test_2a - YORK UNIVERSITY FACULTY OF LIBERAL ARTS AND...

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Unformatted text preview: YORK UNIVERSITY FACULTY OF LIBERAL ARTS AND PROFESSIONAL STUDIES DEPARTMENT OF ECONOMICS ECONOMICS 1000 3.0G INTRODUCTION TO MICROECONOMICS TEST2 Vii/(ZS! DN A {>5 u s wax; November 18, 2009 Course Director: John Paschakis TOTAL WORTH: 25% STUDENT NAME: STUDENT NUMBER: INSTRUCTIONS: 1) This examination consists of forty (40) multiple choice questions. There is only one correct answer. No penalty for wrong answers. 2) Please answer all questions by marking the appropriate spaces on the computerized answer sheet. Use HB pencil only. 3) Time allowed: 70 minutes. VERSION A VEIZJ(QN A 1) When a price ceiling is set below the equilibrium price, A) the demand curve shifts leftward. B) the quantity supplied exceeds the quantity demanded. C) the quantity supplied equals the quantity demanded. D) the supply curve shifts rightward. E) the quantity demanded exceeds the quantity supplied. Answer: E 2) When a minimum wage is set above the equilibrium wage rate, A) unemployment decreases. B) job search activity decreases. C) the supply of workers decreases. D) unemployment increases. E) the supply of workers increases. Answer: D 3) Suppose the demand for gasoline is inelastic, but not perfectly inelastic, and the supply is elastic, but not perfectly elastic. A tax on gasoline is paid A) mostly by buyers. B) mostly by sellers. C) equally by buyers and sellers. D) totally by buyers. E) totally by sellers. Answer: A 4) Suppose the demand for CDs is elastic, but not perfectly elastic, and the supply is inelastic, but not perfectly inelastic. A tax on CDs is paid A) equally by buyers and sellers. B) mostly by sellers. C) mostly by buyers. D) by neither buyers nor sellers. E) totally by sellers. Answer: B Use the figure below to answer the following questions. Price [dollars per hour} 100 6.00 5 .450 5.00 ‘ ' D S 2 3 A 5 6 7 8 Quantity thousands of frisbees} Figure 6.3.1 5) Refer to Figure 6.3.1 showing the market for frisbees before and after a tax is imposed. The tax on each frisbee is A) $0.40. B) $0.60. C) $1.00. D) $5.60. B) $6.60. Answer: C 6) Refer to Figure 6.3.1 showing the market for frisbees before and after a tax is imposed. On each frisbee, the sellers' share of the tax is A) $0.40. B) $0.60. C) $1.00. D) $5.60. B) $6.60. Answer: A 7) If a sales tax is imposed on food, who is likely to pay most of the tax? A) mostly the buyer B) mostly the seller C) neither the seller nor the buyer D) the buyer and the seller equally E) the burden of the tax depends on the size of the tax Answer: A 8) A production quota A) is a lower limit to the quantity of a good that can be produced in a specified period. B) is an upper limit to the quantity of a good that can be produced in a specified period. C) is a payment made by a consumer to a producer. D) is a payment made by a producer to a consumer. E) is a payment made by the government to a producer. Answer: B 9) According to the principle of diminishing marginal utility, as consumption of a good increases, total utility A) decreases and then eventually increases. B) decreases at an increasing rate. C) decreases at a decreasing rate. D) increases at an increasing rate. E) increases at a decreasing rate. Answer: E 10) Advise Sarah how to maximize her utility if MUA=8, MUB=20, PA=4 and PB=5. A) Consume equal amounts of both goods. B) Consume more of good A and less of good B. M U k \A B C) Consume more of good B and less of good A. _. i W D) Lower the price of good B. F V E) Raise the price of good A. k 5 Answer. C (0 k 9"“ x g 9 ’ LO JmL\Q&S -5, A ._... < “f- 11) For a consumer to maximize utility from a given income, L“ A) the marginal utility from each good must be maximized. B) the total utility from each good must be maximized. C) the marginal utilities of all goods and services consumed must be equal. D) the marginal utility per dollar from all goods and services consumed must be equal. E) the amount of each good consumed per dollar must be equal. Answer: D 12) The first can of Coke gives 15 units of utility to Witney, while the second can of Coke increases her total utility to 23. What is the marginal utility of the second can of Coke? B) 8 units U = : r : 8 '_ 7. -—\ ‘ C)38units 2 Un' +1 D) 11.5 units E) 7.5 units Answer: B 13) Billy likes candy bars and popcorn. Candy bars sell for $0.50 each and popcorn sells for $1 a bag. Currently he is in consumer equilibrium with marginal utility per dollar on popcorn equal to 100. What is the marginal utility per dollar on candy bars? A)50 B)100 \A (3)200 U¢_E_Y_r:_‘£°—,wo D)25 ‘—-"'"’.‘ f \ E)0.5 Vc (3 Answer:B 14) Bikes and roller blades are substitutes. Marginal utility theory predicts that when the price of a bike rises, the quantity of bikes demanded A) decreases and the demand curve for roller blades shifts rightward. B) decreases and the demand curve for roller blades shifts leftward. C) decreases and a movement occurs down along the demand curve for roller blades. D) increases and the demand curve for roller blades shifts rightward. E) increases and the demand curve for roller blades shifts leftward. Answer: A 15) The paradox of value as it applies to diamonds and water can be explained by A) distinguishing between utility and price. B) water having a high level of marginal utility relative to diamonds. C) water having a low price relative to diamonds. D) the fact that utility can't be measured. E) distinguishing between total utility and marginal utility. Answer: E 16) The value of a good relates to A) total utility, while price relates to consumer surplus. B) consumer surplus, while price relates to total utility. C) marginal utility, while price relates to consumer surplus. D) marginal utility, while price relates to total utility. E) total utility, while price relates to marginal utility. Answer: E 17) Marginal utility theory predicts that a rise in the price of a banana results in A) the demand curve for bananas shifting rightward. B) the demand curve for bananas shifting leftward. C) a movement upward along the demand curve for bananas. D) a movement downward along the demand curve for bananas. E) the demand curve for bananas shifting rightward and the supply curve for bananas shifting rightward. Answer: C Use the figure below to answer the following question. Clothing (items per week} , WwWWxMwm/mflemmflmc"MW, 7, WWW)“. food (savings per week! Figure 9.1.1 18) Shelly's budget line is shown in Figure 9.1.1. Which points are affordable given her income and current prices? A) A B) B C) C D) D E) A, C, and D Answer: E 19) David has an income of $30 to buy movie tickets and bus tickets. The price of a movie ticket is $6 and the price of a bus ticket is $2. What is David's real income? A) $30 ,3 o B) 5 movie tickets or 15 bus tickets 3’0 - .— 2. S C) 15 movie tickets or 5 bus tickets V? \ 6 D) $38 ‘A Answer: B _.——?--W‘ - ' Z (it 20) Martha consumes cake and muffins. Suppose Martha's income doubles and the prices of cake and muffins also double. Martha's budget line A) shifts leftward but the slope does not change. B) remains unchanged. C) shifts rightward but the slope does not change. D) shifts rightward and becomes steeper. E) shifts rightward and becomes flatter. Answer: B 21) Let Y = $100, QX = quantity of good X, and QW = quantity of good W, PX = $4 and PW = $5. The budget equation is A) 100 = 4QX + SQW. B) 100 = QX + (4/5)QW. C) QX = 100 + (4/5)QW. D) QX = QW + (4/5)Y. E) QW = QX + (4/5)Y. Answer: A 22) A consumer considers Coke and Pepsi to be perfect substitutes for each other. What would the consumer's indifference curves for these two goods look like? A) L-shaped B) horizontal along its entire length C) vertical along its entire length D) upward sloping E) straight-lined and downward sloping Answer: E 23) Good X is measured on the horizontal axis and good Y is measured on the vertical axis. The marginal rate of substitution is A) the relative price of good X in terms of good Y. B) the relative price of good Y in terms of good X. C) the rate at which a consumer will give up good Y to obtain an additional unit of good X while remaining indifferent. D) the rate at which a consumer will give up good X to obtain an additional unit of good Y while remaining indifferent. E) equal to the magnitude of the slope of the budget line. Answer: C 24) Which one of the following is true at the best affordable choice of a consumer? A) Marginal rate of substitution exceeds the slope of the budget line. B) Marginal rate of substitution is less than the relative price of the good measured on the x-axis. C) All income is spent. D) The consumption choice is outside the budget line. B) Other consumption points along the consumer's budget line lie on higher indifference curves. Answer: C 25) At the best affordable point, which statement is true? A) The slope of the indifference curve equals the slope of the budget line. B) The marginal rate of substitution between two goods equals their absolute price. C) The highest affordable indifference curve has the same intercept as the budget line. D) Other points on the same indifference curve are affordable but not preferred. E) Some income is not spent. Answer: A Good Y Good K Figure 9.3.2 26) Which one of the following statements about Figure 9.3.2 is true? A) Point S is preferred to point Q, but S is not affordable. B) Point R is not affordable. C) Point T is preferred to point Q, but T is not affordable. D) Points Q and S cost the same, but Q is preferred to S. E) Point R is the best affordable point. Answer: C 27) What is the relationship between goods and the income effect? A) An inferior good has a positive income effect. B) A normal good has a positive income effect. C) An inferior good has no income effect. D) A normal good has no income effect. E) A normal good has a negative income effect. Answer: B 28) The substitution effect is the effect of A) a change in income on the quantity bought. B) a change in price on the quantity bought when the consumer moves to a higher indifference curve. C) a change in income on the quantity bought when the consumer moves to a higher indifference curve. D) a change in the best affordable point. B) a change in price on the quantity bought when the consumer hypothetically remains on the same indifference. curve. Answer: E I Diff: 2 Topic: Predicting Consumer Choices 29) If the price of a normal good rises, the income effect A) will increase consumption of the good and the substitution effect will decrease consumption. B) will decrease consumption of the good and the substitution effect will increase consumption. C) and the substitution effect will both increase consumption of the good. D) and the substitution effect will both decrease consumption of the good. E) is always larger than the substitution effect. Answer: D 30) If the price of an inferior good rises, the income effect A) will have an uncertain effect on consumption of the good, and the substitution effect will decrease consumption. B) will decrease consumption of the good, and the substitution effect will decrease consumption. C) and the substitution effect will both increase consumption of the good. D) and the substitution effect will both decrease consumption of the good. E) will increase consumption of the good and the substitution effect will decrease consumption. Answer: E 31) The implicit rental rate to a firm of owning a building is A) the sum of economic depreciation and foregone interest. B) economic depreciation only. C) foregone interest only. D) the cost of using an alternative building. E) the rent paid on the building. Answer: A 32) Economic profit equals total revenue minus A) the cost of resources bought in the market. B) the implicit rental rate. C) the opportunity cost of production. D) the cost of resources supplied by the owner. E) the cost of resources owned by the firm. Answer: C 33) Which one of the following statements is not true? A) A production process is technologically efficient only if it is producing a given output at the lowest possible cost. B) If a process is economically efficient, it must be technologically efficient as well. C) Economic efficiency depends on the relative price of inputs, while technological efficiency does not. D) Economically efficient firms will be more likely to survive than economically inefficient firms. E) Technologically efficient firms are more likely to survive than technologically inefficient firms. Answer: A Use the table below to answer the following question. Table 10.2.2 Three methods of making one medical hologram Method Labour Capital 1 5 10 2 10 15 3 15 5 34) Refer to Table 10.2.2. If the price of labour is $20 per unit and the price of capital is $10 per unit, which method is economically efficient? Siioniy \ S‘A‘zo +VOXK’D 1‘ \QO +foo 2200 ony " A ‘ -‘ giggiggonly 9‘“ \D :9.” E) 1 and 3 only Answer:A Mex-VLQA' ’L. 35) A firm that uses the latest technology technologically efficient because . A) is not necessarily; the firm might not use the least amount of inputs to produce a given output B) is not necessarily; new technology is more expensive than old technology C) is; efficiency is about costs rather than when the technology was developed D) is; new technology isn't developed unless it is efficient E) is; most consumers want access to the latest technology Answer: A 36) Mr. Brown opens his restaurant as a sole proprietorship. After a year of disastrous reviews, he has gone deeply into debt. His liabiliy is A) zero; he has already lost all his money. B) the amount of his original investment. C) limited only by his entire wealth. D) limited to assets owned by the restaurant. E) depends upon how much money he has in his saving account. Answer: C _ 37) Firms cope with uncertainty and incomplete information by using A) sole proprietorship, limited liability, and market coordination. B) ownership, incentive pay, and long-term contracts. C) team production, economies of scale, and transactions costs. D) the market, the firm, and internal organization. E) team production, economies of scale, and transaction costs. Answer: B 10 38) The possibility that an employee may not work hard is an example of the A) limited liability problem. B) principal-agent problem. C) transactions cost problem. D) technological efficiency problem. E) partnership problem. Answer: B 39) Which one of the following statements describes a market that is monopolistically competitive? A) The presence of significant barriers to entry. B) The products produced by the firms are identical. C) Many firms compete by making similar but slightly different products. D) There is a small number of large firms. E) The product produced by one firm has no close substitutes. Answer: C 40) Which one of the following would not likely be a firm with economies of scale? A) An electrical production plant. B) A steel mill. C) A telephone company. D) A firm that produces handmade cabinetry. E) A multi-store dry-cleaning firm. Answer: D 11 ...
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test_2a - YORK UNIVERSITY FACULTY OF LIBERAL ARTS AND...

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