Exam_1_W04_Solutions

Exam_1_W04_Solutions - DARTMOUTH COLLEGE ECONOMICS 1: PRICE...

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D ARTMOUTH C OLLEGE P ROFESSOR J ESSE G IUMMO E CONOMICS 1: P RICE S YSTEM M IDTERM E XAM #1 W INTER 2004: 100 POINTS Note: Question #2 in part II has been omitted as we have not covered some of the material relevant to the question. P ART I: 20 M ULTIPLE -C HOICE Q UESTIONS (40 POINTS ) 1. Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 5 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis incorporates the idea of: A) opportunity costs B) marginal benefits that exceed marginal costs. C) imperfect information. D) normative economics. Ans: A 2. Suppose an economist says that "Other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that: A) the quantity of bananas purchased determines the price of bananas. B) all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant. C) economists can conduct controlled laboratory experiments. D) one cannot generalize about the relationship between the price of bananas and the quantity purchased. Ans: B 3. The economizing problem is one of deciding how to make the best use of: A) virtually unlimited resources to satisfy virtually unlimited wants. B) limited resources to satisfy virtually unlimited wants. C) unlimited resources to satisfy limited wants. D) limited resources to satisfy limited wants. Ans: B 4. The basic purpose of the "other things equal" assumption is to: A) allow one to reason about the relationship between variables X and Y without the intrusion of variable Z. B) allow one to focus upon micro variables by ignoring macro variables. C) allow one to focus upon macro variables by ignoring micro variables. D) determine whether X causes Y or vice versa. Ans: A
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D ARTMOUTH C OLLEGE P ROFESSOR J ESSE G IUMMO E CONOMICS 1: P RICE S YSTEM 5. Assume a household would consume $100 worth of goods and services per week if its weekly income were zero and would spend an additional $80 per week for each $100 of additional income. Letting C represent consumption and Y represent income, the equation that summarizes this relationship is: A) C = 80 + 100Y . B) C = 100 + .8Y . C) C = 100 + 80Y . D) C = 80 + .1Y . Ans: B 6. Economists use the term "demand" to refer to: A) a particular price-quantity combination on a stable demand curve. B) the total amount spent on a particular commodity over a stipulated time period. C) an upsloping line on a graph that relates consumer purchases and product price. D) a schedule of various combinations of market prices and amounts demanded.
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This note was uploaded on 10/30/2008 for the course ECON 001 taught by Professor Zarnowski during the Spring '08 term at Dartmouth.

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Exam_1_W04_Solutions - DARTMOUTH COLLEGE ECONOMICS 1: PRICE...

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