Please select the very best answer to each of the questions below. Each is worth 5 points.
1. Select the scenario below in which scarcity is LEAST evident.
a. More clean air is wanted than is available in large polluted metropolitan areas such as Mexico City.
b. There is usually more than one use of your "free" time in the evening.
c. Abundant salt water available to shipwreck survivors adrift in the middle of the Pacific ocean.
d. There are many competing uses for the annual budget of your city, county, or state.
e. All of the above except c.
2. Which of the following describes a capital input?
a. A person's skills and abilities that can be deployed to produce valuable goods and services.
b. Factories and offices where goods and services are produced.
c. Old-growth forests and marine capture fisheries.
d. Organizing production and accepting risk.
e. Both a. and d. above.
3. Which of the following best describes the three fundamental economic questions?
a. What to produce, when to produce, and for whom to produce.
b. What to produce, when to produce, and where to produce.
c. What time to produce, what place to produce, and how to produce.
d. What to produce, how to produce, and for whom to produce.
e. What do corporations want, how can corporations control government, and for whom is the land despoiled.
4. A production possibilities curve shows the various combinations of output:
a. An economy can produce.
b. Consumers would like to consume.
c. An economy should produce.
d. Producers would like to produce.
e. Both b. and d. above.
5. Combinations of goods inside the production-possibilities curve (PPC) have which of the following characteristics?
a. They are only attainable today if we employ all unemployed or underemployed resources.
b. They will never be attainable.
c. Some resources, such as capital or labor, are unemployed or underemployed.
d. They can only be produced if additional labor or capital is brought into the economy, or if productivity-enhancing technology is developed.
e. All of the above.
6. Which of the following would most likely cause the demand for veggie-burgers to decrease (an inward shift in veggie burger demand)?
a. An increase in the price of veggie-burgers.
b. An increase in the price of tofu-burgers, perceived as a substitute by veggie-burger consumers.
c. An increase in the price of burger buns.
d. A technological innovation that lowers the cost of producing veggie-burgers.
e. A decrease in the price of veggie-burgers.
7. Suppose that each of the seven dwarfs buys 7 mugs of ginger ale per week from Snow White's café when the price per mug is $2. If the seven dwarfs are the entire market demand for Snow White's ginger ale, then which of the following is the correct value for market quantity demanded of ginger ale at a price of $2?
a. 4.
b. 14.
c. 28.
d. 49.
e. 144
8. Which of the following is most likely to decrease the supply of corn?
a. The farm worker's union successfully negotiates a pay increase for corn harvest workers.
b. The Surgeon General announces that eating corn bread eliminates baldness in men.
c. Congress and the President eliminate subsidies formerly paid to corn farmers.
d. Farmers that grow soybeans can also grow corn, and the price that farmers can get for selling soybeans drops by 75%.
e. Both a. and c. above.
9. Which of the following is most likely to cause a shortage to become smaller?
a. An increase in market price.
b. A decrease in supply.
c. An increase in demand.
d. A decrease in price.
e. Both b. and c. above.
10. If society allows firms to freely pollute the environment, then which of the following is true?
a. Market equilibrium output will be too low relative to the efficient output level.
b. Market equilibrium output will be equivalent to the efficient output level.
c. Market equilibrium output will be too high relative to the efficient output level.
d. The efficient output level can be achieved by giving firms a subsidy for the pollution they generate.
e. Both a and d. above.
11. If goods X and Y are complements, and if the price of good Y rises, how will this affect the market equilibrium for good X?
a. The price of X will rise and the quantity of X will fall.
b. The price of X will fall and the quantity of X will rise.
c. The price and quantity of X will both rise.
d. The price and quantity of X will both fall.
12. Suppose that Saeed always buys exactly 5 cups of coffee each week, regardless of whether the coffee is regularly priced at $1 or on sale for $0.50. Based on this information, what is Saeed's price elasticity of demand for coffee in this price range?
a. 0.
b. Greater than 0 but less than 1.
c. 1.
d. Greater than 1 but less than 3.
e. Infinity.
13. Which set of goods is most likely to have the larger cross-price elasticity of demand?
a. Coke and Pepsi.
b. Peanut butter and jelly.
c. Computer hardware and computer software.
d. Bicycle tires in the U.S. and bread in Cameroon.
e. Both b. and c. above.
14. Suppose that a jewelry store found that when it increased prices by 20 percent, its total sales revenue decreased by 5 percent. Which of the following is true about the price elasticity of demand for the store's goods?
a. Demand is perfectly inelastic.
b. Demand is inelastic, but not perfectly so.
c. Demand is unitary elastic.
d. Demand is elastic, but not perfectly so.
e. Demand is perfectly elastic.
15. In the theory of consumer choice, when a person is choosing which good or service to consume, how do they select the unit of good or service to consume?
a. They select the good or service that generates the greatest total utility, and spend all of their budget on that good or service.
b. They select the unit of good or service that generates the greatest marginal utility. This process continues until their budget is spent.
c. They select the unit of good or service that generates the greatest marginal utility per dollar spent. This process continues until their budget is spent.
d. They randomly select what they buy until their budget is spent.
e. They select the unit of good or service that costs the most for a given quantity of marginal utility. This process continues until their budget is spent.
Questions 16-20 will use the following information for a competitive market:
|
Price (in dollars) |
Quantity Supplied #1 |
Quantity Supplied #2 |
Quantity Demanded #1 |
Quantity Demanded #2 |
|
1 |
10 |
30 |
90 |
50 |
|
2 |
20 |
40 |
80 |
40 |
|
3 |
30 |
50 |
70 |
30 |
|
4 |
40 |
60 |
60 |
20 |
|
5 |
50 |
70 |
50 |
10 |
|
6 |
60 |
80 |
40 |
0 |
|
7 |
70 |
90 |
30 |
0 |
|
8 |
80 |
100 |
20 |
0 |
16. Use the space below to draw and completely label a supply/demand diagram showing the equilibrium price and quantity based on supply schedule #1 and demand schedule #1.
Draw the fully-labeled picture. Eq. Price is $5 and eq. quantity is 50.
17. Suppose that the equilibrium in the market with supply schedule #1 and demand schedule #1 is displaced when a change in market conditions causes demand schedule #2 to replace demand schedule #1.
a. Very briefly describe one economic factor that would cause the change in demand described above.
Decline in the price of a substitute. Others might be a rise in the price of a complement, a decline in number of buyers, expectation that future prices will fall, decline in preference for the good/service, fall in income for a normal good or a rise in income for an inferior good.
b. Suppose that after the change in demand described above, initially price does not change from the original equilibrium in question 16. With the change in demand, is there a shortage or a surplus at the old equilibrium price, and if so, how much is it?
Circle one: Shortage Surplus Neither Amount = _____40____
c. What will be the new equilibrium price and quantity with supply schedule #1 and demand schedule #2?
Equilibrium price = ____$3___, Equilibrium quantity = ____30___
18. Suppose the equilibrium with supply schedule #1 and demand schedule #2 is displaced when a change in market conditions causes supply schedule #2 to replace supply schedule #1.
a. Very briefly describe one economic factor that would cause the change in supply described above.
Reduced production costs. Others include more sellers, increase in input productivity, cost-reducing or productivity-enhancing innovation, reduction in the price of a production substitute, drop in anticipated future prices.
b. Suppose that after the change in supply described above, initially price does not change from the equilibrium in question 17. With this change in supply, is there a shortage or a surplus at the equilibrium price from question 17, and if so, how much is it?
Circle one: Shortage Surplus Neither Amount = _____20____
c. What will be the new equilibrium price and quantity with supply schedule #2 and demand schedule #2?
Equilibrium price = ___$2__, Equilibrium quantity = ____40___
19. Use the midpoints formula to calculate the price elasticity of demand using demand schedule #1 when price increases from $3 to $4. Show your work.
Ed = abs[(change in QD)/avg QD]/[(change in P)/avg P] = 10/65 divided by 1/3.5 = 0.538
20. True or false: Based on demand schedule #1, marginal utility becomes negative when price falls below $3.
Circle one: True False
False because nobody would pay $2 or $1 for the good shown in demand schedule #1 if marginal utility was negative.