ECO 230-05 Name _____________________________
Fall 2004
Exam I
Rusty Smith
SECTION I:
Multiple Choice (2 points each) Choose the one best answer from the selections provided and place
the letter corresponding to that answer in the space to the left of the
question number.
1. If there is a shortage of
a product
a. quantity
demanded is greater than quantity supplied.
b. quantity
supplied is greater than quantity demanded.
c. the
price of the good will eventually rise in a free market.
d. both
a and c are true.
2. An example of a positive
economic statement would be:
a. 10%
inflation is too high.
b. I
think the unemployment rate is 3%.
c. the
rate of inflation is 2.75%.
d. both
b and c are positive economic statements.
3. The demand curve for tacos
has shifted to the right. Which of the
following events would have caused this to happen?
a. There
has been a favorable change in consumer tastes in preferences concerning tacos.
b. The
price of hamburgers, pizza, and all other fast food (substitutes in
consumption) decreases.
c. The
price of tacos has decreased.
d. All
of the above.
4. Which of the following is
true regarding marginal analysis?
a. Someone
is more likely to seek out additional information only when the cost of a bad
decision is low.
b. Most
(if not all) decisions are based on marginal analysis.
c. Marginal
benefit means total benefit of an activity and marginal cost means total cost
of an activity.
d. All
of the above are true.
5. Which of the following
would cause a PPF to shift to the right?
a. A
decrease in the unemployment rate.
b. Development
of better technology.
c.
The destruction of natural resources due to a
hurricane.
d.
Both
a and b are true.
6. Which of the following is NOT
considered an economic resource?
a. entrepreneurship.
b. money.
c. capital.
d. labor.
7. If a production
possibilities frontier is concave
a. constant
opportunity costs applies.
b. resources
used to produce consumer goods and capital goods are not perfectly
interchangeable.
c. resources
used to produce consumer goods and capital goods are perfectly interchangeable.
d. both
a & b are true.
8. Capital earns payments
called and labor earn payments called .
a. profit;
wages
b. interest;
profit
c. interest;
wages
d. profits;
income
9. The demand curve for the
inferior good Spam has shifted to the left.
Which of the following events would have caused this to happen?
a. A
favorable change in consumer tastes in preferences concerning Spam.
b. The
price of spam has increased.
c. Consumer
incomes have decreased.
d. Both
b or c would have caused this.
10. What is the difference between a production possibilities curve
(PPC) and a production possibilities frontier (PPF)?
a. There is no difference,
they are different terms for the same thing.
b. A PPF is concave and a
PPC is always straight.
c. A PPF analyzes the ability
to produce capital goods and a PPF analyzes the ability to produce consumer
goods.
d. Both b and c are
true.
11. A decrease in the price of soda will result in a(n)
a. decrease
in the demand for iced tea (a substitute in consumption).
b. increase
in the demand for soda.
c. increase
in the demand for iced tea (a substitute in consumption).
d. Both
a and b are true.
12. When a public good is produced
a. consumers
in the area who do not help pay for the good may be excluded from the goods
consumption.
b. consumers
in the effected area compete to use the good.
c. the
projects are paid for by the government with tax dollars because, according to
the free rider problem, because there in no incentive for any one individual
to provide public goods themselves.
d. All
of the above are true.
13. The law of demand states that there is a(n)
a. direct
relationship between price and quantity supplied.
b. inverse
relationship between price and quantity demanded.
c. direct
relationship between supply and demand.
d. no
relationship between price and quantity demanded.
14. Which of the following will increase the supply of a good?
a. an
increase in the price of the good
b. lower
wages paid to workers
c. higher
wages paid to workers
d. a
decrease in demand
15. The equilibrium price of a good decreased and the equilibrium
quantity of the good increased. Which
of the following events was the cause of this?
a. supply
increased
b. demand
increased
c. supply
decreased
d. demand
decreased
16. If an economys unemployment rate decreases
a. the economys PPF will shift to the
right.
b. the
economys PPF will not move.
c. the
economys PPF will shift to the left.
d. the
law of increasing opportunity cost will no longer apply.
17. Which of the following will NOT change the demand for
asparagus?
a. A
change in the price of asparagus.
b. A
change in the price of the substitute good, carrots.
c. A
change in consumer income.
d. All
of the above will change the demand for asparagus.
18. Which of the following would cause an economys PPF to shift to the
left?
a. an
increase in the unemployment rate
b. a
decrease in the size/quality of the labor force
c. the
discovery of new natural resources
d. either
a or b would shift the PPF to the left
19. When a price ceiling is set below the equilibrium price
a. the
market is not affected.
b. a
surplus results.
c. a
shortage results.
d. price
ceilings were abolished in accordance with the 1995 Normann-Smith Farm
Subsidies Act.
20. If the market for beef cattle was initially in equilibrium, a
decrease in the supply of corn (which is used to feed cattle) would cause:
a. nothing
to happen in the market for beef cattle.
b. the
supply of beef cattle to increase, decreasing prices.
c. the
supply of beef cattle to decrease, causing price to increase.
d. the
demand for beef cattle to decrease, increasing price.
21. What is the basic societal problem when the consumption of a good
gives off negative externalities?
a.
There is under-consumption of the product.
b.
There is over-consumption of the product.
c. The marginal social benefit is always equal to the marginal private benefit.
d. Free riders provide all of the products.
22. If an economy gains productive capacity:
a. its PPF will shift to the left.
b. its PPF will shift to the right.
c. the location of the PPF will not
change.
d. its PPF will change from being
straight to being concave.
23. Which of the following would increase the supply for the normal good
hot dogs?
a. A decrease in the price of Spam (a
substitute in production).
b. A decrease in the price of ground
beef (a complement in production).
c. A decrease in the price of hot dogs.
d. All of the above are true.
24. If the supply of a good increases AND AT THE SAME TIME the
demand for the good increases (but the increase in supply is of larger
magnitude than the increase in demand)
a.
price
does not change and quantity increases.
b. price increases and quantity
increases.
c. price decreases and quantity
increases.
d. price decreases and quantity is
ambiguous.
25. Which of the following will NOT change the demand for
cameras?
a. A change in the price of cameras.
b. A change in the price of the complement in consumption, film.
c.
A change in consumer income.
d.
All of the above will change the demand for cameras.
SECTION
II Short Answer/Essay/Problems
Use
the information provided to answer the following questions. Be sure to properly label any graphs. (Points as indicated)
1. Using supply and demand analysis, describe
verbally and show graphically, the effects of the following independent events
("a" does not impact "b" or "c", etc.) on the
market for the NORMAL GOOD ICE CREAM.
Be sure to mention the effects on price and quantity, as well as supply
and/or demand. (15 points)
a. An
article in The New England Journal of Medicine states that people who
eat ice cream have higher cholesterol and more frequent incidents of heart
disease than people who do not eat ice cream.
b. Subsidies given to ice cream manufacturers
increase AND AT THE SAME TIME
consumer incomes increase.
c. The wages paid to workers who produce ice
cream decrease AND AT THE SAME TIME
the price of frozen yogurt (a substitute in consumption) decreases.
2. In the space provided below draw a PPF that
shows the law of increasing opportunity costs placing capital goods on the
vertical axis and consumer goods on the horizontal axis, then use that graph to
answer parts a through c. (13
points)
a.
Draw
a point a on the above PPF that is currently unattainable.
b.
Draw
a point b on the above PPF that indicates the economy has unemployed
resources.
c.
Draw
two points on the above PPF that are both efficient and attainable. Label these points c and d. Then in the space provided below, indicate
which of the two points will allow for the more rapid rate of economic growth
and explain why it allows for more rapid economic growth.
d.
If
the above PPF had been straight, what would that have implied about the
resources used in the production of capital goods and the production of
consumer goods?
e.
State
the Law of Increasing Opportunity Costs (dont describe the implication
regarding the resources, state the Law).
f.
List
three things that would cause the above PPF to shift to the left.
3. Use the
following table to answer parts A through D below concerning the market for
corn (quantities are stated in bushels). These are independent questions,
the information provided refers only to that one part of the question so forget part c ever happened when answering
part d. (14 points)
|
Quantity
Supplied |
Price |
Quantity
Demanded |
|
24,000 |
$1.00 |
64,000 |
|
27,000 |
$1.50 |
59,000 |
|
30,000 |
$2.00 |
54,000 |
|
33,000 |
$2.50 |
49,000 |
|
36,000 |
$3.00 |
44,000 |
|
39,000 |
$3.50 |
39,000 |
|
42,000 |
$4.00 |
34,000 |
|
45,000 |
$4.50 |
29,000 |
|
48,000 |
$5.00 |
24,000 |
A. What is the equilibrium price and quantity in
the above market?
Price
$ Quantity
B. At a price of $4.50 what is true of this
market? What will eventually happen to
price if this is a free market?
C. Assume that a decrease in taxes causes farmers
to be willing to sell 8,000 more bushels of corn than before at each possible
price. What will the new equilibrium
price and quantity be?
Price
$ Quantity ____________
D. Assume that a increase in income causes
consumers to purchase 16,000 more bushels of corn than before at each possible
price. What will the new equilibrium
price and quantity be?
Price $ Quantity _______________
4.
In
a well defined essay explain how minimum wage laws create unemployment. Be sure
to do the following:
1.
Use
a graph to support your answer.
2.
Specify
where (in relation to equilibrium) the minimum wage must be placed before it
has this effect.
3.
Specify
what the economic term for a minimum wage law is.
4.
Describe
why/how the minimum wage law will create unemployment.
Write
your answer in sentence/paragraph form, dont simply use bullet points to
address these issues. (8
points)
-BONUS- [5 points]
Consider
the following circumstance regarding two separate markets. One market is the market for cameras and
the other market is the market for film. Assume that the price of the computer chips used in camera
production increases. What effect will
that have on the market for cameras (supply or demand, equilibrium quantity and
equilibrium price)?
Now
what effect will that event in the camera market have on the market for film
(supply or demand, equilibrium quantity and equilibrium price)?
Use
one properly labeled graph for each market (2 graphs total).
You should describe your answer both graphically and verbally.
