, the price has gone up to $3.75 a box, and Julie is now willing to buy 8 boxes. Is Julie's demand for envelopes elastic or inelastic? What is Julie's elasticity of demand?

2. If Neil's elasticity of demand for hot dogs is constantly 0.9, and he buys 4 hot dogs when the price is $1.50 per hot dog, by what percentage will the amount that he purchases change when the price is $1.00?

3. Which of the following goods are likely to have elastic demand, and which are likely to have inelastic demand?

Home heating oil

Pepsi

Chocolate

Water

Heart medication

Oriental rugs

4. If supply is unit elastic and demand is inelastic, a tax added to would result in a larger deadweight loss or smaller deadweight loss than a market with elastic supply and demand curves?

5. Suppose that the cross price elasticity of demand for products A and B is 3.6 and for products C and D is -5.4. What can you conclude about products A and B, how are the related? And products C and D, how are they related?

6. The following are supply and demand curves for cheese

P = 80 - Q (Demand)

P = 20 + 2Q (Supply)

a) What is the equilibrium price and quantity?

b) If the price floor is 70 what is the consumer surplus? What is the producer surplus? What is the total surplus? ? If the government buys the surplus, how much does he have to pay?

c) Instead of a price floor, the government puts a quota of 10 in the market, what is the DWL? What is the producer surplus?

d) Instead of a quota, a tax of $2 is put in the market, what is the consumer price, the producer price and the tax revenue?

e)...