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Eco 101 830 Answer Key Exam 1 Form A Spring 20061. A2. A3. B4. C5. D

6. D7. B8. C9. A10. C

11. D12. B13. C14. D15. C

16. A17. B18. A19. C20. B

1. (a) Percentage change in Qd = (50-60)/55 x 100 = -18; Percentage change in P = (5-3)/4 x 100 = 50elasticity of demand = -.18/50 = -.36 (inelastic)

(b) Given that demand is inelastic, the percentage increase in price is larger than the percentage decrease in quantitydemanded. So with a tax hike, total revenue and thus tax revenue will RISE. We can also see this by looking at thetable. Total revenue at $3 is (3)(60)= $180 million. Total revenue at $5 is (5)(50) = $250 million.

2. Scarcity is the problem that all resources are limited while wants are unlimited. Opportunity cost is the choice forgonewhen we make a decision about how to use scarce resources. They are related in that because resources are scarce, wemust make choices about how to use them. Since we must make choices, we always give up the use of resources insome other way, and that is the opportunity cost.

3. With the economic growth of China and India we see that rising incomes and population of oil users rising and this willincrease demand (shift right on the graph), causing equilibrium price and quantity to rise. Supply does not shift (oilproduction has not fallen between 1996 and 2006).

4. New and used textbooks are substitutes, so the rise in the price of new textbooks leads to an increase in demand for theused textbooks. Demand shifts right on the graph, and equilibrium price and quantity increase in the market for usedtextbooks.

Eco 101 830 Answer Key Exam 1 Form A Spring 2006

1. A2. A3. B4. C5. D

6. D7. B8. C9. A10. C

11. D12. B13. C14. D15. C

16. A17. B18. A19. C20. B

1. (a) Percentage change in Qd = (50-60)/55 x 100 = -18; Percentage change in P = (5-3)/4 x 100 = 50elasticity of demand = -.18/50 = -.36 (inelastic)

(b) Given that demand is inelastic, the percentage increase in price is larger than the percentage decrease in quantitydemanded. So with a tax hike, total revenue and thus tax revenue will RISE. We can also see this by looking at thetable. Total revenue at $3 is (3)(60)= $180 million. Total revenue at $5 is (5)(50) = $250 million.

2. Scarcity is the problem that all resources are limited while wants are unlimited. Opportunity cost is the choice forgonewhen we make a decision about how to use scarce resources. They are related in that because resources are scarce, wemust make choices about how to use them. Since we must make choices, we always give up the use of resources in

some other way, and that is the opportunity cost.3. With the economic growth of China and India we see that rising incomes and population of oil users rising and this will

increase demand (shift right on the graph), causing equilibrium price and quantity to rise. Supply does not shift (oilproduction has not fallen between 1996 and 2006).

4. New and used textbooks are substitutes, so the rise in the price of new textbooks leads to an increase in demand for theused textbooks. Demand shifts right on the graph, and equilibrium price and quantity increase in the market for usedtextbooks.