SL 151 Name
_________________________________________ CM __________
Bremmer
I
1st In-Class Exam - - Chapters 1
- 3
Part I.
Multiple Choice (3 points each). Indicate the best answer for each question in
the space provided.
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___ 1. Referring
to the production possibilities curves shown in Figure 1, which of the
following statements is (are) true?
A. Resources
used to produce goods Y and Z are not specialized.
B. Given
production possibilities curve PP1, every time society produces one
more unit of Good Y it has to give up the same amount of Good Z.
C. Given
production possibilities curve PP2, point F shows a bundle of goods
that society could produce, but it would involve inefficient use of resources.
D. All
of the above statements are true.
E. None
of the above statements are true.
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___ 2. In
Figure 1, if the current production possibilities curve is PP2,
then:
A. society can produce
the bundle of goods at point F only if it experiences economic growth.
B. society
may be able to consume the bundle of goods at point F with free trade.
C. the
opportunity cost of producing one more unit of good Z is greater at point A than
it is at point E.
D. All
of the above.
E. Only
A and B.
___ 3. Referring
to Figure 1, which of the following would explain a shift in the production
possibilities curve from PP2 to PP1?
A. An
increase in capital. D. An
increase in the unemployment rate.
B. An
improvement in the technology used to produce good Z. E. A decrease in the supply of natural
resources.
C. An
increase in labor supply.
___ 4. Assume
that Country I can produce two goods, Good X and Good Y. If Country I’s production possibilities curve
is a downward-sloping, straight line, then:
A. it
exhibits the law of increasing cost.
B. the
resources used to produce goods X and Y must be specialized.
C. the
opportunity costs of producing one more unit of Good X increases as more of X
is produced.
D. the
opportunity costs of producing one more unit of Good X remains constant as more
of X is produced.
E. Answers
A, B, and C are correct.
___ 5. If
country A has a comparative advantage in the production of good X over country
B, then:
A. country B
should specialize in the production of good X.
B. countries
A and B should not engage in free trade.
C. country
A’s after trade consumption possibilities curve lies inside its production
possibilities curve.
D. the
opportunity cost of producing good X in country A is higher than the
opportunity cost of producing good X in country B.
E. the
opportunity cost of producing good X in country A is lower than the opportunity
cost of producing good X in country B.
___ 6. If
the demand curve for good X is a downward sloping, straight line, then:
A. the
price elasticity of demand increases as the price of X falls.
B. the
price elasticity of demand remains constant as the price of X falls.
C. the
price elasticity of demand equals zero at the midpoint of the demand curve.
D. the
price elasticity of demand decreases as the price of X falls.
E. the
total revenue is the same for all prices and quantities.
___ 7. Given
a perfectly inelastic supply and a downward sloping, linear demand curve, an
effective price ceiling:
A. will
cause a surplus which will be larger the less elastic the demand curve.
B. will
cause a shortage which will be larger the more elastic the demand curve.
C. will
cause a surplus which will be larger the more elastic the demand curve.
D. will
cause a shortage which will be larger the less elastic the demand curve.
E. increases
firms’ total revenue.
___ 8. Which
of the following statements is true?
A. If the income
elasticity of demand of good X equals -1.5, then an increase income shifts the
demand curve for X to the right.
B. If
demand is perfectly elastic, the price elasticity of demand is equal to zero
for every price and quantity.
C. If
the price elasticity of demand between two points is unitary elastic, then
either price results in the same total revenue.
D. If
the cross price elasticity of demand for good X with respect to the price of
good Y is equal to -2, then an increase in the price of Y shifts the demand
curve for good X to the right.
E. If
there is a surplus in the market, the price of the good will increase.
___ 9. Which
of the following would cause the demand curve for good X to shift to the left?
A. A
decrease in the price of good S, a substitute for good X. D. An increase in the price
of good X.
B. Consumers
expect the price of good X will increase in the future. E. An increase in population.
C. An
increase in consumer incomes, if good X is a normal good.
___ 10. Which
of the following would cause the supply curve for good X to shift to the left?
A. A decrease in
the price of good X.
B. An
increase in the number of firms that produce good X.
C. An
improvement in the technology used to make good X.
D. A
decrease in the price of inputs used to make good X.
E. None
of the above.
___ 11. Assume
you observed an increase in both the market price and the market quantity of
good X. Which of the following best
explains this occurrence?
A. A
simultaneous decrease in demand for X and increase in the supply of X. D. A decrease in the supply
of X.
B. A
simultaneous increase in both the demand and supply of X. E. A
decrease in the demand for X.
C. A
simultaneous decrease in both the demand and supply of X.
___ 12. If a
linear, positively sloped supply curve cuts the horizontal axis at some point
other than the origin, then:
A. at every price
the price elasticity of supply is equal to zero.
B. at every
price the price elasticity of supply is equal to one.
C. at
every price the price elasticity of supply is greater than one.
D. at
every price the price elasticity of supply is between zero and one.
E. at
every price the price elasticity of supply is equal to infinity.
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___ 13. According
to Figure 2, when the quantity of product X increases from14,000 to 16,000, the
price elasticity of demand for product X is:
A. perfectly
elastic. D. elastic.
B. perfectly
inelastic. E. inelastic.
C. unitary
elastic.
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___ 14. Which
of the following statements is false?
A. The
price elasticity of demand is lower for goods with few close substitutes.
B. The price
elasticity of demand is greater for a luxury good than it is for a necessity
good.
C. The price
elasticity of supply decreases with the passage of time.
D. The larger the
portion of one’s budget that is spent on the good, the more elastic the demand.
E. The smaller
the amount of time that consumers have to react to a price change, the less
elastic the price elasticity of demand.
___ 15. Suppose
the government imposed a per unit excise tax on producers. In which of the market situations depicted in
Figure 3 will the largest portion of the tax be borne by producers?
A. Situation
(1) B. Situation (2) C. Situation (3) D. Situation (4)
Part
II. Short Answer (55 points). Give a concise,
but complete answer for each of the following questions. Answer the questions completely, using
graphs, equations, or math to help explain your answers, when appropriate. Be sure to label the axis on your graphs.
1. Assume that both the
2. When price was $4 a unit, quantity demanded
was 50 units. When price increased to
$6, quantity demanded equaled 40 units.
Using the arc formula, determine the price elasticity of demand between
these two prices. Is demand elastic,
inelastic, or unitary elastic? Confirm
your answer by analyzing the change in total revenue caused by the change in
prices. (10 points)
3. Using a graph showing the demand and supply
for agricultural products, show a binding price floor. Assume the demand for food is inelastic. Describe and illustrate how abolishing the
farm price floor affects farm output, the amount consumers purchase, consumer
expenditures, farm revenues, and government expenditures. (10
points)
4. Assume a world where two countries, both
with unspecialized resources, produce the same two goods. Using graphs showing production possibilities
curves and after trade consumption possibilities curves, describe and
illustrate how free trade should make both countries better off. (10
points)
5. The diagram below show three demand and
supply diagrams: (1) one for imported Japanese steel, (2) one for U.S. steel,
and (3) one for U.S. cars. Assume that