Download Exam 1a

Exam 1 Version A
Econ 202 Fall 2008
Dr. Claudia Strow
Name__________________________
Please read and sign the following statement. Failure to sign the statement will prevent your exam from
being graded.
I hereby promise that I have neither given nor received help on this exam. Furthermore, I have not and will not
discuss the contents of this exam with anyone who has not yet taken the exam from any of Dr. Strow’s classes.
I understand that doing so, giving, or receiving help in any other form or fashion constitutes cheating and will
result in a grade of zero on the exam and potentially an F in the course.
Signed ________________________________
I. (20 points) Identify the effect on equilibrium price (P) and quantity (Q) of Marshmallows sold in
each of the following situations with one of the following symbols:
either  (decrease) (increase) or ? (cannot tell).
You may wish to draw a graph to help you determine the direction price and quantity move.
P
Q_
a. Consumers expect the price of marshmallows to decrease in the future
____ ____
b. New technology decreases the amount of labor needed to package marshmallows ____ ____
c. The price decreases for graham crackers
(a good often consumed with marshmallows)
____ ____
d. The price increases for sugar (an ingredient in marshmallows)
____ ____
e. Wages of marshmallow plant workers fall, and at the same time
a study is released linking marshmallow consumption with increased
risk for diabetes
____ ____
II. Fill in the Blank (10 points) Fill in the appropriate individual, term, or phrase
a. ____________________________ is the study of the decision making of individuals (individual persons,
individual businesses, or individual levels of the government)
b. ____________________________ is a government imposed maximum price that sellers cannot legally
charge above
c. ____________________________ is the last name of the individual who argued that the government
should address major inequalities or work to keep the economy stable
but should not otherwise intervene in markets.
d. ____________________________ is the term used to describe the type of good whose demand decreases
when income increases.
e. ____________________________ the term used to describe long lasting tools used for production such as
machines and factories
III. Fill in the blank
1. (19 points) The equations representing the Supply and Demand for widgets are as follows:
D: P=50-2Qd
S: P=30+3Qs
a. What is the equilibrium price and quantity of Widgets in this market? Show all of your work in the space
below.
q*=_____
p*=$_____
b. If a price floor of $ 48 is set, what are the quantities demanded and supplied? What is the quantity
exchanged?
Show your work .
Quantity demanded is ______
Quantity supplied is ______
Quantity exchanged is ______
(circle one below)
(fill in the below blank)
c. Under the price floor of $48, there exists a (shortage/surplus/neither) of ______ widgets.
d. Fill in the blank & circle the correct answer to make the following statement correct:
(circle one below) (fill in the below blank)
In order for a price ceiling to be effective, it must be ( greater than/ less than ) $_______.
IV. Multiple Choice Each multiple choice is worth three points. Please place answers to multiple choice
questions on your scantron, as only this answer will be graded for this portion of the exam.
1. Which of the following issues is/are microeconomic?
a. The price of cabbage falls.
b. The Hanes corporation builds a new factory in Bowling Green.
c. Workers at the Corvette plant are laid off.
d. All of the above are microeconomic issues.
e. None of the above are microeconomic issues.
2. Which of the following is an example of a positive statement?
a. the government ought to reduce taxes for the poor.
b. if congress cuts taxes for the rich, the economy will grow at a faster pace.
c. increased welfare payments are desirable.
d. The unemployment rate should be lower.
e. none of the above are examples of a positive statement
3. Oliver received $20 for his birthday and is trying to decide how to spend it. His options in the order he
prefers them are:
1. Spend $20 going to the driving range
2. Spend $20 going to a concert
3. Spend $20 taking a friend to a movie
What is the opportunity cost of going to the driving range?
a. Going to a concert
b. $20
c. $20 and the concert
d. $20, attending the concert, and taking a friend to a movie
e. attending the concert and taking a friend to a movie
4. If the Demand for coffee increases, ceteris paribus, which of the following will happen
a. equilibrium price will increase and equilibrium quantity will increase
b. equilibrium price will increase and equilibrium quantity will decrease
c. equilibrium price will decrease and equilibrium quantity will decrease
d. equilibrium price will decrease and equilibrium quantity will increase
5. Ceteris Paribus means:
a. free lunch
b. own all resources
c. everything else the same
d. wasted resources
e. leave it alone
6. Suppose that sellers of a good get inside information (that consumers do not have) that the price of that good
will decrease in the future. What will happen to equilibrium price and quantity now?
a. equilibrium price will increase and equilibrium quantity will increase
b. equilibrium price will increase and equilibrium quantity will decrease
c. equilibrium price will decrease and equilibrium quantity will decrease
d. equilibrium price will decrease and equilibrium quantity will increase
7. When the equilibrium price of pizza falls from $12 to $10, then according to the law of demand, ceteris
paribus, the
a. demand for pizza will increase.
b. quantity demanded of pizza will increase.
c. demand for pizza will decrease
d. quantity demanded of pizza will decrease.
e. both the quantity demanded and the demand for pizza will increase.
8. Assuming that either supply or demand, but not both, changed, which of the following must have occurred to
cause an increase in the equilibrium price and an increase in the equilibrium quantity of blankets sold?
a. Supply increased
b. Demand increased
c. Supply decreased
d. Demand decreased
e. Demand decreased and Supply decreased
9. In the US market for human organ donations, there is a price ____________. If this price control is
removed, we would expect the quantity supplied of human organ donations to _______________.
a. floor, increase
b. ceiling, increase
c. floor, decrease
d. ceiling, decrease.
10. The fundamental problem of economics is:
a. The law of increasing opportunity costs
b. How to get government to operate efficiently.
c. The scarcity of resources relative to human wants.
d. How to create employment for everyone
e. ceteris paribus
11. Capital goods
B
E
C
Consumption goods
Suppose that Canada and Britain have the same Production Possibilities Frontier, as shown above. Canada is
currently producing at point C, while Britain is producing at point B. Which of the following statements is
true?
a. The future PPFs will be the same for both Countries since they both began with the
same resources.
b. The future PPF will be further out for Canada since it produces more consumption
goods and consumers are better off.
c. The future PPF will be further out for Britain since it produces more capital.
d. Point E is unattainable for both countries.
e. Britain is currently enjoying more consumption goods.
12. Which of the following most accurately portrays what would happen in the market for Soybeans if the
equilibrium price of Corn (an alternative good which could be produced) falls?
a. supply of soybeans falls
b. supply of soybeans rises
c. demand for soybeans falls
d. demand for soybeans rises
e. supply of soybeans falls and demand for soybeans falls
Suppose that in one hour Gilligan can gather the following quantities of coconuts or bunches of berries.
Consider the PPF data for Gilligan in order to answer questions 13-17
Point
Coconuts
Berries
A
0
50
B
2
45
C
4
35
D
6
20
E
8
0
13. What is the approximate opportunity cost of one coconut between points A and B?
a. 45 berries
b. 2 berries
c. 2.5 berries
d. 2/5 berry
e. 5 berries
14. Consider a Point F where Gilligan is producing 4 Coconuts and 40 Berries. In order to produce at Point ,
Gilligan must
a. be willing to lower the price of Berries
b. use its resources more efficiently than it does at points A through E on the PPF
c. experience resource unemployment
d. experience an increase in resources and or an improvement in technology
15. Between which two points is the opportunity cost per Berry the greatest?
a. A and B
b. B and C
c. C and D
d. D and E
e. It is constant and so is the same between all points
16. On the basis of your calculations, you may infer that the law of increasing opportunity costs:
a. Applies to Coconuts but not to Berries.
b. Applies to Berries but not to Coconuts
c. Applies to both Berries and Coconuts
d. Applies to neither Berries nor Coconuts
17. Suppose that Gilligan is currently producing at point C when he discovers a coconut picking ladder laying
on the beach. The ladder shortens the amount of time it requires to pick coconuts. As a result, Gilligan can
now choose to
a. pick more coconuts but no more berries
b. pick more berries but no more coconuts
c. pick more of both coconuts and berries
d. pick no more coconuts or berries, since he is already picking as many as he can