Principles of Economics: Micro: Exam #1: Chapters 1-5 Page 1 of 7

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1 Principles of Economics: Micro: Exam #1: Chapters 1-5 Page 1 of 7 print name on the line above as your signature INSTRUCTIONS: 1. This Exam #1 must be completed within the allocated time (i.e., between 7:50 PM and 8:40 PM). It is a closed book and open mind exam. However, each student may have a single 8.5"11" sheet of paper solely containing student authored handwritten contents: no mechanical reproduction of any kind. 2. Sign your copy of the exam (i.e., sign above). On your blue computer graded bubble sheet: [2A] PRINT your LAST name, [2B] BUBBLE in your LAST name, [2C] provide the NUMERALS of your NU ID #, and [2D] BUBBLE in your NU ID #. 3. Recall the material difference between i.e. (that is) versus e.g. (for example). 4. When you finish your exam, collect all of your personal items before approaching the professor to exit the exam room upon finishing. Turn in this signed copy of your exam and your 5. This Exam #1 is worth 200 of the course total of 1,000 points. This objective exam has 35 questions graded as if there are 33. Each correct answer on this Exam #1 is worth about 6 course points. Based upon the instructor's statistical analysis of all students' answers, the instructor unilaterally may alter the grading of specific exam questions. 6. An answer key and the distribution of earned grades will be distributed in class on Monday, February As detailed below in paragraph 8, any student may appeal the grading of any other exam questions. However, only if a student successfully appeals the ambiguity of AT LEAST THREE questions on this exam does that student objectively demonstrate non-harmless error due to any ambiguities. Also, a successful appeal only will change that student's exam grade and only will do so by the number of successful appeals in excess of TWO successful appeals. Appeals only affect the exam grades of those students that appeal. 8. All appeals of this exam s questions must be: [8A] typed; [8B] signed by the student in three ways, typed name, handwritten signature, and typed university identification number; [8C] immediately following the signature, list in sequence, solely by number, each of the questions being appealed; [8D] after the [8C] list, argue each question, one at a time; [8E] at the beginning of each question s [8D] appeal, [8F] identify two or more reasonable meanings that the question could have had; argue why one or more of the [8E] identified reasonable meanings is as appropriate or is more appropriate than the meaning used for the answer key answer; and [8G] personally handed to the instructor or to the instructor's suite secretary in MH 228 no later than 6:10 PM, Monday, February 21, time is of the essence.

2 Principles of Economics: Micro: Exam #1: Chapters 1-5 Page 2 of 7 NOTE: #1: An exam statement is not false merely because of the contents of a parenthetical comment in two contexts. First, all a.k.a. (i.e., also known as) parentheticals; and second, formulas within parentheticals merely slavishly repeat what is outside the parentheses. Thus, if what is outside of the parenthetical is true, what is inside is true; and if what is outside of the parenthetical is false, what is inside is false. For other types of parentheticals the content of the parenthetical might render the exam statement false. Read carefully. QUESTIONS: #2: Bubble A for True and bubble B for False. 1. T F Economists assert that humans must make choices because there are scarce resources and unlimited wants. 2. T F Economics uses the concept utils to describe units of utility to aid in the theoretical measurement of the fractional satisfaction of each person's unlimited wants. 3. T F A positivist approach focuses upon facts and explores for cause and effect. A normative approach focuses upon value choices and judgments. Science (e.g., economics) strives to align with the positivist approach and to minimize the influence of the normative approach. 4. T F The budget line (a.k.a., budget constraint) displays two types of motion: rotation and shifting. If price changes for only one of the two goods listed on the axis of the graph of the budget line, the budget line shifts.

3 Principles of Economics: Micro: Exam #1: Chapters 1-5 Page 3 of 7 5. T F The production possibilities curve is the dividing line between what is possible and what is not possible. The two goods on the axis of the production possibilities curve are consumer goods and capital goods. 6. T F There are four economic factors of production: land, labor, capital, and entrepreneurial ability. Respectively, there are four economic payments for those four factors: rent, wages, interest, and normal profit. 7. T F The law of increasing opportunity costs is central to economics. The law of increasing opportunity costs asserts that consuming a greater amount of good ABC only can be obtained with an increasing sacrifice of good XYZ not being consumed. 8. T F Economics uses many graphs. To lie is to knowingly tell an untruth. All graphs are lies (e.g., price is normative rather than positivist). 9. T F If the goal set is narrow and the time horizon is short, command system will function better than a market system. If the goal set is broad and the time horizon is long, a market system will function better than a command system. 10. T F In the Elements and Functions of Capitalism private property embodies self interest; prices measure self interest; markets coordinate self interest, competition regulates self interest; and government has no role. 11. T F Labor specialization permits increasing output with the same input of labor because specialization improves the productivity of that labor. Labor specialization comes in three forms: ability specialization, learning specialization, and time specialization. 12. T F Money serves both as a medium of exchange and as a store of value.

4 Principles of Economics: Micro: Exam #1: Chapters 1-5 Page 4 of T F Both the supply curve and the demand curve only display those persons who are both willing and able to participate in the market. Both supply and demand are graphed using the assumption of ceteris paribus (a.k.a., all other things held equal). Specifically, the supply and demand ceteris paribus assumes the non-price determinants are held constant. 14. T F Technology is the feasible combination of inputs Technology is an idea plus a physical embodiment of that idea. Like expectations, technology can change rapidly and by a large magnitude; but, in addition to those change characteristics of expectations, technology changes also can reverberate throughout the entire economic system. 15. T F A decrease in the price of a product causes both the income effect and the substitution effect; however, the mechanism of the income effect is different than the mechanism of the substitution effect. 16. T F Economics asserts individuals are self interested and therefore market incentives (e.g., economic profits) attract behavior seeking those incentives. 17. T F The law of diminishing marginal utility helps explain why a demand curve slopes downward from the graph's upper left (i.e., combination of high price and low quantity) to the graph's lower right (i.e., combination of low price and high quantity). 18. T F A change in price causes a change in quantity demanded; whereas a change in a non-price determinant of demand causes a change in demand. 19. T F For an inferior good an increase in income will cause a decrease in demand.

5 Principles of Economics: Micro: Exam #1: Chapters 1-5 Page 5 of T F Product "A" is a complement of product "C" and Product "A" is a substitute for product "S". An increase in the price of product "A" will cause a decrease in the demand for product "C" but will cause an increase in the quantity demanded for product "S". 21. T F If a firm earns an accounting profit (π A ), that firm may have earned an economic profit (π E ), or a normal profit (π N ), or an economic loss (π L ). This is because π A is an objective dollar amount; in contrast the π N is a subjective value. 22. T F A price ceiling above the market equilibrium price causes a shortage. A price floor below the market equilibrium price causes a surplus. 23. T F Efficiency can be measured more than one way in economics. Productive efficiency exists when output is produced at the lowest cost of inputs. Allocative efficiency exists when the optimal combination of outputs is produced. 24. T F Externalities (a.k.a., spillovers) exist when some person either is not willing to or is not able to participate in a market. If externalities are present, the market equilibrium price and the market equilibrium quantity are not genuine equilibria. 25. T F The principal - agent problem exists in every context (e.g., corporations; government) where one person exercises control over the assets of another person. The principal - agent problem springs from incentives for the agent to steal and an inability of the principal either to monitor or to prevent theft.

6 Principles of Economics: Micro: Exam #1: Chapters 1-5 Page 6 of T F Corporations have unlimited personal liability for actions of the corporation; however, shareholders of the corporation have personal liability limited to the amount invested. Corporations can increase society's total output because the total investments of many small investors can be much larger than that of a few large investors. 27. T F In the USA, the bottom 20% of the population receive less than 5% of the nation's income; whereas the top 20% of the population receive more than 50% of the nation's income. 28. T F Public goods usually exhibit strong characteristics of rivalry of consumption and/or of exclusivity of possession; however, private goods usually exhibit weak characteristics of rivalry of consumption and/or of exclusivity of possession. 29. T F The economy can be envisioned as a circular flow between resource markets, product markets, households, businesses, and government. 30. T F In international trade absolute advantage in quantity of production is less important than comparative advantage in cost of production. 31. T F In international trade the gains from trade come from specialization of production coupled with trade. 32. T F A tariff is a tax that might or might not create a price floor that causes a shortage. A quota is a limitation of quantity of imports that might or might not cause a shortage.

7 Principles of Economics: Micro: Exam #1: Chapters 1-5 Page 7 of T F International trade agreements have focused on reciprocal agreements which seek to reduce comparative advantages. 34. T F Dumping is the exporting of unemployment. EXTRA CREDIT (i.e., all answers are correct): 35. T F During this semester I have a loved one stationed overseas. Given the time zone difference (e.g., 12 hours) between us, my loved one' schedule would be aided if I my phone may ring during class and I may exit the room and take that call.

8 Principles of Economics: Micro: Exam #1: Chapters 1-5 Page 8 of 7 ANSWER KEY: Exam #1: ECON 2200: Spring true. 2. true. 3. true. 4. FALSE. 5. true. 6. true. 7. true. 8. true. 9. true. 10. FALSE. 11. true. 12. true. 13. true. 14. true. 15. true. 16. true. 17. true. 18. true. 19. true. 20. FALSE. 21. true. 22. FALSE. 23. true. 24. true. 25. true. 26. true. 27. true. 28. FALSE. 29. true. 30. true. 31. true. 32. true. 33. FALSE. 34. true. 35. either T or F is correct.

Principles of Economics: Micro: Exam #1: Chapters 1-5 Page 1 of 8

Principles of Economics: Micro: Exam #1: Chapters 1-5 Page 1 of 8 print name on the line above as your signature INSTRUCTIONS: 1. This Exam #1 must be completed within the allocated time (i.e., between