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Economics

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Mark box A for True and box B for False. Each correct answer adds 2 points to your score. Each blank answer gives you 1 point.

1)A firm's revenue is maximized where demand is unit elastic.

2.If the wage rate for a firm's workers increases, then the firm's marginal cost curve shifts up.

3.Suppose the supply of bread is perfectly inelastic. Then, imposing a tax on bread results in no deadweight loss.

4.The law of diminishing returns tells us that an individual's demand curve is downward sloping.

5.A non-binding quota can have the same effect on quantity sold as a per-unit subsidy.

6.If the price of pizza falls, it will result in an increase inb the demand for pizza.

7.If demand for a good is price elastic, then a decrease in its price leads to an increase in consumer expenditure on this
good.

8.Suppose an economy is producing only two goods, cars and computers. If the economy must reduce production of cars in order to increase production of computers, then the economy exhibits increasing opportunity costs.

9.In the market for donuts, suppose that both the equilibrium price and quantity have increased. It therefore cannot be the case that there was a decrease in the supply of donuts. 

10.A binding price ceiling will always lead to an increase in net consumer surplus.

11. - Over a longer time frame, you should expect the supply of housing to be more price elastic than over a shorter time
frame .Multiple Choice. Mark the box corresponding to the best answer. Each correct answer
adds 5 points to your score. Each blank answer gives you 1 point.

12. - Peter's video game production company uses only labor to produce video games. The table below contains production information for this firm as Peter changes the amount of labor. Which of the following correctly gives the values of X, Y, and Z in this table?
(a) X=16; Y=130; Z=50
(b) X=15; Y=140; Z=5
(c) X=15; Y=120; Z=5
(d) X=16; Y=120; Z=50
(e) X=17; Y=140; Z=5
Marginal
Product of
Labor
-
Z
6
4
3
Labor
0
I0
X
25
33
Total
Product
0
50
80
Y
144 
 

13. - If a price ceiling of $3 is imposed in the market for bananas (as shown below), then:
(a) There will be a surplus of 40 bananas in the market.
(b) There will be a shortage of 20 bananas in the market.
(c) Consumer expenditure on bananas will fall by 100.
(d) Supplier revenue from banana sales will increase by 20.
(el The quantity exchanged will equal 60 bananas. 

14. - Suppose the government imposes a price control which results in a shortage of 20 units. If the market conditions are given
by the following table, then we can deduce the government's
policy was to impose a
(a) price floor at $2.
(b) price ceiling at $2.
(c) price floor at $6.
(d) price ceiling at $6.
(e) price floor at $3.
Price
($1~ nits)
2
3
4
5
6 IIL

15.  Suppose the government has decided to grant a subsidy for movie
tickets. The subsidy per movie ticket is the same in the
city of LA and the city of NY. Demand for movie tickets is
price inelastic in LA relative to NY. Suppose the supply
curve and initial equilibrium price and quantity are the
same in both cities before the subsidy. Then, as a result
of the subsidy, which of the following is ALWAYS TRUE?
(a) The consumer price decreases by a greater amount in NY.
(b) The increase in consumer surplus is greater in LA.
(c) The producer price increases by a greater amount in NY.
(d) The subsidy payment is larger in LA.
(e) The consumer price increases by a greater amount in LA.
Quantity
Demanded
(units)
30
25
20
15
10
Quantity
Supplied
(units)
10
15
20
25
--
30 

16. - Michael has $110 to spend on his two favorite goods, beer and
pizza. The marginal utility he gets from each good are
given in the following table. If the price of a pizza is
$20 and the price of a beer is $10, what will Michael's
optimal bundle be?
(a) 3 pizza, 5 beer
(b) 4 pizza, 3 beer
(c) 1 pizza, 3 beer
(d) 3 pizza, 2 beer
(e) 5 pizza, 5 beer

17. - The market for MP3 players in Musicland is shown in the graph
below. The music-loving government in the country decides
to decrease the price of an MP3 player to $150 by imposing
a subsidy. To do so, a per unit subsidy is needed
and the total subsidy payment will be
100 150 200 Q (units)
(a) $100; $15,000
(b) $100; $20,000
(c) $100; $40,000
(d) $200; $20,000
(e) $200; $40,000 

18. - The market for imported oranges is illustrated in the graph
below. Suppose the government imposes a quota on orange
imports at 200 oranges. How will consumer surplus change
after the quota is imposed?
(a) Decrease by $50
(b) Decrease by $125
(c) Decrease by $150
(d) Increase by $75
(e) Increase by $100
19. - Samara was asked to tutor Rick McRich in Econ 101. Her fee for
this tutoring is $50. Samara will incur a transportation
cost of $2 for gasoline to meet Rick. Regardless of her
decision to tutor, she'll also need a hot chocolate,
costing her $3. While tutoring, Samara will miss out on
fun family activities, which she values at $35. Given this
information, Samara's fee for tutoring exceeds her
opportunity cost by . 
Page # 7
0- - Consider the market for pumpkins illustrated below. Suppose that the supply of pumpkins decreases by 20. What is the
price elasticity of demand between the original and new
equilibriums? (Note: use the midpoint formula from class.)
Price
cn
0 10 20 30 Quantity 

21. - Consider the market for coal, as shown below. Assume that coal
is an inferior good, and that oil and coal are substitutes.
Then, which of the following could have caused a change in
the equilibrium from E to El?
(a) A technological improvement in coal production, along
with an environmental awareness campaign that discourages
the use of coal.
(b) A price ceiling of $6, along with a tax of $2.00 per
unit of coal.
(c) An increase in the number of coal producers, along with
a decrease in consumers' incomes.
(d) A decrease in the price of oil, along with a labor
strike in the British coal industry.
(e) Negative publicity about coal production, along with
environmentalists interfering with coal production. 

22. - Suppose wonderland produces 100 tons of pineapples every year.
Pineapples are used to make either jam or juice. The
economy is described by the production possibilities
frontier shown below.
Jam f B
(tons)
50 60 Juice
(tons)
If the opportunity cost of increasing the production of
juice from 50 to 51 tons is 4 tons of jam, then which of
the following must be FALSE?
(a) The opportunity cost of 1 ton of juice at point A is
4.5 tons of jam.
(b) The opportunity cost of 1 ton of jam at point A is 0.2
tons of juice.
(c) The opportunity cost of 1 ton of jam at point C is 0.4
tons of juice.
(d) The opportunity cost of 1 ton of juice at point C is
0.9 tons of jam.
(e) The opportunity cost of 1 ton of juice at point B is
5.9 tons of jam. 

23. - Zazie has 25 minutes during her metro journey to prepare for
exams in biology and literature that she has to take today.
The table below shows how well she will do in each exam
depending on how much of this time she spends studying for
each. What is Zazie's per-unit opportunity cost of a point
in biology when the time she spends studying biology
increases from 10 to 15 minutes?
(a) 10 points in literature per point in biology.
(b) 11/10 points in literature per point in biology.
(c) 10/11 points in literature per point in biology.
(d) 10/11 points in biology per point in literature.
(e) 11 points in biology per point in literature.
Minutes spent
studying literature
0
5
10
15
20
25
24. - You observe sales data for TVs in February and October, and
assume the market is in equilibrium at each time. In
February, 1 million TVs are sold at a price of $3,000 each.
In October, 1.5 million TVs are sold at a price of $2,500
each. Based on this sales data and equilibrium assumption,
which of the following MUST be true?
(a) Demand and supply both increased.
(b) Demand increased.
(c) Demand increased and supply decreased.
(d) The government subsidized televisions.
(e) Supply increased.
Grade in literature
(points)
0
10
20
30
40
50
Grade in biology
(points)
60
43
29
18
8
0 
Page # 11
25. - Suppose a binding quota on ski boots is removed, and, as a
result, the equilibrium price of ski boots decreases from
$100 to $80. Economists have determined that the price
elasticity of demand for ski boots is -2.1 between the
prices of $100 and $80. As a result of this price
decrease, the quantity of ski boots demanded and
supplier revenue from ski boots sales
(a) decreases by less than 22.2%; increases
(b) increases by less that 22.2%; increases
(c) decreases by more than 22.2%; decreases
(d) increases by more than 22.2%; increases
(e) increases by less than 22.2%; decreases
26. - Fender Stratocaster guitars are made with wood from the Ash
tree. After an insect called the Emerald Ash Borer kills
large numbers of Ash trees throughout the U.S., we can
expect the equilibrium price and quantity of Stratocasters
to change as follows:
(a) Quantity increases and price increases.
(b) Quantity increases and price decreases.
(c) Quantity and price remain unchanged.
(d) Quantity decreases and price decreases.
(e) Quantity decreases and price increases.
27. - Katy only purchases clothing and food. Her current income per month is $3,000. The price of one unit of clothing is $300 and that of one unit of food is $20. She is now consuming 2 units of clothing and 120 units of food. At the current level of consumption, her marginal utility from consumption of clothing is 30, while that from consumption of food is 10. Then, to increase her utility, she should
(a) increase consumption of both goods.
(b) decrease consumption of both goods.
(c) increase consumption of food and decrease consumption
of clothing.
(d) increase consumption of clothing and decrease
consumption of food.
(e) keep her current consumption level. 
 

28. - Autoland is a country that produces only SWs (sports utility vehicles) and hybrid cars. SUVs consume considerably more gas than hybrids. The PPF is given in the graph below. The economy has moved from point A to point B on the PPF. Hybrid Cars SUVs Which of the following statements is consistent with this movement?
(a) The economy has become more efficient than before.
(b) There has been a technological improvement in the
production of hybrid cars.
(c) More resources are now used to produce SWs than hybrid
cars.
(d) Some of the resources that were used to produce SWs
are now wasted.
(e) Some of the resources that were used to produce SUVs
are now used to produce hybrid cars.

29. - Which of the following examples could describe the case of a Giffen good?
(a) The demand for jewelry increases when income increases.
(b) The quantity of gas demanded decreases when the price
of gasoline increases.
(c) The demand for clothing decreases when the price of
gasoline increases.
(d) The demand for snow shovels increases when income
decreases.
(e) More than one of the above. 

30. - Joe spends all of his income on OJ (by the cup) and bagels. The following table gives his marginal utilities associated with consumption of these goods. When the price of a cup
of OJ is equal to the price of a bagel, he optimally buys 3
cups of OJ and 2 bagels. If Joe instead were to buy 4 cups
of OJ, his utility (compared to when he buys 3 OJs) would:
Marginal Utility
Ewi OJ
1st 20 40
2nd 15 30
3rd 10 15
4th 0 10
(a) Increase by 10.
(b) Decrease by 10.
(c) Decrease by 5.
(d) Decrease by 15.
(e) Not change. 
 

31. - Hillary only eats rice and meat. She spends her entire income
on food. Initially, she consumes 6 units of rice and 2 of
meat. The initial price of rice is $2 per unit, and meat
is $4. Furthermore, in order to survive, she must consume
at least 8 units of food per day. Hillary's marginal
utilities of consuming rice and meat are given in the table
below.
Now, suppose the price of rice falls to $1 per unit. Then,
given her marginal utilities in the table, it MUST be the
case that rice is a/an good and meat is a/an
good.
(a) in£ erior; normal
(b) normal ; inferior
(c) normal; normal
(d) neither normal nor inferior; normal
(e) inferior; in£ erior

32. - In lecture, the example used to illustrate the importance of
productivity was:
(a) Southwest Airline's CEO's strategy to increase profits.
(b) Alcoa's bankruptcy filing and their negotiation with
the UAW . (c) The potential profitability of professional hockey
after the players' strike.
(d) Nokia's decision about where to locate production of
cellphones in order to decrease their costs.
(e) Kraft's packaging of macaroni and cheese together with
sausage to improve its visibility. 

33. - Not satisfied with the revenue from an existing $6/unit tax on
weevil spray, the government decides to raise the tax to
$9/unit. The market for weevil spray is shown below before
any taxes are introduced.
Price
I
80 100 140 Quantity
After the higher tax goes into effect, then compared to the
old tax the deadweight loss will
(a) increase by 20
(b) increase by 270
(c) increase by 150
(d) decrease by 120
(el decrease by 220 
Number