SL 151���������������������������������������������������������������������������������� Name
_________________________________________ CM ______
Bremmer I���������������������������������������������������������������������������
1st
In-Class Exam - - Chapters 1-3, 18
Part I.� Multiple Choice (3 points).� For each
question, indicate the best answer in the space provided.
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___ 1.���� Given
production possibilities curve DC in Figure 1, point B indicates a bundle of
goods:
A.��� where the
economy is at full production and full employment.
B.��� that involves
inefficient production and excessive unemployment.
C.��� that is
beyond society�s current productive capabilities.
D.��� that society
may be able to consume given free trade with another country.
E.���� Both C and
D.
___ 2.���� Referring
to Figure 1, a shift in the production possibilities curve from DC to EC could
be due to a:
A.��� technological
improvement in the production of ice cream.
B.��� technological
improvement in the production of both goods.
C.��� reduction in
the rate of unemployment towards full employment.
D.��� technological
improvement in the production of frozen yogurt.
E.���� fall in the
demand for frozen yogurt.
___3.����� The production possibilities curves in
Figure 1 imply that:
A.��� resources in
the economy are not specialized and they can be freely moved between the
production of ice cream and frozen yogurt.
B.��� as the
production of frozen yogurt increases along a given PPC, its opportunity cost
is constant.
C.��� as the
production of increase cream increases along a given PPC, increasing amounts of
frozen yogurt must be given up.
D.��� production of
point F is impossible given current technology and resources.
E.���� Both A and
B.
Figure 2
shows the production possibilities curves for two countries - - Nation X and
Nation Y.����������������������
___ 4.���� Given
Figure 2, which of the following statements is true?
A.��� Both Nations
X and Y exhibit the law of increasing cost.
B.��� The
opportunity cost of producing steel in Nation X is greater than the opportunity
cost of producing steel in Nation Y.
C.��� In Nation Y,
the opportunity cost of one more unit of wheat is � unit of steel.
D.��� Neither
country would gain from international trade.
E.���� Nation Y has
a comparative advantage in steel production.
___ 5.���� Which
of the following would cause an outward shift in a production possibilities
curve?
A.��� A decrease in
the size of the labor force.
B.��� A fall in the
unemployment rate towards the full employment level.
C.��� The
destruction of capital.
D.��� An increase
in education and job training.
E.���� Society
decides to produce more of one good and less of the other.
___ 6.���� If
the government sets a price floor below the equilibrium price, then:
A.��� firms�
revenues will fall.������������� D.��� neither
a shortage nor a surplus occurs.
B.��� a shortage
results.������������������������������ E.���� Both
A and B.
C.��� a surplus
occurs.���������
In Figure 3,
the initial demand and supply curves of ground beef were D and S, respectively.� Assume the demand and supply curves
simultaneously shift to D' and S', respectively.��������������������������������������������������� ���������������
___ 7.���� Regarding
Figure 3, which of the following would cause the demand curve to shift from D
to D'?
A.��� A decrease in
the price of beef.
B.��� A decrease in
the price of chicken, a substitute for beef.
C.��� An increase
in the price of wine, a complement for beef.
D.��� A decrease in
consumer income, assuming beef is a normal good.
E.���� None of the
above.
___ 8.���� Regarding
Figure 3, which of the following would cause the supply curve to shift from S
to S'?
A.��� A decrease in
the price of beef.
B.��� A decrease in
the price of cattle feed, an input for beef.
C.��� Ranchers
expect the future price of beef to fall.
D.��� A decrease in
the number of firms producing beef.
E.���� An increase
in the per pound subsidy that ranchers received from the government.
___ 9.���� A
decrease in both the equilibrium price and the equilibrium quantity could be
caused by a(n):
A.��� decrease in
supply.
B.��� simultaneous
decrease in supply and increase in demand.
C.��� simultaneous
increase in both demand and supply.
D.��� increase in
demand.
E.���� a
simultaneous increase in demand and decrease in supply.
___ 10.� Given
a perfectly inelastic demand curve, a government subsidy of $2 per unit causes
the equilibrium price:
A.��� to fall by
less than $2 per unit.������������������ D.��� to
increase by more than $2 per unit.
B.��� to fall by
more than $2 per unit.�������� E.���� to
increase by exactly $2 per unit.
C.��� to fall by
exactly $2 per unit.
___ 11.� Given
a negatively sloped, linear demand curve, as price increases:
A.��� revenue
always increases.������������������������������������������������� D.��� the
price elasticity of demand increases.
B.��� the price
elasticity of demand remains constant.����������� E.���� revenue
always decreases.
C.��� the price
elasticity of demand decreases.
___ 12.� Which
of the following is characteristic of an elastic demand curve?
A.��� The product has
a small number of viable substitutes.
B.��� Consumers
have a longer time period to adjust to a price change�������������
C.��� Only a small
percentage of the consumers� budget is spent on the good.
D.��� Consumers view
the product as a luxury good.
E.���� None of the
above characteristics are consistent with a good having elastic demand.
___ 13.� Assume
good Y has a negative income elasticity of demand and a perfectly elastic
supply.� Holding everything else
constant, how will an increase in consumers� incomes affect the market for Y?
A.��� The
equilibrium price and the equilibrium quantity of Y both increase.����
B.��� The
equilibrium price and the equilibrium quantity of Y both decrease.�����������
C.��� The
equilibrium quantity of Y remains constant, but the equilibrium price of Y
falls.
D.��� The
equilibrium price of Y remains constant, but the equilibrium quantity of Y
falls.
E.���� The
equilibrium price of Y increases, while the equilibrium quantity of Y falls.
___ 14.� Given
a linear demand curve, could an increase in supply ever cause no change in
total revenue?
A.��� Yes, if the
arc formula shows the price elasticity of demand between the two prices is
elastic.����
B.��� Yes, if the
arc formula shows the price elasticity of demand between the two prices is
inelastic.
C.��� Yes, if the
arc formula shows the price elasticity of demand between the two prices is unitary
elastic.
D.��� Only if the
demand was perfectly inelastic.
E.���� Only if the
demand was perfectly elastic.
___ 15.� If an
increase in the price of Y causes the demand for X to shift to the right, then:
A.��� X and Y are
complements, and the cross-price elasticity of the demand for X with respect to
the price of Y is positive.��������
B.��� X and Y are
complements, and the cross-price elasticity of the demand for X with respect to
the price of Y is negative.�������
C.��� X and Y are
substitutes, and the cross-price elasticity of the demand for X with respect to
the price of Y is positive.
D.��� X and Y are substitutes,
and the cross-price elasticity of the demand for X with respect to the price of
Y is negative.
E.���� X is a
normal good and the income elasticity of demand for X is positive.
Part
II.� Multiple Choice (55 points).� Give a concise,
but complete answer for the following questions.� When appropriate, use math, graphs, and
equations to help explain your answers.�
Label your graphs.
1.���� Assume an economy with specialized
resources produces tanks and cars. Holding everything else constant, what
happens to the production possibilities curves as natural resources are depleted?� Is society better or worse off?� Given the continued depletion of natural
resources, why is sustained technological improvement important to society
welfare? ��(15 points)
2.���� What happens to the current market price
and the current market quantity of a company�s stock if current owners and
potential investors expect the price of the stock to fall in the future?� Explain your answer using a demand and supply
diagram.� (10 points)
3.���� Answer the following questions using Figure
4.� (15
points)���������������������������������������������������������������������������� ���������������
A.��� Using the demand curve shown in Figure 4,
compare the price elasticity of demand between 14 and $12 and between $6 and
$4.� Use the arc or midpoint formula in
your calculations.� In each price range
is demand elastic, inelastic, or unitary elastic?� (10
points)
B.��� Referring to Figure 4, is demand elastic,
inelastic, or unitary elastic between points U and V?� Why? �(5 points)
4.���� Answer the following questions referring to
the following production possibilities curves for Nation A and
������� Nation B.� Show your work for partial credit.� (15
points)
Nation A�s
Production Possibilities |
|
Nation B�s
Production Possibilities |
||||||||||
|
A |
B |
C |
D |
E |
|
|
A |
B |
C |
D |
E |
Good X |
60 |
45 |
30 |
15 |
0 |
|
Good X |
20 |
15 |
10 |
5 |
0 |
Good Y |
0 |
15 |
30 |
45 |
60 |
|
Good Y |
0 |
10 |
20 |
30 |
40 |
A.��� What is the opportunity cost of Nation A
producing one more unit of Good X?� (3 points)
B.��� What is the opportunity cost of Nation B
producing one more unit of Good Y?� (3 points)
C.��� Nation A has a comparative advantage in
which product?� (2 points)
D.��� Nation B has a comparative advantage in
which product?� (2 points)
E.���� What is a feasible terms of trade at which
foreign trade is mutually beneficial?� (3 points)
F.���� How much of Good X and Good Y is produced
after trade?� (2 points)