Home » QUESTION 1 A product will be considered highly Elastic in Demand if it has the following characteristics, EXCEPT : Question 1 options: If there are…

QUESTION 1 A product will be considered highly Elastic in Demand if it has the following characteristics, EXCEPT : Question 1 options: If there are…


A product will be considered highly Elastic in Demand if it has the following characteristics, EXCEPT:

Question 1 options:

If there are many alternatives or substitutes for this product.

It is defined within a short term time frame.

It has a low adjustment cost in consumption.

If the good represents a large proportion of consumer’s budget.

Question 2 (3 points)

If the Demand for a product is highly Inelastic, that implies the following, EXCEPT:

Question 2 options:

The consumer is highly Insensitive to change in prices.

That the price elasticity of demand is lower than one in absolute value.

That percentage change in quantity is smaller than percentage change in price

That an increase in price will decrease total revenue.

Question 3 (3 points)

The following are correct description for the special cases of a Linear Demand, EXCEPT:

Question 3 options:

A linear demand has price elasticities that range from zero to plus infinity.

In the Linear Demand, the upper portion of the demand is Elastic.

The Linear Demand has Elasticity equal to One at the point where the Marginal Revenue equals One.

For a Linear Demand, revenue is maximized when Price Elasticity equals One. 

Question 4 (1 point)

The following are key characteristics of Indifference Curves, EXCEPT: 

Question 4 options:

Any point on an indifference curve generates the same level of consumer’s utility. 

Indifference Curves cannot cross between each other. 

Indifference Curves between two goods are Concave to the Origin. 

An indifference Curve between two close substitutes are wide-open. 

Question 5 (3 points)

Based on the Consumer’s Theory Model, the following are proper description of the optimal allocation of consumption (X,Y), EXCEPT: 

Question 5 options:

Is the point where the consumer maximizes utility given the budget constraint. 

Is the point where the budget constraint intersects an indifference curve. 

Is the point where the budget constraint makes tangency with the highest attainable indifference curve. 

The optimal allocation is unique for any given budget constraint. 

Question 6 (3 points)

The following are true statements about a Supply Curve that is Highly Inelastic, EXCEPT: 

Question 6 options:

It refers to the case where Supply has High Total Cost of Production per unit. 

It reflects typically a case of High Adjustment Cost in Production. 

The Supply Curve is Highly Vertical. 

As Demand Curve increases, price in equilibrium increases in a higher proportion than the quantity in equilibrium. 

Question 7 (3 points)

The following are correct statements about the Income Effect (IE) and Substitution Effect (SE) coming from an increase in Px, EXCEPT: 

Question 7 options:

I.E. is the result of a decline in Purchasing Power on consumers coming from an increase in Px. 

S.E. is the result of the substitution for alternative goods that the consumer implement as a result of an increase in Px. 

If two goods are close substitutes, then SE is stronger than IE. 

If two goods are complements, then IE is equal in proportion than SE.   

Question 8 (3 points)

The following are correct descriptions about a Price Ceiling, EXCEPT:

Question 8 options:

Is the regulated price imposed below the market price that would prevail in equilibrium.

A price ceiling will create an excess of supply.

A price ceiling will reduce producer’s surplus if the regulated price prevails.

A price ceiling could lead to an increase in producer’s surplus, if a black market emerges.

Question 9 (3 points)

The following are correct statements about a Price Floor, EXCEPT:

Question 9 options:

 It is a regulated price above the equilibrium price

It creates an excess of supply in the market.

 It will for sure increase total consumer’s surplus.

It creates a Dead Weight Loss.

Question 10 (3 points)

The following are expected effects coming from a Low Quota regulation, EXCEPT:

Question 10 options:

The Quantity sold in the market will contract. 

The price per unit will decline. 

The regulation creates a DWL.

Consumer’s surplus (net benefit) will likely decline. 

Question 11 (3 points)

Once the government imposes a Tax per unit sold in a market, the following will occur, EXCEPT:

Question 11 options:

The (after tax) price paid by the consumer will increase and the (after tax) price received by the producer will decrease.

The Tax will reduce consumer’s and producer’s surpluses (net benefits)

The tax will generate a DWL (dead weight loss).

The tax will have a higher tax incidence on the most relatively Elastic sector (demand or supply)

Question 12 (3 points)

The following are true statements for the case of Subsidies, EXCEPT:

Question 12 options:

A subsidy will decrease the price paid by the consumer, if eligible.

The subsidy will increase the price received by the producer.

The subsidy will generate a Dead Weight Loss

The subsidy will equally benefit both producers and consumers.

Question 13 (3 points)

The following are true statement regarding the optimal Tax strategies from the Government’s perspective, EXCEPT:

Question 13 options:

The government can generate total higher tax revenue on markets that are relatively more inelastic in demand, like gasoline and cigarettes.

The government should impose a tax per unit that is not too large or too small, in order to maximize total tax revenue.

For any market, is easy for the government to impose taxes on producers, because producers can easily pass that to the consumers.

Higher tax per unit will always generate higher DWL.

Question 14 (3 points)

The following are correct statements about the Labor Market model, EXCEPT:

Question 14 options:

The Demand for labor is mainly determined by the Marginal Productivity of Workers. 

The Supply of Labor is mainly determined by the Opportunity Cost for Work. 

An increase in Labor Productivity will likely lead to higher wages but less total labor demand. 

In equilibrium, the market for labor will attain zero unemployment. 

Question 15 (3 points)

The following are correct statements about the Marginal Productivity of Labor (MPL), EXCEPT:

Question 15 options:

It is the increase in production per worker generated by technological innovations

Is the increase in total production coming from an increase in one unit of labor

Is increasing at early stages of production because the beneficial effect of division of labor in early stages of production.

It will eventually decline because additional workers will eventually over-saturate the production process.

Question 16 (3 points)

The following factors could lead to a shift up of the Supply Curve for Labor, and consequent increase in market wage, EXCEPT:

Question 16 options:

Increase in regulated federal minimum wage.

Increase in the value of College Education. 

Increase in the amount of Unemployment Benefits per worker.

An increase in the proportion of elder population ready for retirement.

Question 17 (3 points)

The following are likely effects created by a Minimum Wage Regulation, based on the model presented in class, EXCEPT: 

Question 17 options:

Increase in the number of workers looking for jobs

Decrease in the number of jobs available. 

It will for sure increase wages received by the lowest skilled workers. 

It will increase the level of Unemployment in the market. 

Question 18 (3 points)

Based on class discussion, the following are corrected descriptions about sectors and dynamics in the Labor Market, EXCEPT: 

Question 18 options:

Low Skilled Labor has a more Elastic Demand than the High Skilled Labor sector. 

Low Skilled Labor has a more Inelastic Supply than the High Skilled Labor sector. 

An aging population could lead to a contraction of the Labor Force and consequent increase of Wages in the market. 

Higher Pension Benefits will decline the motivation to work, with the consequent decline of market wages. 

Question 19 (3 points)

The following are correct statements about the Perfect Competitive market structure, EXCEPT:

Question 19 options:

There are no entry or exit barriers.

The firms sell a standard product.

There are zero economic profits in the long run. 

In the long run firms operate where Marginal Cost is minimized. 

Question 20 (3 points)

The following are correct statements about the Monopoly market structure, EXCEPT:

Question 20 options:

The monopolist maximizes profits when MR=MC and MC is increasing.

If no price discrimination, a monopolist will set a higher price and produce less than a competitive market.

The monopolist maximizes profits if Pmkt=MC.

The monopolist could generate a higher total revenue if he can price discriminate.

Question 21 (3 points)

The following are examples of Barriers for Entry that could lead to Monopoly power, EXCEPT:

Question 21 options:

Limited demand 

Economies of Scale 

Technological innovations

Predatory Pricing

Question 22 (3 points)

In order for a Monopolist to be able to Price Discriminate, the following conditions are necessary, EXCEPT:

Question 22 options:

That the market covered by the monopolist is easily segmented.

That the monopolist can easily determine what is the maximum price each consumer is willing to pay

That the monopolist exhibits economies of scale.

That the product offered by the monopolist be no resalable. 

Question 23 (3 points)

The following are key characteristics related to Oligopoly, EXCEPT: 

Question 23 options:

Only 2 to max 4 firms operating in the market. 

Standard product. 

If collusion, firms will behave as if they were one single monopoly. 

If no collusion agreement, firms will compete in price. 

Question 24 (3 points)

The following are possible characteristics related to different market structures, EXCEPT:

Question 24 options:

Monopoly always implies the existence of positive economic profits

The key characteristic for Monopolistic Competition is product differentiation.

Under Perfect Competition firms will compete only in price since the product is standard.  

Collusion is a profitable but unstable strategy under oligopoly.

Question 25 (5 points)

Assuming perfect competition, identify the Price and Quantity in Equilibrium, given the following info on Supply and Demand:

Qd = 80 – 4Px

Qs = 20 + 6Px

Question 25 options:

P* = 10 Q* = 80

P* =6  Q* = 56

P* = 6 Q* = 44

P * = 10 Q* = 40

Question 26 (5 points)

The following is the absolute value for the Mid-Point price elasticity of demand between two points on certain demand: 

Point A : Po = 15 & Qo =10


Point B: P1 = 5 & Q1= 20

Question 26 options:

l Ep l = 3/2

 l Ep l = 2/3

 l Ep l = 1

 l Ep l = 1/4

Question 27 (5 points)

The following price and quantity set is the one that Maximizes the Total Revenue collected by the producer, assuming the following Demand:

Qd = 80 – 5Px

Question 27 options:

Q =80, P =2

Q=40, P=8

Q = 20, P=4

Q=40, P=10

Question 28 (5 points)

Analytical Question on Tax Incidence:

From the graph above, identify the areas related to the impact of a tax per unit on good x, and select the option that INCORRECTLY describes the area. 

Question 28 options:

Total Revenue = A+B

Tax Incidence on Consumer = A +C

Tax Incidence on Producer = B

Dead Weight Loss = C+D

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