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Midterm

EC120 introduction to microeconomics Midterm 2 Fall 2011.doc

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Department
Economics
Course
EC120
Professor
Peter Sinclair
Semester
Fall

Description
test 2 = fall 2011 Multiple Choice Identify the choice that best completes the statement or answers the question. Figure 3-5 Wheat Wheat 10 10 9 9 8 8 7 7 6 Paul 6 5 5 4 4 Cliff 3 3 2 2 1 1 1 2 3 4 5 6 7 8 9 Corn 1 2 3 4 5 6 7 8 9 Corn ____ 1. Refer to Figure 3-5. The opportunity cost of 1 bushel of wheat for Cliff is a. 1/4 bushel of corn. b. 1/2 bushel of corn. c. 1 bushel of corn. d. 2 bushels of corn. e. 4 bushels of corn. ____ 2. Refer to Figure 3-5. Which of the following is true for Cliff and Paul a. Paul has a comparative advantage in both wheat and corn. b. Paul has an absolute advantage in wheat and Cliff has a comparative advantage in corn. c. Cliff has a comparative advantage in wheat and Paul has a comparative advantage in corn. d. Cliff has a comparative advantage in both wheat and corn. Figure 5-4 1 ____ 3. Refer to Figure 5-4. As price falls from PAto P B which demand curve is most elastic? a. D 1 b. D 2 c. D 3 d. All of the above are equally elastic. ____ 4. Suppose that you are in charge of pricing at a local sandwich shop. The business needs to increase revenue and your job is on the line. If the demand for sandwiches is elastic you a. should increase the price of sandwiches. b. should decrease the price of sandwiches. c. should not change the price of sandwiches. d. could not determine what to do with price until you determine whether supply is elastic or inelastic. Figure 5-5 ____ 5. Refer to Figure 5-5. When price falls from point $40 to $30 we know that demand must be a. elastic, since total revenue increases from $8000 to $9000. b. inelastic, since total revenue increases from $8000 to $9000. c. inelastic, since total revenue decreases from $9000 to $8000. d. unit elastic, since total revenue decreases from $9000 to $8000. ____ 6. Suppose that a tax is placed on DVDs. If the seller ends up paying the majority of the tax we know that the a. demand curve is more inelastic than the supply curve. b. supply curve is more inelastic than the demand curve. c. government has placed the tax on the seller. d. government has placed the tax on the buyer. e. both b and c are correct ____ 7. Suppose that the demand for picture frames is price elastic and the supply of picture frames is price inelastic. A tax of $1 per frame levied on buyers of picture frames will increase the equilibrium price paid by buyers of picture frames by a. $1. b. more than $0.50 but less than $1.00. c. less than $0.50. d. It is impossible to say without more information. ____ 8. A minimum wage imposed above a market's equilibrium wage will result in the quantity a. supplied of labor being greater than the quantity demanded of labor and unemployment 2 will occur. b. demanded of labor being greater than the quantity supplied of labor and unemployment will occur. c. supplied of labor being greater than the quantity demanded of labor and a shortage of workers will occur. d. demanded of labor being greater than the quantity supplied of labor and a shortage of workers will occur. Table 7-2 BUYER WILLINGNESS TO PAY DAVID $8.50 LAURA $7.00 MEGAN $5.50 MALLORY $4.00 AUDREY $3.50 ____ 9. Refer to Table 7-2. If the market price is $5.50, the consumer surplus in the market will be a. $3.00. b. $4.50. c. $15.50. d. $21.00. e. $24.00. Figure 7-2 ____ 10. Refer to Figure 7-2. Which area represents consumer surplus at a 2rice of P ? a. ABD b. ACF c. BCDE d. DEF e. BCFD ____ 11. Refer to Figure 7-2. Which area represents the increase in consumer surplus when the pric1 falls from P to P 2 a. ABD b. ACF c. BCDE 3 d. DEF e. BCFD Figure 7-5 ____ 12. Refer to Figure 7-5. If the price rises from P1 to P2, the producer surpus will increase by a. A b. A + B c. A + B + C d. A + B + E e. E ____ 13. A simultaneous increase in both the demand for and the supply of radios would imply that a. both the value of radios to consumers and the cost of producing radios has increased. b. both the value of radios to consumers and the cost of producing radios has decreased. c. the value of radios to consumers has decreased and the cost of producing radios has increased. d. the value of radios to consumers has increased and the cost of producing radios has decreased. ____ 14. Buyers of a product will pay the majority of a tax placed on a product when a. the tax is placed on the seller of the product. b. the demand is more elastic than supply. c. supply is more elastic than demand. d. the tax is placed on the buyer of the product. ____ 15. The Canadian Dental Association announces that eating chocolate increases tooth decay. As a result, the equilibrium market price of chocolate a. increases, and producer surplus increases. b. increases, and producer surplus decreases. c. decreases, and producer surplus decreases. d. decreases, and producer surplus increases. Figure 8-2 4 ____ 16. Refer to Figure 8-2. The per unit burden of the tax on buyers is a. P 3 P .1 b. P 3 P .2 c. P 2 P .1 d. Q -2Q .1 ____ 17. Refer to Figure 8-2. The amount of tax revenue received by the government is equal to the area a. P 3 C P . 1 b. A B C. c. P 2 A P . 3 d. P C D P . 1 2 Scenario 13-1 Joe wants to start his own business. The business he wants to start will require that he purchase a factory that costs $300,000. To finance this purchase, he will use $100,000 of his own money, on which he has been earning 10 percent interest. In addition, he will borrow $200,000, and he will pay 12 percent interest on that loan. ____ 18. Refer to Scenario 13-1. For the first year of operation, what is the explicit cost of purchasing the factory? a. $12,000 b. $20,000 c. $24,000 d. $44,000 e. $54,000 ____ 19. Refer to Scenario 13-1. For the first year of operation, what is the total cost of purchasing the factory? a. $10,000 b. $20,000 c. $24,000 d. $34,000 e. $44,000 5 The figure below depicts a total cost function for a firm that produces cookies. Use the figure to answer the following questions. Figure 13-2 ____ 20. Refer to Figure 13-2. Which of the following is true of the production function (not pictured) that underlies this total cost function? (i) Total output increases as the quantity of inputs increases, but at a decreasing rate. (ii) Marginal product is diminishing for all levels of input usage. (iii) The slope of the production function decreases as the quantity of inputs increases. a. (i) only b. (ii) and (iii) c. (i) and (iii) d. All of the above are correct. ____ 21. A tax has a deadweight loss because a. it induces the government to spend more. b. it induces buyers to consume less and sellers to produce less. c. it causes a disequilibrium in the market. d. the loss to buyers is greater than the loss to sellers. ____ 22. The average fixed cost curve a. always declines with increased levels of output. b. always rises with increased levels of output. c. declines as long as it is above marginal cost. d. declines as long as it is below marginal cost. 6 ____ 23. Consider the following information about baseball production at Bob's Baseball Factory: Worker Marginal Product 1 3 2 5 3 8 4 10 5 7 6 4 7 2 Bob pays all his
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