Eastern Mediterranean University Faculty of Business and Economics Department of Economics Fall Semester

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1 Duration: 50 minutes Eastern Mediterranean University Faculty of Business and Economics Department of Economics Fall Semester ECON101 - Introduction to Economics I Quiz 2 Answer Key 16 December 2016 Name: Student ID: Group No: Part A: Multiple Choice Questions (3.75 points each, total points) Please mark your answers on both the exam paper and the optic sheet. 1. Which of the following is NOT an example of a public policy in the field of economics? a. rent-control laws b. minimum-wage laws c. taxes d. animal welfare laws 2. Which of the following is NOT a function of prices in a market system? a. Prices have the crucial job of balancing supply and demand. b. Prices send signals to buyers and sellers to help them make rational economic decisions. c. Prices coordinate economic activity. d. Prices ensure an equal distribution of goods and services among consumers. 3. A price ceiling will be binding only if it is set a. equal to the equilibrium price. b. above the equilibrium price. c. below the equilibrium price. d. either above or below the equilibrium price. 4. To say that a price ceiling is binding is to say that the price ceiling a. results in a surplus. b. is set above the equilibrium price. c. causes quantity demanded to exceed quantity supplied. 5. Suppose the equilibrium price of a health test by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, a. the quantity of tests demanded increases. b. there is shortage of tests. c. the quantity of tests supplied decreases. 6. A binding price floor (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price. a. (i) b. (iii) c. (i) and (iii) d. (ii) and (iv) 7. A nonbinding price floor (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price. a. (iii) b. (iv) c. (i) and (iii) d. (ii) and (iv) Page 1 of 5

2 8. After a binding price floor becomes effective, a a. smaller quantity of the good is bought and sold. b. a larger quantity of the good is demanded. c. a smaller quantity of the good is supplied. 9. If the demand curve is very inelastic and the supply curve is very elastic in a market, then the sellers will bear a greater burden of a tax imposed on the market, even if the tax is imposed on the buyers. a. True b. False 10. The burden of a luxury tax most likely falls more heavily on sellers because demand is more elastic and supply is more inelastic. a. True b. False 11. Welfare economics is the study of a. the well-being of less fortunate people. b. welfare programs in the United States. c. how the allocation of resources affects economic well-being. d. the effect of income redistribution on work effort. 12. Welfare economics explains which of the following in the market for televisions? a. The government sets the price of televisions; firms respond to the price by producing a specific level of output. b. The government sets the quantity of televisions; firms respond to the quantity by charging a specific price. c. The market equilibrium price for televisions maximizes the total welfare of television buyers and sellers. d. The market equilibrium price for televisions maximizes consumer welfare and minimizes producer profit. 13. A consumer's willingness to pay directly measures a. the extent to which advertising and other external forces have influenced the consumer s preferences. b. the cost of a good to the buyer. c. how much a buyer values a good. d. consumer surplus. 14. A demand curve reflects each of the following except the a. willingness to pay of all buyers in the market. b. value each buyer in the market places on the good. c. highest price buyers are willing to pay for each quantity. d. ability of buyers to obtain the quantity they desire. 15. Consumer surplus a. is the amount a buyer pays for a good minus the amount the buyer is willing to pay for it. b. is represented on a supply-demand graph by the area below the price and above the demand curve. c. measures the benefit sellers receive from participating in a market. d. measures the benefit buyers receive from participating in a market. 16. Refer to Table 7-1. If the price of the product is $130, then who would be willing to purchase the product? a. Calvin b. Calvin and Sam c. Calvin, Sam, and Andrew d. Calvin, Sam, Andrew, and Lori 17. Refer to Table 7-1. If the price of the product is $122, then the total consumer surplus is Page 2 of 5

3 a. $28. b. $41. c. $43. d. $ Refer to Figure 7-3. When the price is P1, consumer surplus is a. A. b. A+B. c. A+B+C. d. A+B+D. 19. Cost is a measure of the a. seller's willingness to sell. b. seller's producer surplus. c. producer shortage. d. seller's willingness to buy. 20. Refer to Table If the market price is $1,200, the producer surplus in the market is a. $100. b. $800. c. $400. d. $500. Page 3 of 5

4 21. Refer to Figure A consumer who chooses to spend all of her income could be at which point(s) on the figure? a. V b. Z c. V, W, X, or Y d. W, X, or Y 22. Refer to Figure Which of the following statements is correct? a. Points W, X, and Y all cost the consumer the same amount of money. b. Point V is unaffordable for the consumer given his budget constraint. c. Point Z costs less than point V. d. Points W, X, and Y give the consumer the same level of satisfaction. 23. Refer to Figure If the consumer s income is $100, then what is the price of an apple? a. $0.50 b. $0.75 c. $1.00 d. $ Which of the following could explain the change in the budget line from A to B? a. a decrease in income and a decrease in the price of X Page 4 of 5

5 b. a decrease in income and an increase in the price of X c. an increase in income and a decrease in the price of X d. an increase in income and an increase in the price of X 25. Refer to Figure Given the budget constraint in the graph, the consumer s optimal choice will be point a. B. b. C. c. D. d. E. 26. Refer to Figure Bundle D represents a point where a. MRSxy Px/Py b. Utility is not at the maximum level. c. Consumer is spending all her/his available income. 27. The goal of the consumer is to a. maximize utility. b. minimize expenses. c. spend more income in the current time period than in the future. d. All of the above are the goals of the consumer. 28. When a consumer is purchasing the best combination of two goods, X and Y, subject to a budget constraint, we say that the consumer is at an optimal choice point. A graph of an optimal choice point shows that it occurs a. along the highest attainable indifference curve. b. where the indifference curve is tangent to the budget constraint. c. where the marginal utility per dollar spent is the same for both X and Y. 29. A consumer chooses an optimal consumption point where the a. marginal rate of substitution equals the relative price ratio. b. slope of the indifference curve exceeds the slope of the budget constraint. c. ratios of all the marginal utilities are equal. 30. If the consumer's income and all prices simultaneously (at the same time) double, then the optimum consumption bundle will a. shift outward relative to the original optimum. b. move leftward along the original budget constraint. c. not change. d. shift inward relative to the original optimum. Page 5 of 5