PRINCIPLES OF MICROECONOMIC ECON 202 SUMMER 2013

Part I.  Short Answer (5 Points Each)                                                    ________ Points

Carefully define, explain the usage, and an example of the following concepts:

1.       Distinguish between demand and quantity demanded. Do the same for supply and quantity supplied.

2.       Describe the field of economics known as microeconomics.

1.      What is the cost-benefit principle?
   

Part II.  Fully Explain in Essay Format  (20 Points)  ________ Points

Graphically prove or disprove the following statement.  Explain your reasoning. 

After last year’s strike, baseball has experienced a severe drop in attendance even though the owners have reduced ticket prices and have held special events.  Similarly players have made themselves more available in the hopes of boosting attendance.  So far nothing has worked.  In economic terms the law of demand does not hold since attendance at the major league parks has dropped while at the same time ticket prices have fallen.

Part III.  Matching (30 Points).                                                                ________ Points

_____Market Demand

_____Graphs

_____Negative

_____Positive

_____Supply Side

_____Vertical

_____Variable

_____Resources

_____Opportunity Cost

_____Necessity

A.      The ____MARKET ____curve shows the relationship between the price and the quantity demanded by all consumers, everything else being equal.

B.      On the __________ ________ of a market, producers indicate to consumers what they are willing to sell, in what quantity and at what price.

C.      Inputs in production processes are called Economic ______ ________.

D.     Toothpaste is likely to be a  __ __________ product.

E.      A line that falls from left to right has a __ _______________ slope.

F.       In the Marshallian diagram, the _____ ____ axis denotes Price.

G.      The _____________ __ of any decision is the forgone value of the next best alternative that is not chosen.

H.      There is a __ _________________ relationship between two variables if they move in the same direction.

I.        ______ are valuable because they facilitate interpretation of data.

J.        A ________ _______ measures something that can take on different values.

Part IV. Complete the following (20 Points)

                Suppose the total demand for alfalfa and the total supply of alfalfa per month in the Dallas grain market are as follows:

                Thousands                                                         Thousands         Amount of Surplus (+)

                of Bushels                           Price per             of Bushels           or

Demanded                         Bushel  Supplied              Shortage (-)

                                85                           $3.40                    72                           -13

                                80                           3.70                      73                           -7

                                75                           4.00                      75                           0

                                70                           4.30                      77                           7

                                65                           4.60                      79                           14

                                60                           4.90                      81                           21

                (a)          What will be the market equilibrium price?

 What is the equilibrium quantity?

 Using the surplus-shortage column, explain in words why your answer is valid.

                (b)         What is the surplus or shortage at the price of $3.40? 

What is the surplus or shortage at the price $4.90

Part V.  Assume that the demand for a commodity is represented by the equation P=10-.2Q_d and supply by the equation P=2+.2Q_s, where Q_d and Q_s are the quantity demanded and quantity supplied, respectively, and P is the price.  Using the equilibrium condition Q_s=Q_d. (Hint Set two equations equal to Each other and solve.)      (15 Points)

                (a)          Solve the equations simultaneously to determine the equilibrium price.  Replace the equilibrium price back into either of the two equations and determine equilibrium quantity

Part VI.  Multiple Choice (5 Points Each)

Exhibit 5-2

1.    Refer to Exhibit 5-2. The market for good X is initially in equilibrium at $5. The government then places a tax on the producers of good X-in effect, taxing them on each unit of good X they sell. As a result, the supply curve

Exhibit 5-4

2.    Refer to Exhibit 5-4. As a consequence of the depicted change in the supply of X, the demand curve for Y shifted from D₁ to D₂. It follows that

Exhibit 4-2

3.    Refer to Exhibit 4-2, which shows supply and demand for freeway space at both 8 a.m. and 11 p.m. At a zero money price, there is a ________ ________ at 11 p.m.

Exhibit 4-4

4.    Refer to Exhibit 4-4. At a wage of $7, there will be a __________ of unskilled workers equal to __________ thousand.

5.    Refer to Exhibit 4-4. Suppose the minimum wage is set at $5. The result will be

6.    If variable X goes up as variable Y goes down, then X and Y are

7.    The concept that relates how much one variable changes as another variable changes is

8.    The coordinates of point 1 are 50 units of X and 40 units of Y. The coordinates of point 2 are 60 units of X and 45 units of Y. The slope of the line between points 1 and 2 is

9.       When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes: 
A. the cost effect.
B. the inflationary effect.
C. the income effect.
D. the substitution effect.

10.   When product prices change, consumers are inclined to purchase larger amounts of the now cheaper products and less of the now more expensive products. This describes: 
A. the cost effect.
B. the price effect.
C. the income effect.
D. the substitution effect.

Table 2

                                                                                       Q_D = 189 - 2.25P

                                                                                        Q_S = 124 + 1.5P

11.                 Using Table 2, the equilibrium price is:

___                          a.             $84

___                          b.            $82.67

___                          c.             $17.33

___                          d.            150

12.   Using Table 2, the equilibrium quantity sold is:

___                          a.             65

___                          b.            150

___                          c.             313

___                          d.            84

___                          e.             0

13.   Economic efficiency would be primarily discussed in response to which of the fundamental questions about a competitive market economy? 
A. What goods and services will be produced?
B. How will the goods and services be produced?
C. How will the system promote progress?
D. Who will get the goods and services?

14.     In the circular flow model, households: 
A. buy products and resources.
B. sell products and resources.
C. buy products and sell resources.
D. sell products and buy resources.

15.     The basic economic problem is essentially one of deciding how to make the best use of: 
A. limited resources to satisfy limited economic wants.
B. limited resources to satisfy unlimited economic wants.
C. unlimited resources to satisfy unlimited economic wants.
D. unlimited resources to satisfy limited economic wants.

16.     From an economic perspective, when a student decides to attend another year of college, the student has concluded that the marginal: 
A. costs of attending college has decreased that year.
B. benefits of attending college has increased that year.
C. benefits of attending college are greater than the marginal costs.
D. costs of attending college will be subsidized by someone else such as parents or the government.

17.     If both demand and supply increase, the equilibrium quantity

___          a.             increases and the price falls.

___          b.            decreases and the effect on price is indeterminate.

___          c.             decreases and the price rises.

___          d.            increases and the effect on price is indeterminate.

18.     The price ratio of the two products is the: 
A. marginal rate of substitution.
B. slope of the budget line.
C. point of tangency for equilibrium.
D. demand for the two products.

 Use the graph below to complete the following question(s).

  

19.   Refer to the above graph. The total opportunity cost of nine drill presses is: 
A. 1 unit of bread.
B. 2 units of bread.
C. 3 units of bread.
D. 4 units of bread.

20.   Refer to the above graph. The marginal opportunity cost of the fourth unit of bread is: 
A. 1 unit of drill presses.
B. 2 units of drill presses.
C. 3 units of drill presses.
D. 4 units of drill presses.