Download ETP Economics Midterm Examination Fall Term 2008 1. Production

ETP Economics Midterm Examination
Fall Term 2008
1. Production possibilities frontiers are usually bowed outward. This is because
a. the more resources a society uses to produce one good, the fewer resources it
has available to produce another good.
b. it reflects the fact that the opportunity cost of producing a good decreases as
more and more of that good is produced.
c. of the effects of technological change.
d. resources are specialized, that is, some are better at producing particular
goods rather than other goods.
2. When an economy is operating inside its production possibilities frontier we know
that
a. there are unused resources or inefficiencies in the economy.
b. all of the economy’s resources are fully employed.
c. economic growth would have to occur in order for the economy to move to a
point on the frontier.
d. in order to produce more of one good, the economy would have to give up
some of the other good.
3. Which of these statements is a normative statement (as opposed to a positive
statement)?
a. Gasoline prices ought to be lower than they are now.
b. The federal government should raise taxes on wealthy people.
c. The social security system is a good system and it deserves to be preserved as
it is.
d. All of the above are normative statements.
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4. The difference between production possibilities frontiers that are bowed out and
those that are straight lines is that
a. bowed-out production possibilities frontiers apply to economies that face
tradeoffs, whereas straight-line production possibilities frontiers apply to
economies that do not face tradeoffs.
b. bowed-out production possibilities frontiers apply to economies in which
resources are not specialized, whereas straight-line production possibilities
frontiers apply to economies in which resources are specialized.
c. bowed-out production possibilities frontiers illustrate increasing opportunity
cost, whereas straight-line production possibilities frontiers illustrate constant
opportunity cost.
d. straight-line production possibilities frontiers illustrate real-world conditions,
whereas bowed-out production possibilities frontiers illustrate more
simplistic assumptions.
5. The opportunity cost of 1 bushel of corn is
a. 4/5 bushel of wheat for Paul and 3/2 bushels of wheat for Cliff; thus, Paul has
the comparative advantage in growing corn.
b. 4/5 bushel of wheat for Paul and 3/2 bushels of wheat for Cliff; thus, Cliff
has the comparative advantage in growing corn.
c. 5/4 bushels of wheat for Paul and 2/3 bushel of wheat for Cliff; thus, Paul has
the comparative advantage in growing corn.
d. 5/4 bushels of wheat for Paul and 2/3 bushel of wheat for Cliff; thus, Cliff
has the comparative advantage in growing corn.
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6. Assume Cliff and Paul were both producing wheat and corn, and each person was
dividing his time equally between the two. Then each decides to specialize in the
product in which he has a comparative advantage. As a result of this change,
total production of corn would
a. increase by 1 bushel.
b. increase by 3 bushels.
c. increase by 5 bushels.
d. decrease by 2 bushels.
7. Which of the following events could shift the demand curve for gasoline to the left?
a. Income of gasoline buyers rises, and gasoline is a normal good.
b. Income of gasoline buyers falls, and gasoline is an inferior good.
c. Public service announcements are run on television, encouraging people to
walk or ride bicycles instead of driving cars.
d. The price of gasoline rises.
8. When we move along a given demand curve,
a. only price is held constant.
b. income and the price of the good are held constant.
c. all nonprice determinants of demand are held constant.
d. all determinants of quantity demanded are held constant.
9. Which of the following events could shift both the demand curve and the supply
curve for a good?
a. A technological advance pertaining to the production of the good is observed.
b. Incomes of all buyers of the good increase.
c. The number of sellers of the good increases.
d. Everyone revises upward their expectation of next month’s price of the good.
10. Suppose there is an earthquake that destroys several corn canneries. Which of the
following would not be a direct result of this event?
a. Sellers would decrease their ability to produce and sell as much as before at
each relevant price.
b. The supply would decrease.
c. Buyers would not be willing to buy as much as before at each relevant price.
d. The equilibrium price would rise.
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11. Suppose the number of buyers in a market increases and a technological
advancement occurs also. What would we expect to happen in the market?
a. The equilibrium price would increase, but the impact on the amount sold in
the market would be ambiguous.
b. The equilibrium price would decrease, but the impact on the amount sold in
the market would be ambiguous.
c. Equilibrium quantity would increase, but the impact on equilibrium price
would be ambiguous.
d. Both equilibrium price and equilibrium quantity would increase.
12. Suppose that a decrease in the price of good X results in fewer units of good Y
being sold. This implies that X and Y are
a. complementary goods.
b. normal goods.
c. inferior goods.
d. substitute goods.
13. What will happen to the equilibrium price and quantity of traditional camera film
if traditional cameras become more expensive, digital cameras become cheaper,
the cost of the resources needed to manufacture traditional film falls and more
firms decide to manufacture traditional film?
a. Price will fall and the effect on quantity is ambiguous.
b. Price will rise and the effect on quantity is ambiguous.
c. Quantity will fall and the effect on price is ambiguous.
d. The effect on both price and quantity is ambiguous.
14. The demand for Chocolate Chip Cookie Dough ice cream is likely quite elastic
because
a. ice cream must be eaten quickly.
b. this particular flavor of ice cream is viewed as a necessity by many ice-cream
lovers.
c. the market is broadly defined.
d. other flavors of ice cream are good substitutes for this particular flavor.
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15. Elasticity of demand is closely related to the slope of the demand curve. The more
responsive buyers are to a change in price, the
a. steeper the demand curve will be.
b. flatter the demand curve will be.
c. further to the right the demand curve will sit.
d. closer to the vertical axis the demand curve will sit.
16. Suppose demand is perfectly elastic and the supply of the good in question
decreases. As a result,
a. the equilibrium quantity decreases and the equilibrium price is unchanged.
b. the equilibrium price increases and the equilibrium quantity is unchanged.
c. the equilibrium quantity and the equilibrium price both are unchanged.
d. buyers’ total expenditure on the good is unchanged.
17. How does total revenue change as one moves downward and to the right along a
linear demand curve?
a. It always increases.
b. It always decreases.
c. It first increases, then decreases.
d. It is unaffected by a movement along the demand curve.
18. If the price elasticity of demand for tuna is -0.7, then a 1.5% increase in the price
of tuna will decrease the quantity demanded of tuna by
a. 1.05% and tuna sellers' total revenue will increase as a result.
b. 1.05% and tuna sellers' total revenue will decrease as a result.
c. 2.14% and tuna sellers' total revenue will increase as a result.
d. 2.14% and tuna sellers' total revenue will decrease as a result.
19. OPEC successfully raised the world price of oil in the 1970s and early 1980s,
primarily due to
a. an inelastic demand for oil and a reduction in the amount of oil supplied.
b. a reduction in the amount of oil supplied and a world-wide oil embargo.
c. a world-wide oil embargo and an elastic demand for oil.
d. a reduction in the amount of oil supplied and an elastic demand for oil.
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20. If corn farmers know that the demand for corn is inelastic, and they want to
increase their total revenue, they should all
a. plant more corn so that they would be able to sell more each year.
b. increase spending on fertilizer in an attempt to produce more corn on the
acres they farm.
c. reduce the number of acres they plant in corn.
d. contribute to a fund that promotes technological advances in corn production.
21. Which of the following statements is correct?
a. A price ceiling set at $12 would be binding, but a price ceiling set at $8
would not be binding.
b. A price floor set at $8 would be binding, but a price ceiling set at $8 would
not be binding.
c. A price ceiling set at $9 would result in an excess supply.
d. A price floor set at $11 would result in a surplus.
22. If the government imposes a price ceiling of $12 in this market, the result would
be
a. a surplus of 10.
b. a surplus of 20.
c. a shortage of 20.
d. neither a surplus nor a shortage.
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23. A tax on bicycles that buyers of bicycles are required to pay shifts
a. the demand curve downward, causing both the price received by sellers and
the equilibrium quantity to fall.
b. the demand curve upward, causing both the price received by sellers and the
equilibrium quantity to rise.
c. the supply curve downward, causing the price received by sellers to fall and
the equilibrium quantity to rise.
d. the supply curve upward, causing the price received by sellers to rise and the
equilibrium quantity to fall.
24. In which market will the majority of the tax burden fall on the buyer?
a.
b.
c.
d.
market (a)
market (b)
market (c)
All of the above are correct.
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25. In which market will the tax burden be most equally divided between the buyer
and the seller?
a. market (a)
b. market (b)
c. market (c)
d. All of the above are correct.
26. Suppose your own demand curve for tomatoes slopes downward. Suppose also
that, for the last tomato you bought this week, you paid a price exactly equal to
your willingness to pay. Then
a.
b.
c.
d.
you should buy more tomatoes before the end of the week.
you already have bought too many tomatoes this week.
your consumer surplus on the last tomato you bought is zero.
your consumer surplus on all of the tomatoes you have bought this week is
zero.
27. Suppose televisions are a normal good and buyers of televisions experience a
decrease in income. As a result, consumer surplus in the television market
a. decreases.
b. is unchanged.
c. increases.
d. may increase, decrease, or remain unchanged.
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28. When the price falls from P2 to P1, producer surplus
a.
b.
c.
d.
decreases by an amount equal to C.
decreases by an amount equal to A + B.
decreases by an amount equal to A + C.
increases by an amount equal to A + B.
29. Area B represents
a. the combined profits of all producers when the price is P2.
b. the increase in producer surplus to all producers as the result of an increase in
the price from P1 to P2.
c. producer surplus to new producers entering the market as the result of an
increase in the price from P1 to P2.
d. that portion of the increase in producer surplus that is offset by a loss in
consumer surplus when the price increases from P1 to P2.
30. When cigarettes are taxed and sellers of cigarettes are required to pay the tax to
the government,
a. the size of the cigarette market is reduced.
b. the price paid by buyers of cigarettes decreases.
c. the demand for cigarettes decreases.
d. there is a movement downward and to the right along the demand curve for
cigarettes.
31. Suppose a tax of $4 per unit is imposed on a good, and the tax causes the
equilibrium quantity of the good to decrease from 2,000 units to 1,700 units. The
tax decreases consumer surplus by $3,000 and it decreases producer surplus by
$4,400. The deadweight loss of the tax is
a. $200.
b. $400.
c. $600.
d. $1,200.
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32. Which of the following quantities decrease in response to a tax on a good?
a. the size of the market for the good, the effective price of the good paid by
buyers, and consumer surplus
b. the size of the market for the good, producer surplus, and the well-being of
buyers of the good (consumer surplus)
c. the effective price received by sellers of the good, the wedge between the
effective price paid by buyers and the effective price received by sellers, and
consumer surplus
d. None of the above is necessarily correct unless we know whether the tax is
levied on buyers or on sellers.
33. Which of the following statements is correct regarding a tax on a good and the
resulting deadweight loss?
a. The greater are the price elasticities of supply and demand, the greater is the
deadweight loss.
b. The greater is the price elasticity of supply and the smaller is the price
elasticity of demand, the greater is the deadweight loss.
c. The smaller are the decreases in quantity demanded and quantity supplied,
the greater the deadweight loss.
d. The smaller is the wedge between the effective price to sellers and the
effective price to buyers, the greater is the deadweight loss.
34. When a country is on the downward-sloping side of the Laffer curves, a cut in the
tax rate will
a. decrease tax revenue and decrease the deadweight loss.
b. decrease tax revenue and increase the deadweight loss.
c. increase tax revenue and decrease the deadweight loss.
d. increase tax revenue and increase the deadweight loss.
35. When a country allows trade and becomes an importer of a good,
a. both domestic producers and domestic consumers become better off.
b. domestic producers become better off, and domestic consumers become
worse off.
c. domestic producers become worse off, and domestic consumers become
better off.
d. both domestic producers and domestic consumers become worse off.
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36. When a nation first begins to trade with other countries and the nation becomes an
exporter of corn,
a. this is an indication that the world price of corn exceeds the nation’s
domestic price of corn in the absence of trade.
b. this is an indication that the nation has a comparative advantage in producing
corn.
c. the nation’s consumers of corn become worse off and the nation’s producers
of corn become better off.
d. All of the above are correct.
37. Which of the following statements is true?
a. Free trade benefits a country when it exports but harms it when it imports.
b. "Voluntary" limits on Canadian exports of hogs are better for the United
States than U.S. tariffs placed on Canadian hog exports.
c. Tariffs and quotas differ in that tariffs work like a tax and therefore impose
deadweight losses, whereas quotas do not impose deadweight losses.
d. Free trade benefits a country both when it exports and when it imports.
38. The amount of revenue collected by the government from the tariff is
a. $200.
b. $400.
c. $500.
d. $600.
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39. The amount of deadweight loss caused by the tariff equals
a.
b.
c.
d.
$100.
$200.
$400.
$500.
40. Import quotas and tariffs produce similar results. Which of the following is not
one of those results?
a. The domestic price of the good increases.
b. Consumer surplus of domestic consumers increases.
c. Producer surplus of domestic producers increases.
d. A deadweight loss is experienced by the domestic country.
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