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University of Texas  Economics 304L EXAM 1 Fall 2008 1)Macrosoft Inc

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University of Texas

 Economics 304L

EXAM 1

Fall 2008

1)Macrosoft Inc. makes computer monitors, which sell for $500 each. What is the opportunity cost of ten monitors?

a.	$5,000.
b.	the other goods that could be produced with the resources that produce the ten monitors
c.	the profits that Macrosoft earns when it sells the ten monitors
d.	the profits that Macrosoft loses if it does not produce the monitors
e.	All of the above are correct.

 

Figure 1

 

 

2. According to Figure 1, the opportunity cost of one more bushel of wheat is

a.	higher at B than at D.
b.	lower at B than at D.
c.	equal at B and D.
d.	impossible to determine from the information given.

 

3. In Table 1 from point C, the opportunity cost of 3 more units of cotton would be

a.	4 units of corn.
b.	8 units of corn.
c.	14 units of corn.
d.	18 units of corn.

 

Table 1
Combination	Cotton	Corn
A	12	16
B	17	15
C	21	13
D	23	9
E	24	5

 

4. Demand is said to be elastic if

a.	the price of the good responds substantially to changes in demand.
b.	demand shifts substantially when income or the expected future price of the good changes.
c.	buyers do not respond much to changes in the price of the good.
d.	buyers respond substantially to changes in the price of the good.

 

5. Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling,

a.	the demand curve for physicals shifts to the right.
b.	the supply curve for physicals shifts to the left.
c.	the quantity demanded of physicals increases and the quantity supplied of physicals decreases.
d.	the number of physicals performed will increase.

 

6. Which of the following would NOT be counted as “Investment” in GDP accounts?

a.	General Motors building a factory.
b.	Increases in General Motors’ inventories of cars.
c.	New residential housing structures.
d.	The purchase of a share of stock in General Motors by an employee of General Motors.

 

7. If the nominal GDP is $13 trillion for a given year and the GDP deflator for that year is 115, then the real GDP is:

a.	$11.3 trillion
b.	$14.95 trillion.
c.	$12 trillion.
d.	$13 trillion.

 

8. Dave brags to his dad that his starting salary as a computer programmer of $45,000 is much higher than his dad's starting salary of $28,000 some years ago. If the CPI the year Dave begins work is 180.5 and the CPI the year his dad started work was 110.8, Dave is:

a.	correct. Adjusting for price changes, his salary is more than his dad's salary.
b.	correct. Adjusting for quantity changes, his salary is more than his dad's salary.
c.	wrong. Adjusting for price changes, his salary is less than his dad's salary.
d.	wrong. Adjusting for quantity changes, his salary is less than his dad's salary.

 

9.  When the BLS calculates the CPI, it assumes that:

a.	each consumer maximizes his or her utility.
b.	consumers do not substitute cheaper goods for goods whose prices have risen.
c.	consumers overspend.
d.	there is no unemployment.

 

10. When a lender underestimates the rate of inflation,

a.	purchasing power is redistributed to the lender.
b.	purchasing power is redistributed to the borrower.
c.	both lender and borrower lose due to higher than expected inflation
d.	neither lender nor borrower are affected since inflation is unanticipated.

 

 

 

II. True or False? Explain your answer.  No credit will be given for answers without explanations. 

 

To reach the point beyond the PPF, an economy must experience a reduction in unemployment. 

 

 

 

 

 

 

 

 

 

 

 III. Supply and Demand

Consider market for sailboats.  Listed below are some events that could have some effect on one or more of the following with respect to sailboats: equilibrium price, equilibrium quantity, demand, and supply.  Indicate which of the above four are directly affected and in what direction (i.e., increase, decrease, etc.).  Illustrate each effect on a graph.

 

1. ESPN coverage of the America’s Cup sailboat races increases interest in sailing.
2. A tax is imposed on producers of sailboats per unit of output.
3. The cost of fiberglass, used in the production of sailboats, increases.
4. Government enacts a price floor above the equilibrium price.  Will this policy result in a shortage, surplus or neither?