ECON102 S02 Baldson Midterm1 - Economics 102 San Diego...

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Unformatted text preview: Economics 102 San Diego State University Prof. Balsdon Spring 2002 Midterm #1 The exam is worth a total of 100 points: 50 points for the multiple choice questions in part I, and 50 points for the problems in part 11. Please read each question carefully. You have 75 minutes. Good luck! 1. Multiple choice. Choose one response for each question and fill in the corresponding space on your scantron form-882, using spaces 1 — 25. Be sure to put your name on the scantron sheet. (2 points each; total 50 points). 1. For society, a good is not scarce if b. at least one‘ind1v1dual 1n society can obtain all he or she wants of the good. c. firms are producing at full capacity. d. those who have enough income can buy all they want of the good. 2. If there are very few, if any, good substitutes for good A, then a. the supply of good A would tend to be price elastic. h dema d f good A would d tobe price elastic. deman for good A would tend to e'income elastic. 1? a. d. 3. When income increases, purchases of homes increase. This means: b. there has been a movement-down the demand curve for housing. 0. the demand curve for housing has shifted leftward. d. there has been a movement up the demand curve for housing. 4. In economics, the cost of something is a th out f poclget ex f obtaining it. c. (always measured in units of time. d. always higher than people think. 5. Which of the following is an example of a normative statement? a. If the price of a product decreases, quantity demanded increases. c. If the natlonal saving rate were to increase, so would the rate of economic growth. (1 All of the above are normative statements. Hobhsm Crusoe Friday CMI‘IIIt-s OWL!” a e D 2 Fish ‘3'” 4 Fish 6. Refer to the graphs above. For Robinson Crusoe the opportunity cost of 1 pound of fish is a. 2 pounds of coconuts. b. 1/2 ound of co (1. 1/4 pound o coconuts. 7. Refer to the graphs above. Robinson Crusoe has a comparative advantage in and Friday has a comparative advantage in a. fish, coconuts >2 beams, T “E 0. fish, fish (1. fish, neither good 8. In the production possibilities frontier above, what is the opportunity cost to society of the movement from point D to point B? a. 750 pretzels b. 500 pretzels d. 150 pretzels 9. The average worker in the United States can produce 20 tons of coal or 10 tons of iron per hour. The average worker in Canada can produce either 10 tons of coal or 10 tons of iron per hour. The United States has a comparative advantage in the production c. both iron and coal. d. neither iron nor coal. 10. Which of the following would NOT be a determinant of demand? a. the price of related goods b. income 0. tastes d. Dr D Quantity 11. On the graph above, the movement from D to D1 could be caused by an increase in price. a decrease in the price of a complement. Pt? 9"!“3 12. Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the the demand curve . a. steeper b. further to the right (is ' flattér’ d. closer to the vertical axis 13. Ryan spends an hour studying instead of going for a bike ride. The opportunity cost to him of studying is a. the improvement in his grades from studying for the hour. b. the difference between the improvement in his grades from studying minus the enjoyment of a bike ride. d. zero. I'Sincem Ryan chose to study rather than to ride his b1ke, the "value of studying must have been greater than the value of the bike ride. Goa-dc _nd [2 Siemens _mholda D _r:mmm duction 14. In the circular-flow diagram shown, which arrow shows the flow of goods and services? a. A b“:- B c. C d. D 15. A production possibilities frontier will be linear and not bowed out if a. no tradeoffs exist hm: the: trad . « c. unemployment lS zero. (1. resources are allocated efficiently. 16. Which of the following would NOT shift the demand curve for a good or service? a change in income a change in the price of a related good a change in expectations about the price of the good or service 1 13sec afghaigoodmserfie: P‘PP‘?’ Pfice Q3»- Qj W is a surplus in a theta. flower . b. there is upward pressure 0 price. c. the market could still be in equilibrium. d. there are too many buyers chasing too few goods. 19. Jason has just received his bachelor's degree in finance. He is now comparing the costs and benefits of getting a master's degree with working at a full-time job. This is an example of: a. irrational behavior. b the law of diminishing returns. 6. increasing cost. dmmgatthe 20. Suppose that good X has a negative income elasticity of demand. This implies that the good is a anormal good. b. anecessity. d. a luxury. I I 21. Trade can make everybody better off because it leads to interdependence. increases labor costs. reduces absol te costs of roduction; almwaffi P‘F’P‘P 22. Explain the following "puzzle." Over the long run, world—wide supplies of agriculture products have increased dramatically, but at the same time farmers' incomes have also fallen sharply: b. The demand for farm products has declined over the past few decades. 0. Farm price supports have robbed farmers of their Income. (1. All of the above. 23. According to the circular flow model: b. in the market for goods and services, households are sellers and firms are buyers. ' c. in the market for factors of production, households are buyers and firms are sellers. d. firms are the owners of the factors of production. 24. A rational decision- maker takes an action only if a: the , .. . _ ‘- b. the marginal benefit 13 less than the marginal cost 0. the average benefit 1s greater than the average cost. (1. the marginal benefit is greater than both the average cost and the marginal cost. 25. Suppose that demand decreases AND supply decreases. What would you expect to occur in the market for the good? a. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. Both eq ‘l'brium price and equilibrium quantity would 1ncrease. d. "‘Eq‘uilib _ _ uantity won "decrease, but the impact on equilibrium price would be ambiguous. .0 II. Longer Problems. Read each question carefully. Be sure to label all diagrams, including axes, curves, prices and quantities. Please use the space available, including the reverse side if necessary. (50 total points) 1. (16 points) Using a standard market equilibrium supply-demand diagram, briefly explain how each of the following events would affect equilibrium price and quantity in the indicated market. Be clear as to which curve is shifting and why, and what happens to equilibrium price and quantity. a. (4 points) Decrease in the price of DVD players — market for VCRs. i b. (4 points) Increase in wages for h c. (4 points) News report that pesticides cause cancer a market for organic vegetables (which are grown without the use‘of pesticides) d. (4 points) Increase in consumer income — market for pharmaceuticals (medical drugs) m ‘ w 2. (18 points) A firm supplies you with data showing that when they raised the price of their product from $18 to $22, ceteris paribus, sales decreased from 56,000 units to 44,000 units. a. (6 points) Calculate the price elasticity of demand for this firm’s product. b. (6 points) What effect did the price increase have on revenue? The firm is considering a further price increase to $25. What would you advise them regarding what this will do to revenue? . (6 points) Suppose the price remains at $18, but consumers’ income in the market for the product increases 10%, ceteris paribus. If sales increase from 56,000 units to 64,000 units, what is the income elasticity of demand? 0 3. (16 points) Consider the following productivity data from two economies, Taiwan and the United States: 100 hours of labor can produce: Soybeans (tons: Computer chips gunits! Taiwan 6 1500 United States 12 1800 a. (4 points) Which country has an absolute advantage in the production of soybeans? Of computer chips? Show your work. b. (4 points) Which country has a comparative advantage in the production of soybeans? 0f computer chips? Show your work. (4 points) If Taiwan and the United States trade in these two goods, which would you anticipate exporting soybeans? Which country would benefit from trade? b‘étisfitahbfh‘ihisifimigi fifiadfi'» d. (4 points) If Taiwan and the United States trade in these two goods, what can you say about the relative international prices of soybeans and computer chips? 2: com; 13:11 ’ ...
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