Midterm Exam #2 7 March 2003 Econ sections 1 & 4
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.
1) A price ________ is a regulated ________ that must be set below the equilibrium price to have an
effect.
A) floor; quantity B) ceiling; price
C) floor; price D) ceiling; quantity
2) Suppose the government has declared beer to be an illegal substance and imposes a fine on any person
caught selling a beer. Buying beer, however, remains legal. Using the above figure, in which
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is the cost
of breaking the law, what is the equilibrium price and quantity with this new law in effect?
A) $1 per quart and 300 quarts of beer B) $5 per quart and 300 quarts of beer
C) $3 per quart and 500 quarts of beer D) $3 per quart and 100 quarts of beer
3) When demand is perfectly ________ a sales tax will ________.
A) inelastic; decrease the quantity sold
B) elastic; not change the price of the good
C) inelastic; increase the after-tax price by less than the amount of the tax
D) elastic; increase the after-tax price by the amount of the tax
4) The amount of a tax paid by the seller will be smaller
A) the more elastic the demand and the more inelastic the supply.
B) the more inelastic the demand and the more elastic the supply.
C) the more elastic are both the supply and demand.
D) the more inelastic are both the supply and demand.
