Professional Documents
Culture Documents
Exam 1
1. In economics, choices must be made because we live in a world of
A) unemployment.
B) scarcity.
C) greed.
D) unlimited resources
D) "I sold my Blu-ray copy of Modern Family: Season One for $18 at a garage sale
even though I was
willing to sell it for $10."
7. If the Apple iPad and the Samsung Galaxy Tab are considered substitutes, then,
other things equal,
an increase in the price of the iPad will
A) decrease the demand for the iPad.
B) increase the demand for the Galaxy Tab.
C) decrease the quantity demanded for the Galaxy Tab.
D) increase the quantity demanded for the iPad.
8. The area above the market supply curve and below the market price is equal to
the
A) consumer surplus.
B) producer surplus.
C) marginal benefit.
D) marginal cost.
11. Which term refers to a legally established minimum price that firms may
charge?
A) a price ceiling
B) a subsidy
C) a price floor
D) a tariff
12. Large home improvement stores like Home Depot and Lowes recently started to
stock tankless
water heaters. How does the fact that more home improvement stores now offer
these products affect
14. When Toyota introduced its 2010 Prius, it announced that the average retail
price of the 2010
model would be lower than the average retail price was for the equivalent 2009
model. Which of the
following would explain the price differential?
A) The demand for the Prius had increased, and the supply of the Prius remained
unchanged.
B) The supply of the Prius had decreased, and the demand for the Prius remained
unchanged.
C) The demand for the Prius had decreased, and the supply of the Prius had
increased.
D) The demand for the Prius had increased, and the supply of the Prius had
decreased.
Exam 2
1) Jason gets utility out of a skateboard since the skateboard
A) is scarce.
B) has a high price.
C) can be used for several purposes.
D) generates enjoyment or satisfaction.
2) When dealing with a negative externality in production, the market supply curve
reflects the
A) external benefits of producing a good or service.
B) external costs of producing a good or service.
C) social costs of producing a good or service.
D) private costs of producing a good or service.
3) Which of the following statements about the price elasticity of demand of cereal
is correct?
A) Demand for cereal in general is more elastic than the demand for Cinnamon
Toast Crunch, a
particular brand of cereal.
B) Demand for cereal, a necessity, is more elastic than the demand for Orioles
baseball tickets, a
luxury.
C) Demand for cereal is more elastic when you graduate from Loyola than it is
today.
D) Demand for cereal, which takes up a smaller percentage of your income, is more
elastic than the
demand for apartments, which take up a larger percentage of your income.
5) According to an article in the Wall Street Journal, unlike airlines, even elite hotels
don't have
sophisticated systems that can react quickly to changes in demand. Even if they
could, many hoteliers
say people don't respond that much to lower rates. "We've tested this, cutting our
rates by $50 [per
night], and we didn't see an appreciable response in occupancy," says Jim
Schultenover, a vice
president for Ritz-Carlton. Based on this information, the demand for hotel rooms is
A) elastic.
B) unit-elastic.
C) inelastic.
D) perfectly elastic.
7) Over longer periods of time, increases in oil prices provide firms with incentives
to explore and
recover oil. What does this indicate about the long run price elasticity of supply for
oil?
A) The price elasticity of supply is likely to be higher in the long run than in the
short run.
B) The price elasticity of supply is likely to be lower in the long run than in the short
run.
C) The price elasticity of supply approaches 0 in the long run.
D) The price elasticity of supply is the same in the long run as in the short run.
8) Which of the following is likely to occur as the result of the law of diminishing
marginal utility?
A) Nunes total utility after drinking two cups of coffee is less than her total utility
from drinking one
cup of coffee.
B) Lisa went to the animal shelter and adopted only one dog instead of two dogs.
C) Delta Air Lines charges its customers a higher price for two one-way tickets
versus one roundtrip
ticket.
D) Ravi enjoyed his second round of golf less than his first round of golf.
9) If diminishing marginal returns have already set in for Golden Lark Woodworks,
and the marginal
product of the 6th carpenter is 8 chairs, then the marginal product of the 7th
carpenter is
A) negative.
B) less than 8 chairs.
C) more than 8 chairs.
D) zero.
12) Which of the following displays these two characteristics: nonrival and
nonexcludable in
consumption?
A) FM radio
B) cable television
C) cell phone
D) fish in a lake
13) If the marginal cost curve is below the average variable cost curve, then the
A) average variable cost curve must be upward sloping.
B) average variable cost must be downward sloping.
C) marginal cost curve must be downward sloping.
D) average variable cost must be horizontal.
14) For people who live near a bus route, a subway station, or a light rail line, public
transportation
provides a substitute to driving their own cars. So, for these people, the cross-price
elasticity of demand
15) In 1955, the chairman of the Sony corporation offered to sell transistor radios
through department
stores in the United States. Sony based its selling price on its 6average total cost of
production. If a store
bought 5,000 radios, Sony would sell them at $29.95 each. For 10,000 there would
be a discount, and
for more than 10,000 the price would begin to climb. Based on this information,
Sony reached
minimum efficient scale
A) at a quantity below 5,000 radios.
B) at a quantity of 5,000 radios.
C) at a quantity of 10,000 radios.
D) at a quantity above 10,000 radios
Word Problems
Exam 1
1. The Fruit Farm produces only apples and pears. The table below shows the
maximum possible output combinations of the two fruits using all resources and
currently available technology.
Possible Output
Combinations
A
B
C
D
E
F
G
H
Apples (thousands of
Pounds
70
60
50
40
30
20
10
0
Pears (thousands of
pounds)
0
20
36
48
56
60
63
65
a. Graph The Fruit Farm's production possibilities frontier. Put apples on the
horizontal axis and pears on the vertical axis. Make sure that your graph illustrates
whether the Fruit Farm experiences constant or increasing opportunity costs. (3
points)
b. Suppose The Fruit Farm is currently producing at point D. What is the opportunity
cost of producing an additional 8,000 pounds of pears? (1 point)
2. Suppose that the United States and Japan both produce cars and computers. The
following table shows combinations of the goods that each country can produce in a
day:
_____________________________________________________________________________________
Japan
United
States
Cars
Computers
Cars
Computers
0
1
2
3
4
16
12
8
4
0
0
1
2
3
4
5
25
20
15
5
0
c. Suppose that Japan is currently producing 2 cars and 8 computers, and the United
States is currently producing 2 cars and 15 computers. Create a table to
demonstrate that Japan and the United States can both be better off if they
specialize in producing only one good and then engage in trade. (3 points)
3. As oil prices rose from 2005 to 2006, the demand for alternative fuels increased.
Ethanol, one alternative fuel, is made from corn. According to an article in the Wall
Street Journal, the price of tortillas, which are made from corn, also rose during
2006: The price spike [in tortillas] is part of a ripple effect from the ethanol boom.
a. The increase in the demand for ethanol affected the corn market since corn is
used to produce ethanol. Illustrate the effect that the increase in the demand for
ethanol had on the corn market by drawing a demand and supply graph for corn
before and after the increase in the demand for ethanol. Be sure to label your graph
completely and indicate any shifts in the demand curve and/or supply curve, as well
as any changes to equilibrium price and equilibrium quantity. (2 points)
b. As the demand for ethanol increased, farmers were allocating more corn towards
the production of ethanol and less corn towards the production of tortillas. Illustrate
the effect that the increase in the demand for ethanol had on the tortilla market by
drawing a demand and supply graph for tortillas before and after the increase in the
demand for ethanol. Be sure to label your graph completely and indicate any shifts
in the demand curve and/or supply curve, as well as any changes to equilibrium
price and equilibrium quantity. (2 points)
c. During 2009, ethanol producers were asking the Environmental Protection Agency
(EPA) to raise the allowable amount of ethanol in gasoline blends from 10 percent to
15 percent. As a result, more corn would be used in the production of ethanol. If the
EPA were to agree to this proposal, do you think that tortilla prices would increase or
decrease? Explain.
4. The figure below represents demand and supply in the market for gasoline. Use
the diagram to answer the following questions. (Copy by Hand)
Exam 2
1. Real estate agents advise their clients to keep their front yard well maintained in
order to increase their real estate value. However, an attractive front yard will also
help the value of the homes of the clients neighbors.
a. Does having a nice front yard exhibit an externality? If so, is this an example of a
negative or positive externality? Explain. (1 point)
b. Draw a graph showing this externality. Make sure to identify the market quantity
and efficient quantity, as well as label all of the curves in your graph. (2 points)
2. Suppose that Nike sells 600 golf polos a day at a price of $50. When Nike
increased the price to $75, the quantity of golf polos decreased to 200 a day.
a. Use the midpoint formula to calculate the price elasticity of demand. Be sure to
show all of your work for full credit. (2 points)
b. Indicate whether demand for Nike golf polos is elastic or inelastic. Briefly explain.
(1 point)
c. Consider the original situation in which Nike sells 600 golf polos at a price of $50.
Assuming that the price elasticity of demand is equal to your answer in part a., what
percent change in price would induce an increase in quantity demanded by 20%? (2
points)
3. Suppose Matt has $245 per week to spend on any combination of video games
and comic books. The price of a video game is $50 and the price of a comic book is
$10. The table below shows Matts utility values. Use the table to answer the
questions that follow the table.
Quantity of
Video Games
Total
Utility
Quantity of Comic
Books
Total
Utility
0
0
0
0
1
1000
1
150
2
1850
2
280
3
2500
3
390
4
2950
4
480
5
3200
5
550
6
3250
6
600
7
3275
7
620
a. Complete the table below by calculating the Marginal Utility and Marginal Utility
per Dollar columns for both video games and comic books. (2 points)
Quantity
of Video
Games
Total
Utility
0
1
2
3
4
5
6
7
0
1000
1850
2500
2950
3200
3250
3275
Marginal
Utility
Marginal
Utility
per
dollar
Quantity
of Comic
Books
Total
Utility
0
1
2
3
4
5
6
7
0
150
280
390
480
550
600
620
Marginal
Utility
Marginal
Utility
per
Dollar
b. Use the information in the previous page to create a table that determines the
number of comic books and movie tickets Matt should buy to maximize his utility. (3
points)
4. Cassandra owns a snow cone stand. She leases 4 snow cone machines, for which
she pays $20 for each machine. She cannot change the number of machines she
leases without giving the manufacturer three months notice. She can hire as many
workers as she wants at a cost of $40 per worker. These are the only two inputs she
uses in her business. Use this information to fill in the columns in the table. Be sure
to show all of your work. You can round your answers to the nearest penny. (5
points)
Quantity
of
Workers
0
Quantity
of Snow
Cones
0
40
85
105
115
10
120
Fixed Cost
Variable
Cost
Total Cost
Average
Total Cost
Marginal
Cost