# Introduction to Microeconomics Spring 2011 Exam 1

Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. The following diagram shows a budget constraint for a particular consumer.
y 40 30 20 10 10 20 30 40 50 60 70 80 90 x

If the price of X is \$10, what is the price of Y? a. \$70 b. \$25 c. \$15 d. \$35 Table 3-3 Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate. Machine Minutes Needed to Make 1 Toothbrush Hairbrush 3 10 5 6

Zimbabwe Portugal ____

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2. Refer to Table 3-3. Zimbabwe has an absolute advantage in the production of a. hairbrushes and a comparative advantage in the production of toothbrushes. b. toothbrushes and a comparative advantage in the production of toothbrushes. c. hairbrushes and a comparative advantage in the production of hairbrushes. d. toothbrushes and a comparative advantage in the production of hairbrushes. 3. Mallory decides to spend three hours working overtime rather than watching a video with her friends. She earns \$8 an hour. Her opportunity cost of working is a. nothing, since she would have received less than \$24 of enjoyment from the video. b. the enjoyment she would have received had she watched the video. c. the \$24 she earns working. d. the \$24 minus the enjoyment she would have received from watching the video. 4. The law of demand states that, other things equal, a. when the price of a good rises, the quantity demanded of the good rises. b. when the price of a good falls, the demand for the good rises. c. when the price of a good falls, the quantity demanded of the good rises. d. when the price of a good rises, the demand for the good falls. 5. The demand curve for hot dogs

b.a. does not shift when the price of hot dogs changes because the quantity demanded of hot dogs is measured on the horizontal axis of the graph. 10 pounds of meat and 20 pounds of potatoes. Labor Hours Needed to Make 1 Pound of Meat Potatoes 10 2 4 8 Pounds Produced in 40 Hours Meat Potatoes 4 20 10 5 Farmer Rancher ____ ____ 6. Figure 5-6 22 20 18 16 14 12 10 8 6 4 2 C B A Price Demand 100 200 300 400 500 600 700 800 900 Quantity . corporations. c. c. central planners. c. economic activity is guided by a. b. the government. d. If each person spends all his time producing the good in which he has a comparative advantage. self-interest and prices. shifts when the price of hot dogs changes because the price of hot dogs is measured on the vertical axis of the graph. shifts when the price of hot dogs changes because the quantity demanded of hot dogs is measured on the horizontal axis of the graph. Assume that the farmer and the rancher each has 40 labor hours available. d. Table 3-4 Assume that the farmer and the rancher can switch between producing meat and producing potatoes at a constant rate. In a market economy. Refer to Table 3-4. d. then total production is a. b. 24 pounds of meat and 15 pounds of potatoes. 7. 14 pounds of meat and 25 pounds of potatoes. does not shift when the price of hot dogs changes because the price of hot dogs is measured on the vertical axis of the graph. 4 pounds of meat and 5 pounds of potatoes.

1. policymakers should a. . formulate policies designed to increase productivity. income effect is smaller than the substitution effect. Drug interdiction raises prices and total revenue in the drug market. Drug interdiction can increase drug-related crime. income effect is larger than the substitution effect.00 b. ____ 12.75 ____ 10. impose tougher immigration policies.____ 8. b. c. d. and demand is inelastic between points A and C.200.25 c. b. To improve living standards. The labor supply curve may have a backward bending portion because at higher wages the a. b. Using the midpoint method. Any of the above could result in a backward-bending supply curve. Figure 5-14 10 9 8 7 6 5 4 3 2 1 5 10 15 20 25 30 35 40 Quantity Price Supply ____ 9. c. and demand is inelastic between points A and C. ____ 11. 1. and demand is elastic between points A and C. If the price decreased from \$18 to \$6. c. total revenue would increase by \$1. and demand is elastic between points A and C.20 d. provide tax breaks for the middle class. Drug interdiction shifts the supply curve of drugs to the left. Which of the following statements is not correct concerning government attempts to reduce the flow of illegal drugs into the country? a. 0.200. b. d. d. c. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Scenario 5-3 Milk has an inelastic demand and beef has an elastic demand. total revenue would decrease by \$800. total revenue would increase by \$800. d. Drug interdiction shifts the demand curve for drugs to the left. 1. income effect is negative. Refer to Figure 5-6. Refer to Figure 5-14. impose restrictions on foreign competition. total revenue would decrease by \$1. what is the price elasticity of supply between \$4 and \$6? a. a.

b. b. decrease. and total consumer spending on beef will increase. Figure 2-8 Panel (a) Panel (b) . decrease. and total consumer spending on beef will decrease. Refer to Scenario 5-3. c. Total consumer spending on milk will a. and total consumer spending on beef will increase. MRSxy > Px/Py. and total consumer spending on beef will decrease. MRSxy > Py/Px. Figure 21-9 ____ 14. MRSxy < Px/Py. Refer to Figure 21-9. d. MRSxy = Px/Py. Bundle C represents a point where a. increase.____ 13. d. increase. c.

5 2 1. All of the above are correct.5 K L 4 3. Which of the graphs shown represent indifference curves for perfect complements? a. because the demand for and supply of housing are more elastic in the long run. Refer to Figure 21-8.5 M 1 2 3 4 5 6 donuts 1 2 3 4 5 6 donuts ____ 15. graph a b.5 1 0. increase. increase. The opportunity cost of moving from point J to point L is a. d. decrease. d. decrease.5 6 5.5 3 2.5 cups of coffee 7 6. c. Over time. because the demand for and supply of housing are more elastic in the long run. Suppose you make jewelry. because the demand for and supply of housing are less elastic in the long run. Figure 21-8 y (a) y (b) y (c) x x x ____ 17. c. If the price of gold falls. then we would expect you to . 2 cups of coffee. graph c c. graph b d. ____ 16. Panel (a). because the demand for and supply of housing are less elastic in the long run.5 N 2 1. b. 2 donuts and 2 cups of coffee.5 4 3.5 cups of coffee J 6 5.7 6. ____ 18. housing shortages caused by rent control a. Refer to Figure 2-8.5 5 4. 6 cups of coffee. b.5 3 2.5 1 0. 2 donuts.5 5 4.

____ 21. face a greater demand for your jewelry. first becomes smaller. then smaller. c. ____ 22. the price of the good d. but the impact on equilibrium price would be ambiguous. d. the prices of inputs Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market? a. b. first becomes larger. ____ 20. Equilibrium price would increase. b. but the impact on equilibrium quantity would be ambiguous. The following diagram shows two budget lines: A and B. a decrease in income and an increase in the price of X d. Buyers and sellers who have no influence on market price are referred to as a. When we move upward and to the left along a linear. Equilibrium price would decrease. monopolists. d. a. 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 9 x A B y Which of the following could explain the change in the budget line from A to B? a. b. expectations c. an increase in income and an increase in the price of X ____ 23. but the impact on equilibrium quantity would be ambiguous. be willing and able to produce less jewelry than before at each possible price. b. be willing and able to produce more jewelry than before at each possible price. Equilibrium quantity would decrease. c. c. Which of the following is not held constant in a supply schedule? a. price elasticity of demand a. a decrease in income and a decrease in the price of X b. then larger. price makers. face a weaker demand for your jewelry. an increase in income and a decrease in the price of X c. d.____ 19. Equilibrium quantity would increase. price takers. technology b. but the impact on equilibrium price would be ambiguous. . downward-sloping demand curve. market pawns.

A minimum wage that is set above a market's equilibrium wage will result in a. necessities. c. unemployment. an excess supply of labor. percentage change in price of bread divided by percentage change in quantity demanded of bread Suppose buyers of computers and printers regard those two goods as complements. c. then it is likely that the a. If the cross-price elasticity of two goods is negative. the income effect encourages the consumer to purchase less of the good. an excess demand for labor. a. percentage change in quantity demanded of bread divided by percentage change in income b. normal goods. the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. both the income and substitution effects encourage the consumer to purchase less of the good. c. c. percentage change in quantity demanded of bread divided by percentage change in quantity supplied of bread c. always becomes larger. that is. a decrease in the demand for printers and a decrease in the quantity supplied of printers. ____ 27. then those two goods are a. d. since water is necessary for life. an excess supply of labor. Workers at a bicycle assembly plant currently earn the mandatory minimum wage. percentage change in quantity demanded of bread divided by percentage change in price of butter d. a decrease in the supply of printers and a decrease in the quantity demanded of printers. b. unemployment. d. both the income and substitution effects encourage the consumer to purchase more of the good. People are willing to pay more for a diamond than for a bottle of water because a. b. b. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. ____ 26. d. ____ 28. ____ 25. firm must increase output to maintain profit levels. water prices are held artificially low by governments. producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. demand for bicycle assembly workers will increase. supply of bicycles will shift to the right. When the price of a normal good increases. d. c. d. b. inferior goods. b. a decrease in the equilibrium price of printers and an increase in the equilibrium quantity of printers.00 per hour. Then an increase in the price of computers will cause a. an excess demand for labor. Which of the following expressions represents a cross-price elasticity of demand? a. . and the substitution effect encourages the consumer to purchase less of the good. b. the income effect encourages the consumer to purchase more of the good. supply of bicycles will shift to the left. ____ 30. d. complements. c. c. that is. and the substitution effect encourages the consumer to purchase more of the good.____ 24. always becomes smaller. a shortage of workers. a shortage of workers. If the federal government increases the minimum wage by \$1. that is. that is. ____ 29.

then a 10 percent increase in price results in a a. c. d. 2. All of the above are correct. decreases the demand for the other good. 0. ____ 34. c. If the price is \$10. ____ 32. b. Two goods are complements when a decrease in the price of one good a. Senator Smith argues that replacing the income tax with a national sales tax would increase the level of output. The demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in general. shortage of 400 and price would rise. . c. Refer to Figure 4-10. The demand for smoke alarms is more elastic than the demand for Persian rugs.0. The demand for natural gas is more elastic over a short period of time than over a long period of time. b. while Senator Well’s argument is primarily about efficiency. an increase in the equilibrium price of printers and a decrease in the equilibrium quantity of printers. Both Senators’ arguments are primarily about efficiency. shortage of 600 and price would rise. Senator Smith’s argument is primarily about equality. If the price elasticity of demand for a good is 4. then there would be a a. d. b. 40 percent decrease in the quantity demanded. surplus of 400 and price would rise. decreases the quantity demanded of the other good. c. ____ 33. b. increases the demand for the other good. b. c. increases the quantity demanded of the other good. d. surplus of 600 and price would rise. d. Both Senators’ arguments are primarily about equality. Senator Wells objects that this policy would benefit the rich at the expense of the poor. Which of the following statements is correct? a. d. while Senator Well’s argument is primarily about equality. Figure 4-10 50 45 40 35 30 25 20 15 10 5 price S D 100 200 300 400 500 600 700 800 900 quantity ____ 35.4 percent decrease in the quantity demanded.____ 31. 4 percent decrease in the quantity demanded.5 percent decrease in the quantity demanded. a. Senator Smith’s argument is primarily about efficiency. d.

statement? a. which increases quantity demanded and decreases quantity supplied. the mayor thinks demand is elastic. Which of the following is an example of a normative. and the city manager thinks demand is inelastic. until the shortage is eliminated. When a shortage exists in a market. demand increases and supply decreases c. Suppose the government has imposed a price ceiling on cellular phones. an increase in the price of mp3 players d. an increase in the price of plastic. d. You are in charge of the local city-owned golf course. which decreases quantity demanded and increases quantity supplied. raise price. Traditional land line phones become more expensive. c. until the shortage is eliminated. holding the consumer's level of satisfaction constant d. The mayor advises you to decrease the price of a round of golf. raise price. a decrease in the number of sellers of mp3 players c. the change in consumption resulting from a change in the consumer's income. b. which decreases quantity demanded and increases quantity supplied. and maintain a constant level of satisfaction. A technological advance makes cellular phone production less expensive. Which of the following descriptions best depicts the substitution effect? a. The federal government obtains much of its revenue from income taxes. ____ 41. the change in consumption resulting from a change in the price of one good. Income taxes should be reduced. holding the consumer's level of satisfaction constant ____ 38. an improvement in the technology used to produce mp3 players b. You realize that a. demand and supply both increase ____ 42. ____ 39. c. lower price. both the mayor and the city manager think that demand is elastic. lower price. allowing the consumer's level of satisfaction to change b. as opposed to positive. b. The rate at which a consumer is willing to exchange one good for another. The price of gasoline came down sharply during the second half of 2006. b. b. c. You need to increase the revenue generated by the golf course in order to meet expenses. demand and supply both decrease d. until the shortage is eliminated. ____ 40. d. sellers a. demand decreases and supply increases b. until the shortage is eliminated. the change in consumption resulting from a change in the consumer's income. is called the . If the government were to set a maximum legal price on gasoline. both the mayor and the city manager think that demand is inelastic. The components used to produce cellular phones become more expensive. d. the change in consumption resulting from a change in the price of one good. the mayor thinks demand is inelastic. then there would be a shortage of gasoline. d.____ 36. which increases quantity demanded and decreases quantity supplied. Which of the following events will definitely cause equilibrium quantity to rise? a. Cellular phones become more popular. an input into the production of mp3 players ____ 37. and the city manager thinks demand is elastic. The city manager recommends increasing the price of a round of golf. Which of the following events could transform the price ceiling from one that is binding to one that is not binding? a. ____ 43. holding the prices of the goods constant c. c. Which of the following would not shift the supply curve for mp3 players? a.