Download Exam 1 Version A

Exam 1 Version A
Econ 202 Fall 2007
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 Red Wine 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. The price of grape jam rises
(an alternative good that grape growers could produce)
____
____
b. A report is released stating that drinking red wine daily lowers
your likelihood of heart disease
____
____
c. Wages of wine bottlers increase, and at the same time consumers
expect the price of red wine to rise in the future
____
____
d. The price of beer (a substitute for wine) increases
____
____
e. Good weather leads to a larger crop of grapes.
____
____
II. Fill in the Blank (10 points) Fill in the appropriate individual, term, or phrase
a. ______________________ is the individual who wrote in the communist manifesto that the
government should own all resources and decide what is produced in the
economy
b. ______________________ is the name used to describe two different goods that consumers use
together such as bagels and cream cheese.
c. ______________________is a graph depicting all of the possible combinations of outputs that a
country can produce with its given inputs
d. ______________________is the study of the overall economy as a whole
e. ______________________is a decision maker’s next best forgone alternative
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III. Fill in the blank
1. (19 points) The equations representing the Supply and Demand for widgets are as follows:
D: P=30-Qd
S: P=2+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 ceiling of $ 20 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 ceiling of $20, 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 floor to be effective, it must be ( greater than/ less than ) $_______.
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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 is the best example of a macroeconomic topic?
a. The impact of September 11, 2001 on airline ticket sales in the US
b. The reasons for increases in the price of soft drinks in the US
c. The effect of hurricane Katrina on overall national output (GDP) for the US
d. The effect of cool weather on ice cream sales in the US
e. All of the above are macroeconomic topics.
2. Which of the following is an example of positive economics?
a. Increases in welfare payments lead to decreased employment of welfare recipients.
b. Welfare payments should be increased for single mothers.
c. The state pays too much in welfare payments.
d. The current welfare system is a good system.
e. all of the above statements are primarily statements of positive economics.
3. When traveling to California last week, the airlines lost all of our luggage. They told us however
that they would reimburse us for any purchases of clothes, toiletries, etc. up to $100 total. We spent
$25 at Walgreens on necessities to get us by until our luggage arrived. We had only one day in San
Francisco. Should we go shopping for the first 2 hours of our day to use up the remaining $75 in
funds? We value our time at $50 an hour. Use your economic logic to answer this question.
a. No, because the $75 was a sunk cost
b. No, because the opportunity cost of our time most likely exceeds the money that we would
be reimbursed.
c. Yes, because the clothes we purchased up to $75 would be free for the airlines
d. Yes, because the clothes we purchased up to $75 would be free for us.
4. Avery wants to visit a spa for a treatment. She only has time to do one treatment and prefers them
in the following order.
1. Get a manicure and pedicure for $50
2. Get a haircut for $50
3. Get a 30 minute massage for $50
What is Avery’s opportunity cost if she chooses to get a manicure and pedicure?
a. $50
b. A haircut
c. $50 and a haircut
d. $50 and a haircut and a massage
e. A haircut and a massage
5. Which of the following resources is NOT an example of capital as the term is used in
Economics?
a. money
b. machinery
c. roads
d. factories
e. all of the above are examples of capital
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6. Laissez Faire means:
a. free lunch
b. own all resources
c. everything else the same
d. wasted resources
e. leave it alone
7. If the law of demand is satisfied for CD’s, when the equilibrium price of CD’s rises from $12 to
$15, then, ceteris paribus the
a. demand for CD’s will increase.
b. quantity demanded of CD’s will increase.
c. demand for CD’s will decrease
d. quantity demanded of CD’s will decrease.
e. both the quantity demanded and the demand for CD’s will increase.
8. Suppose that cartoon movies are an inferior good. By definition, this means that
a. cartoons must not be as entertaining as other movies
b. cartoon consumption increases when income levels increase
c. cartoon consumption increases when income levels decrease
d. cartoon consumption does not change when income levels change
9. The law of increasing opportunity cost states that:
a. opportunity cost increases as fewer items are produced
b. the PPF will be upward sloping
c. as more and more of an item is produced, the opportunity cost of producing one more unit of
the item increases.
d. all of the above
e. both b and c
10. Assuming that either supply or demand, but not both, changed, which of the following must have
occurred to cause a decrease 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
11. In the US market for human organ donations, there is a price ____________
a. floor, while minimum wage is a price ceiling
b. ceiling, while minimum wage is a price floor
c. floor, just like minimum wage is a price floor
d. ceiling, just like minimum wage is a price ceiling.
12. Suppose the equilibrium price of milk is $3.00 a gallon and the federal government enacts a price
floor at a price of $2.50 a gallon. What will be the effect on the quantity of milk exchanged?
a. the quantity exchanged will increase because suppliers will increase the quantity supplied
b. the quantity exchanged will increase as a shortage results
c. the quantity exchanged will decrease as a shortage results
d. the quantity exchanged will decrease and a surplus results
e. the quantity of milk exchanged will not change because the price floor will be ineffective
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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
40
B
3
45
C
6
35
D
9
20
E
12
0
13. What is the approximate opportunity cost of one coconut between points A and B?
a. 45 berries
b. 3 berries
c. 15 berries
d. 3/5 berry
e. 5/3 berry
14. Which of the following graphs most accurately illustrates the PPF for Gilligan for one hour?
a. Coconuts
b. Coconuts
12
12
40 Berries
c. Coconuts
40
40 Berries
d. Coconuts
40
12
Berries
12
Berries
15. Between which two points is the opportunity cost per Coconut 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. 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
17. 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
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