Version A

I. Multiple choice

(1)b. (2)b. (3)b. (4)a. (5)a. (6)c. (7)b. (8)d. (9)c. (10)b.
(11)b. (12)a. (13)b.

II. Problems

(1) [Calculating elasticities: 2 pts] -3/8.

(2) [Using price elasticities: 10 pts]

1. inelastic.
2. decrease.
3. 6 percent.
4. increase.
5. 2 percent.

(3) [Using income elasticities: 10 pts]

1. luxury or superior good.
2. increase.
3. 7 percent.
4. increase.
5. 2 percent.

(4) [Effects of international trade: 6 pts]

1. $4 per bushel.
2. Country A.
3. 8 million bushels

(5) [Welfare effects of international trade: 18 pts]

1. $6.
2. export.
3. 4 million.
4. decrease.
5. $9 million.
6. increase.
7. $11 million.
8. increase.
9. $2 million.

(6) [Welfare effects of price controls or quotas: 18 pts]

1. $6.
2. 80 thousand pounds.
3. excess supply.
4. 60 thousand pounds.
5. increase.
6. $150 thousand.
7. decrease.
8. $180 thousand.
9. $30 thousand.

(7) [Welfare effects of taxes or subsidies: 20 pts]

1. $5.
2. 6 thousand.
3. $4 per pizza.
4. $7 per pizza.
5. decrease.
6. $7 thousand.
7. decrease.
8. $14 thousand.
9. $18 thousand.
10. $3 thousand.

III. Critical thinking [3 pts]

(1) The supply of ordinary books by Ernest Hemingway will be more elastic than the supply of autographed books by Ernest Hemingway. Ordinary books can still be printed, so the supply of ordinary books is upward-sloping. However, Hemingway is dead so he cannot sign any more books, no matter how high the price. Therefore the supply of autographed copies is perfectly inelastic (vertical).

(2) Speculators apparently disagree with the blogger. If they expected the price of petroleum to rise quickly to $500, they would buy petroleum now at is low price of $100, store it, and resell it in six months for $500. By doing so, they would inadvertently drive up the price today to almost $500 (that is, to $500 less the cost of speculation including storage costs). Since the price today remains at $100, speculators must not expect the price to rise so quickly in the near future.

Version B

I. Multiple choice

(1)c. (2)a. (3)a. (4)b. (5)b. (6)d. (7)c. (8)b. (9)d. (10)c.
(11)c. (12)b. (13)a.

II. Problems

(1) [Calculating elasticities: 2 pts] -2/3.

(2) [Using price elasticities: 10 pts]

1. inelastic.
2. increase.
3. 2 percent.
4. decrease.
5. 6 percent.

(3) [Using income elasticities: 10 pts]

1. necessary good.
2. increase.
3. 4 percent.
4. decrease.
5. 1 percent.

(4) [Effects of international trade: 6 pts]

1. $7 per bushel.
2. Country A.
3. 6 million bushels

(5) [Welfare effects of international trade: 18 pts]

1. $6.
2. import.
3. 8 million.
4. increase.
5. $24 million.
6. decrease.
7. $16 million.
8. increase.
9. $8 million.

(6) [Welfare effects of price controls or quotas: 18 pts]

1. $6.
2. 60 thousand pounds.
3. excess demand.
4. 60 thousand pounds.
5. decrease.
6. $160 thousand.
7. increase.
8. $40 thousand.
9. $120 thousand.

(7) [Welfare effects of taxes or subsidies: 20 pts]

1. $7.
2. 8 thousand.
3. $5 per pizza.
4. $11 per pizza.
5. decrease.
6. $20 thousand.
7. decrease.
8. $40 thousand.
9. $48 thousand.
10. $12 thousand.

III. Critical thinking

Same as Version A.

Version C

I. Multiple choice

(1)a. (2)b. (3)c. (4)c. (5)a. (6)e. (7)a. (8)a. (9)a. (10)b.
(11)a. (12)c. (13)c.

II. Problems

(1) [Calculating elasticities: 2 pts] -1/4.

(2) [Using price elasticities: 10 pts]

1. elastic.
2. decrease.
3. 6 percent.
4. decrease.
5. 1 percent.

(3) [Using income elasticities: 10 pts]

1. luxury or superior good.
2. increase.
3. 8 percent.
4. increase.
5. 3 percent.

(4) [Effects of international trade: 6 pts]

1. $5 per bushel.
2. Country B.
3. 12 million bushels

(5) [Welfare effects of international trade: 18 pts]

1. $6.
2. export.
3. 12 million.
4. decrease.
5. $21 million.
6. increase.
7. $39 million.
8. increase.
9. $18 million.

(6) [Welfare effects of price controls or quotas: 18 pts]

1. $6.
2. 12 thousand pounds.
3. increase.
4. $150.
5. decrease.
6. $420 thousand.
7. $270 thousand.
8. $9.
9. $360 thousand.

(7) [Welfare effects of taxes or subsidies: 20 pts]

1. $5.
2. 10 thousand.
3. $6 per pizza.
4. $3 per pizza.
5. increase.
6. $9 thousand.
7. increase.
8. $18 thousand.
9. $30 thousand.
10. $3 thousand.

III. Critical thinking

Same as Version A.

[end of answer key]