PracticeExam1_SP07

PracticeExam1_SP07 - FORM A ECONOMICS 2.7 PROFESSOR GRAF...

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Unformatted text preview: FORM A ECONOMICS 2.7 PROFESSOR GRAF -— SPRlNG 2007 EXAM #1 WEDNESDAY, FEBRUARY 21, 2007 STUDENT’S NAME: ID. NUMBER: PART I. 25 multiple choice questions (3 points each) 75 points total PART II. 1 short answer question (25 points each) 25 points total 100 points total Instructions: Use a No. 2 pencil on the Scantron sheet. Enter correct form and ID. number on Scantron. The exam is closed book and closed notes. You may use no outside materials. No calculators are to be used on the test. By signing below, I agree to abide by Section 49—20 Academic Integrity of Policies and Rules Manual during this examination. I understand the penalties ifI am in Violation of this code. Signature Date PROFESSOR GRAF — SPRING 2007 ECONOMICS 2.7 EXAM #1 WEDNESDAY, February 21, 2007 Name MULTIPLE CHOICE. (3 points each) Choose the one alternative that best completes the statement or answers the question. 1) Microeconomics is concerned with the study of A) the effects of inflation. B) the effects of government spending. C) the effects of an increase in the price of labor to a producer. D) aggregate demand. 2) People respond to incentives A) with anger. B) only when they are irrational. C) by calculating costs and benefits to themselves. D) when they have low incomes. 3) It has been noted that when the price of a good increases people purchase less of the good. This is an example of A) macroeconomic analysis. B) irrational behavior. C) normative economic analysis. D) positive economic analysis 4) Scarcity exists because A) the world is too small. B) people are too greedy and refuse to share what they have With others. C) human wants are greater than what can be produced with the limited resources available. D) not enough new technology is being used to eliminate scarcity. 5) Jane has decided that with the two hours in between classes she can do one of 3 things. She has ranked her choices, from highest to lowest as, (1) chat with her friends, (2) study economics or (3) take a nap. The opportunity cost of chatting with her friends is: A) the combined value of studying economics and taking a nap. B) the value of studying economics. C) the value of chatting with her friends. D) zero since she does not pay her friends to talk to her. 6) An efficient point of production is: A) a point on the production possibilities curve. B) a point inside the production possibilities curve. C) the point where scarcity no longer exists. D) the point where We are currently producing. A—l 7) The production possibilities curve will shift outward when A) the Law of Increasing Relative Cost takes hold. B) the economy is producing efficiently. C) we produce more consumption goods over productive investment in equipment. D) there is an increase in resources. 8) Comparative advantage is A) when a country can produce a good at a lower opportunity cost compared to other countries B) when a country can produce all goods quicker than any other country. C) when the production possibilities curve shifts outward to the right. D) only for individuals and not countries. 9) According to the law of demand A) people buy more of a good when the price rises. B) people buy more of a good when their income rises. C) people buy more of a good when the relative price rises. D) people buy more of a good when the price falls. 10) Mary decreases her consumption of Good X after the price of Good Y decreased. For Mary A) Good X and Good Y are substitutes. B) Good X and Good Y are complements. C) Good X is an inferior good. D) Good Y is an inferior good. 11) There will be an increase in supply when A) a consumer's income increases. B) there is an increase in technology. C) the Demand curve shifts. D) the market price goes from $3 to $4. 12) A shortage exists A) in equilibrium. B) when quantity supplied is greater than quantity Demanded. C) when quantity supplied is less that quantity Demanded. D) at the market clearing price. 13) X and Y are complementary goods. An increase in the price of X has occurred. For Y this will lead tc A) an increase in price and a decrease in quantity. B) an increase in price and an increase in quantity. C) a decrease in price and a decrease in quantity. D) a decrease in price and an increase in quantity. A—2 14) An increase in demand and a decrease in supply will lead to an A) increase in price and an increase in quantity. B) increase in price and a decrease in quantity demanded. C) increase in quantity but the effect on price is undetermined. D) increase in price but the effect on quantity is undetermined. 15) Prices ration goods to A) the people who most deserve it. B) the people with the lowest opportunity cost of time. C) the people willing and able to pay the highest price. D) the richest people. 16) A price ceiling is A) the lowest price a seller can charge without losing all of its customers. B) a legal minimum price below which a good or service cannot be sold. C) a legal price above which a good or service cannot be sold. D) a nonprice rationing device. 17) When market failures occur A) the invisible had will correct for the market failures. B) the price system will correct the market failures. C) people will reduce their consumption. D) the government can step in to correct the market failure. 18) Which of the following is an example of a positive externality? A) A flower that makes you smile. B) The dog poop you just stepped in. C) The neighbor who banged on the wall all night and kept you awake. D) Pollution. 19) The main reason that public goods must be provided by the government is A) the free—rider. B) negative externalities are part of the production process. C) public goods are merit goods. D) they are perfectly divisible. 20) Suppose the tax rate is 0 on the first $20,000, 20 percent on the next $20,000, 30 percent on the next $20,000, 4C percent on the next $20,000, and 50 percent on all income over that. The Reich family has an income of $150,000. What is the tax bill for this family? A) $75,000 B) $60,000 C) $53,000 D) $55,500 A-3 21) If price increases and the quantity purchased increases, we know that A) supply increased. B) supply decreased. C) demand increased. D) demand decreased. 22) The difference between a private good and a public good is that A) private goods are merit goods while public goods are demerit goods. B) externalities are always created in the production process but not in the production of public goods. C) private goods make us happy while public goods do not. D) the exclusion principle applies to a private good but not to a public good. 23) Normative economic analysis involves A) true statements. B) testable hypotheses. C) value judgments. D) purely descriptive statements. 24) A point outside a production possibilities curve indicates A) that resources are not being used efficiently. B) that resources are being used very efficiently. C) opportunity costs are constant. D) an output combination that can be attained only if society gets more resources or there is technologica? change. 25) A shift in the demand curve to the right represents A) an increase in demand. B) a decrease in demand. C) an increase in quantity supplied. D) a decrease in quantity demanded. A—4 PART II. SHORT ANSWER SHOW ALL WORK AND USE A PEN Question #1 (25 points) Use the space below to illustrate what happens to equilibrium price and quantity for each of the following situations in the Gap jeans market. Be sure to label all axis and curves and draw separate graphs of each question: 1. (5 points) Illustrate what would happen to equilibrium price and quantity when the price of Levi jeans falls. 2. (5 points) Illustrate what would happen to equilibrium price and quantity when wages for Gap workers increase? 3. (5 points) Illustrate what would happen to equilibrium price and quantity when Wearing Gap jeans causes your toes to fall off and subsidies on Gap jeans fall. 4. (5 points) Illustrate what happens to the market when the price of Gap jeans falls. 5. What would cause equilibrium price to remain unchanged and equilibrium quantity to rise? (Be specific: list one determinant for each.) Version A ...
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PracticeExam1_SP07 - FORM A ECONOMICS 2.7 PROFESSOR GRAF...

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