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Homework answers / question archive / Michigan State University - EC 201 Professor C
Michigan State University - EC 201
Professor C.L. Ballard
Fall Semester, 2011
Economics 201
Section 2 (Forms C and D)
Students in Section 2 (the 11:30 a.m. section) took either Form C or Form D of the exam. In the discussion that follows, the questions are in the order that they followed in Form D, but the number for the corresponding question on Form D is also given. The question is given first, followed by the answer and a discussion of why that answer is correct.
C-1, D-12. What can be said about a production-possibilities frontier (p.p.f.) that is a straight line?
a. The p.p.f. illustrates the principle of increasing opportunity cost.
b. The resources or technologies used in producing the goods on the two axes are specialized.
c. The opportunity cost of additional units of each good will become greater as we
produce more and more of it.
d. All of the above.
e. None of the above.
C-2, D-13. The price of whatchamacallits rises from $3.50 to $4.50. As a result, the quantity demanded falls from 850 to 750. What is the elasticity of demand?
a. zero
b. 0.5
c. 1.0
d. 2.0
e. the time it takes for light to travel from our sun to the Andromeda Galaxy.
C-3, D-32. As a result of a hurricane, a large number of mushroom farms are badly flooded. Thus, it could be said that the technology of producing mushrooms has deteriorated. This change could be characterized as
a. a leftward shift in the demand curve.
b. a rightward shift in the demand curve.
c. a leftward shift in the supply curve.
d. a rightward shift in the supply curve.
e. neither a shift in the demand curve nor a shift in the supply curve.
C-4, D-33. Which of the following will occur as a result of a tariff?
the tariff.
have been in the absence of the tariff.
have been in the absence of the tariff.
C-5, D-23. In the production-possibilities frontier diagram below, point A is
a. associated with inefficient use of the available resources.
b. associated with efficient use of the available resources.
c. unattainable with the resources that are currently available.
d. All of the above.
e. None of the above.
C-6, D-4. Urethane foam is an important input in the production of mattresses. There is an increase in the price of urethane foam. What will happen to the equilibrium price and quantity of mattresses?
a. Equilibrium price will fall; equilibrium quantity will fall.
b. Equilibrium price will fall; equilibrium quantity will rise.
c. Equilibrium price will rise; equilibrium quantity will rise.
d. Equilibrium price will rise; equilibrium quantity will fall.
e. Equilibrium price will rise, but the effect on equilibrium quantity cannot be
determined without more specific information.
C-7, D-5. Which of the following is true for a tariff, and an import quota, and a voluntary export restraint? (In other words, for a choice to be a correct answer, it must apply to all three kinds of restriction on international trade.)
C-8, D-24. The equilibrium price for indelible marking pens is $5 per box. A price-ceiling law says that it is illegal to buy or sell indelible marking pens for more than $4. Assuming that the law is enforced, what effect(s) will the price ceiling have?
a. The price ceiling will lead to a shortage.
b. The price ceiling will lead to a surplus.
c. The price ceiling will have no direct effect.
d. The quantity supplied will be greater than it would have been without the price ceiling.
e. (a) and (d).
C-9, D-25. If we are given a beginning price, an ending price, a beginning quantity demanded, and an ending quantity demanded, we can calculate the own-price elasticity of demand. In calculating the elasticity, it is necessary (among other things) to determine a "reference level" of the price. In this course, what value do we use for the reference level of price?
of pi, divided by the standard deviation of the prices, multiplied by the cube of
Professor Ballard's height (in centimeters).
C-10, D-19. Which of the following characteristics does an import quota have in common with a voluntary export restraint?
a. Both are direct restrictions on the quantity of internationally traded goods (whereas a tariff
is a price mechanism).
b. Both do harm to the producers in the exporting country.
c. Both do harm to the producers in the importing country.
d. Both bring in revenue for the government of the importing country.
e. (a) and (b).
C-11, D-20. Which of the following does not cause the demand curve to shift to the right?
a. An increase in income (assuming that the good in question is a normal good).
b. A decrease in the current price of the good.
c. An increase in the price of a substitute good.
d. A decrease in the price of a complement good.
e. None of the above: All of the above will cause the demand curve to shift to the right.
C-12, D-6. The supply of grafflopoes is given by Qs = 2P. The demand for grafflopoes is given by
Qd = 30 - 3P. What are the equilibrium price and quantity of grafflopoes?
a. P = $10, Q = 30.
b. P = $5, Q = 10.
c. P = $15, Q = 5.
d. P = $5, Q = 16.
e. P = $6, Q = 12.
C-13, D-7. It is useful to have a measure of the responsiveness of quantity demanded to changes in price. Why do economists use the elasticity of demand, instead of the slope of the demand curve?
a. Elasticity is easier to calculate than slope.
b. Elasticity is easier to pronounce than slope.
c. Elasticity is a unit-free measure, whereas slope depends on the units of measurement.
d. Elasticity and slope are identical; economists’ preference for elasticity is arbitrary.
e. None of the above: There is a reason to prefer elasticity, but it is not listed here.
C-14, D-34. The Principle of Increasing Opportunity Cost
a. is observed when the production-possibilities frontier has its usual, outward-bowed
shape.
constant.
use different resources and/or technologies.
C-15, D-35. In the market for imports of flamzogs, the equilibrium price is $15 and the equilibrium quantity is 20. Then, a tariff of $10 per flamzog is imposed. As a result, the market moves to a new equilibrium, in which the price paid by buyers is $20, the price received by sellers is $10, and the quantity is 10. How much tariff revenue is collected by the government of the importing country?
C-16, D-17. What does a price floor that is enforced above the equilibrium price have in common with a price ceiling that is enforced below the equilibrium price?
a. Both will lead to a shortage.
b. Both will lead to a surplus.
c. Both will reduce the quantity that is actually bought and sold.
d. Neither will have any effect on the market.
e. All of the above are true.
C-17, D-18. There is an increase in demand for Gryffindor robes. In other words, the demand curve for Gryffindor robes shifts to the right. What will happen to the equilibrium price and quantity of Gryffindor robes as a result?
C-18, D-30. We discussed tariffs, import quotas, and voluntary export restraints (VERs). Each of these interferes with international trade, and thus there are some similarities among the effects of the three policies. However, there are also some differences. In class, we suggested that, if it is absolutely necessary to interfere with international trade, it might be preferable to use a VER. Why would this be?
a. A VER raises revenue for the government of the importing country.
b. The words “VER” are cuter than either “tariff” or “import quota”.
c. A VER may increase the profits of producers in the exporting country, and thus they may
be less likely to push their government to retaliate.
d. A VER actually increases the amount of imports.
e. All of the above.
C-19, D-31. Which of the following would push the production-possibilities frontier outward?
b. An increase in the size of the labor force.
c. An improvement in technology.
d. All of the above: (a), (b), and (c) would all push the p.p.f. outward.
e. (b) and (c) only.
C-20, D-10. There is an increase in the price of good H. Good H and good J are complements. What (if anything) will happen in the market for good J?
C-21, D-3. Which of the following is the best definition of economics?
a. The study of how to make money in the stock market.
b. The study of how society chooses to use its scarce resources.
c. The study of how consumers decide which goods to buy.
d. The study of how politicians get elected to office.
e. The study of how rats and pigeons respond to incentives.
C-22. D-11. Spam is an inferior good. The incomes of consumers decrease. As a result, what will happen in the market for spam?
a. Demand will increase (i.e., demand will shift to the right).
b. Supply will increase (i.e., supply will shift to the right).
c. Demand will decrease (i.e., demand will shift to the left).
d. Supply will decrease (i.e., supply will shift to the left).
e. The demand and supply curves both remain unchanged.
C-23, D-28. Which of the following is a true statement regarding market equilibrium?
a. At the equilibrium, quantity demanded is equal to quantity supplied.
b. Graphically, equilibrium occurs where the supply curve and the demand curve intersect.
c. At the equilibrium, neither a surplus nor a shortage will occur.
d. All of the above.
e. None of the above.
C-24, D-29. (i). "When a country’s level of education increases, its per-capita income increases."
(ii). "We should spend more on education".
a. Statement (i) is a positive statement; statement (ii) is a normative statement.
b. Statement (i) is a normative statement; statement (ii) is a positive statement.
c. Statement (i) is true; statement (ii) is false.
d. Statement (i) cannot be shown to be either true or false; statement (ii) may be
shown to be either true or false.
e. Both statements are clearly false.
C-25, D-14. The slope of the production possibilities frontier is
a. zero.
b. the opportunity cost of the good on the horizontal axis.
c. the opportunity cost of the good on the vertical axis.
d. the negative of the opportunity cost of the good on the horizontal axis.
e. the negative of the opportunity cost of the good on the vertical axis.
C-26, D-15. The supply of kumquats increases (i.e., the supply curve for kumquats shifts to the right). As a result, what will happen to the equilibrium price and quantity of kumquats?
C-27, D-16. Which of the following would cause the supply curve for gasoline to shift to the left?
a. A decrease in the price of gasoline.
b. An increase in the price of oil, which is an input in production of gasoline.
c. An explosion at a refinery (which we would characterize as a deterioration in the
technology of producing gasoline).
d. All of the above.
e. (b) and (c) only.
C-28, D-1. Currently, the quantity of zlatis demanded is less than the quantity of zlatis supplied. This means that
a. there is a surplus in the market for zlatis.
b. there is a shortage in the market for zlatis.
c. the market for zlatis is in equilibrium.
d. there will be pressure for the price to decrease.
e. (a) and (d).
C-29, D-2. Draco Malfoy can produce 10 units of good A, or 5 units of good B. Between these endpoints, Draco’s production-possibilities frontier is a straight line. Ron Weasley can produce 20 units of good A, or 40 units of good B. Between these endpoints, Ron’s production-possibilities frontier is also a straight line. On the basis of this information, which of the following statements is/are true?
a. For Draco, the opportunity cost of one unit of good A is 0.5 units of good B.
b. For Ron, the opportunity cost of one unit of good A is two units of good B.
c. Ron has comparative advantage in production of good B.
d. All of the above are correct.
e. Only (b) and (c) are correct.
C-30, D-26. The government of Btfsplk imposes an import quota on good X. What can we expect to happen as a result?
a. Consumers of good X who live in Btfsplk will be harmed (i.e., made worse off).
b. Producers of good X in Btfsplk will be helped (i.e., made better off).
c. Producers of good X in other countries who export to Btfsplk will be harmed (i.e.,
made worse off).
d. Revenue will be generated for the General Jones, because the import license for
good X has been granted to General Jones.
e. All of the above can be expected to occur as a result of the import quota.
C-31, D-27. Albert is thinking of buying a dinette set at some time in the next two years. Today, he gets new information, which leads him to believe that the price of a dinette set will increase by 50%, one month from today. As a result of this new information, what will happen to Albert’s approach to the dinette-set market this month?
a. His supply curve will shift to the right.
b. His demand curve will shift to the right.
c. His supply curve will shift to the left.
d. His demand curve will shift to the left.
e. All of the above (!!!)
C-32, D-8. We observe a decrease in the equilibrium price of spiral-bound notebooks, and a decrease in the equilibrium quantity of spiral-bound notebooks. Which of the following is consistent with these changes?
C-33, D-9. Assume that the elasticity of demand for plantains is 0.5. Due to a rightward shift in the supply curve for plantains, the price decreases by 10%. What will happen to the quantity of plantains demanded?
a. Quantity demanded will increase by 1.5%.
b. Quantity demanded will increase by 5%.
c. Quantity demanded will increase by 10%.
d. Quantity demanded will increase by 15%.
e. Quantity demanded will increase by 20%.
C-34, D-21. Microeconomics is primarily concerned with
a. the overall rate of inflation.
b. the overall rate of unemployment.
c. the behavior of households and business firms, and the way in which they interact i
in markets.
d. Rug Rats.
e. (a) and (b).
C-35, D-22. Technological improvements lead to an increase in productivity for both Good A and Good B. The productivity in Good A increases by 100%. (In other words, the endpoint for Good A on a production-possibilities frontier will now be twice as far from the origin as before.) The productivity for Good B increases by 300%. (In other words, the endpoint for Good B on a production-possibilities frontier will now be four times as far from the origin as before.) As a result of these changes, what can we say about the opportunity costs of A and B?
a. The opportunity cost of Good A has increased.
b. The opportunity cost of Good B has increased.
c. The opportunity costs of Good A and Good B are unchanged.
d. (a) and (b) are both correct.
e. Insufficient information has been given to answer the question.
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