Exam #1 Time: 1h 15m Date: 10 June Instructor: Brian B. Young. Multiple Choice. 2 points each

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1 Economics 211 Macroeconomic Principles Exam #1 Time: 1h 15m Date: 10 June 2014 Name The value of this exam is 100 points. Instructor: Brian B. Young Please show your work where appropriate! Multiple Choice 2 points each 1) One reason the demand for pecans might increase is a(n) A) decrease in price of pecans. B) increase in price of walnuts. C) very successful high-yielding pecan harvest. D) doctors discover pecans cause alopecia. 2) Consider the market for bread. If the price of wheat falls, then the A) equilibrium quantity of bread decreases. B) price of bread rises. C) demand curve for bread shifts leftward. D) demand curve for bread shifts rightward. E) supply curve of bread shifts rightward. 3) When supply increases, there is a A) movement down along the supply curve. B) rightward shift of the entire supply curve. C) leftward shift of the entire supply curve. D) movement up along the supply curve. 4) The law of supply states that, other things remaining the same, if the price of a good falls, then the A) supply increases. B) supply decreases. C) quantity supplied decreases. D) quantity supplied increases. Page 1 of 9

2 5) The demand curve illustrates the law of demand because when the price decreases, the A) demand increases. B) demand decreases. C) quantity demanded decreases. D) quantity demanded increases. 6) A nation has a comparative advantage in a good when it has a A) lower opportunity cost of producing the good. B) higher absolute cost of producing the good. C) higher opportunity cost of producing the good. D) lower absolute cost of producing the good. E) tariff in place protecting the producers of the good. 7) Gasoline and diesel fuel are complements in production. If the price of gasoline rises, then A) the supply of gasoline will increase. B) the supply of diesel fuel will decrease. C) the quantity supplied of gasoline will decrease. D) the supply of diesel fuel will increase. 8) A price ceiling set below the equilibrium price leads to A) a shortage. B) a surplus. C) an increase in the quantity bought and sold. D) no change in either the equilibrium price or the equilibrium quantity 9) A price floor set below the equilibrium price results in A) a shortage. B) a surplus. C) an increase in the quantity bought and sold. D) no change in either the equilibrium price or the equilibrium quantity. 10) During a recession, when unemployment increases, a country is likely to produce a combination of goods and services illustrated by a point A) inside its production possibilities frontier. B) on its production possibilities frontier. C) outside its production possibilities frontier. D) either inside or outside but definitely not on its production possibilities frontier. 11) In the real world, opportunity costs A) increase because resources are not all equally productive at all activities. B) are constant because resources are not all equally productive at all activities. C) decrease because resources are not all equally productive at all activities. D) are sometimes decreasing and sometimes increasing. Page 2 of 9

3 12) The above figures show the market for HD televisions. If people's incomes increase and HD Televisions are a normal good, which figure shows the effect of this change? A) Figure A B) Figure B C) Figure C D) Figure D Page 3 of 9

4 13) In the absence of external intervention, when the quantity supplied is greater than the quantity demanded, there is a A) shortage and the price will fall. B) shortage and the price will rise. C) surplus and the price will rise. D) surplus and the price will fall. 14) In the above figure, Jack's opportunity cost of producing 1 gallon of soda is of bottled water. A) 1/2 of a gallon B) 1 gallon C) 6 gallons D) 2 gallons E) 1/4 of a gallon 15) In the above figure, Jack's opportunity cost of producing 1 gallon of bottled water is of soda. A) 6 gallons B) 1 gallon C) 1/2 of a gallon D) 2 gallons E) 1/4 of a gallon Page 4 of 9

5 16) In the above figure, Jill's opportunity cost of producing 1 gallon of soda is of bottled water. A) 1 gallon B) 1/4 of a gallon C) 2 gallons D) 4 gallons E) 1/2 of a gallon 17) In the above figure, Jill's opportunity cost of producing 1 gallon of bottled water is of soda. A) 4 gallons B) 1 gallon C) 1/4 of a gallon D) 1/2 of a gallon E) 2 gallons 18) Using the figure above, if Jack and Jill specialize and gain from trade, then A) Jack produces equal amounts of gallons of water and bottled water. B) Jack specializes on the production of soda and water. C) Jack specializes in the production of soda. D) Jack specializes in the production of bottled water. E) Jack and Jill produce beyond their PPF. 19) When demand shifts, a. only price changes. b. only quantity changes. c. price and quantity change in the same direction. d. price and quantity change in opposite directions. 20) When supply shifts, a. only price changes. b. only quantity changes. c. price and quantity change in the same direction. d. price and quantity change in opposite directions. Page 5 of 9

6 21) Consider the market for wheat. If there is an improvement in harvesting technology, A) the demand curve for wheat shifts rightward. B) there is a movement up along the demand curve. C) the supply curve for wheat shifts rightward. D) the equilibrium price rises. E) the demand curve for wheat shifts leftward. 22) The assessment of Social Security taxes is divided such that workers currently pay 6.2 percent of their earnings to the tax and employers, also, pay 6.2 percent of the worker s earnings to the tax. Which of the following is definitely true? A) The incidence of the Social Security tax is shared equally by the workers and the employers. B) Employers pay the full amount of the tax. C) Workers pay the full amount of the tax. D) More information is needed to determine the incidence of the tax. 23) The fundamental force that generates international trade is A) absolute advantage. B) comparative advantage. C) the need for more goods and services. D) political identification. E) Planck s law. 24) When demand increases, there is a A) movement down along the demand curve. B) rightward shift of the entire demand curve. C) leftward shift of the entire demand curve. D) movement up along the demand curve. 25) Consider the market for camera film. When more people started using digital cameras, A) the supply curve for film shifted rightward. B) there was a movement down along the demand curve for film. C) there was a movement up along the demand curve for film. D) neither the demand curve nor the supply curve for film shifts; instead there is a movement along both. E) the demand curve for film shifted leftward. Page 6 of 9

7 Short Answer 1) 10 points each When the expected future price of a good falls, the supply curve shifts to the right and the demand curve shifts to the left simultaneously. What happens to the equilibrium price after the shifts? What happens to the equilibrium quantity after the shifts? Is it always possible to determine the direction of change in both the equilibrium price and quantity or is more information necessary? Use supply and demand curves to graphically illustrate your answer. 2) Certain automobiles are called flex fuel vehicles because they can operate using either gasoline or E85 ethanol as fuel. Suppose the price of ethanol suddenly rises. Use a demand and supply diagram to show the impact of the higher price of ethanol on the market for gasoline. Page 7 of 9

8 3) Used cars are an inferior good ---so much so that the Manheim Used Vehicle Value Index is used to gauge whether the economy is in recession. Suppose that the economy enters a recession and aggregate consumer incomes begin to fall. In the market for used cars: A. Which curve(s) shift? Demand shifts to the right / Demand shifts to the left / Supply shifts to the right / Supply shifts to the left. B. Graph the situation in the market for used cars: P C. As a result of the decrease in consumer income, A) the price of used cars will increase / decrease / can t tell Q B) the quantity of used cars sold will increase / decrease / can t tell Page 8 of 9

9 4) The figure above shows the market for cod liver oil. The government has imposed a tax on cod liver oil. a. What is the amount of the tax per gallon of cod liver oil? b. How much tax revenue will government collect from this tax? c. How much of the tax is paid by consumers? How much is paid by producers? 5) For consumers, tires are complements to automobiles. Suppose the price of automobiles falls. Simultaneously, suppose that a new synthetic rubber compound allows tires to be manufactured for a fraction of their previous cost. How do these changes affect the price and quantity of automotive tires? Page 9 of 9

Exam #1 Time: 1h 15m Date: 4 or 5 September Instructor: Brian B. Young. Multiple Choice. 2 points each

Economics 211 Macroeconomic Principles Exam #1 Time: 1h 15m Date: 4 or 5 September 2013 Name The value of this exam is 100 points. Instructor: Brian B. Young Please show your work where appropriate! Multiple