Economics 1B Exam 1 Version A Answers S2011

Economics 1B Exam 1 Version A Answers S2011 - Economics 1B...

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Economics 1B Exam 1 – Version A Key Department of Economics Professor Siegler UC Davis Spring 2011 The questions are re-ordered in Version B. Roughly speaking, the first 15 questions on Version A are the last 15 questions on Version B. Part I: Multiple-Choice Questions (2 points each, 60 points in total). Please select only one answer for each question. 1. Which of the following is a positive economic statement? A. The standard of living in the United States should be higher. B. If the price of iPhones falls, a larger quantity of iPhones will be purchased. C. The government should revamp the health care system. D. The U.S. government should not have bailed out U.S. auto manufacturers. 2. In 1916, the Ford Motor Company sold 500,000 Model T Fords at a price of $440 each. Henry Ford believed that he could increase sales of the Model T by 2,000 cars for every dollar he cut the price. Using this information, the estimated price elasticity of demand, using the midpoint formula, is approximately: A. 0.87 B. 1.75 C. 1 D. 1.27 3. Using the information from the question above, if the goal of the Ford Motor Company is to increase the total revenue from the sales of Model T’s, then: A. Henry Ford should lower the price of the Model T. B. Henry Ford should increase the price of the Model T. C. It doesn’t matter whether Henry Ford increases or decreases the price of the Model T since total revenues do not change in this case. D. Henry Ford should increase the wages of workers to $5 per day. 4. According to a recent study of the price elasticities of products sold in supermarkets, the price elasticity of demand for toothpaste is estimated at 0.45. Which of the following best explains why the price elasticity of demand for toothpaste is so low? A. The toothpaste industry is highly competitive. B. Toothpaste is relatively expensive. C. Toothpaste is heavily endorsed by dentists. D. There are few close substitutes for toothpaste.
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2 Table 1 One Digital Camera China 100 hours 4 hours South Korea 60 hours 3 hours 5. Table 1 above shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea. What is China’s opportunity cost of producing one digital camera? A. 0.04 pounds of wheat B. 4 pounds of wheat C. 25 pounds of wheat D. 40 pounds of wheat 6. Refer to Table 1 above. If the two countries specialize according to their comparative advantages and trade, who should export digital cameras? A. There is no basis for trade between the two countries. B. China C. South Korea D. They should both be importing digital cameras. 7. Refer to Table 1 above. In order to gain from trade, the price of a digital camera in terms of pounds of wheat must be between ____ and _____. A. 0.05; 0.04 B. 3; 4 C. 60; 100 D. 20; 25 8. During the recession of 2007-2009, despite falling income levels, McDonald’s experienced increased sales. The increase in demand for Big Macs despite the decline in income indicates that Big Macs are considered A. normal goods.
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This note was uploaded on 02/07/2012 for the course ECON 1b taught by Professor Sheffrin during the Spring '07 term at UC Davis.

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Economics 1B Exam 1 Version A Answers S2011 - Economics 1B...

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