Practice Exam - Exam 2

Practice Exam - Exam 2 - Name Chad Hogan PRACTICE Second...

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Name___________________________ Chad Hogan Winter 2008 PRACTICE Second Exam Economics 101 The University of Michigan NOTES: 1. The actual exam will share the same format as this practice exam. 2. For each question, a correct answer is worth 5 points, no answer is worth 1 point, and an incorrect answer is worth 0 points. 3. Given that the exam has 30 questions, the maximum possible score is 150. 4. Given that each question has 5 possible answers, a wild guess will earn 1 point on average, the same number of points earned by providing no answer. Guessing only gives you a better return than leaving the question unanswered if you can eliminate at least one answer (in which case a guess will earn more than 1 point on average). 5. The use of calculators, cell phones, personal digital audio players, or any other electronic devices will not be permitted during the exam. 6. Have your UMID with you at all times during the exam. 7. Unless a question explicitly notes otherwise, assume that all supply and marginal cost curves slope upward and that all demand and marginal value curves slope downward.

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Page 2 1. ___ Consider the linear demand curve shown below. Which of the following statements about the price elasticity of demand is true? (a) As the demand curve is a straight line, the elasticity is the same at points A, B and C. (b) At point A, demand is very price inelastic. (c) At point B, demand is very price inelastic. (d) At point C, demand is very price inelastic. (e) It is impossible to tell anything about the elasticity of demand without more precise information about the demand function. 2. ___ Which of the following clearly generates a positive externality? (a) Alison purchases an apple for \$1, which she eats herself. (b) Bruce pays \$1 for a lottery ticket and subsequently wins a new LCD TV. (c) Claire pays \$27,000 a year for a degree in electrical engineering. She knows that her programming skills will be highly valued when she applies for a job, and anticipates earning a high salary as a result. (d) Dynamix Inc. spends \$0.5m each year to divert water from a nearby river into a specially constructed reservoir it uses to cool the generators in its factory. P Q 100 100 50 50 A B C
Page 3 (e) Eric pays \$50/lesson for a driver’s education course. As a more competent driver, the likelihood that he causes a road accident is reduced. 3. ___ The United States is an exporter of wheat to the world market. If cross-border trade in US wheat was outlawed, and the domestic wheat market was left to operate freely, which of the following would be most likely to occur? (a) The domestic US price of wheat would be higher than it was while trade was legal. (b) Domestic producers would be better off than when trade was legal. (c)

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Practice Exam - Exam 2 - Name Chad Hogan PRACTICE Second...

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