EC 203
PS: CH 16
SUMMER 2005
1. The demand curve, which is a downward-sloping straight line, crosses the supply
curve, which is an upwardsloping straight line. If a tax is introduced where sellers must
pay a tax of $2 per unit sold, then the equilibrium price paid by demanders will rise by
more than $1 if the absolute value of the slope of the demand curve is greater than the
absolute value of the slope of the supply curve. TRUE
2. In a certain kingdom, the demand function for rye bread was q = 381 - 3p and the
supply function was q = 5 + 7p, where p is the price in zlotys and q is loaves of bread.
The king made it illegal to sell rye bread for a price above 32 zlotys per loaf. To avoid
shortages, he agreed to pay bakers enough of a subsidy for each loaf of bread so as to
make supply equal demand. How much would the subsidy per loaf have to be?
a) 21 zlotys
b) 14 zlotys
c) 8 zlotys
d) 20 zlotys
e) None of the above.
C
3. The inverse demand function for cantaloupes is defined by the equation p = 305 - 5q,
where q is the number of units sold. The inverse supply function is defined by p = 8 + 4q.
A tax of $45 is imposed on suppliers for each unit of cantaloupes that they sell. When the
tax is imposed, the quantity of cantaloupes sold falls to
a) 28
b) 33
c) 21.75
d) 26
e) 30.50
A
4. Daily demand for gasoline at Billy-Bob's Mobile Station is described by Q = 776 200p, where Q are gallons of gasoline sold and p is the price in dollars. Billy-Bob's
supply is Q = -890 + 1,500p. Suppose the state government places a tax of 20 cents on
every gallon of gasoline sold. What is the deadweight loss resulting from this tax?
a) 3.53 dollars
b) 3.11 dollars
c) 0.42 dollars
d) 96.12 dollars
e) 34.59 dollars
A
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