101_plim_1-07_makeup_Q_A

101_plim_1-07_makeup_Q_A - Cornell University Department of...

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Cornell University Fall 2007 Department of Economics Prof. R.H. Frank Your name_____________________________________________ Your signature__________________________________________________ Your TA’s name____________________________________ Economics 101 First Preliminary Examination (Makeup) For each of the 20 multiple-choice questions below, circle the best response IN INK. Each question is worth 3 points.
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1. At point A on the demand curve shown below, P Q 120 12 A 6 0 a. a small increase in price will increase total expenditure, and a small reduction in price will reduce total expenditure. b. a small increase in price will reduce total expenditure and a small reduction in price will increase total expenditure. c. total expenditure will rise if price either rises or falls by a small amount. d. total expenditure will fall if price either rises or falls by a small amount. e. none of the above. Answer: a. 2. Tim is a dutiful husband that washes dishes and hangs pictures all day long for his wife Ann. Ann gives Tim a brand new power drill for his birthday that allows him to hang pictures faster than before. What happens to his opportunity cost of washing dishes as a result of the drill? a. It increases, since he has to give up hanging more pictures per dish than before. b. It decreases, since he can do more of both tasks. c. It stays the same, since he can do just as many dishes as before. d. We cannot tell from the above information. e. None of the above Answer: a. Since the drill makes him more productive at hanging pictures, the opportunity cost of each dish washed is more pictures than before. 3. Consider a labor market. Suppose that market demand for workers is given by Q = 12 – 2w and labor supply of is equal to Q = -4 + 2w, where w is wage (per hour) of workers. The government imposes a minimum wage of $5 per hour. The result is a. equilibrium at $5, and supply meets demand. b. a shortage of 4 people. c. a surplus of 4 people. d. a shortage of 8 people. e. none of the above. Answer: c, since the quantity demanded at w = 5 is 2 and the quantity supplied at w =5 is 6. 4. The price of pineapples decreases by 2 percent, leading to a 4 percent increase in consumption, while the price of mangos increases by 4 percent, leading to a 6 percent decline in the consumption of mangos. Which of the follow is true? a. Pineapples are inelastic and mangos are elastic b. Pineapples are inelastic and mangos are elastic c. Both are inelastic d. Both are elastic e. None of the above Answer: d, since elasticity = percent change in Q/percent change in P. 5. The price of pineapples increases from $2/lb to $2.25/lb, and the price of mangos remains unchanged. Due to this change in pineapple price, the quantity of pineapples consumed decreases by 2 percent and the quantity of mangos consumed increases by 25 percent The cross-price elasticity of mangos with respect to pineapples is ________. Thus, these goods are ____________.
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a) -2.0; substitutes b) -1.0; substitutes
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This note was uploaded on 03/27/2008 for the course ECON 1110 taught by Professor Wissink during the Spring '06 term at Cornell.

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101_plim_1-07_makeup_Q_A - Cornell University Department of...

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