Econ 201 Midterm 1

Dr. Barry Haworth
Econ 201 midterm quizlet

Economics Professor Philip Luck Exam 1 NAME There are two parts to this exam Part I is made up of 15 multiple choice problems and is worth 45 points Answer all DREXEL ECON 201 - Midterm 1 Answer Key - D3115802 - GradeBuddy. Econ 201 midterm 1; ec 201; ec final; econ 201 study guide (2010-11 waddell) Recent Class Questions. A 10 year bond issued today by carris, inc. Has a coupon rate of 10%, a required return of 6% and a face value of $1000. The bond will be sold 5 years from now when interest rates will be 8%. What is the beginning value of the bond when it is.

University of Louisville
Department of Economics
Economics 201

Midterm #1

(Questions and Solutions)

Exam Solutions: The multiple choice answers (for Version A) are given in boldfaced print and the short answer question answers (for Version A) are given below each question.


1. Economic analysis is best designed to answer which question:
a. why goods and services are so scarce
b. what are the scarce factors and resources in different countries
c. why do people have unlimited wants when they buy goods and services
d. how should scarce goods and services be allocated amongst demanders with unlimited wants


2. When discussing Marginal Cost or Marginal Benefit, the word'marginal' means:
a.a small change
b. average
c. monetary
d. equal


3. Each student's opportunity cost of attending UofL is:
a. the monetary cost of paying tuition
b. the monetary cost of paying tuition and buying booksand supplies
c. other activities that must be sacrificed if the person isto attend college
d. the extra time each student now must spend in studying forexams


4. What is the best description of the term normative economic analysis
a. where economic situations are described but opinions are leftout
b. where one's personal views will impact their analysis ofan economic event
c. where economic situations are described objectively
d. where one describes how various curves within a model willshift as events take place


5. On the production possibilities curve (PPC), points locatedoutside the curve are:
a. inefficient points
b. equilibrium points
c. efficient points
d. unattainable points


6. The best definition of equilibrium is:
a. a point where there is no tendency toward change
b. the point where output occurs within a market
c. when the economy is producing along its PPC
d. the condition that determines the price in a market
e. both b and d are correct


7. In economic analysis, what purpose do models serve?
a. allow for prediction of future events
b. allow an analyst to explain how one variable will affect another variable
c. allow an analyst to explain why certain events occurred
d. all of the above


Questions #8-10 refer to the following PPC situation:
The island of Togo can produce either 4 units of shoes or 8 unitsof bananas. The island of Fiji can produce either 4 units of shoesor 12 units of bananas.

8. Which statement about Togo is true:
a. Togo has a comparative advantage in producing shoes
b. Togo has a comparative advantage in producing bananas
c. Togo has the absolute advantage in producing shoes
d. Togo has the absolute advantage in producing bananas


9. If unskilled labor from Fiji migrate to Togo, then which statement is true:
a. Togo's PPC will not shift, because the labor is unskilled
b. Togo's PPC will shift out, but production won't necessarilyincrease
c. Togo's PPC will shift in, but production won't necessarilydecrease
d. Togo's PPC will not shift, because the unskilled workers willbe unemployed


10. If a labor saving innovation occurs in Fiji's banana production,then what will happen?
a. The innovation will switch the absolute advantagein banana production to Fiji
b. The innovation will give Fiji a comparative advantagein shoe production
c. The innovation will shift Fiji's PPC outward(increase) for bananas but inward (decrease) for shoes
d. The innovation doesn't change Fiji's comparative advantagein banana production


Questions #11-12 are taken from the PPC relationship in the tablebelow. 6:00 utc to pst.


11. Between pts. C and D, what is the opportunity cost of eachautomobile?
a. 2 tractors
b. 12 automobiles
c. 1/6 tractor
d. 6 tractors
e. none of the above


12. Between pts. D and E, what is the opportunity cost of each tractor?
a. 16 automobiles
b. 2 tractors
c. 1/8 automobile
d. 8 automobiles
e. none of the above


13. A country is currently producing along (on) its PPC. If the country is suddenly able to produce more of both goods, which explanation must be true?
a. This country is specializing.
b. The productivity assocated with producing both goods is lower.
c. There was an increase in comparative advantage for both goods.
d. More laborers are available to produce both goods.


14. If a rancher produces only hamburgers, and a farmer produces only french fries, the ranch and farmer:
a. cannot gain from trade
b. could gain from trade when one or both have an absolute advantage
c. could gain from trade because each would enjoy a greater variety of food
d. could gain from trade only if each is producing both goods


15. If Michael Jordan is a better basketball player and lecturer than Professor Haworth:
a. then Michael Jordan's opportunity cost of playing basketball and lecturing is less than that of Professor Haworth
b. then Michael Jordan would be better off playing basketball and lecturing
c. then Michael Jordan will have a comparative advantage in both goods
d. then Michael Jordan and Professor Haworth may benefit from specialization and trade


16. Falling production costs had what effect on the VHS video manufacturing market?
a. increase in demand for videos
b. decrease in demand for videos
c. increase in supply of videos
d. decrease in supply of videos


17. How would a decrease in movie theatre ticket prices (e.g. providing a matinee performance) affect the market for popcorn and candy?
a. increase in demand, since these are complements
b. decrease in demand, since these are complements
c. increase in demand, since these are substitutes
d. decrease in demand, since these are substitutes


18. Cable TV and VCRs have had an adverse effect on movie theatre attendance. What relationship between these goods and movie theatres would cause such a result?
a. they are demand-related substitutes
b. they are demand-related complements
c. all are normal goods
d. all are inferior goods
e. all are goods with elastic demand


19. Count Footula is a foot-fetish video in the pornographicvideo market (and no, I haven't seen it). If this video has anincome elasticity that equals -1.2, then it:
a. is a normal good
b. is an inferior good
c. is a luxury
d. is income elastic
e. both b and d are correct


20. The pornographic video industry is one of the few industries where women are paid substantially more than men (for comparable 'work'). Suppose government wanted to rectify this problem with a price floor. How would a price floor affect the average actor, if the average actor makes only $25,000 per year:
a. would cause a shortage of actors, if the floor was set at $20,000
b. would have no effect on the average actor if the floor wasset at $30,000
c. would cause a surplus of actors, if the floor was set at $30,000
d. both a and c are possible
e. both b and c are possible


21. The X-files TV series has expanded from being just a television show to producing a feature length movie as well as provide video tapes of certain episodes. What direct effect would producing this movie have on the market for these video tapes:
a. decrease the price of the videos, if more consumers buy the videos after watching the movie
b. increase demand, as the number of possible consumers increases after watching the movie
c. increase supply, after paying such high salaries to the movie's actors
d. decrease demand, since the price of substitute goods is much higher


22. According to the textbook, a 'Price' acts as:
a. an incentive to sellers
b. a constraint to buyers
c. a way of placing a number on the value that a consumer places on a good or service
d. all of the above


23. All other things held constant, when the price of a good falls, the quantity supplied of that good also falls. This illustrates:
a. the law of supply
b. the law of demand
c. the law of increasing costs
d. the law of nature


24. Suppose Ford and the United Auto Workers sign a new wage contract, where Ford pays less of the workers' health care costs. How would the market for new cars be affected?
a. increase in the demand for new cars
b. decrease in the supply of new cars
c. increase in the supply of new cars
d. decrease in the demand for new cars


25. What is the direct effect of placing a price ceiling above the equilibrium price?
a. quantity demanded is greater than quantity supplied
b. quantity demanded is equal to quantity supplied
c. quantity supplied is greater than quantity demanded
d. the equilibrium price will increase


26. What is a possible indirect effect from rent controls in Louisville?
a. related rental markets experience an increase in demand as people leave Louisville because of the lack of rental housing
b. related rental markets experience a decrease in demand as people leave these markets to occupy low rent housing in Lousiville
c. increase in the supply of rental housing in Louisville, to keep up with the high demand
d. falling rents will occur in Louisville


27. In market Z, constant technological change causes supply to grow at a quicker rate than demand. If a price ceiling is placed below the equilibrium price in market Z, then what effect do you expect to see if the ceiling is left unchanged for a period of10 years?
a. a worsening shortage over time
b. a worsening surplus over time
c. a lessening shortage over time, which may eventually bezero
d. a lessening surplus over time, which may eventually be zero


In answering questions #28-30, choose only the response thatis always true

28. If good B's own price elasticity of demand is -0.96, then good B is a(n):
a. complement
b. substitute
c. normal good
d. inferior good
e. inelastic good


29. A luxury is also a(n):
a. complement
b. substitute
c. normal good
d. inferior good
e. inelastic good


30. What does a positive cross price elasticity imply:
a. complement
b. substitute
c. normal good
d. inferior good
e. inelastic good


The following information about Good X corresponds with Questions #31-32.
If the price of Good X increases by 5%, then 4% less of it is sold. If Good Y's price increases by 5%, then 8% less of Good X is sold.

31. What is the income elasticity of Good X:
a. -0.625
b. -0.8
c. -1.6
d. 1.6
e. not enough information given to provide an answer


32. What is the (own) price elasticity of demand for Good X:
a. -0.625
b. -0.8
c. -1.6
d. 1.6
e. not enough information given to provide an answer


33. When a per unit (commodity) tax is placed on suppliers in a market, what is the result?
a. decrease in demand
b. increase in demand
c. increase in supply
d. decrease in supply


34. A per unit (commodity) tax is placed on broccoli andcandy bar suppliers. If the demand curve for candy bars is more elasticthan the demand curve for broccoli, then:
a. consumers will pay more of the per unit tax on candybars than on broccoli
b. consumers will pay more of the per unit tax on broccolithan on candy bars
c. consumers always bear the entire burden from any sales tax
d. the quantity demanded for candy bars will rise by more thanthat for broccoli


35. A per unit (commodity) tax is placed on the suppliers of acertain product. If the demand curve for this product is completelyhorizontal, then what do you expect to happen:
a. suppliers will bear the entire burden of the tax, consumerswill bear nothing
b. consumers will bear the entire burden of the tax, supplierswill bear nothing
c. consumers and suppliers will each bear some of the tax burden
d. the consumers will bear a greater burden from the tax thansuppliers


36. Willingness to pay measures
a. the value that a buyer places on a good
b. what a buyer is willing to pay for a good minus the amount the buyer actually pays for it
c. what a seller receives for a good, minus the minimum amount the seller is willing to pay
d. the maximum amount a buyer is willing to pay, minus the amount the seller is willing to accept


37. Consumer surplus is
a. the quantity of a good consumers get but did not have to pay for
b. the amount a consumer does pay, minus the amount the consumer is willing to pay
c. the amount a consumer is willing to pay, minus the amount the consumer did pay
d. the total value of a good to a consumer


38. Every time a consumer buys a good or service
a. he/she gains consumer surplus
b. his/her willingness to pay is less than his/her consumer surplus
c. he/she paid more than he/she was willing to pay
d. all of the above are always correct
e. none of the above are always correct


39. Consumer equilibrium occurs where (when):
a. a consumer spends less than their income (i.e. saves money)
b. a consumer's income equals their expenditure (i.e. doesn't save money)
c. the satisfaction from the last unit purchased (of a good) equalsthe good's price
d. the total satisfaction from all purchases equals the overall amount spent


40. Producer surplus measures
a. what sellers received in excess of the market price
b. the benefit to sellers of participating in a market
c. the difference between a consumer's willingness to pay the seller and the market price
d. all of the above
Short Answer Questions
1. Country A can produce 100 units of corn or 200 units ofshoes. Country B can produce 200 units of corn and 400 units of shoes. Who has a comparative advantage in producing shoes? Show your work, and explain your answer.

Neither country has a comparative advantage in corn or shoesbecause their opportunity costs are the same for each good.See the calculations (and comparisons) below.

  • The opportunity cost in A of producing corn is 2 units ofshoes (i.e. 200/100)
  • The opportunity cost in B of producing corn is 2 units ofshoes (i.e. 400/200)
  • The opportunity cost in A of producing shoes is a 1/2 unitof shoes (i.e. 100/200)
  • The opportunity cost in B of producing shoes is a 1/2 unitof shoes (i.e. 200/400)


Questions #2 and 3 use the following information:
The demand and supply curves below describe theU.S. market for sequined, white Elvis shirts.

Demand: P = 100 - 2Qd
Supply: P = 20 + 8Qs

2. What is the equilibrium price and quantity for Elvis shirtsin the U.S.?

Set Demand equal to Supply (and drop the subscripts for now):

100 - 2Q = 20 + 8Q

Solve for Q*:
Q* = 8

Econ 201 Midterm 1Plug Q* into Demand or Supply, and solve for P*
P = 100 - 2(8) = $84


3. What effect does a $60 price ceiling have on this market?
In your answer, state the amount of any surplus or shortage (and show your work).

Since the price ceiling is set below the equilibrium price of $84, it will cause a shortage (of 15 units). When producers must charge the price ceiling price of $60, then we can determine their output (quantity supplied) by looking at the supply curve.

To find Qs, set the Supply equation equal to $60 and solve for Qs:

$60 = 20 + 8Qs
Qs = 5

To find out how much people want to buy at a price of $60, set the Demand equation equal to $60 also, and solve for Qd:

$60 = 100 - 2Qd
Qd = 20

Any shortage is measured as the difference between quantity demanded and quantity supplied: Qd - Qs = 20 - 5 = 15.


Use the following stock information (taken from the Wall Street Journal) as you would have seen it when completing the second homework assignment from class.

Econ 201 Answers


4. Noting how the (final) price and quantity of each stock changes from day to day, state whether each stock is experiencing a decrease in demand, increase in demand, decrease in supply or increase in supply.

a. IBM

(close) Price decreased and (Vol) quantity increased, which implies an increase in supply

b. PepsiCo

Price decreased and quantity decreased, which implies a decrease in demand

c. Coca Cola Ent.

Price increased and quantity increased, which implies an increase in demand

d. Gen Motors

Price decreased and quantity decreased, which implies a decrease in demand

(for part d, on Version A, some people noticed that Net Chg shows a price increase, so I tried to give the appropriate credit to people -- if they pointed this out)



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Drexel University
Course:
Econ 201 - Principles of Microeconomics

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Econ 201 Midterm Quizlet

Unformatted text preview:

Econ 101 Midterm Exam

Economics Professor Philip Luck Exam 1 NAME There are two parts to this exam Part I is made up of 15 multiple choice problems and is worth 45 points Answer all multiple choice questions on your Scantron Part II is made up of 3 short answer problems and is worth 55 points Answer all short answer problems in your blue book Be sure to put your name and ID on your test Scantron and blue book Be sure to read each question carefully before answering Do not use any books or notes You have 110 minutes to complete the full 100 point exam Be sure to budget your time BE SURE TO BUBBLE IN YOUR STUDENT ID ON YOUR SCANTRON PART I MULTIPLE CHOICE PROBLEMS Read each of the following questions carefully and circle the letter of the one best answer Note that diagrams are often helpful in determining the correct answer Each question is worth 3 points 1 2 The Tampa Bay Rays baseball team has the lowest payroll in the league and has relatively low attendance at Tropicana Field If the Rays want to increase revenue they A should increase prices no matter what the elasticity of demand for baseball is B should decrease prices no matter what the elasticity of demand for baseball is C should increase prices only if demand for baseball is relatively elastic D should decrease prices only if demand for baseball is relatively elastic Mark and Julie are going to sell brownies and cookies for their third annual fund raiser bake sale In one day Mark can make 40 brownies or 20 cookies and Julie can make 15 brownies or 15 cookies Based on this information has the comparative advantage in making brownies and has the comparative advantage in making cookies A Mark Julie B Mark Mark C Julie Mark D Julie Julie 3 Which situation would most likely cause a decrease in consumer surplus in the toy market A The cost of shipping increases due to higher oil prices B Consumer income increases C There is an unexpected baby boom D A new assembly line design increases worker productivity 1 4 Which of the following is a determinant of demand A expectations regarding future prices B the technology of production C the cost of production D consumer tastes 5 The opportunity cost of attending college is A the cost of the tuition B the cost of the highest valued alternative to attending college C the cost of the highest valued alternative to attending college plus the cost of tuition D the cost of tuition books and the lost wages for the hours spent studying 6 In 2000 there were 200 000 gas grills demanded at a price of 500 In 2001 there were more than 200 000 gas grills demanded at the same price This increase could be the result any of the following EXCEPT A an increase in the supply of gas grills B an increase in income if gas grills are a normal good C a fall in the price of natural gas a complement for a gas grill D an increase in population Use the following to answer question 7 7 Table Music Downloads Two consumers Eli and Madison like to download songs to their MP3 players The table represents their willingness to pay for each downloaded song If an individual song can be downloaded at a price of 1 what is the total consumer surplus received by these consumers A 19 25 B 18 C 10 D 11 2 8 After graduation from college you will receive a substantial increase in your income from a new job If you decide that you will purchase more T bone steak and less hamburger then for you hamburger would be considered a n A normal good B substitute good C complementary good D inferior good Use the following to answer question 9 Figure Market for Blue Jeans 9 Figure Market for Blue Jeans Suppose the government believes blue jeans are too expensive and it wants to make sure blue jeans are affordable to more citizens This type of price control is called a and the price could be set equal to A price floor 100 B price floor 55 C price ceiling 55 D price ceiling 100 3 10 Nick can purchase each milkshake for 2 For the first milkshake purchased Nick is willing to pay 4 for the second milkshake 3 for the third milkshake 2 and for the fourth milkshake 1 What is the value of Nick s consumer surplus A 2 B 9 C 3 D 10 11 Suppose the U S government imposes a quota on the number of Japanese made cars allowed into the United States the quota is set at a quantity below equilibrium Then we would expect the price of Japanese cars to and the price of U S made cars to A increase increase B increase decrease C decrease increase D decrease decrease 12 A rancher in Oklahoma decides to raise the price of her beef by 19 over what the prevailing market price equals If the demand for beef is perfectly elastic this rancher s quantity demanded will A fall to 0 B not change C fall slightly D increase slightly Use the following to answer question 13 Figure Consumer Surplus 4 13 Figure Consumer Surplus In the figure when the price falls from 30 to 25 consumer surplus for a total consumer surplus of A increases by 25 74 14 B decreases by 15 34 C increases by 15 64 D increases by 5 54 If the income elasticity of demand for a good is the good is said to be A positive inferior good B negative substitute good C positive normal good D positive positive good 15 A fall in the price of lemons from 10 50 to 9 50 per bushel increases the quantity demanded from 96 to 104 million bushels The price elasticity of demand is A 0 80 B 1 20 C 1 25 D 8 00 5 PART II Read each of the following questions carefully and write your answer in your bluebook Diagrams are often helpful in determining the correct answer Be sure to label all diagrams you provide 1 15 points The graph below shows the individual PPF s for Maria and Anna s production of shirts and ties Use this information to answer the questions below a 5 points What are Maria and Anna s opportunity costs for shirts for and ties ANSWER Maria s opportunity cost of one shirt 5 12 ties while here opportunity cost of one tie is 12 5 shirts Anna s opportunity cost of one shirt 1 tie and here opportunity cost of one tie is also 1 shirt b 5 points Who has a comparative advantage in ties Explain ANSWER Anna because she has a lower opportunity cost of producing ties 1 12 5 c 5 points Who has a comparative advantage in shirts Explain ANSWER Maria because she has a lower opportunity cost of producing shirts 5 12 1 6 2 20 points Supply and Demand shifts For all graphs label all axes all equilibrium points …

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