1.         The law of demand says there is an ___________ relationship between price and _______.

 

a.         positive  -- demand

 

b.         negative -- demand

 

c.         positive –quantity demanded

 

d.         negative – quantity demanded

 

2.         Economics is the study of

 

a.         allocating scarce resources given limited human wants.

 

b.         allocating scarce resources given unlimited human wants.

 

c.         how to make money.

 

d.         how to lose money.

 

3.         The main theme of Mr. Clifford’s video and the lemonade video was

 

a.         supply and demand.

 

b.         demand vs. quantity demanded.

 

c.         microeconomics and macroeconomics.

 

d.         scarcity and choice.

 

4.         Which of the following statements is correct?

 

a.         An increase in the price of C will decrease the demand for complementary product D.

 

b.         A decrease in income will decrease the demand for an inferior good.

 

c.         An increase in income will reduce the demand for a normal (superior) good.

 

d.         A decline in the price of X will increase the demand for substitute product Y.

 

e.         Both a) and d) are correct.

 

5.         Which of the following is true?

 

a.         A change in tastes will shift the demand curve; this implies movement along the demand curve.

 

b.         A change in tastes will shift the demand curve; this implies a change in demand.

 

c.         A change in price will either cause an increase or a decrease in demand.

 

d.         All of the above.

 

e.         b and c, but not a are correct.

 

6.         In the summer of 1990, then President Bush raised the "T" word by proposing the first increase in the excise tax on beer in more than thirty years.  To estimate the amount of revenue which might be raised by the tax increase, government economists should have examined

 

a.         the number of individual beers sold in past years rather than the number of six-packs sold in past years.

 

b.         the slope of the demand curve for beer.

 

c.         the elasticity of the demand curve for beer.

 

d.         the relationship between the likely change in the demand for beer given the supply of pretzels.

 

7.         Which of the following goods is likely to have the most elastic demand curve?

 

a.         insulin

 

b.         paper clips

 

c.         Cadillacs

 

d.         bread

 

8.         The concept of price elasticity of demand measures

 

a.         the slope of the demand curve.

 

b.         the number of buyers in a market.

 

c.         the extent to which the demand curve shifts as the result of a price decline.

 

d.         the extent to which the demand curve shifts as a result of either a price increase or a price decline.

 

e.         the sensitivity of consumers to price changes.

 

9.         If demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will

 

a.         decrease the amount demanded by more than 10 percent.

 

b.         increase the amount demanded by more than 10 percent.

 

c.         decrease the amount demanded by less than 10 percent.

 

d.         increase the amount demanded by less than 10 percent.

 

10.       In which case only will there be the same quantity demanded of a good no matter what the price?

 

a.         perfectly inelastic

 

b.         perfectly elastic

 

c.         wherever the demand is elastic

 

d.         wherever the demand is inelastic

 

 

 

11.       The law of diminishing marginal utility states that

 

a.         total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed.

 

b.         beyond some point additional units of a given product will yield less and less extra satisfaction to a consumer.

 

c.         price must be lowered in order to induce firms to supply more of a product.

 

d.         it will take larger and larger amounts of resources beyond some point to produce successive units of a product.

 

12.       The resolution of the diamond-water paradox relies on the observation that

 

a.         prices reflect total utilities, not marginal utilities.

 

b.         the principal of diminishing marginal utility applies only to scarce goods.

 

c.         prices reflect marginal utilities, not total utilities.

 

d.         consumer surplus is greater from the consumption of scarce goods than form the consumption of nonscarce goods.

 

13.       Assume a person's consumption of just the right amounts of pork and chicken is in equilibrium. We can conclude that the

 

a.         marginal utility of pork must equal the marginal utility of chicken.

 

b.         price of pork must equal the price of chicken.

 

c.         ratio of marginal cost to price must be the same in both the pork and the chicken markets.

 

d.         ratio of marginal utility to price must be the same for pork and chicken.

 

14.       The host at a party offers Dave a sixth beer.  Dave says, "No thanks.  The marginal utility of that fifth beer was $0.20, but the marginal utility of the sixth would be negative $0.10."  From his comments, we deduce that Dave

 

a.         is an alcoholic.

 

b.         thinks that a sixth beer would make him sick.

 

c.         is irrational.

 

d.         is wrong in his estimation of the marginal utility of the fifth beer.

 

15.       The lower the price of a good, the ________ the consumer surplus.

 

a.         greater

 

b.         less

 

c.         additional utility foregone from

 

d.         additional disutility added to

 

16.       The administrators of “The School of Naïve Economics” naively assume that they can raise tuition for each of their 100 students by $1,000 and increase their revenues by $100,000.  Their math is fine, but their economics leaves something to be desired.  In order for their plan to work, the elasticity coefficient would need to be

 

a.         negative infinity.

 

b.         0

 

c.         positive infinity.

 

d.         between 1.0 and 3.0

 

e.         both c) and d) are correct.

 

17.       According to the Brownstone et. al article on drug legalization, making illegal drugs such as marijuana legal would increase drug addiction.

 

a.         true

 

b.         false

 

18.       The process of abstraction also can be considered the process of

 

a.         being very specific so that a theory applies to one unique case.

 

b.         adding more details to make a theory more complete.

 

c.         simplification.

 

d.         all of the above.

 

19.       The construction of demand and supply curves assumes that the primary variable which influences decisions to produce and purchase goods (as shown by the movement along either the demand or supply curve) is

 

a.         price

 

b.         expectations.

 

c.         preferences.

 

d.         incomes.

 

e.         either the price of the good itself or the price of a substitute or complementary good.

 

The following are hypothetical numbers in the supply and demand market for apples.  Base your answer to the next two questions on  the data:

 

Price                Demand 1       Demand 2       Supply

 

$5.00               35                    45                    70       

 

$4.00               40                    50                    60

 

$3.00               45                    55                    55

 

$2.00               50                    60                    50

 

$1.00               55                    65                    45

 

20.       Which change represents the good becoming more popular?

 

a.         shift (change) from D1 to D2

 

b.         shift from D2 to D1

 

c.         shift from D2 to supply

 

d.         both a) and b) are correct.

 

21.       Do the numbers in both Demand 1 column and Demand 2 column represent the law of demand?

 

a.         yes

 

b.         no

 

22.       According to the article on textbook pricing, the _______ price of a textbook has increased since 1980.

 

a.         nominal

 

b.         real

 

c.         both of these

 

Short Answer Questions

 

23.       Consider the following real world elasticity coefficients***:

 

Gasoline: short run = 0.20 & long-run = 0.70

 

Automobiles: short-run = 1.87 & long-run = 2.24

 

a)         Tell whether each of the commodities are elastic or inelastic.  (What is the numerical clue?)  Then explain briefly why it would stand to reason that the respective commodities are elastic or inelastic.  Your justifications should include a reference to the appropriate determinant(s) of elasticity discussed in class.   

 

b)         Each of the commodities has both a short-run and long-run coefficient.  Note that the long-run coefficient is a greater number.  Why would that be the case?

 

Combined answer to parts (a) and (b) should be no more than 150 words.

 

***           Data are from Irvin R. Tucker’s, SURVEY OF ECONOMICS, 5th instructor’s edition, p. 97.

 

24.       For this question note that the fallacy of composition is that what may be true in the individual (micro) instance may not necessarily be true in the group (macro) instance.  For example if you stand on a bench at a football game, you can see better.  If everyone stands on the bench, no one sees any better.

 

Question:         Explain in no more than 50 words how the fallacy of composition applies to this situation: “One farm can earn more income by growing more wheat, but if all farms do it, no farm is better off.”  The phrase “supply shifts to the right” should be included in your answer.

 


 

  • 8 years ago
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