Exam1_example_soln

Exam1_example_soln - eflconomics 1 ' I ' - Prof Scott E....

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Unformatted text preview: eflconomics 1 ' I ' - Prof Scott E. Carrell EXAM 1 Oct 16, 2006 There are two parts to this exam. Part1 is made up of 17 multiple choice problems, and is werth 51 points. Part II is made up of 3 short answer problems, and is worth 49 points. ' Be sure to read each question carefully before answering. Do not use any books or notes. You have 65 minutes to complete the full 100 point exarn. Be sure to budget your time. NAME: _ Section: PART I - MULTIPLE CHOICE PROBLEMS Read each of the following questions carefully and circle the letter of the one best answer. Note that diagrams are often helpful in determining the correct answer. 1) The opportunity cost of attending college is a the cost of the tuition. ' ' the cost of the highest valued alternative to attending college. ' the cost of the highest valued alternative to attending college plus the cost of tuition. 7D) the cost of tuition, hooks, and the lost wages for the hours spent studying. (number - er hour) ‘ 2) Joe's hot dog stand can produce hot dogs and hamburgers. The table gives Joe’s production I possibilities. The opportunity cost of the first 20 hot dogs is hamburgers. O 7 1 . C 2. ca 20 . 3) A change in the price of a good A) I shifts the good’s demand curve and also causes a movement along it.- shifts the good’s demand curve but does not cause a movement along it. i & does not shift thegoold’s demand Curve but ‘does cause a movement along it. ' D) neither shifts the good“ 5 demand curve nor causes a movement along it. 4) A) Ci If a market is NOT in equilibrium, then which of the following is likely to occur? The demand curve will shift to bring the market to equilibrium. The supply enrve will shift to bring the market to equilibrium. The price will adjust to bring themarket to equilibrium. Boflr A and B are correct. 5) The price of compact disc players fell over the past decade because a combination of improving A) C) D) technology, rising incomes, and falling prices of compact discs caused the _ ' demand curve for compact disc players to shift rightward faster than the supply curve of compact disc players shifted rightward. _ supply curve of compact disc players to shift rightward faster than the demand curve for compact disc players shifted rightward. supply curve of compact disc players to shift rightward and the demand curve for compact disc players to shift leftward. ' demand curve for compact disc players to shift leftward and the supply curve of compact di3c players to shift leftward. - 6) In 2000 there were 200,000 gas grills demanded at a price of $500. In 2001 there were more than c D) 200,000 gas grills demanded at the same price. This increase could be the result any of the following EXCEPT . ' an increase in the supply of gas grills. an increase in income if gas grills are a normal good. a fall in the price of natural gas, a complement for a gas grill. an increase in population. I 7) Apple juice and orange juice are substitutes in consumption. Apple jUiCC and applesauce are A) <3» D) substitutes in production. If the price of orange juice rises and the price of applesauce falls, then the price of apple juice and the quantity of apple juice . rises; is indeterminate falls; is indeterminate is indeterminate; rises is indeterminate; falls 8) A fall in the price ‘of lemons fi'om $10.50 to $9.50 per bushel increases the quantity demanded from 19,200 to 20,800 bushels. The price elasticity of demand is ‘9) When the price of a Caesar salad is $5.00, the demand fer Caesar salads is elastic; and when the price is $4.00, the demand is inelastic. lfMike’s Roadside Restaurant cuts the price from $5.00 to $4.00, its total revenue from Caesar salads . A) will increase B) ' will decrease @ will remain the same might increase, decrease, or remain the same 10) Nick can purchase each milkshake for $2. For the first milkshake purchased Nick is willing to pay $4, for the second milkshake $3, for the third milkshake $2 and for the fourth milkshake $1. What is the value of Nick’s consumer surplus? A) $2 éi $3 $10 11) The schedules” in the table give H of a DVD. If the marginal cost of producing a DVD increases by $4, then the efficient number of DVDs is a week. 99%;: I 12) The more , the larger is the amount of the tax on the good that the ‘ pays. A elastic the demand for a good; buyer @ inelastic the demand for agood; buyer _ . C) inelastic‘the supply of a good; buyer ' D) elastic the supply of a good; seller 0 l 2 3 4 5 6 Quantity {thousands oi units) a..." l‘ mm 1w:-.‘:.-t¢'-='~‘N m mm .... ammuanat figure abe, irnsing a tax on the prOduct results in a division in which @ all of the tax is paid by the buyers. ) all of the tax is paid by the sellers. _ C) the buyers and sellers pay the same amount. D) neither the buyersnp; the sellers; ay the tax. _ uni—.34.; antitny ‘Total utility- J'Ef-Tff-S‘Hw 3 EEEEEE'. Emulfllgh “Humili‘luhr. J='i.'."?“."." "‘ "'r'F’l'l‘“'_‘"-"r"" ‘ 14) The table above g'yes Jane’s total utility price of a magazine is $4 and the price of a CD is $10. What is the marginal utility per dollar spent when the sixth magazine-1 is purchased? I - ' i- - A) 36 units. 15 units. 7 9 units. D) 5 units. . Apples (number per week] Oranges [number per week) 15) The figure above shows Sally‘s budget line and three of her indifference curves. At point E, Sally’s marginal rate of substitution is I . :_ 1.25 a greater than at point B ) less than at point B D) is equal to the ratio of the prices 16) Jenny buys sodas and popcorn. Sodas sell for $1 and popcorn sellsfor $2 a bag. Currently .she. is in consumer equilibrium, with the marginal utility from her last dollar spent on popcorn equal to 100 units of utility. The marginal utility from her last dollar Spent on sodas is A) 20 units of utility. B 30 units of utility. fill?“ (oi) 50 units ofutility‘. 9/ 4 g 100 units ofutility. 17) If tea and coffee are substitutes, the cross elasticity of coffee with respect to the price of tea will be _ and an increase in the price of tea will the‘demand for coffee. v Q pesitive; increase B) _l 7- negative; decrease C) negative; increase D) positive; decrease PART 11 — SHORT ANSWER QUESTIONS 1. (18 points) The. below graph represents David’s consumption of two goods. WEN-IIIIIII “NH-III- “I (306d Y MEI-l HIIIHHI I I Good X a) (4 points) David is consuming at point a and the price of Good Y is $6. What is the price of Good X? What is David’sincome? _ ' ' w I=lgol b) (4 points) The price of Goody X changes and David now chooses to consume at point b. What is the price of Good X now? Economically speaking, how did David decide where to consume? K‘3 . w I _ _ were} MM owe on WEQJ"/(‘M I _. ‘ Mas >71». ‘ . a c) (6 points) Graphically show the substit ti‘dn and income effects for this change in price. Clearly label both effects on the graph. What is the approximate size of each effect (in terms of quantity of Good X)? ' i d) (4 points) Is Good X a normal or inferior good? How do you know? or ‘ Ecmra (‘5 2. (13 points) Use the following supply and demand equations for market for milk. Note: Quantity is in millions of gallons. ' Q5: 4 I Q: P-l d 9-P b) (6 points) If the government decides to provide a $1 subsidy for each gallon of milk, what is the new equation for supply? What is the new equilibrium price and quantity of milk? Show all work. ' omivzftpwP ‘aq'P ‘ , ' V?- ‘LC 'qu‘r c) (4 points) How much total does the government pay farmers? Is this efficient? Why? 4 hams? [[00 l L/ I 2. (18 points) The graph below shows the individual PPF’s for Maria and Anna’s production of shirts and ties. Use this information to answer the questions below. WIIJLW :1 ms nu. mm» M1» o 10 15 Ties a) (4 points) What are Maria and Anna’s opportunity costs for shirts and ties? - - m chm» mm: 15 an— , I .- IT‘r-Ii—gh-A, II-IS b) (2 points) Who has a comparative advantage in ties? Explain. Acme I Low Dee cw? (I igskw—B c) (6 points) Graph Maria and Anna’s COMBINED PPF. Clearly label the intercepts, SlOpes, etc. r " d) (6 ppintS) Ifthey each want 6 shirts and they agree to trade at a price of 1 shirt 2 0.5 ties, how many ' shirts and ties does Maria produce and consume? . *h/‘aru'a pm [7, 914:4; ¢ 0 W .W‘QAIA to"qu L” SWAT 4% 3 (wag ...
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Exam1_example_soln - eflconomics 1 ' I ' - Prof Scott E....

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