1)When consumer incomes decrease in a recession, the demand for luxury goods (those with an income elasticity greater than 1.0) decreases and the demand for necessities (goods that have an income elasticity greater than 0 and less than 1.0) increases.

• A - True
• B - False

2)When a market is used to ration a product:

• A - the product is rationed to those who are most willing to pay for the product.
• B - the product is rationed to consumers who have the greatest income or wealth.
• C - the product is rationed to those with the most political influence.
• D - the product is rationed to those who reside closest to where the product is sold.
• E - the product is rationed to those who will not use the product wastefully.

3)In the short run, firms incur variable and fixed costs of production but in the long run all production costs are variable costs.

• A - True
• B - False

4)In recent years airlines have charged low prices for tickets that have not been sold shortly before a flight is scheduled to depart. Assume that ABC Air charges a price of $50 for each of the few remaining tickets to a flight from Philadelphia to New Orleans, even though the average cost per passenger for the flight is much higher than $50. Which of the following explains why ABC Air would be willing to sell tickets for $50 each?

• A - Although the average cost is high, the fixed cost of the flight is less than $50.
• B - The marginal cost to ABC Air for an additional passenger is less than $50.
• C - Competition from other airlines forces ABC Air to sell some tickets at low prices.
• D - ABC Air acted irrationally.
• E - Passengers who bought tickets for $50 will want to book future flights with ABC Air.

5)From the article: "The Centers for Disease Control and Prevention said...that keeping middle seats open [on airline flights] could sharply reduce the risk of exposure to the [Covid-19] virus." If tickets for all middle seats on a flight from Denver to Chicago are not sold:

• A - the fixed cost of the flight from Denver to Chicago would be less than if tickets for middle seats were sold.
• B - the profit from the flight from Denver to Chicago would be greater than if all tickets were sold.
• C - the airline selling the tickets would not be able to make a profit from this flight.
• D - passengers' willingness to pay for the other seats on the flight would decrease.
• E - the fixed cost of the flight from Denver to Chicago would not change.

6)A product is scarce when the quantity demanded for the product is greater than the quantity supplied. If the quantity demanded for the product is equal to the quantity supplied the product is no longer scarce.

• A - True
• B - False

7)Tax incidence is the division of the burden of a tax between the buyers and sellers in a market.

• A - True
• B - False

8) If the income elasticity of demand for widgets is equal to +0.5, then:

• A - widgets would be considered inferior goods.
• B - if average consumer income were to increase by $100 the quantity demanded of widgets would increase by $50.
• C - if consumer income increased by 10 percent the quantity demanded of widgets would increase by 5 percent.
• D - if consumer income increased by 5 percent the quantity demanded of widgets would increase by 10 percent.
• E - the demand curve for widgets would be relatively inelastic.

9)Other things remaining equal, which of the following will result in the greatest amount of revenue New York State will receive from a tax on marijuana?

• A - The demand for marijuana is perfectly elastic.
• B - The supply of marijuana is perfectly inelastic.
• C - The demand for marijuana is greater than the supply of marijuana.
• D - The price elasticity of demand for marijuana is equal to zero.
• E - The elasticity of demand for marijuana is greater than the elasticity of supply for marijuana.