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Unformatted text preview: SECTION I: Multiple Choice: Write the letter of the choice that best completes the statement or answers the question on your answer sheet. 1. Which of the following is NOT included in the decisions that every society must make? a. what goods will be produced b. what determines consumer preferences c. who will produce goods d. who will consume the goods Figure 1 2. Refer to Figure 1. In the graph shown, the movement from frontier A to B can best be described as a. economic growth. b. a disaster for society. c. an improvement in income distribution. d. an improvement in the allocation of resources. Figure 2 Hours needed to Amount produced make one unit of: in 2400 hours: Cars Airplanes Cars Airplanes U.S. 40 160 60 15 Japan 50 150 48 16 3. Refer to Figure 2. The U.S. has a comparative advantage in ______ and Japan has a comparative advantage in __________. a. airplanes, airplanes b. cars, airplanes c. airplanes, cars d. neither good, cars 4. Refer to Figure 2. If the U.S. and Japan trade based on the principle of comparative advantage, the U.S. will export __________ and Japan will export __________. a. cars, airplanes b. airplanes, cars c. cars, cars d. airplanes, airplanes 5. Suppose that demand decreases AND supply decreases. What would you expect to occur in the market for the good? a. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. c. Both equilibrium price and equilibrium quantity would increase. d. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. Columbia University…..Principles of Economics……S. Gulati…..Alternate Mid‐Term Examination…..October 28, 2009 1 6. Bucknell University is contemplating increasing tuition to enhance revenue. If Bucknell feels that raising tuition would enhance revenue, a. they are necessarily ignoring the law of demand. b. they are assuming that the demand for university education is elastic. c. they are assuming that the supply of university education is elastic. d. they are assuming that the demand for university education is inelastic. Figure 3 7. Refer to Figure 3. In which market will the majority of a tax be paid by the seller? a. market (a) b. market (b) c. market (c) d. all of the above 8. If demand increases, the price of a product, as well as producer surplus a. increases. b. decreases. c. remains the same. d. may increase, decrease, or remain the same. Figure 4 9. According to Figure 4, producer surplus before trade would be a. $3600. b. $4400. c. $5200. d. $6600. Columbia University…..Principles of Economics……S. Gulati…..Alternate Mid‐Term Examination…..October 28, 2009 2 Figure 5 10. In Figure 5, area E represents a. a part of consumer surplus. b. a part of producer surplus. c. a surplus for import license holders. d. government revenue. 11. The major difference between tariffs and import quotas is that a. tariffs create deadweight losses, but import quotas do not. b. tariffs help domestic consumers, and import quotas help domestic producers. c. tariffs raise revenue for the government, but import quotas create a surplus for import license holders. d. All of the above are correct. 12. When dealing with consumption externalities, a. government can correct the market failure only in the case of positive consumption externalities. b. government can correct the market failure only in the case of negative consumption externalities. c. government can correct the market failure in both the positive and negative cases by inducing market participants to internalize the externality. d. government cannot correct for consumption externalities due to consumer rights laws. 13. Dick owns a dog whose barking annoys Dick's neighbor Jane. Suppose that the benefit of owning the dog is worth $500 to Dick and that Jane bears a cost of $700 from the barking. Assuming Dick has the legal right to keep the dog, a possible private solution to this problem is that a. Jane pays Dick $500 to get rid of the dog. b. Dick pays Jane $650 for her inconvenience. c. Jane pays Dick $650 to get rid of the dog. d. There is no private solution that would improve this situation. 14. Medical research is often presented as an example of a positive externality. What tools are available to policymakers that would encourage producers of medical knowledge to provide a socially optimal level of production? (i) Impose price ceilings on selected medical procedures. (ii) Place taxes on the sale of prescription drugs. (iii) Provide subsidies to these firms. a. all of the above b. (i) and (ii) only c. (iii) only d. none of the above 15. Which of the following goods would satisfy attributes of a natural monopoly good? a. a congested public freeway b. an airline flight that has been overbooked c. local cable television d. public parking Columbia University…..Principles of Economics……S. Gulati…..Alternate Mid‐Term Examination…..October 28, 2009 3 Figure 6 The city Billings, U.S.A., has only privately owned schools in their city. The school system has a virtually unlimited capacity, and accepts all applicants. The schools operate on both tuition and private donations. Every resident places value on having an educated community. Lately, the school's revenues have suffered due to a large decline in private donations from the elderly population. 16. Refer to Figure 6. Which of the following is the "free‐rider" explanation for the decline in donations from the elderly population? a. The elderly do not approve of people who ride for free. b. Social benefits received from education are not excludable. c. Elderly people are tired of riding for free. d. None of the above adequately explains the free‐rider phenomenon. 17. Gordon is a senior majoring in computer network development at Cal Tech. While he has been attending college, Gordon started a computer consulting business to help senior citizens set up their network connections and teach them how to use e‐mail. Gordon charges $25 per hour for his consulting services. Gordon also works 5 hours a week for the Economics Department to maintain their department Web page. The Economics Department pays Gordon $20 per hour. From this information we can conclude: a. Gordon should increase the number of hours he works for the Economics Department to make it comparable to his consulting business income. b. If Gordon chooses one hour at thebeach with his friends rather than spend one more hour with a consulting client, the forgone income of $25 is considered a cost of the choice to go to the beach. c. Gordon is obviously not maximizing his well‐being if he continues to work for the Economics Department. d. If the Economics Department offers Gordon a full‐time job he will definitely not take the job offer. 18. Diminishing marginal product occurs a. immediately after the first worker is hired. b. after the marginal cost curve crosses the average total cost curve. c. at different times for different firms. d. when average variable cost begins to fall. Figure 7 Teacher's Helper is a small company that has a subcontract to produce instructional materials for disabled children in public school districts. The owner rents several small rooms in an office building in the suburbs for $600 a month and has leased computer equipment that costs $480 a month. 19. Refer to Figure 7. One month, Teacher's Helper produced 18 instructional modules. What was the average fixed cost for that month? a. can't tell from the information given b. 60 c. 108 d. 811 Columbia University…..Principles of Economics……S. Gulati…..Alternate Mid‐Term Examination…..October 28, 2009 4 20. 21. 22. 23. Figure 8 Tony is a wheat farmer, but also spends part of his day teaching guitar lessons. Due to the popularity of his local country western band, Farmer Tony has more students requesting lessons than he has time for if he is to also maintain his farming business. Farmer Tony charges $25 an hour for his guitar lessons. One spring day, he spends 10 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of wheat. Refer to Figure 8. Tony's economic profit equals a. ‐80. b. 130. c. 170. d. 300. Figure 9 Use the information for a competitive firm in the table below to answer the following questions. Quantity Total Revenue Total Cost 0 $ 0 $ 10 1 9 14 2 18 19 3 27 25 4 36 32 5 45 40 6 54 49 7 63 59 8 72 70 9 81 82 Refer to Figure 9. If the firm finds that its marginal cost is $11, it should a. increase production to maximize profit. b. decrease production to maximize profit. c. maintain its current level of production to maximize profit. d. advertise to find additional buyers. Figure 10 As part of an estate settlement, Mary received $1 million. She decided to use the money to purchase a small business in Anywhere, USA. If Mary would have invested the $1 million in arisk free bond fund, she could have made $100,000 each year. She also quit her job with Lucky.Com Inc. to devote all of her time to her new business. Her salary at Lucky.Com Inc. was $75,000 per year. Refer to Figure 10. What are Mary's opportunity costs of operating her new business? a. $25,000 b. $75,000 c. $100,000 d. $175,000 Figure 11 Consider a transportation corporation named C.R. Evans that has just completed the development of a new subway system in a middle‐sized town in the north‐west. Currently, there are plenty of seats on the subway, and it is never crowded. Its capacity well exceeds the needs of the city. After a few years of operation, the shareholders of C.R. Evans experienced incredible rates of return on their investment, due to the profitability of the corporation. In Figure 11, C.R. Evans may continue to be a monopolist in the subway transportation industry only if a. there are no new entrants to the market. b. demand for transportation services decreases. c. population growth leads to an overcrowding of the subway cars. d. all of the above. Columbia University…..Principles of Economics……S. Gulati…..Alternate Mid‐Term Examination…..October 28, 2009 5 Figure 12 In the figure shown, panel (a) depicts the linear marginal cost of a firm in a competitive market and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. 24. Refer to Figure 12. When 100 identical firms participate in this market, at what price will 15,000 units be supplied to this market? a. $1.00 b. $1.50 c. $2.00 d. It cannot be determined from the information provided. 25. When firms have agreements among themselves on the quantity to produce and the price to sell output they are organized as a. a Nash arrangement. b. competitive scale firms. c. competitive oligopolists. d. a cartel. Figure 13 Each year the United States considers renewal of Most Favored Nation (MFN) trading status with China. Historically, legislators have made threats of not renewing MFN status because of human rights abuses in China. The non‐renewal of MFN trading status is likely to involve some retaliatory measures by China. The game below reflects the potential economic gains associated with a two‐outcome game in which China may impose trade sanctions against U.S. firms and the United States may not renew MFN status with China. The following table contains the dollar value of all trade flow benefits to the United States and China under two‐trade relationship scenarios. 26. Refer to Figure 13. When this game reaches a Nash equilibrium, the value of trade flow benefits will be a. United States $140 b and China $5 b. b. United States $65 b and China $75 b. c. United States $35 b and China $285 b. d. United States $130 b and China $275 b. Columbia University…..Principles of Economics……S. Gulati…..Alternate Mid‐Term Examination…..October 28, 2009 6 27. Which of the following market structures do not have barriers to entry that restrict firms from entering the market? (i) perfect competition; (ii) monopolistic competition; (iii) monopoly; (iv) oligopoly; a. (ii) only b. both (i) and (ii) c. both (iii) and (iv) d. all of the above are possible 28. In the long run, a profit‐maximizing firm in a monopolistically competitive market operates at a. efficient scale. b. under capacity. c. the point where revenue is also maximized. d. some point along the downward sloping portion of its average total cost curve. 29. For profit‐maximizing firms in a monopolistically competitive market another customer means a. potential economic losses. b. marginal cost could potentially exceed price. c. more profit. d. zero economic profit. 30. When a consumer experiences a price increase for a strongly inferior good, it is possible that a. the demand curve will be upward sloping. b. the supply curve will be downward sloping. c. the income effect will not occur. d. the budget constraint will rotate outward from the origin. Columbia University…..Principles of Economics……S. Gulati…..Alternate Mid‐Term Examination…..October 28, 2009 7 FINAL EXAM Answer Section MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. B A B A D D A A A C C C C C C B B C B A B D A B D B B D C A Columbia University…..Principles of Economics……S. Gulati…..Alternate Mid‐Term Examination…..October 28, 2009 8 ...
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This note was uploaded on 02/27/2011 for the course ECONOMICS 101 taught by Professor G during the Spring '11 term at Columbia College.
- Spring '11