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Homework 1 - Fall2010
Econ 201 Lab (Section 201,206,207)
Due on Sep 13, 2010
1. Suppose there is a decrease in the price of herbicides and pesticides used in the production of
coffee. Ceteris paribus, the equilibrium price of coffee will _____, and equilibrium quantity
exchanged will _____.
A. Decrease; decrease
B. Increase; increase
C. Decrease; increase
D. Increase; decrease
2. Refer back to the previous question, and suppose coffee and cream are complements. After the
change in the coffee market occurs, ceteris paribus, it follows that the equilibrium price of cream
will _____, and equilibrium quantity exchanged will _____.
A. Decrease; decrease
B. Increase; increase
C. Decrease; increase
D. Increase; decrease
3. Once upon a time, before mechanical refrigeration, livestock destined for the market was
typically slaughtered in the fall. The advent of mechanical refrigeration allowed farmers to
slaughter year around without the fear of spoilage. A primary impact of this technological change
in the market for meat would have been to _____ the fall price of meat _____the quantity of meat
consumed during the fall, ceteris paribus.
A. Decrease, while decreasing
B. Increase; while increasing
C. Decrease; but increasing
D. Increase; but decreasing
4. Refer back to the previous question. Mechanical refrigeration would also be expected to
influence the price and quantity exchanged of meat during the rest of year. If follows that in the
market for meat during the rest of the year, the price would have _____; while the quantity
exchanged would have _____, ceteris paribus.
A. Decreased; decreased
B. Increased; increased
C. Decreased; increased
D. Increased; decreased
5. Suppose that there is technological improvement in the harvesting equipment used in the
Florida orange industry. If North Carolina apples and Florida oranges are substitutes, ceteris
paribus, it follows that:
A. The equilibrium price of apples will increase
B. The equilibrium price of apples will decrease
C. The equilibrium quantity exchanged of apples will increase
D. The equilibrium quantity exchanged of oranges will decrease, but their price will increase.
6. Lumber is a key input in the production of new homes. Ceteris paribus, which of the following
will be the most likely impact of the proliferation of an insect that destroys lumber-providing
trees?
A. A decrease in demand for new homes and a decrease in the equilibrium price
B. A decrease in the supply of new homes and an increase in the equilibrium price
C. An increase in demand for new homes and a decrease in the equilibrium price
D. An increase in demand for new homes and an increase in the equilibrium price
7. Suppose ballet tickets are a normal good; whereas boxing tickets are an inferior good. Further
suppose that consumer incomes are expected to increase 2.59 percent next year. Ceteris paribus, it
follows that the price of ballet tickets will _____; whereas the price of boxing tickets will _____.
A. Increase; increase
B. Increase; decrease
C. Decrease; decrease
D. Decrease; increase
8. Scoopable kitty litter is a normal good. Suppose you are informed that “the current recession
will end next year,” and as a result consumer incomes will increase. Ceteris paribus, following the
increase in income, the demand for scoopable kitty litter will _____; its price will _____; and the
quantity exchanged will _____.
A. Increase; increase; increase
B. Decrease; increase; decrease
C. Increase; decrease; increase
D. Increase; decrease; decrease
9. You trade commodities, such as wheat, in both the “spot” (i.e. the current) market and the
“futures” market. Ceteris paribus, which of the following factors would most likely lead to a
decrease in the spot price of wheat?
A. A decrease in the price of herbicides used in the production of wheat
B. Wheat buyers expect the future price of wheat to increase
C. An increase in the price of wheat harvesters
D. Wheat sellers expect the future price of wheat to increase
10. Which of the following diagrams illustrates the change in the market equilibrium of hamburger
(an inferior good) in response to a change in U.S. average household income from $41,000 to
$42,000?
11. Suppose a firm sells leather shoes and alligator-skin handbags, which are complements. If the
price of leather increases due to reduction in the number of cattle farmers, what will happen to the
equilibrium price of alligator skin handbags, ceteris paribus?
A. It will increase
B. It will decrease
C. Pigs will fly
D. Dogs will meow
12. _____ is a _____ variable; whereas, _____is a _____ variable.
A. Consumer income, demand-side; the price of complements, supply-side
B. Consumer income, demand-side; the price of productive inputs, supply-side
C. The price of productive input, demand-side; the price of complement, supply-side
D. The price of productive input, demand-side; technology, supply-side
13. Suppose that there is a technology improvement in harvesting of wheat. Ceteris paribus, one
would predict that the equilibrium price of wheat will _____ and equilibrium quantity exchanged
of wheat will _____.
A. Increase, increase
B. Increase, decrease
C. Decrease, decrease
D. Decrease, increase
14. Suppose you were asked to plot, on a two dimensional diagram, per capita GDP and an index
of “economic freedom”, which indicates the extent to which markets allocate resources in a
particular country, for 25 countries, selected at random from all of the countries in the world for
which such data exist. Which of the following most closely describes what you should expect to
find, ceteris paribus?
A. Very few countries show a positive correlation between per capita GDP and economic freedom
B. There is a positive correlation between per capita GDP and economic freedom
C. There are not 25 such countries in the world for which those data could be accumulated
D. There is a negative correlation between per capita GDP and economic freedom
15. Ceteris paribus, which of the following would most likely cause the U.S. production
possibilities curve to shift outward?
A. A permanent ban on off-shore petroleum drilling
B. A reallocation of resources from food production to clothing production
C. In improvement in technology that increases the productivity of workers across all industries
D. A tax on imported food and clothing
16. Suppose a country can produce a combination of 40 units of X and 60 units of Y, but if it
produces 50 units of X, then it can only produce 40 units of Y. Ceteris paribus, it follows that, the
opportunity cost of producing 10 more units of X is _____.
A. 10 units of X
B. 20 units of Y
C. 2 units of Y
D. 0.05 units of Y
17. Employing all of its productive resources efficiently, Japan can produce 3 units of rice and
zero units of corn, or 2 units of corn and zero units of rice; whereas, Peru can produce 5 units of
rice and zero units of corn, or 4 units of corn and zero units of rice. Assuming that each country
wants to maximize the consumption by its citizens, ceteris paribus, _____ should export _____,
and _____ should export_____.
A. Japan, rice, Japan, corn
B. Peru, rice, Peru, corn
C. Japan, rice, Peru corn
D. Japan, corn, Peru, rice
18．Suppose your economist tells you the demand for X is given by: X=60-5P; and the supply of X
is given by X=11+2P. Ceteris paribus, the equilibrium price of X is _____, and equilibrium
quantity exchanged is _____.
A. 35;17
B. 25;7
C. 17;35
D. 7;25
19. Suppose your economist has the following model of the demand for gold: G=f(d)= α+βd;
where G is the quantity of gold, and d is the price of the U.S. dollar. This model tells us that as the
price of dollar _____ by one unit, ceteris paribus, the quantity of gold exchanged will _____.
A. Decrease; decrease by (α+β)
B. Increases; increase by β
C. Decreases; increase by (α+β)
D. Increases; decrease by β
20. Refer back to the previous question. Ceteris paribus, it follows from the information presented
there that _____.
A. Gold and the dollar are complements
B. Gold is a normal good
C. Gold and the dollar are substitutes
D. Gold is an inferior good.