CCC (ECO 231) Exam pts. (+ 5 built-in bonus) J. Payne PLEASE DO NOT MARK ON THIS EXAM FORM.

Transcription

1 CCC (ECO 231) Exam pts. (+ 5 built-in bonus) J. Payne PLEASE DO NOT MARK ON THIS EXAM FORM. BEFORE YOU BEGIN: Using a PENCIL, IN THE BLUE BOX on the Accuscan 100AS answer form, please write: your name ECO 231 and your section number today s date EXAM 1 Part 1. Multiple Choice. 45 point, 45 points total. Mark the letter corresponding to the best answer on your Accuscan 100AS answer form. ALL FIGURES ARE SHOWN ON THE LAST PAGE OF THE TEST. USE PENCIL ONLY. MAKE YOUR MARKS ON THE SCAN FORM HEAVY AND DARK. 1. In developing his concept of the invisible hand, Adam Smith argued that the best way to provide for the interests of society as a whole is to appeal to people s A) native intelligence. B) fear of the government. C) love of their fellow men. D) self-interest. 2) Refer to Figure 3-1. What is the buyer s reservation price of the 150 th unit? A) $0 B) $2 C) $4 D) $6 3) Which of the following is a normative macroeconomics statement? A) The central bank should increase the nation's money supply. B) The increase in the nation's money supply helped push the nation's unemployment rate down in the short run. C) Ford Motor Company's new advertising campaign ended up hurting General Motors' sales. D) The local government ought to spend more on recreational facilities. 4. Middlemen A. increase costs to earn their profits. B. reduce transactions costs and increase trade. C. generally have no effect on trade or output. D. violate the law of comparative advantage. 5. Market economies transmit information from buyers to sellers and vice versa through A. opportunity costs. B. the internet. C. demand and supply curves. D. prices. 6) The value of the slope of the PPF reveals A. the opportunity cost. B. comparative advantage. C. absolute advantage. D. productivity. 7) Workers in sector B, which has experienced falling wages due to changing comparative advantage, will move to sectors A. efficiency wages. B. with greater falling wages. C. with constant wages. D. with rising wages. 8) Total consumer surplus measures the area and the price. A. below the supply curve; above B. below the supply curve; below C. above the demand curve; above D. below the quantity demanded curve; above 9) If the price of oil is low A. only oil that can be extracted at low cost will be brought to the market for sale. B. high-cost oil will be brought unprofitably to the market for sale. C. only the high-cost producers of oil can afford to bring oil to the market for sale. D. buyers will not demand much oil because of the high cost of extraction. x 10) Say that electricity and light bulbs are complements in consumption. If the price of electricity falls, then the light bulbs will. A. demand for; rise B. demand for; fall C. supply of; rise D. supply of; fall

2 11. The Chmielewski family illegally immigrates to Chicago from Poland with $45.82 to their name. They work hard and prosper and eventually purchase a new Chevrolet Impala. They like it so much that they later purchase an identical car, and then a third. According to the principle of diminishing marginal utility, which of the three cars provided the Chmielewskis with the greatest marginal utility? A. the first car B. the second car C. the third car 12. Refer to the demand schedule at right. If the price of paperback books rose from $1 to $3, what would happen to the quantity of paperbacks demanded? A. It would rise by 80. B, It would fall by 35. C. It would rise by 10. D. It would fall by Which of the following is a false statement about value and exchange? A. As a rule, one person gains and another loses from a trade. B. Transaction costs reduce our ability to gain from potentially advantageous trades. C. People trade in order to make themselves better off. D. The value of physical goods is subjective. 14. Max s demand for hot dogs falls as his income rises. For Max, hot dogs are A) a bad good. B) a normal good. C) a neutral good. D) an inferior good. E) a preferential good. 15. Refer to Figure 6. Which curve best represents the supply of land in Morgan County? A. A B. B C. C D. D 16. If the price of wheat rises, the quantity of wheat supplied will rise, ceteris paribus. Which of the following does not explain this? A. Farmers will substitute wheat plantings for other crops. B. Buyers resist price increases. C. The marginal cost of growing wheat increases as more wheat is planted. 17. Eek! The price of oranges has risen dramatically. Which of the following is most likely to happen as a result? A. The quantity of oranges demanded will increase. B. The quantity of oranges demanded will decrease. C. The demand for oranges will increase. D. The demand for oranges will decrease. 18. Refer to Figure 2, which shows the supply of catfish. Which correctly shows a decrease in quantity supplied? A. A change from point A to point B. B. A change from point B to point A. C. A curve shift from S1 to S2. D. A curve shift from S2 to S Refer to Exhibit 3-1. Equilibrium price and quantity are A) $4 and 250 units. B) $2 and 150 units. C) $6 and 250 units. D) $2 and 250 units. E) None of these choices are correct. 20) Refer to Exhibit 3-1. At a price of $6 there is a A) surplus of 100 units. B) surplus of 150 units. C) surplus of 200 units. D) shortage of 150 units. E) shortage of 200 units. 21) Refer to Exhibit 3-1. At a price of $2 there is a A) shortage of 100 units. B) shortage of 200 units. C) surplus of 150 units. D) shortage of 150 units. E) surplus of 200 units. 22. is what is really given up in exchange for something; is a numerical, and hence nominal, indicator of what is given up. A. price; cost B. cost; price 23. Refer to Exhibit 3-2. Which of the following would result in a movement from point A on D1 to point B on D2? A. There was a decline in technology in the production of good X. B. There was an increase in the price of a complement to good X. C. There was an increase in the price of a substitute for good X. D. There was a decrease in the price of a substitute for good X.

3 For the next two questions: Say that America s barley fields are attacked by a virus, created in a clandestine al-qaeda lab, which destroys the crop, driving the price of barley, an essential input in beer production, to a very high level. You will want to draw a supplyand-demand diagram to work out your answer. 24. We would expect that the beer will. A. demand for; rise B. demand for; fall C. supply of; rise D. supply of; fall 25. As a result of this change, the equilibrium price of beer will and the equilibrium quantity will. A. rise; rise B. rise; fall C. fall; rise D. fall; fall 26. According to the law of comparative advantage, nations specialize in producing those goods A. that they can produce more of than other nations. B. for which their natural resources are best suited. C. they have invested in the most. D. that they produce at a lower opportunity cost than other nations. 27. Say that the Graminelli family wins a new boat in raffle. If they re rational, to what use will they put it? A. Water skiing B. Fishing C. The most valuable use D. The least valuable use 28. A change in the price of a good leads to a change in, other things equal. A change in one or more of these other things leads to a change in. A. supply; supply B. supply; quantity supplied C. quantity supplied; supply D. quantity supplied; quantity supplied For the next five questions, refer to the following table, which shows the maximum production possibilities per day for Botswana and Liberia in eggplant and mutton: Eggplant Mutton Botswana Liberia Which nation has the absolute advantage in mutton? A. Liberia B. Botswana C. Both D. Neither 30. Botswana s opportunity cost of eggplant is A B C D E Liberia s opportunity cost of eggplant is A B C D E has the comparative advantage in eggplant; has the comparative advantage in mutton. A. Botswana; Botswana B. Botswana; Liberia C. Liberia; Botswana D. Liberia; Liberia 33. Say that the international terms of trade are 1 eggplant = 1.5 muttons and so 1 mutton =.67 eggplants. Which of the following is true? A. Both Liberia and Botswana will trade at these terms. B. Both Liberia but not Botswana will trade at these terms. C. Liberia will not trade at these terms, but Botswana will. D. Neither Liberia nor Botswana will trade at these terms.

4 34. Refer to Figure 10. Let w be the wage rate and L the quantity of labor traded in the market. If the wage rate rises from w* to a higher level, then the quantity of labor supplied will A) rise. B) stay the same. C) fall. 35) Carol pays Bob $800 to make a saddle for her unicorn. If the lowest price Bob would be willing to accept to make the saddle is $600, the difference of $200 is his A) consumer surplus. B) producer surplus. C) deadweight loss. D) revenue. 36. If the wages paid by computer producers fall, then the computers will. A. demand for; rise B. demand for; fall C. supply of; rise D. supply of; fall 37. Say that the people of Flanders wish to increase by 100 barrels per week their production of wit, a pale, coriander-flavored style of beer. If they are rational, they will do so by producing the extra 100 barrels of wit. A. darkest B. least costly C. most available D. lightest 38) Refer to Exhibit 4-1. The number of units exchanged at the price ceiling is A) 75. B) 125. C) 175. D) 100. For the next four questions, refer to Figure 3, which depicts a minimum wage in a labor market. 39. Refer to Figure 3. Initial consumer (that is, employer) surplus before the minimum wage is imposed is equal to area(s) 40. Refer to Figure 3. Total net social welfare before the minimum wage is imposed is equal to area(s) 41. Refer to Figure 3. Consumer surplus after the minimum wage is imposed is equal to area(s) 42. Refer to Figure 3. The deadweight loss imposed by the minimum wage is equal to area(s) 43. From the standpoint of donor country governments, the countries that make the most attractive candidates for receiving aid tend to be those that A. will accept the most money, and spend it on the biggest projects. B. spend the money most frugally and accept only as much as they can usefully invest. C. avoid high-profile projects that attract attention but concentrate on making small, incremental improvements D. have the best record of using wisely the aid they have received in the past. 44. A price is a legal maximum price in a market. It results in a chronic and a black market. A) ceiling; surplus B) ceiling; shortage C) floor; surplus D) floor; shortage 45) If goods are not rationed according to price, if follows that A) they won't need to be rationed at all. B) some mechanism will be used to ration the goods. C) first-come-first-served will necessarily be the rationing device. D) there will be surpluses in the market. E) none of the above END PART 1

5 Part 2. Graphing and short answer points, 30 points total. Answer on the paper given you by the proctor. Ask for more paper if needed. 1. Consider the following comparative statics analysis problem. Fearing an imminent epidemic of Ebola, Americans stock up on everyday survival items. Show the effect of this change in the market for bottled water by doing the following. i. Draw a supply and demand diagram depicting the market in initial equilibrium and showing the initial equilibrium price and quantity. Be sure to label the diagram fully. ii. Indicate the change in the market resulting from the event described (i.e., curve shift). Show how the market will react and eventually adjust to a new equilibrium. iii. Indicate the new (final) equilibrium price and quantity. iv. In a paragraph, explain what you have shown in the diagram. Specifically, indicate: a. Which curve shifts which direction and your reasoning for this. b. Does this shift create a temporary shortage or surplus? Briefly explain. c. How will equilibrium price and quantity adjust to achieve the new equilibrium? DIAGRAMS ARE LOCATED OVERLEAF 2. Say that the current market price for radiators is $93.51, while the equilibrium price is $ i. Depict this situation with a demand and supply diagram. Be sure to label the diagram fully. ii. Will this cause a shortage or surplus in the market? Explain briefly. iii. Give an explanation of how the market will adjust to return to equilibrium. 3. List the four factors of production and name the factor payment made for the use of each one. END PART 2 Part 3. Reserve Reading summaries/reviews. Your summaries and reviews of the 10 articles listed on the website for this section of the course count for 3 points each, 30 points total. END EXAM 1

6 Figure 10