002ex2ckey - Midterm Exam 2 Version C Principles of...

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Unformatted text preview: Midterm Exam 2 Version C Principles of Microeconomics Penn State ECON 002 Midterm Exam Two — Fall 2007 Clair Smith LAST NAME: 1175’ 6&7 FIRST NAME: LAST 4 DIGITS OF YOUR PSU STUDENT ID: _ _ F Instructions: Neatly write your name and other info on both this exam and the scantron form. Write and fill in the appropriate bubbles for PSU ID, SEC. NO, and TEST ' VERSION on the scantron form. PART I Multiple Choice Section (28 questions, 3 points each) Choose the best answer and mark your answer choice clearly in pencil on the answer sheet. You may make any notes you wish on the test questions, but credit will be given only for readable answers on the answer sheet. PART II Graphs and Short Answer Write your answer or draw your graph neatly in the space provided. Make sure you address all parts of the question. Points vary and are indicated in each question. When you are finished, bring both this exam and your scantron sheet to the front of the room with your PSU id card. You have 50 minutes to complete this exam. You may thumb through the corners to ensure that your exam contains 6 sheets of paper, but please do not open the exam until you are instructed to begin. When you do open your exam, you should find 28 multiple choice questions, double-sided on pages numbered 2-6, and the 3 graph / short answer questions printed single-sided on pages numbered 7 and 8. Good Luck. PART I (>1. Multiple Choice Section (28 questions, 3 points each) Dumping is a. the loss associated with a tariff. b. giving up free trade, in essence, dumping it. 0. selling a product in another country at a price below the cost of production. (1. foreign producers giving their products away free to gain customers. Which of the following is the best example of a pure public good? a Penn State white out t-shirt the Pennsylvania ’I‘umpike a fireworks display a concert in the Bryce Jordan Center 9‘.“ 9‘?” Which of the follong activities causes a positive extemality? a. a homeowner who keeps a well-maintained lawn and garden that improves the beauty of the neighborhood b. vaccinating children against measles which not only protects children but also prevents the spread of the disease 0. hiring a security guard to patrol your property in an exclusive neighborhood d. all of the above In order to prove that Motrin and Ibuprofm are substitutes, one should test the and get a . a. price elasticity of demand; number greater than one (in absolute value) b. price elasticity of demand; number less than one (in absolute value) c. cross-price elasticity; positive number d. cross-price elasticity; negative number An issuer of bonds is a. buying part ownership of a firm. b. making a long term loan to the buyer. c. a lender of funds. d. a borrower of funds. Owners of which of the following types of firms have unlimited liabilities? a. a sole proprietorship b. a partnership 0. a corporation (1. A and B only C. A, B, and C What are property rights? a. the right to do anything one desires with a piece of property b. the bundle of rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it c. a legal document verifying ownership of a natural resource (1. a legal document verifying ownership of physical assets 01' 8. In “Downeaster Alexa,” Billy Joel describes the plight of a fisherman facing declining fish populations in open waters. This is a result of a. b. c. (1. increasing marginal costs. an increase in the supply of fish. the prisoner’s dilemma. the tragedy of the commons. 9. Burma produces one kilo of rice using less labor, land, and other resources than any other country. It therefore has a. b. c. d. an absolute advantage in rice production. a comparative advantage in rice production. both an absolute and a comparative advantage in rice production. an absolute advantage but a comparative disadvantage in rice production. I 1 10. Which of the following best illustrates the free-rider problem? a. b. Since no one owns elephants and elephants are valued for their hide, meat and ivory, elephants can be hunted to extinction. All three homeowners in a quiet cul-de-sac have expressed the desirability of security lighting in the common parking area. One of the homeowners installs the lighting and asks you (another one of the homeowners) to contribute toward the cost. You choose not to contribute. If my neighbors professionally landscape their yards, it is likely that the market value of my property will increase. For every purchase of a $30 fare card, you are entitled to five free bus rides. 114. . The Coase Theorem says that a. a free market equilibrium is always the best. b. if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities. c. assigning property rights is the only things the government should do in a market economy. d. government intervention is always needed if extemalities are present. . When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent. This indicates that the demand for tortilla chips is a. unit price elastic. price inelastic. price elastic. b. c. d. perfectly inelastic. . The demand for a good rises as income rises. It follows that income elasticity of demand for this good is a. less; normal less; inferior greater; normal greater; inferior than zero, and this good is a(n) good. b. c. d. If the price of Canyon Pizza goes up 20% and the quantity demanded goes down 50%, then the price elasticity of demand is equal to a. - 2.5 b. - 0.4 c. + 0.4 d. + 2.5 . Which of the following is not a source of comparative advantage? relative abundance of labor and capital availability of natural resources a strong foreign currency exchange rate access to superior production technologies 999‘?” . One reason that Dr. Sturges sued candymaker Bridgman rather than working out a private solution regarding the noise from Bridgman’s equipment was a. the relevant property rights were not well—defined. transaction costs were high. the railroad would not agree to a settlement. b. c. d. the doctor’s work was more important than the work of the candymaker. . Would it be economically efficient to reduce the level of crime to zero? a. Yes, because crime is a plague on law—abiding citizens. b. Yes, because the MC of crime prevention decreases as crime decreases. c. No, because some people steal to feed their families. d. No, because crime prevention is costly, and beyond some point the MC may exceed the MB. . The production of output in excess of the socially desirable amount when negative externalities exist is an example of a. market failure. market efficiency. public failure. b. c. d. market power. . If someone enjoys the benefits of national defense but never pays any taxes to support it, that person is known in economics as a a. free loader. b. tax evader. 0. free rider. d. homeless person. . The price elasticity of demand (elasticity) for Diet Coke with Lime is, in absolute value, smaller than the elasticity for all carbonated beverages. larger than the elasticity for all carbonated beverages. neither larger nor smaller than the elasticity for any other type of soda. the same as the elasticity for all carbonated beverages. 94.05793 . A fundamental difference between common property resources and public goods is that a. unlike consumers of public goods, consumers of common resources are rivals b. unlike consumers of common resources, consumers of public goods are rivals c. individuals can be excluded from the consumption of any public good, but not from the consumption of common property resources d. none of the above . The infant industry argument for protectionism holds that a. some strategic industries such as the jet fighter plane industry must be protected so that there will be adequate supplies of crucial resources in case they are needed for national defense. b. domestic producers in high—wage countries must be protected from foreign competitors in low-wage countries to level the playing field. c. domestic producers must be protected so that domestic currency does not flow to people in foreign countries. d. domestic producers will be better able to compete in world markets in the future if they are given time to achieve significant economies of scale. 423. When there is a positive extemality, the private benefit _ the social benefit from consuming the good. a. is less than b. is greater than c. is equal to d. could be greater than, less than, or equal to . Imposing a tariff a. does all of the following. b. leads to higher prices for domestic consumers. c. hurts foreign producers. d. generates higher prices and revenues for domestic producers of the taxed good. . A firm owned jointly by two or more persons is called a a. dual proprietorship. b. partnership. 0. business in common. (:1. double incorporation. . If Penn State could increase tuition and still increase revenue, we know that a. demand is relatively inelastic b. demand is relatively elastic c. demand is unit elastic d. demand is perfectly elastic . My neighbor has a large satellite dish on his roof that blocks sunlight into my house. Since I enjoy the sun, I talk to him and I agree to pay him $200 and he switches to basic cable and takes down the satellite dish. We reached this agreement because a. the satellite dish was a positive externality b. I used bartering to convince him to switch 0. The Coase Theorem applies in this case. (1. property rights here are not clearly defined. . In the world around us, we see that international specialization is not complete. Why do producers in different countries not completely specialize? a. Because production of most goods involves increasing opportunity costs. b. Because tastes for products differ. c. Because not all goods are traded internationally. d. All of the above. Wm». M W W07 VERK/ PART II Graphs and Short Answer Write your answer or draw your graph neatly in the space provided. Make sure you address all parts of the question. Points vary and are indicated in each question. 1. The following chart summarizes the results of a 1995 study on the demand for alcoholic beverages as reported in the textbook. Use this information to answer the following questions. (4 points) Price elastici of demand for beer Income elasticity of demand for beer Income elastici of demand for wine Income elasticit of demand for s irits (a) Which drink or drinks are inferior goods according to this study? C2) (b) Is the demand for beer elastic, inelastic, or unit elastic? MC iasflhb 2. (5 points) Suppose that producers in both Mexico and Canada make tortillas and automobiles. The output per labor hour for each is described in the chart below. Tortillas Autos 100 ounds vehicles I r 1 g '- .i fl Which country has an absolute advantage in auto production? ( Hde 1L Which country has a comparative advantage in tortilla production? WEE w Based on comparative advantage, which country should export autos? ( fan a la What is Mexico’s opportunity cost of producing an auto? 4% 00 M. 7579ij m at) What is Canada’s opportunity cost of producing a 100 pound unit of tortillas? ...
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This note was uploaded on 03/30/2008 for the course ECON 002 taught by Professor Mcleod,markpehlivan,ayseozg during the Fall '08 term at Pennsylvania State University, University Park.

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002ex2ckey - Midterm Exam 2 Version C Principles of...

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