Econ 201 - 2007 Exam 1

Economics 201 Fall 2007 Exam 1 Review Questions 1. Physical capital is used by economists to mean a) the education and training of the workforce. b) the physical space (warehouse) where production occurs c) goods that are used to help make other goods and services d) time allocated to producing goods and services e) financial backing 2. Human capital is used by economists to mean a) the education of the workforce. b) goods that are used to help make other goods. c) training and on the job experience. d) All of the above are human capital. e) Both a and c are correct. 3. Tradeoffs are required in any decision because wants are ______ while resources are _____. a) realistic; plentiful b) scarce; efficient c) unlimited; scarce d) within reason; abundant e) scarce; unlimited 4. Opportunity cost can best be defined as the a) cost of all alternatives given up when a decision is made. b) amount of money paid for something. c) amount of money paid for a decision, taking inflation into account. d) value of the best alternative given up when a decision is made. e) cost of searching for what you want. 5. Suppose that Ken spends 4 hours playing golf, paying green fees of $50, rather than working at his job that pays $10 hour. What is the economic cost of his decision to play golf? a) $90 b) $60 c) $50 d) $40 e) nothing, since he enjoys golf much more than working anyway. 6. Which of the graphs below shows Y increasing at a decreasing rate? (A) Y X X Y X Y X Y A D B C 7. An economic model a) uses equations to understand normative economic phenomena b) often omits crucial elements c) simplifies reality in order to focus on crucial elements d) produces poor predictions since they include unrealistic assumptions e) can never be proven wrong 8. Which of the following issues is related to microeconomics rather than macroeconomics? a) the effect of changes in saving's rates on a country's productivity b) the effect of the North American Free Trade Agreement on the unemployment rate c) the effect of changes in tax rates on the rate of economic growth d) the effect of agricultural price supports on the market for cotton e) the effect of changes in interest rates on gross domestic product 9. "A compassionate and strong welfare program should have a higher priority than a strong national defense program." This is an example of a) an economic theory. b) a positive statement. c) microeconomics. d) a normative statement. e) an economic model Consider the following equation for the next three questions: Y = 15 + 3X 10. In the above equation, Y is the ________ and X is the _______. a) independent variable; dependent variable b) intercept variable; dependent variable c) slope; intercept variable d) dependent variable; independent variable e) independent variable; slope 11. From the equation above, we know that a) X and Y are negatively related. b) plotting Y on the vertical axis and X on the horizontal axis yields a downward sloping line. c) the Y intercept is 3. d) the slope of the line is 3. e) Both a and d are correct. 12. The slope of the equation above a) tells us how much Y changes in response to changes in X. b) says that if X increases by 1 unit, Y increases by 3 units. c) says that X and Y are positively related. d) says that plotting Y on the vertical axis and X on the horizontal axis yields an upward sloping line. e) All of the above are true. Use the graph below to answer the following questions. 13. From the graph, how are X and Y related? a) negatively related ? Y increases when X increases b) positively related ? Y increases when X increases c) negatively related ? Y decreases when X increases d) positively related ? Y decreases when X increases e) X and Y are unrelated 14. What is the slope of the graph above? a) 2 b) -2 c) ½ d) -½ e) 1 15. What is the vertical or Y intercept of the graph? a) 0 b) 5 c) 10 d) 20 e) 40 Y X 5 15 10 2015 25 35 20 30 10 5 40 40 35 30 25 (5 , 20 ) (12 , 3 4) (15 , 4 0) 16. What is the appropriate equation that matches the graph above? a) Y = 5 + ½ X b) Y = 10 ? 2X c) Y = 40 + 2X d) Y = 10 + 2X e) Y = 10 + ½ X 17. On a PPF, economic growth is shown as a/an a) movement along the curve from the top left towards the bottom right. b) outward shift in the curve. c) inward shift in the curve. d) a rotation outward along one axis. e) a movement from a point inside the curve to a point on the curve. Use the graph below to answer the following few questions. It shows a production possibilities frontier curve for an economy that produces only computers and coats. 18. Which points in the graph represent all POSSIBLE production possibilities? a) A, B, C, D, E and F b) A, B, D, E and F c) B, D, E and F d) C, E and F e) B and D only 19. Which points in the graph represent all EFFICIENT production possibilities? a) A, B, C, D, E and F b) C, E and F c) A, B, D, E and F d) A, B and D e) B and D only 20. What is the opportunity cost of moving from point A to point B? a) 3 Computers b) 24 Computers c) 27 Computers d) 24 Coats e) There is no cost associated with moving from A to B since both points are efficient. 21. What is the opportunity cost of moving from point E to point B? a) 30 Coats b) 24 Coats c) 6 Coats d) 6 Computers e) There is no cost because there is never a cost associated with moving from an inefficient point to an efficient point. 22. Suppose the economy were currently at point B. If the economy wanted to move to point A, how much would each additional computer cost? a) 3 Computers b) 24 Coats c) 12 Coats d) 8 Coats e) There is no cost associated with moving from B to A since both points are efficient. 23. Which of the following would shift the demand curve? a) a change in consumers? price expectations b) a change in the price of a related good c) a change in consumers? incomes d) All of the above are correct. e) Only b and c are correct. 24. Which of the following would cause a movement along the demand curve? a) a change in the price of the good or service b) a change in the incomes of consumers c) a change in the price of related goods d) All of the above are correct. e) b and c are both correct 25. When referring to a graph, an increase in demand means that a) the demand curve has shifted left. b) the demand curve has shifted right. c) there has been a movement down along the demand curve. d) there has been a movement up along the demand curve. e) Both b and c are correct. 26. When referring to a graph, an increase in quantity demanded means that a) the demand curve has shifted left. b) the demand curve has shifted right. c) there has been a movement down along the demand curve. d) there has been a movement up along the demand curve. e) Both b and c are correct. 27. Which of the following would cause a decrease in demand? a) an increase in the price of the good b) a decrease in consumers? incomes c) a rise in the price of a complement good d) All of the above are correct. e) Only b and c are correct. 28. Which of the following below shows an increase in demand for Pepsi? (C) 29. Which of the following below shows a decrease in quantity demanded for Pepsi? (B) 30. Which of the following would shift the supply curve? a) a change in the technology of production b) a change in the price of inputs c) a change in price expectations d) a change in the number of sellers e) All of the above could shift the supply 31. Which of the following would cause a movement along the supply curve? a) a change in supplier price expectations b) a change in the technology of production c) a change in the price of the good itself d) a change in the number of sellers e) All of the above could cause a movement along the supply curve. 32. When referring to a graph, a decrease in supply means that a) the supply curve has shifted right. b) the supply curve has shifted left. c) there has been a movement down along the supply curve. d) there has been a movement up along the supply curve. e) Both b and d are correct. 33. When referring to a graph, an increase in quantity supplied means that a) the supply curve has shifted right. b) the supply curve has shifted left. c) there has been a movement down along the supply curve. d) there has been a movement up along the supply curve. e) Both b and d are correct. 34. Which of the following would cause an increase in quantity supplied of computers? a) a decrease in the number of computer producers b) an increase in the number of computer producers c) an increase in the price of computers d) a rise in the price of microchips (CPU's), an input to computer production e) B and C are both correct. 35. Which of the following below shows a decrease in supply for computers? (D) 36. Which of the following below shows a decrease in quantity supplied for computers? (B) 37. Generally, anytime there is a decrease in demand, the model of supply and demand would predict equilibrium price to ____ and quantity to ____. a) rise; fall b) fall; fall c) rise; remain unchanged d) rise; rise e) remain unchanged; fall 38. Generally, anytime there is an increase in supply, the model of supply and demand would predict equilibrium price to ____ and quantity to ____. a) rise; fall b) fall; rise c) rise; remain unchanged d) rise; rise e) remain unchanged; rise 39. Generally, anytime there is an increase in consumers? incomes, the model of supply and demand would predict equilibrium price to ___ and quantity to ____. a) rise; rise b) fall; remain unchanged c) fall; rise d) fall; fall e) remain unchanged; rise 40. Generally, anytime there is a change in the technology of production, the model of supply and demand would predict equilibrium price to ___ and quantity to ____. a) rise; rise b) fall; remain unchanged c) fall; rise d) fall; fall e) remain unchanged; rise 41. Suppose that the price of steel, an important input to automobiles, falls. What do you expect will happen in the market for automobiles? a) equilibrium price and quantity will both increase b) equilibrium price will decrease while quantity will increase c) equilibrium price will increase while quantity will decrease d) equilibrium price and quantity will both decrease e) equilibrium quantity will fall, while the effect on price is ambiguous. 42. What happens in the market for corn if a study concludes that corn is very healthy? a) a fall in the price of corn, an increase in quantity b) price and quantity both fall c) price and quantity both rise d) price rises but the effect on quantity is ambiguous e) quantity rises but the effect on price is ambiguous 43. Suppose that bagels and cream cheese are complements (in consumption). If the price of bagels were to rise, ceteris paribus, what would happen in the market for cream cheese? a) price and quantity will both fall. b) price and quantity will both rise. c) price will fall, but quantity will rise. d) price will rise, and quantity will fall. e) Not enough information to tell. 44. Generally, anytime there is an increase in supply and a simultaneous decrease in demand, the model of supply and demand would predict equilibrium price to ____ and quantity to ____. a) fall; rise b) rise; rise c) unable to determine; fall d) fall; unable to determine e) rise; unable to determine 45. Suppose that a severe frost destroys much of the Brazilian coffee crop. At the same time, suppose that the well-respected Journal of Good Health prints that drinking 3 cups of coffee per day will increase life expectancy. What will be the expected effect on price and quantity? a) both price and quantity will decrease b) price will fall, but the effect on quantity is ambiguous c) price will rise, but the effect on quantity is ambiguous d) quantity will fall, but the effect on price is ambiguous e) quantity will rise, but the effect on price is ambiguous 46. To say that demand for a good is elastic, it means that a) a 1% change in quantity demanded results in a 1% change in price. b) a 1% rise in price results in a drop in quantity demanded by more than 1%. c) a 1% rise in price results in a drop in quantity demanded by less than 1% d) a 1% rise in price results in a drop in quantity demanded by 1%. e) quantity demanded does not respond much to changes in price. 47. If the price elasticity of demand for cigarettes is 0.5, then a 20% price increase will lead to a a) 5% fall in quantity demanded. b) 10% fall in quantity demanded. c) 20% fall in quantity demanded. d) 40% fall in quantity demanded. e) 50% fall in quantity demanded. 48. If a product is a necessity with no close substitutes, then demand will most likely be a) very inelastic b) slightly inelastic c) unitary elastic d) slightly elastic e) very elastic 49. Which of the following goods would be the most price inelastic (of demand)? a) salt b) Caramel Machiato coffee from Starbuck's c) diamonds d) airline ticket from Washington DC to Philadelphia e) T-Bone steak 50. Suppose that UT is considering raising the cost of UT shorts from $25 to $30 (a 20% increase). Suppose the price elasticity of demand (using the official formula) is estimated to be 2. If the University Bookstore originally sold 300 shorts per week, how much would you estimate they sell per week after the price change? a) 180 b) 240 c) 260 d) 300 e) 420 Use the following information showing the market for CD's, with the demand and supply schedules for the next few questions. Use the midpoint formula for elasticities. Price($) Quantity Demanded (Qd) Quantity Supplied (Qs) 11 350 200 12 300 225 13 250 250 14 200 275 15 150 300 51. The equilibrium price of CD's is ________ and quantity is __________, respectively. a) $15; 300 b) $13; 250 c) $11; 350 d) $12; 225 e) $14; 200 52. What is the price elasticity of demand when the price of CD's rises from $11 to $13? Is demand elastic; inelastic or unit elastic at this point? a) 0.33; inelastic b) 0.5; inelastic c) 2; elastic d) 0.167; inelastic e) 1.33; elastic 53. What is the price elasticity of supply when the price of CD's falls from $15 to $13? Is supply elastic, inelastic or unit elastic at this point? a) 1.27; elastic b) 3.5; elastic c) 0.79; inelastic d) 0.29; inelastic e) 0.18; inelastic 54. Suppose that CD producers (sellers) lobby the government for a price ______ of $14. This could cost taxpayers the amount of ______. a) floor; $1,050 b) ceiling; $1,050 c) floor; $15,000 d) ceiling; $15,000 e) floor; nothing 55. Suppose that the buyers of CD's lobby the government for a price ceiling, and the government imposes a price ceiling of $14. This would lead to a a) surplus of CD's in the amount of 75 CD's. b) shortage of CD's in the amount of 75 CD's. c) surplus of CD's in the amount of 50 CD's. d) shortage of CD's in the amount of 25 CD's. e) No effect on the CD market since the price ceiling is non-binding. 56. Suppose that there is fall in the price of CD players, leading to an increase in demand of 75 CD's at every price level. The new equilibrium price is now _____ and the equilibrium quantity is ________. a) $12; 225 b) $12; 300 c) $13; 250 d) $14; 275 e) $15; 300 57. A $20 tax on the sellers of airline tickets will cause the a) demand curve to shift up by $20. b) supply curve to shift up by $20. c) demand curve to shift down and the supply curve to shift up. d) supply curve to shift down by $20. e) demand curve to shift down by $20. 58. If a tax is imposed on a market with elastic demand and inelastic supply a) buyers and sellers will share equally in the tax burden. b) buyers will bear most of the tax burden. c) sellers will bear most of the tax burden. d) It depends whether the tax is imposed on the sellers or buyers. e) It is impossible to tell ? the tax burden has nothing to do with elasticities. Use the graph below to answer the next questions. The graph depicts the market for do-dads, with an initial equilibrium price of $6 and quantity of 60 (before the tax). The government has imposed a tax on do-dads. 59. The tax has been imposed on ______ and the amount of the tax is _______. a) sellers; $1 b) sellers; $3 c) buyers; $1 d) buyers: $2 e) buyers; $3 60. After the tax, the price buyers pay is ____ while the price sellers receive is _____. a) $8; $5 b) $8; $6 c) $6; $6 d) $6; $5 e) $6; $3 61. The amount of the tax paid by buyers is ______ while sellers pay _____ of the tax. a) $2; $1 b) $3; $1 c) $2; $3 d) $1; $2 e) Buyers and sellers equally split the burden of the tax. 62. What is the amount of revenue collected by the government? a) $50 b) $100 c) $150 d) $180 e) Impossible to tell from the graph. 63. A price ceiling a) is a legal maximum on the price at which a good can be sold. b) is a legal minimum on the price at which a good can be sold. c) usually results in shortages (if binding). d) usually results in surpluses (if binding). e) Both a and c are correct. 64. A binding price floor in a market sets price a) above the equilibrium price and causes a shortage. b) above the equilibrium price and causes a surplus. c) below the equilibrium price and causes a shortage. d) below the equilibrium price and causes a surplus. e) below the equilibrium price and causes no adverse effects on quantity. 65. Marginal product of labor (MPL) is defined as the change in a) revenue from employing one additional unit of labor. b) cost from producing one additional unit of output. c) output from using one additional unit of capital. d) revenue from producing one additional unit of output. e) output from employing one additional unit of labor. 66. At Ken's Cookie Store, 4 workers can bake 44 cookies in one hour, while 5 workers can bake 70 cookies in one hour. The marginal product of the 5th worker is a) 26 cookies. b) 11 cookies. c) 14 cookies. d) 70 cookies. e) Mmmmm. Cookies? 67. Diminishing returns to labor, or diminishing marginal product of labor implies that, holding other inputs fixed, eventually a) output decreases as we employ more units of labor. b) output rises by more and more as we employ more units of labor. c) revenue rises by more and more as we produce more units of output. d) output rises by less and less as we add more units of labor. e) costs rise by less and less as we produce more units of output. 68. The short-run production function assumes that a) all inputs are free to vary. b) at least one input is held fixed or constant. c) the length of time is less than one year. d) all inputs are held fixed. e) the firm won?t stay in business long. 69. The long-run production function assumes that a) at least one or more inputs are held fixed or constant. b) the length of time is over one year. c) the length of time is over six months d) all inputs are held fixed or constant. e) all inputs are free to vary. 70. An example of an explicit cost of production would be the cost of a) hiring extra labor for a busy season. b) remodeling a store to expand business. c) repaying a business loan. d) purchasing raw materials (such as flour for a bakery). e) All of the above are examples of explicit costs of production. 71. Economic profits are normally _____ than accounting profits because ____. a) lower; economic revenues are lower than accounting revenues b) lower; economic costs are greater than accounting costs c) the same; costs and revenues are the same in economics and accounting d) higher; economic costs are greater than accounting costs e) higher; economics costs are lower than accounting costs Sabrina owns her own broomstick factory. In 2002 her revenues were $600,000. She pays her employees $350,000 per year. Her inventories/supplies cost her an additional $75,000 per year. Her rent on the factory is $50,000 per year. Before running the broomstick factory, she was an actress in 2001 earning $125,000 per year. 72. Implicit costs are _____ and explicit costs are ______. a) $350,000; $250,000 b) $0; $475,000 c) $475,000; $125,000 d) $125,000; $475,000 e) $200,000; $300,000 73. An accountant would say her profits for 2002 were ____ while an economist would say her profits for 2002 were _______. a) $125,000; $0 b) $0; $0 c) $125,00; $475,000 d) $475,000; $125,000 e) $150,000; $475,000 74. Which of the following short-run cost curves is NOT typically U-shaped? a) average fixed cost b) average variable cost c) average total cost d) marginal cost e) All of the above are typically U-shaped 75. The average total cost (ATC) curve typically a) is constant for all levels of production. b) always decreases as quantity produced increases. c) always increases as quantity produced increases. d) first increases and then decreases as quantity produced increases. e) first decreases and then increases as quantity produced increases. 76. Marginal Cost (MC) can be thought of as the change in a) revenue from employing one additional unit of labor. b) labor from producing one additional unit of output. c) total output from utilizing one additional unit of capital d) total cost from producing one more unit of output. e) total cost due to employing one more unit of labor. 77. Suppose that, in the long run, a HP factory could produce 75 thousand laptops per day and incur total economic costs of $90 million per day. If it increases production to 100 thousand laptops per day, it?s total economic costs increase to $120 million per day. What can we say about the firm? a) The factory is experiencing constant returns to scale. b) The factory is experiencing economies of scale (increasing returns to scale). c) The factory is experiencing diseconomies of scale (decreasing returns to scale). d) Not sure. We need more information about its cost structure. Use the graph below to answer the next few questions. It shows a firm that produces widgets (per day) with its typical short-run cost curves. 78. If the firm produces 200 widgets per day, how much (on average) does each widget cost to make? a) $100 b) $110 c) $125 d) $130 e) $150 79. If the firm produces 200 widgets per day, how much does the 200th widget cost to make? a) $90 b) $100 c) $125 d) $150 e) Not enough information to tell 80. If the firm produces 150 widgets per day, what are its total costs per day? a) $10,000 b) $18,750 c) $26,000 d) $30,000 e) Not enough information to tell 81. When the firm produces 200 widgets per day, what are its total costs per day? a) $18,750 b) $22,000 c) $26,000 d) $30,000 e) Not enough information to tell 82. When the firm produces 200 widgets per day, what are its variable costs per day? a) $18,750 b) $22,000 c) $26,000 d) $30,000 e) Not enough information to tell 83. What are the firm?s fixed costs per day? a) $2,000 b) $3,000 c) $4,000 d) $26,000 e) Not enough information to tell