ECON 2100 (Fall 2018 Section 11) Exam #1A

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1 ECON 21 (Fall 218 Section 11) Exam #1A Multiple Choice Questions: (3 points each) 1. I am taking of the exam. A. Version A 2. A seller s reservation price A. is visually illustrated by the height of the supply curve. B. refers to the maximum dollar amount a buyer is willing to pay for an item. C. refers to the minimum dollar amount a seller is willing to accept in exchange for an item. D. More than one of the above answers is correct. 3. Suppose an increase in consumer income ultimately leads to (i) an increase in both equilibrium quantity and an equilibrium price for Good X and (ii) a decrease in both equilibrium quantity and an equilibrium price for Good Y. These changes would reveal that A. both Good X and Good Y are inferior goods. B. both Good X and Good Y are normal goods. C. Good X is a normal good and Good Y is an inferior good. D. Good X is an inferior good and Good Y is a normal good. 4. Your opportunity cost of attending a concert is A. the price of the ticket. B. the price of the ticket plus all other expenditures at the concert venue. C. the total cash expenditures needed to go to the concert plus the value of your time. D. zero, as long as you enjoy the concert and consider it a good use of your time and money. 5. Which of the following could never lead to an increase in the demand for tacos? A. an increase in the price of burritos (a substitute good). B. a decrease in the price of tacos. C. a decrease in the price of Coca-Cola (a complement good). D. an increase in consumer income (assuming tacos are a normal good). 6. The Principle states that a person is more likely to take an action if its benefit rises and less likely to take an action if its cost rises. A. Incentive B. Universal Economic C. Scarcity D. Cost-Benefit 7. Economics is A. the social science that studies the allocation and transfer of power in decision-making, systems of governance, and the effects of public policy in a society. B. the art of communicating financial information about a business entity to stakeholders, such as employees, managers, shareholders, and customers. C. the social science that studies human mental functions and behavior, with a focus on phenomena such as perception, cognition, personality, and interpersonal relationships. D. the social science that studies decision making in the face of scarcity, and the implications of such decisions on individuals and societies.

2 8. Output refers to A. finished, usable products which result from the production process. B. the process by which scarce resources are transformed into finished goods/services. C. the scarce resources which can be used to directly or indirectly satisfy human wants. D. None of the above answers are correct. 9. Which of the following statements is true? A. All Unattainable combinations of output are Efficient. B. An output combination is Inefficient if it is Attainable (i.e., all Attainable combinations of output are Inefficient). C. An output combination is Efficient if it is Attainable (i.e., all Attainable combinations of output are Efficient). D. An output combination is Efficient if it is an Attainable combination for which it is not possible to increase the production of any good without decreasing the production of some other good. 1. A nation should typically import those goods in which A. other countries possess a comparative advantage. B. other countries possess an absolute advantage. C. it possess a comparative advantage. D. it possess an absolute advantage. 11. Justin recently purchased a used ping-pong table from Amanda on Craigslist for $4. Since this was a voluntary trade between Justin and Amanda, we can infer that A. it made Justin better off but Amanda worse off. B. it made Amanda better off but Justin worse off. C. it made both Justin and Amanda better off. D. it made both Justin and Amanda worse off. For Questions 12 and 13, consider the following scenario. Kurt and Dave spend their workdays producing drums and guitars. The table below provides a summary of the number of units of each good that each worker produce in a full workday. Notice that Kurt s daily output of guitars is generically specified as X units. Drums Guitars Kurt 1 X Dave Dave s Opportunity Cost for producing a unit of drums A. is equal to 3 1 = 3 units of guitars. B. is equal to 6 3 = 2 units of guitars. C. is equal to 3 6 = ½ a unit of guitars. D. cannot be determined without knowing the value of X. 13. For which of the following values of X does Kurt have a comparative advantage but NOT an absolute advantage in the production of guitars? A. X = 9. B. X = 4. C. X = 5. D. None of the above answers are correct since, in general, having a comparative advantage in the production of a good implies having an absolute advantage as well.

3 14. Consider the following two statements: (I) Professional boxer Anthony Joshua (current WBA, IBF, WBO, and IBO heavyweight champion) will fight Alexander Povetkin at Wembley Stadium in London on Saturday, 9/22/18 and (II) Retired boxer Wladimir Klitschko was the best professional boxer of the last hundred years. Statement (I) is a statement, and Statement (II) is a statement. A. positive; normative. B. normative; positive. C. positive; positive. D. normative; normative. 15. Consider a market in which supply is given by the function S(p) = 5p 1, (for p > 2) and demand is given by the function D(p) = 4,2 15p (for p < 28). In this market, A. equilibrium price is $6.4 and equilibrium quantity is 2,2 units. B. equilibrium price is $8 and equilibrium quantity is 3, units. C. equilibrium price is $13 and equilibrium quantity is 5,5 units. D. equilibrium price is $15 and equilibrium quantity is 1,95 units. 16. This past Sunday, Juan Martín del Potro lost the men s finals match in the U.S. Open tennis tournament to Novak Djokovic in straight sets (6-3, 7-6, 6-3). Around this same time, an earthquake in the Philippines killed 47 people. If Juan Martín del Potro is more upset about the outcome of his tennis match than about the loss of life in the Philippines, it would suggest that he A. is an irrational person. B. is a self-interested person. C. does not understand the concept of Opportunity Cost. D. should become a professional golfer instead of continuing to be a professional tennis player. 17. A decrease in demand is graphically illustrated by A. a rightward shift of the entire demand curve. B. a leftward shift of the entire demand curve. C. an upward movement along a fixed demand curve (to a point with a higher price and lower quantity). D. a downward movement along a fixed demand curve (to a point with a lower price and higher quantity). 18. The Principle of Comparative Advantage states that A. when a government policy alters costs or benefits, individuals behaviors may change, so that the final impact of the enacted policy might not be what was initially anticipated by policymakers. B. in a comparative sense, a rational individual should engage in an activity up to the point where marginal benefits are exactly equal to marginal costs. C. a society can produce a greater amount of total output when individuals focus their production on those activities for which they have a lower opportunity cost. D. the most productive worker in a society will always have a comparative advantage in the production of every good. 19. A rational decision maker tries to maximize Economic Surplus. Economic Surplus is defined as A. Total Benefits divided by Total Costs. B. Total Benefits minus Total Costs. C. Marginal Benefits divided by Marginal Costs. D. Marginal Benefits minus Marginal Costs.

4 2. Consider a market in which there is excess supply at both a price of $12 and a price of $16. These observations imply that the market equilibrium price must be A. below $12. B. exactly equal to $12 (the lower of the two prices). C. exactly equal to $14 (halfway between the prices of $12 and $16). D. above $ Brad has $425 to spend and wants to purchase either a mountain bike or TV. Each item costs exactly $425, so he can only purchase one of the two items. This scenario illustrates that A. when resources are scarce, people face tradeoffs. B. most individuals are irrational. C. as the benefit of an activity increases, people tend to engage in the activity to a greater degree. D. firms in perfectly competitive markets are price takers. For Questions 22 and 23, consider a society with the piecewise linear Production Possibilities Frontier (i.e., three straight-line segments) illustrated below. The slope between points A and B is 1. The slope between points B and E is 2. The slope between points E and F is 6. Shoes 14, 12, A B D G 8, 6, C E F 6 Jets 22. Which of the following combinations of output is unattainable? A. 5 Jets and 6, Shoes (Point E ). B. 5 Jets and 12, Shoes (Point G ). C. 35 Jets and 8, Shoes (Point C ). D. None of the above answers is correct (since none of the combinations of output listed above are unattainable). 23. If this society were at Point D, the Opportunity Cost of producing another Jet would be A. 6 shoes. B. 1 shoes. C. 2 shoes. D. None of the above answers are correct (since the graph does not convey enough information to determine the exact value of the Opportunity Cost of producing another Jet at Point D ).

5 24. Recall that the market equilibrium in the model of supply and demand is a unique outcome. This characteristic can be described by noting that A. if a market is currently at its equilibrium, it will stay there (unless outside forces change). B. if a market is currently not at equilibrium, market forces will push us toward an equilibrium (since there is downward pressure on price at prices above the equilibrium price, and there is upward pressure on price at prices below the equilibrium price). C. as long as the Law of Demand and Law of Supply both hold, there is one and only one equilibrium outcome in a market. D. it is generally impossible for one worker to possess an Absolute Advantage in the production of every good/service (i.e., each worker will possess an Absolute Advantage in the production of one unique good/service). For questions 25 through 27 refer to the graph below, which illustrates Supply and Demand for peanuts in 218. price 14.6 Supply ,69 2,35 Demand 218 quantity 25. It appears as if in this market the A. Law of Demand and Law of Supply are both satisfied. B. Law of Demand and Law of Supply are both violated. C. Law of Demand is satisfied, but the Law of Supply is violated. D. Law of Demand is violated, but the Law of Supply is satisfied. 26. Focusing on the 86 th unit of peanuts, the buyer of this unit has a reservation price of and the seller of this unit has a reservation price of. A. $3.4; $2.8. B. $9.3; $3.1. C. $14.6; $1.7. D. $15.2; $ At the equilibrium outcome: units would be traded, each at a price of. A. 1,69; $5.9. B. 86; $9.3. C. 86; $3.1. D. ; $14.6.

6 28. The provides a simplified representation of the interaction between households and firms in the Markets for Finished Goods/Services and the Markets for Factors of Production. A. Principle of Comparative Advantage B. Production Possibilities Frontier C. Circular Flow Diagram D. Model of Supply and Demand 29. Consider the market for Good Y. Between 216 and 218 the equilibrium price increased and the equilibrium quantity decreased in this market. This change in equilibrium outcome would have resulted from A. a decrease in demand. B. an increase in demand. C. a decrease in supply. D. an increase in supply. 3. Which of the following would result in a rightward shift of the supply curve for bananas? A. A new production technology is developed which reduces production costs. B. Bad weather in India (the country which produces about 25% of the World s bananas) destroys a significant amount of their current crop of bananas. C. There is an increase in the cost of hiring workers who harvest bananas. D. Income of banana consumers increases (assuming bananas are a normal good). For Questions 31 through 33, consider the following information regarding Kevin s Total Benefits from consumption of pizza in June (measured in dollars): Pizzas Consumed: Total Benefits from Consumption: Suppose Kevin paid a total of $5 in order to consume 3 pizzas. It follows that his A. Economic Surplus would be equal to $13. B. Economic Surplus would be equal to $8. C. Economic Surplus would be equal to $3. D. Economic Surplus would be equal to $ Kevin s Marginal Benefit for his 4 th pizza consumed would be A. $16. B. $24. C. $96. D. $ Which of the following statements (by itself) illustrates the Incentive Principle (note: even if a statement below is accurate, it need not illustrate the Incentive Principle )?: A. If Kevin were to pay a total of $12 to consume 6 pizzas, he would realize a negative Economic Surplus. B. If pizza were being given away for free, Kevin would consume at least 7 pizzas. C. If the price of a pizza were to increase from $15 to $18, then Kevin would decrease his consumption from 4 pizzas to 3 pizzas. D. Kevin s Marginal Benefit for pizza is positive for all of the levels of pizza consumption listed above.

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