Exam 1 Fall Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

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1 Class: Date: Exam 1 Fall 2014 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Ch. 7. Consumer surplus a. is the amount of a good that a consumer can buy at a price below equilibrium price. b. is the number of consumers who are excluded from a market because of scarcity. c. measures how much a seller values a good. d. is the amount a consumer is willing to pay minus the amount the consumer actually pays. Figure 2-8 Panel (a) 2. Ch.2 Refer to Figure 2-8, Panel (a). In order to gain 2 donuts by moving from point L to point M, society must sacrifice a. 4 cups of coffee. b. employment. c. efficiency. d. More than one of the above is correct. 1

2 Figure Ch. 7. Refer to Figure Which area represents producer surplus when the price is P1? a. A b. B c. D d. C 2

3 Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. 4. Ch. 8. Refer to Figure 8-8. The tax causes producer surplus to decrease by the area a. D+F+J. b. D+F+G+H. c. D+F. d. D+F+G. 3

4 Figure Ch. 5. Refer to Figure Using the midpoint method, the price elasticity of demand between point A and point B is about a b c d Figure Ch. 8. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J represents a. producer surplus after the tax. b. consumer surplus after the tax. c. consumer surplus before the tax. d. producer surplus before the tax. 4

5 7. Ch. 8. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J+K+L+M represents a. tax revenue. b. total surplus after the tax. c. total surplus before the tax. d. deadweight loss from the tax. Figure Ch.2 Refer to Figure 2-7. Inefficient production is represented by which point(s)? a. M b. L, M c. K, M d. L 5

6 Figure Ch. 2. Refer to Figure 2-4. Efficient production is represented by which point(s)? a. W, Y, Z b. Y, Z, Q c. V, Y, Z d. V 6

7 Figure Ch. 7. Refer to Figure At the equilibrium price, total surplus is a. $200. b. $300. c. $250. d. $ Ch. 5. For a good that is a luxury, demand a. tends to be inelastic. b. tends to be elastic. c. cannot be represented by a demand curve in the usual way. d. has unit elasticity. 12. Ch. 5. Suppose that quantity demand rises by 10% as a result of a 15% decrease in price. The price elasticity of demand for this good is a. elastic and equal to b. elastic and equal to c. inelastic and equal to d. inelastic and equal to

8 Figure 3-3 Arturo s Production Possibilities Frontier Dina s Production Possibilities Frontier 13. Ch. 3 Refer to Figure 3-3. Dina has an absolute advantage in the production of a. burritos and a comparative advantage in the production of burritos. b. neither good and a comparative advantage in the production of burritos. c. neither good and a comparative advantage in the production of tacos. d. burritos and a comparative advantage in the production of tacos. 14. Ch. 4 If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos falls? a. The equilibrium price would increase, and the equilibrium quantity would decrease. b. Both the equilibrium price and quantity would decrease. c. Both the equilibrium price and quantity would increase. d. The equilibrium price would decrease, and the equilibrium quantity would increase. 8

9 Figure Ch. 6. Refer to Figure 6-8. If the government imposes a price floor of $5 on this market, then there will be a. a surplus of 30 units of the good. b. no surplus of the good. c. a surplus of 20 units of the good. d. a surplus of 55 units of the good. Figure Ch. 4 Refer to Figure At a price of $20, there would be a(n) a. shortage. The law of supply and demand predicts that the price will fall from $20 to a lower price. b. excess supply. The law of supply and demand predicts that the price will fall from $20 to a lower price. c. excess demand. The law of supply and demand predicts that the price will rise from $20 to a higher price. d. surplus. The law of supply and demand predicts that the price will rise from $20 to a higher price. 9

10 Figure 3-7 Bintu s Production Possibilities Frontier 17. Ch. 3 Refer to Figure 3-7. The opportunity cost of 1 bowl for Bintu is a. 1/2 cup. b. 1/4 cup. c. 2 cups. d. 4 cups. 18. Ch. 5. A perfectly inelastic demand implies that buyers a. respond substantially to an increase in price. b. purchase the same amount as before when the price rises or falls. c. decrease their purchases when the price rises. d. increase their purchases only slightly when the price falls. 10

11 Figure Ch.2 Refer to Figure 2-6. If this economy devotes all of its resources to the production of clocks, then it will produce a. 16 clocks and 35 candles. b. 0 clocks and 35 candles. c. 16 clocks and 0 candles. d. 10 clocks and 25 candles. Figure Ch. 9. Refer to Figure 9-5. With trade, this country a. imports 50 wagons. b. imports 30 wagons. c. exports 50 wagons. d. exports 20 wagons. 11

12 Figure Ch. 6. Refer to Figure 6-7. For a price ceiling to be binding in this market, it would have to be set at a. any price above $6. b. any price below $6. c. a price between $6 and $9. d. a price between $3 and $6. Table 3-5 Assume that England and Spain can switch between producing cheese and producing bread at a constant rate. Labor Hours Needed to Make 1 Unit of Number of Units Produced in 40 Hours Cheese Bread Cheese Bread England Spain Ch. 3 Refer to Table 3-5. The opportunity cost of 1 unit of cheese for Spain is a. 1/2 unit of bread. b. 4 hours of labor. c. 2 hours of labor. d. 2 units of bread. 23. Ch. 9. The world price of a simple electronic calculator is $5.00. Before Zimbabwe allowed trade in calculators, the price of a calculator there was $7.50. Once Zimbabwe began allowing trade in calculators with other countries, Zimbabwe began a. importing calculators and the price of a calculator in Zimbabwe remained at $7.50. b. exporting calculators and the price of a calculator in Zimbabwe decreased to $5.00. c. importing calculators and the price of a calculator in Zimbabwe decreased to $5.00. d. exporting calculators and the price of a calculator in Zimbabwe remained at $

13 Figure Ch. 6. Refer to Figure The effective price sellers receive after the tax is imposed is a. $2.50. b. $3.50. c. $6.00. d. $ Ch. 6. Refer to Figure Buyers pay how much of the tax per unit? a. $2.50. b. $1.50. c. $1. d. $

14 Figure Ch. 7. Refer to Figure 7-3. Which area represents consumer surplus at a price of P2? a. BCDF b. ABD c. ACG d. DFG Table 3-3 Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate. Machine Minutes Needed to Make 1 Toothbrush Hairbrush Zimbabwe 3 10 Portugal Ch. 3 Refer to Table 3-3. Zimbabwe has an absolute advantage in the production of a. toothbrushes and a comparative advantage in the production of toothbrushes. b. toothbrushes and a comparative advantage in the production of hairbrushes. c. hairbrushes and a comparative advantage in the production of hairbrushes. d. hairbrushes and a comparative advantage in the production of toothbrushes. 28. Ch. 4 When the price of a good is higher than the equilibrium price, a. quantity demanded exceeds quantity supplied. b. sellers desire to produce and sell more than buyers wish to purchase. c. buyers desire to purchase more than is produced. d. a shortage will exist. 14

15 Figure 8-9 The vertical distance between points A and C represent a tax in the market. 29. Ch. 8. Refer to Figure 8-9. The amount of amount of deadweight loss as a result of the tax is a. $6,000. b. $4,000. c. $5,000. d. $10, Ch. 4 At the equilibrium price, the quantity of the good that buyers are willing and able to buy a. is greater than the quantity that sellers are willing and able to sell. b. exactly equals the quantity that sellers are willing and able to sell. c. is less than the quantity that sellers are willing and able to sell. d. Either a) or c) could be correct. 15