Download First midterm (form B)

Dr. Stephen Chiu
Form B
ECON1001I
1st term 2009-2010
Mid Term Exam One
Subclass (E or F): ________________________
Name: ________________________________
University Number: ________________________
(1) Don’t open this exam until you are told to do so. Read the entire exam before you start. The exam is
worth 100 total points.
(2) Follow the instructions at the beginning of each section. Please answer in permanent ink. No pencil
please.
(3) There are two parts in this exam covering 6 pages.
(6) GOOD LUCK!
Form B
Dr. Stephen Chiu
Part I. Answer all question (70 points). Choose the best answer for each question and write it down
in the following table. No scores will be given if you only circle your choice in the question but do
not write down.
Your answers
1. _________ 2. ___________ 3. __________ 4. _________ 5. _________
6. _________ 7. ___________ 8. __________ 9. _________ 10. ________
11. ________ 12. __________ 13. _________ 14. ________ 15. ________
16. ________ 17. __________ 18. _________ 19. ________ 20. ________
21. ________ 22. __________ 23. _________ 24. ________ 25. ________
26. ________ 27. __________ 28. _________ 29. ________ 30. ________
31. ________ 32. __________ 33. _________ 34. ________ 35. ________
1) Estimates of the income elasticity of demand for health care indicate that it is about one. These
estimates suggest that spending on health care should:
a. increase proportionately with income.
b. increase faster than income.
c. increase less than income.
d. not increase or decrease with income.
2) Laura's total utility from consuming 8, 9, and 10 bonbons is 35, 42, and 45, respectively. Her
marginal utility from the 9th bonbon is __________ utils.
a. 42
b. 9
c. 7
d. 4.67
e. 77
3) Assume that Jonas has $30 in income, the price of a loaf of bread is $1.50, and the price of a
jar of peanut butter is $3. Use this information to answer questions 29-30. Jonas can buy a
maximum of _____ loaves of bread or a maximum of _____ jars of peanut butter.
a. 20;10
b. 15;15
c. 10;20
d. 10;5
e. 5;10
4) Larry has a comparative advantage in writing a term paper if he
a. can write a paper faster than the other students in class.
b. has an absolute advantage in writing a term paper.
c. always earns an A on his papers.
d. has a low opportunity cost for writing a term paper.
e. All of the above must be true for Larry to have a comparative advantage.
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Form B
Dr. Stephen Chiu
5) Which of the following statements is always true?
a. Comparative advantage implies absolute advantage.
b. Absolute advantage implies comparative advantage.
c. Comparative advantage does not require absolute advantage.
d. Absolute advantage requires comparative advantage.
e. Comparative advantage requires absolute advantage.
6)
“In 1994 Ford sold 500,000 Escorts at an average price of $7,200 per car: in 1995, 600,000
Escorts were sold at an average price of $7,500 per car.” These statements:
a. suggest that the demand for Escorts decreased between 1994 and 1995.
b. imply that Escorts are an inferior good.
c. suggest that the demand for Escorts increased between 1994 and 1995.
d. illustrate that the supply curve for Escorts is downward sloping.
e. constitute an exception to the law of demand in that they suggest an upward sloping
demand curve.
7) An “increase in the quantity demanded” means that:
a. given supply, the price of the product can be expected to decline.
b. price has declined and consumers therefore want to purchase more of the product.
c. the demand curve has shifted to the right.
d. the demand curve has shifted to the left.
8) If a product is in surplus supply, we can conclude that its price:
a. is below the equilibrium level.
b. is above the equilibrium level.
c. will rise in the near future.
d. is in equilibrium.
9) Graphically, the horizontal sum of all individual demand curves is known as:
a. consumer’s tastes and preferences
b. the market demand curve.
c. the equilibrium price.
d. consumer sovereignty.
Price of A per unit
$100
120
Quantity of B demanded
400
380
Quantity of C demanded
400
420
10) Refer to the above data. Which of the following is most likely to be true?
a. B and C are both substitute products for A.
b. B and C are both complementary products for A.
c. C is a substitute for A; B is a complement to A.
d. C is a complement to A; B is a substitute for A.
11) According to the lecture, Adam Smith’s famous doctrine of the Invisible Hand, introduced in
the Wealth of Nations in 1776, was anticipated by _______________ in his works.
a. Max Lerner
b. Confucius
c. Leibniz
d. Sima Qian
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Form B
Dr. Stephen Chiu
Capital goods
A
5
B
4
C
3
D
2
E
1
F
0
Consumer goods
0
5
9
12
14
15
12) If the economy is producing at production alternative C, the opportunity cost of the tenth unit
of consumer goods will be:
a. 4 units of capital goods.
b. 2 units of capital goods.
c. 3 units of capital goods.
d. 1/3 of a unit of capital goods.
e. 1 unit of capital goods.
13) Which of the following would cause an increase in the demand curve?
a. the price of production inputs fall
b. the price of a substitute good falls
c. consumer incomes increase
d. production technology improves
14) If peanut butter and jelly are complements, a decrease in the price of jelly will cause the
equilibrium price of peanut butter to _______________ and the quantity to __________.
a. increase; increase
b. decrease; decrease
c. increase; decrease
d. decrease; increase
15) Which of the following is an example of a normative statement?
a. The Hang Seng Index reached over 32,000 in September 2009
b. 10% of the population live on Hong Kong island
c. The Hong Kong unemployment rate has reached an alarming level
d. Hong Kong had a budget surplus last year
16) If the marginal utility of Coke divided by the marginal utility of Lemonade is 3.0 and the price
ratio is 2.5, one could conclude that:
a. the individual will spend any additional money on Coke
b. the individual will spend any additional money on Lemonade
c. the individual is at an interior solution
d. cannot tell from the information given
17) If price elasticity of demand for a good is inelastic; total expenditures will _____________ as
the price rises:
a. Increase
b. Decrease
c. stay the same
d. depends the amount of the price changes
18) If the income elasticity was –0.79, this would mean that the good was _____________, and
that an increase in income would cause a ______________ in demand.
a. normal; increase
b. normal; decrease
c. inferior; increase
d. inferior; decrease
19) If only two possible goods are available and income is always completely spent, then:
a. only one of them can be an inferior good
b. there can be no inferior goods
c. only one of them can be a normal good
d. there can be no normal goods
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Form B
Dr. Stephen Chiu
20) Sara likes to watch sporting events (S) and playing video games (V). Her utility function is
of the form: U=10*S*V. Currently, she is watching 2 sporting events and playing 6 video
games. Another bundle which would lie on the same indifference curve, i.e., which would
make her equally happy, would be?
a. 5 sporting events; 3 video games
b. 0 sporting events; 12 video games
c. 4 sporting events; 4 video games
d. 4 sporting events; 3 video games
21) Given the usual shape, if the supply and demand curves both increase, we would expect that:
a. the equilibrium quantity to increase
b. the equilibrium quantity to decrease
c. the equilibrium quantity to stay the same
d. cannot tell from the information given
22) Which of the following would cause an increase in the demand curve?
a. the price of production inputs fall
b. the price of a substitute good falls
c. consumer incomes increase
d. production technology improves
23) Which of the following would cause the demand curve of a normal good X to shift to the left?
a. a drop in the price of X
b. an increase in the price of a substitute
c. a decrease in consumer income
d. none of the above
24) Given the price of pretzels is $1.50 a bag and the price of potato chips is $2.00 a bag, if
pretzels was measured on the vertical axis, the slope of the budget constraint would be:
a. 3/4
b. 4/3
c. –3/4
d. –4/3
25) If an economy is operating at a point inside the production possibility frontier, then
a. Society’s resources are being inefficiently utilized.
b. The curve will move leftward.
c. Society’s resources are being used to produce too many consumer goods.
d. Economic policy must retard further growth of the economy.
Guns (hundreds)
Butter (tons)
1
20
2
18
3
15
4
10
5
3
26) The table above shows the production possibility frontier for the economy of Hong Kong
Island. If this economy were to produce 3 (hundred) guns and 12 (ton of) butter,
a. It would be operating beyond its production possibility frontier.
b. It would be utilizing its resources with maximum efficiency.
c. It would be on its production possibility frontier.
d. It could utilize resources more efficiently to produce 3 more (tons of) butter without
sacrificing any guns.
27) Suppose that in one week Alice can produce 5 pairs of shoes or 4 bookshelves while Roger can
produce 10 pairs of shoes or 6 bookshelves. Then according to the comparative advantage
theory Alice should specialize in the production of
a. Shoes.
b. Bookshelves.
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Form B
Dr. Stephen Chiu
c.
d.
Either shoes or bookshelves.
Neither shoes nor bookshelves.
28) Changes in which of the following items will cause a shift of the demand curve for cigars?
a. An increase in the price of the tobacco used to produce cigars.
b. An increase in the productivity of cigar-rolling machines.
c. A new government policy which raises the legal smoking age to twenty-five.
d. None of the above.
29) A decrease in the demand for beef due to concerns over cholesterol will cause
a. Lower beef prices.
b. Higher beef prices.
c. An increase in the supply of beef.
d. A decrease in the supply of beef.
30) During the Great Depression in the US of the 1930’s, average family incomes dropped by
about 35% nationwide. During this same time period, the price of children’s shoes dropped
about 20% and the quantity purchased annually dropped about 40%. This indicates that
a. The demand for children’s shoes was price elastic.
b. The supply of children’s shoes was price inelastic.
c. The demand for children’s shoes was income elastic.
d. Children’s shoes were inferior goods during the Depression.
31) Back a few years ago, a prominent person said the following, “My thesis in this lecture is that
macroeconomics in this origin sense has succeeded: Its central problem of depressionprevention has been solved, for all practical purposes, and has in fact been solved for many
decades.” Who is this person?
a. Kenneth Arrow
b. Martin Weitzman
c. Robert Lucas
d. Alan Greenspan
32) In the market for unskilled labor, the long-run
a. Demand for labor is less elastic than the short-run demand.
b. Demand for labor is more elastic than the short-run demand.
c. Supply of labor is less elastic than the short-run supply.
d. Supply of labor is more elastic than the short-run supply.
33) In economics, another term for satisfaction is
a. Income
b. price reduction
c. marginality
d. utility
34) If Sam has $60 each week to spend on gasoline and coffee, and their respective prices are
$1.50 per gallon and $3.00 per pound, which of the following equations represents his budget
line? (Qg is quantity of gasoline, Qc quantity of coffee)
a. $60.00=$1.50/Qg + $3.00/Qc
b. $60.00=Qg/$1.50 + Qc/$3.00
c. $60.00=$1.50 * Qg + $3.00 * Qc
d. $60.00=$1.50 * Qg - $3.00 * Qc
35) The cost that a firm incurs for a resource that it already owns is called
a. an explicit cost
b. an implicit cost
c. an accounting cost
d. a nontaxable cost
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Form B
Dr. Stephen Chiu
Part II.
Answer both questions (30 points).
1) The Department of Economics allots to each faculty member a $100 annual budget which can be
used only for long-distance telephone calls. Assume that each faculty member spends his/her entire
budget and no more or less. What is the faculty’s price elasticity of demand for departmentprovided long-distance telephone service? Explain your answer in no more than 30 words. (15
points)
(2) Identify each of the following as: (1) a change in demand or (2) a change in the quantity
demanded. (15 points)
(a) Grape consumption falls because of a consumer boycott.
(b) Grape consumption falls because of a tax on grape producers.
(c) Grape consumption rises because of a good harvest.
End of paper
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