101 Economics Professor Kelly October 4, 2004
Midterm 1
Version 1
Name:__________________________________ Section #:_______________________________ TA:_____________________________________
(Please see last page for discussion section and TA listings)
On the bubble sheet, be sure to include your name, student id number, section number, and the version number of your exam (found at the top of this page). ATTENTION: If you fail to fill in the above area and/or the bubble sheet correctly, 2 points will be deducted from your exam score.
Please do not open this exam until instructed to do so. The exam includes 10 binary-choice questions and 20 multiple-choice questions. Each binary-choice question is worth 2 points, and each multiple-choice question is worth 4 points. Choose the best answer for each question, and fill in the corresponding circle on the bubble sheet provided. Please use a number two pencil on the bubble sheet. Fill in your answers completely. The proctors cannot answer any questions about the content of the exam. Raise your hand if you have a question regarding a procedural issue (i.e. if you do not understand the above instructions regarding filling in the special codes section of the bubble sheet). You may write on this exam question booklet, but anything you write on this booklet will not be graded. You must hand in both this exam question booklet and the bubble sheet before leaving the exam room. Please... no calculators or scratch paper.
You have 50 minutes to complete the exam.
Good luck!
BINARY CHOICE QUESTIONS (Each question is worth 2 points) 1) With trade a country a. can consume outside its production possibilities frontier. b. will be better off if it exports only
2) Assume that two countries produce only two goods and that each country's PPF could be described by a linear equation. We are told that the slopes of the two PPFs are different. Consider the following statement: "Since we can say that the opportunity costs for both countries are constant, trade between them is not going to be beneficial". This statement is: a. True. b. False.
bicycle DVD
Labor requirement per unit France Italy 20 15 40 45
3) Please consider the table above. If both countries followed the principle of specialization, France should produce more: a. bicycles b. DVD players
4) The demand for good X increases when the price of good Y falls. Therefore good X is a complement of good Y. a. True b. False
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5) Pizza is an inferior good for Bob. When Bob's income decreases, his consumption of pizza increases. a. True b. False 6) When there is a surplus amount of the good in a market, a. there are too many buyers chasing too few goods. b. there is downward pressure on price. 7) What do you expect a decrease in the price of ice cream to do to the equilibrium price and quantity in the market for hot fudge? a. The equilibrium price will rise and the equilibrium quantity will rise b. The equilibrium price will fall and the equilibrium quantity will rise
8) What is true about a market in which there is a horizontal supply curve? a. A shift to the right in demand will cause the equilibrium price to rise but the equilibrium quantity will remain constant b. A shift to the right in demand will cause the equilibrium price to remain constant but the equilibrium quantity will rise
9) Assume we have a market in equilibrium. Which of the following occurs after a shift to the right in supply? a. Demand increases in response to the lower price b. The quantity demanded increases in response to the lower price
10) Comparative advantage reflects a. productivity b. relative opportunity cost
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MULTIPLE CHOICE QUESTIONS (Each question is worth 4 points) 11) Ning has 16 working hours per day. She can produce one loaf of bread using 2 hours and produce one gallon of milk using 4 hours. What is the opportunity cost of 1 loaf of bread in terms of gallons of milk? a. 8 gallons of milk b. 0.5 gallons of milk c. 2 gallons of milk d. 4 gallons of milk e. 0.4 gallons of milk
Apple
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25 21 16
A B C
10
D
Orange 5 10 15
12) Consider an economy which produces two types of fruit; apples and oranges. The above figure depicts the PPF of the economy. The economy reallocates the available resources so that it moves from point B to point D on its PPF. What is the opportunity cost of producing 1 orange in terms of apples when this economy moves from point B to point D? a. 5 apples b. 4/5 apples c. 1.1 apples d. 10/11 apples e. 6/5 apples
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Milk
13) What is the explanation for the shift in the PPF that is observed in the above picture? a. An increase in the labor force that can be used in both industries b. A change in government subsidies that favors the beer industry over the milk industry c. Technological improvement in the milk industry d. Technological improvement in the beer industry e. A change in government subsidies that affect both industries but favors the milk industry over the beer industry
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14) If Misuzu can produce muffins at a lower opportunity cost than Daniel, then a. Misuzu has a comparative advantage in the production of muffins. b. Daniel has a comparative advantage in the production of muffins. c. it is obvious that Misuzu is capable of producing more muffins than Daniel. d. Daniel does not have the absolute advantage in the production of muffins.
15) If Spain can produce each unit of wine using fewer resources than Australia, then a. Australia has an absolute advantage in wine production. b. Spain has a comparative advantage in wine production. c. Australia has a comparative advantage in wine production. d. Australia may have an absolute advantage in wine production. e. Spain has an absolute advantage in wine production.
Homework Cake
Labor requirement per unit Sue John 3 hours 4 hours 6 hours 2 hours
16) Please refer to the table above. Which statement is true? a. Gains from trade are if possible Sue writes the homework and John bakes the cakes. b. No gains from trade are possible. c. Neither Sue nor John has a comparative advantage in producing either good. d. Gains from trade are possible if John writes the homework and Sue bakes the cakes.
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The maximum quantities of goods that can be produced in 1 week Apples Bananas Isil 200 pounds 50 pounds Ben 100 pounds 20 pounds
17) Please refer to the table above. For Ben, the opportunity cost of producing one additional pound of bananas is: a. 2.5 pounds of apples b. 10 pounds of apples c. 4 pounds of apples d. 5 pounds of apples e. 1/5 pound of apples
18) Again, please consider the table above. Assume that Isil and Ben have identical resources. Ben has __________. a. Absolute advantage in producing apples only. b. Comparative advantage in producing both apples and bananas. 8
c. Absolute advantage in producing bananas only. d. Comparative advantage in producing apples. e. Absolute advantage in producing both apples and bananas.
19) We are told that the opportunity cost of a helicopter is 20 cars in India and 40 cars in Canada. Then we can conclude: a. India has the absolute advantage in helicopter production. b. Trade is not going to be beneficial for India. c. India is a more efficient economy than Canada. d. India has a comparative advantage in car production. e. Nothing about which country has the absolute advantage in helicopter production.
The next 3 questions are based on the following information: Consider the city of Madison. Let the demand for bread be described by P=10-QD Let the supply of bread be described by P=2+QS
20) Find the market equilibrium. a. Price=$3, Quantity=5 b. Price=$4 , Quantity=6 c. Price=$6, Quantity=8 d. Price=$6 , Quantity=4 e. Price=$4 , Quantity=2
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21) The city of Madison sets a price ceiling of $3 in the bread market. Is there a surplus or a shortage in the bread market after the imposition of the price ceiling? How much? a. Surplus, 2 units of bread b. Surplus, 6 units of bread c. Shortage, 6 units of bread d. Shortage, 2 units of bread e. Neither surplus nor shortage, 0 units of bread
22) What would the price ceiling level have to be for the quantity supplied of bread to be equal to 3 units? a. $5 b. $3 c. $4 d. $2 e. $6
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The next 4 questions are based on the following information: Consider the city of Madison. Let the demand for beer be described by P=12- QD Let the supply of beer be described by P=2QS 23) Suppose that the city of Madison imposes a tax of $3/unit on the sellers. What is the new equilibrium price after the imposition of tax? a. $5 b. $6 c. $7 d. $8 e. $9
24) What is the change in the consumer surplus due to the tax? How much is the deadweight loss? a. Change in the consumer surplus = $8, deadweight loss = $3
b. Change in the consumer surplus = $4.5, deadweight loss = $3 c. Change in the consumer surplus = $4.5, deadweight loss = $1.5 d. Change in the consumer surplus = $3.5, deadweight loss = $1.5 e. Change in the consumer surplus = $3.5, deadweight loss = $3
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25) How much does the city government collect as the tax revenue? How much of it is paid by the consumers? a. Tax revenue = $9, consumers pay = $0 b. Tax revenue = $9, consumers pay = $3 c. Tax revenue = $9, consumers pay = $6 d. Tax revenue = $12, consumers pay = $3 e. Tax revenue = $12, consumers pay = $9
26) Consider the initial market equilibrium (before a tax of $3 was imposed on the sellers). What should the tax level be for the amount of beer consumed to decrease by 2 units? a. $4/u...