Multiple Choice
| Question | Form A | Form B | Form C | Form D | Form E |
|---|---|---|---|---|---|
| 1 | B | D | B | D | C |
| 2 | D | B | D | A | B |
| 3 | A | D | D | B | D |
| 4 | D | B | B | C | D |
| 5 | D | A | C | C | D |
| 6 | A | B | D | D | A |
| 7 | C | D | C | C | A |
| 8 | D | A | A | D | B |
| 9 | B | D | A | D | B |
| 10 | B | A | A | A | A |
| 11 | A | C | B | D | A |
| 12 | C | D | D | B | B |
| 13 | C | C | B | B | A |
| 14 | A | C | A | B | B |
| 15 | A | A | B | B | C |
| 16 | D | A | C | A | D |
| 17 | A | B | B | A | D |
| 18 | B | B | A | B | C |
| 19 | B | A | A | A | B |
| 20 | B | B | D | A | A |
Problem 21
This problem is the same on all forms.
Part A: The quantity changes by 150,000 - 200,000 = -50,000. The average quantity is (200,000+150,000)/2 = 175,000. Thus quantity changes by (-50,000/175,000) = -28.57%. Price changes by $1. The average price is (1+2)/2 = 1.5. Thus price changes by 1/1.5 = 66.67%. Finally, the elasticity is the per cent change in quantity divided by the per cent change in price. So the absolute elasticity e = .2857/.6667 = 0.429. (More precisely, e = 3/7.)
Part B: The elasticity in part A is less than 1, so demand is inelastic.
Problem 22
This problem is the same on all forms.
Part A: Without Excise Tax
Supply and demand intersect at E, corresponding to a price of $6 per lb. and quantity of 6 million pounds.
Part B: With Excise Tax
There are two ways to solve this. One is to incorporate the excise tax by shifting the supply curve up by the tax of $2. The new equilibrium is at E', corresponding to a (buyer's) price of $8. After paying the $2 tax, the seller receives an after-tax price of $6. The equilibrium quantity is 4 million pounds.
The second method is to use a tax wedge—look for a quantity where the demand price is $2 higher than the supply price. Since the supply price is always $6, we look for a demand price of $8. That occurs at E', with the same result as before.