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Exam 1

ECON 102 – Microeconomics


Professor Schenk
January 29, 2010

Instructions: Please write your name clearly at the top of the page. This test is due at the beginning
of class, Monday, February 1st. You may use any resources but may not work together. Answer all of the
multiple choice questions. Circle your desired response. If you change your mind, write your response next
to the question to avoid confusion. If applicable, show your work alongside the question to get partial credit
in case of any mistakes.

1. The production possibilities frontier is a graphic representation of:


(a) the economy.
(b) trade-offs.
(c) supply and demand.
(d) political philosophies.
2. A “negative liberty” political philosophy is where:

(a) social laws emphasize community values and economic laws emphasize economic liberty.
(b) social laws emphasize individual liberty and economic laws emphasize central planning.
(c) social laws emphasize individual liberty and economic laws emphasize economic liberty.
(d) social laws emphasize community values and economic laws emphasize central planning.
3. Which statement below be considered a normative statement?

(a) the economy grew at 3.2 percent.


(b) people trade all the time.
(c) Cindy ought to spend less of her time on useless projects.
(d) Economics is a study of choice.

4. Producers are represented by the:


(a) demand curve.
(b) supply curve.
(c) production possibilities frontier.
(d) market equibilibrium.

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5. Suppose the government taxed consumers, what would happen to prices?
(a) increase.
(b) decrease.
(c) be left unchanged.
(d) fluctuate wildly.
6. According to the law of demand an increase in the price of gasoline will:
(a) increase the quantity demanded of gasoline.
(b) decrease the quantity demanded of gasoline.
(c) increase the demand for gasoline.
(d) decrease the demand for gasoline.
7. The distinction between a change in supply and a change in quantity supplied is made by saying that:
(a) change in supply is represented graphically by a shift of the supply curve and change in quantity
supplied as a change in the point along that curve.
(b) change in quantity supplied is represented graphically by a shift of the supply curve and supply
as a a change in the point along that curve.
(c) the quantity supplied is in a direct relation with prices, whereas supply is in an inverse relation.
(d) the quantity supplieded is in an inverse relation with prices, whereas supply is in a direct relation.

8. Suppose that each of the following rows represents the choice made by policy makers given the current
U.S. institutions and technology. What is the opportunity cost of reducing unemployment from 8
percent to 4 percent?

Unemployment Inflation
10 2
8 3
6 5
4 8
2 11

(a) 4 percent of unemployment.


(b) 5 percent of unemployment.
(c) 5 percent of inflation.
(d) 4 percent of inflation.
9. Does the above table exhibit:

(a) increasing marginal opportunity costs.


(b) constant marginal opportunity costs.
(c) decreasing marginal opportunity costs.
(d) law of demand.

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10. Refer to the graph above. Suppose the government imposes a price floor at $1.25 and the demand
curve is given by D1. Which of the following would result?

(a) A surplus of 1,000 eggs per week.


(b) A shortage of 1,000 eggs per week.
(c) A surplus of 2,000 eggs per week.
(d) A shortage of 2,000 eggs per week.

11. Refer to the graph above. Instead of a price floor, suppose the government imposes a $0.25 tax. What
would be government tax revenues?
(a) $250.
(b) $500.
(c) $1,000.
(d) $2,000.

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Instructions: Write a response against the following statement using economic reasoning from lectures,
notes, and the textbook. The response should be written for someone who is intelligent, but not
familiar with economics terminology. The use of graphs or tables is discouraged, but may be used for
partial credit. The answer is not necessarially lengthy, so do not write more than you need to.
12. Increasing fuel efficiency in automobiles is a way to decrease fuel consumption.

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Instructions: Answer all of the following questions. Show your work in order to retain partial credit in
case of any mistakes.

p
Qd = − + 7
2
Qs = 3p

13. Let Qd be the demand function and Qs be the supply function. What is the equilibrium price and quan-
tity for the market? Solve through the tabular, algebraic, or graphical method.

(a) Calculate the consumer surplus, producer surplus, and total surplus in this market.

(b) Presume the government implements a price floor at $4 to protect the welfare of corn suppliers from
a low price, what is the new equilibrium quantity?

(c) Given a price floor of $4, will there be a shortage or surplus? Calculate the extact shortage or sur-
plus.

(d) Did the price floor increase producer or consumer surplus? (Note: calculating surplus is tricky here
and the simple formula does not apply. Divide the area into rectangles and triangles to get your an-
swer)

(e) Did the price floor achieve the desired policy? (To protect the welfare of corn suppliers)