ECO 230-05 Name
____________________________
Fall 2004
Quiz I
Rusty Smith
Section I: Multiple Choice (1 point each)
Choose the one best answer from the choices provided and place the letter corresponding
to that answer in the space provided to the left of the question number.
|
Hammers |
150 |
140 |
120 |
90 |
50 |
0 |
|
Hamburgers |
0 |
10 |
20 |
30 |
40 |
50 |
1. Using
the above production possibilities table, what is the opportunity cost of
hammers in terms of hamburgers when hammer production is increased from 90 to
120?
a. 30.
b.
1/3.
c. 3.
d.
1/4.
2. In
economics, the term investment refers to
a. the purchase of
stocks and bonds.
b. the process
of producing (or purchasing) capital goods.
c. putting money into a bank account.
d. all of the above.
3. A
concave production possibilities frontier:
a. illustrates the concept of constant
opportunity cost.
b. implies that the resources used in the
production of the two concerned goods are not perfectly interchangeable.
c. is unrealistic.
d. is described by both a and c.
4. Which
of the following WILL NOT decrease the demand for an inferior good?
a. An unfavorable change in tastes and
preferences.
b. An increase in the price of the good.
c. An increase in money income.
d. All
of the above will decrease the demand for an inferior good.
5. Which
of the following would increase the supply of a product?
a. An increase in the wages paid to workers.
b. A decrease in the wages paid to workers.
c. An increase
in taxes on the production of the product.
d. A decrease in subsidies given to producers of
the product.
Section II Short Answer/Essay Use the information provided to completely
answer the following questions. Points
as indicated.
1. Complete parts a through d regarding
production possibilities.
(6 points)
a. In the space provided below draw a PPF that
shows the law of increasing opportunity cost, putting capital goods on the
vertical axis and consumer goods on the horizontal axis.
b. Draw a point b on the above PPF that is not
currently obtainable.
c. Show the effect on the PPF of the discovery of
new natural resources. Label this new
curve c.
d. If constant opportunity cost applied, what
shape would the above PPF be? What would
this imply about the resources used in the production of capital goods and
consumer goods? Explain why this
implication is (or is not) realistic.
2. Explain the effect the following events would
have on either the supply or the demand for a product (increase in demand or
decrease in demand or increase in supply or decrease in supply). Also be sure to specify the effect of the
change on both the equilibrium price of the good and the equilibrium quantity of
the good. Be sure to provide a supply and demand graph for each one and show
the change on the graph as well. (12
points)
A. a favorable change
in tastes and preferences.
B. an increase in the cost of the raw materials
used to produce the product.
C. a decrease in the price of a substitute in
production.
D.
a decrease in
the price of a substitute in consumption.
E. a
decrease in income (assume its an inferior good) AND
AT THE SAME TIME
a decrease in taxes assessed to producers of the product.
