MICROECONOMICS 1014-01 EXAM 1
MICROECONOMICS 1014-01 EXAM 1 MICROECONOMICS 1014
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Date Created: 09/06/16
Name:_____________________________ Student #___________________ MICROECONOMICS 1014-01 EXAM 1 9/16/2015 Dr. Podgursky VERSION: 190 Please do not begin the exam until you are told to. You have 60 minutes to finish the exam. When the time is up do not write anything more on the scantron. On the scantron sheet, fill in NAME and STUDENT NO. Only pencil, erasers, both sides of one 8.5 x 11 cheat sheet, and a standard function calculator may be used on this exam. No other devices are allowed. You may not use the calculator on your cell phone. Fill all answers on your scantron. No answers will be accepted unless they have been filled into the scantron. Version: 1900 TWAG!! 1. Suppose that there are three methods of financing the transportation of livestock from Town A to Town B: I. The livestock owner is paid $20 for every live animal that is unloaded at Town B. II. The livestock owner is paid $25 for every live animal that is loaded on the truck at Town A. III. The livestock owner is paid $20 for every live animal that is loaded on the truck at Town A. Which financing method will most likely result in the greatest share of animals surviving the trip? 1) I 2) II 3) III 4) I and III 2. Which of the following best describes the opportunity cost of attending a comedy show at Deja Vu the night before an economics exam? 1) Money spent on tickets and drinks, plus the cost of a taxi ride home 2) The value of other purchases you could have made with the money spent on tickets, drinks, and a taxi ride home 3) The value of other purchases you could have made, plus the time you could have been studying for the economics exam 4) Since attending a comedy show is a priceless experience, there is no opportunity cost 3. When two people voluntarily trade with each other, in expectation: 1) one person will be better off and the other person will be worse off. 2) both of them will be better off. 3) both of them will be worse off. 4) whether they will be better off or worse off depends on how they negotiate with each other. 1 4. Adam Smith wrote, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” He meant that: 1) most of us no longer get our dinner directly from the butcher, the brewer, and the baker. 2) butchers, brewers, and bakers are not productive members of society. 3) high-interest payments mean that no one has to work anymore. 4) people work for the benefit of others because it benefits them to do so. 5. Which of the following statements are examples of positive economics? I. The government should subsidize cell phones in order to give people access to 911 emergency services. II. As a result of the dissolution of OPEC, oil production will increase and oil prices will fall. III. The Keystone XL pipeline is bad for the environment, so alternative energy sources should be pursued. IV. Demand for Ramen noodles probably decreases as income increases, so Ramen is an inferior good. 1) II only 2) II and IV only 3) III and IV 4) I, II, III, IV 6. Bill and Jeremiah are mechanics. Bill can change a head gasket in 30 minutes and a water pump in 20 minutes. Jeremiah can change a head gasket in 25 minutes and a water pump in 25 minutes. Which of the following best represents Bill and Jeremiah's division of labor? 1) Bill has an absolute advantage in changing water pumps and Jeremiah has an absolute advantage in changing head gaskets. 2) Bill has comparative advantage in changing head gaskets and Jeremiah has a comparative advantage in changing water pumps. 3) Jeremiah has comparative advantage in both. 4) Bill has absolute advantage in both. 2 Use the following to answer questions 7-8. Table: Movies and Oil Hypothetical maximum production in various U.S. states Movies/Year Barrels of Oil/Year (millions) Texas 75 30 California 60 30 New York 20 5 7. (Table: Movies and Oil) According to the table, which state has the comparative advantage in oil? 1) New York, because it can produce the fewest barrels of oil 2) New York, because its opportunity cost for a barrel of oil is 4 movies per year 3) Texas, because its opportunity cost for a barrel of oil is 2.5 movies per year 4) California, because its opportunity cost for a barrel of oil is 2 movies per year 8. (Table: Movies and Oil) According to the table, which state has the comparative advantage in movies? 1) Texas, because it can produce more movies than anyone else 2) New York 3) California 4) No state has the comparative advantage in movies. 3 Use the following to answer question 9. Table: iPhone and iPad Production: Labor Hours per Unit One iPhone One iPad Canada 6 5 United States 2 3 9. (Table: iPhone and iPad Production) Assuming both the United States and Canada specialize in the good for which they each have comparative labor advantage, which of the following answers identifies a trade price that both countries would find acceptable? (Assume each country has 10 laborers.) 1) 2/3 iPad for 1 iPhone < Trade price < 6/5 iPads for 1 iPhone 2) 2/3 iPhone for 1 iPad < Trade price < 6/5 iPhones for 1 iPad 3) 3/2 iPad for 1 iPhone < Trade price < 5/6 iPad for 1 iPhone 4) 5/3 iPhone for 1 iPad < Trade price < 3 iPhones for 1 iPad 10. A newspaper columnist (certainly not an economist) says that eventually all jobs will leave the United States and go to another place like India. Why isn't it possible for all jobs to leave the United States and go overseas as some people fear? Choose the best economic reason. 1) Because the government would never let that happen. 2) Because there will always be patriotic business leaders in the United States who want things "made in the U.S.A." 3) Because trade is based on absolute advantage, and every nation must have an absolute advantage in something in order to trade with other nations. 4) Because trade is based on comparative advantage, and the greater one nation's comparative advantage in production of something, the greater another nation's comparative advantage in production of something else. 4 Use the following to answer question 11. Figure: Countries A & B (10 units of Labor in Both Countries) 11. (Figure: Countries A and B) Refer to the figure regarding countries A and B. The opportunity cost of producing Good X in Country A is _____ and in Country B it is _____ meaning that Country _____ should specialize in producing Good X and Country _____ in Good Y. 1) 2Y; 1Y; B; A 2) 1/2Y; 1Y; B; A 3) 1/2Y; 1Y; A; B 4) 2Y; 1Y; A; B 5 Use the following to answer question 12. Willingness to pay for 1 lb of hazelnuts Willingness to pay for $ 1 lb of hazelnuts Khloe 5.50 Kim 6.79 Kylie 7.00 Kourtney 6.78 12. The table above shows four individuals' maximum willingness to pay for one pound of hazelnuts. If the market price of hazelnuts is $6.78/lb, what is the total consumer surplus in the market? 1) $1.28 2) $0.23 3) $1.51 4) $0.01 13. (Table: Barrels of Oil) Refer to the table. What is the total amount of producer surplus (per barrel of oil) earned by all four producers if the market price per barrel of oil is $51? Table: Barrels of Oil Minimum willingness to sell Country a single barrel of oil Country A $32.00 Country B $16.00 Country C $17.00 Country D $56.99 1) $65.00 2) $5.99 3) $88.00 4) $121.99 6 14. Cell phone data plans are most useful when used with a smartphone, and smartphones are most useful when used with a data plan. As the price of data plans falls, the demand for smartphones will: 1) decrease, because smartphones and data plans are substitutes. 2) increase, because smartphones and data plans are complements. 3) decrease, because smartphones and data plans are complements. 4) increase, because smartphones and data plans are substitutes. 15. Which of the following choices contains only factors that cause the supply curve to shift to the right? 1) a fall in production costs, an improvement in technology, an increase in taxes on output 2) a fall in tastes and preferences for the product, economic growth, and an improvement in technology 3) a decrease in taxes on production, a fall in subsidies on production, a rise in costs of production 4) an improvement in technology, a fall in the costs of production, a fall in taxes on output 16. Which of the following would cause the demand for hot dog buns to increase? 1) a fall in the price of hot dog buns 2) a fall in the price of hot dogs 3) a rise in the price of hot dogs 4) a rise in the price of hot dog buns 7 Use the following to answer question 17. Figure: Producer Surplus 17. (Figure: Producer Surplus) Refer to the figure. What is the change in producer surplus if the price rises from $2 to $3 per unit? 1) $5 2) $10 3) $15 4) $20 8 Use the following to answer questions 18-19. Figure: Price and Quantity 18. (Figure: Price and Quantity) At a quantity of 80 units in the figure, it cost sellers ______ to produce the last unit, but buyers value this last unit at ______. 1) $20; $20 2) $80; $80 3) $20; $80 4) $80; $20 19. (Figure: Price and Quantity) The value of wasted resources at a quantity of 80 units in the diagram is: 1) $800. 2) $900. 3) $600. 4) $200. 9 20. Which of the following statements is TRUE at a market's equilibrium price and quantity? I. Consumer surplus plus producer surplus is maximized. II. Goods are purchased by buyers who value them at the equilibrium price or higher. III. The lowest cost producers manufacture the goods. IV. The gains from trade are minimized. 1) I and IV only 2) II and III only 3) I, II, and III only 4) I, II, III, and IV Use the following to answer question 21. Figure: Market Equilibrium 21. (Figure: Market Equilibrium) Refer to the figure. At a price of $1, the market is characterized by a(n): 1) excess supply of 2 units. 2) excess demand of 4 units. 3) surplus of 4 units. 4) shortage of 6 units. 10 22. The yearly shortage of Super Bowl tickets implies that the price of Super Bowl tickets is: 1) set at the equilibrium price since they always sell out. 2) above the equilibrium price. 3) below the equilibrium price. 4) not set by supply and demand, but instead set by the NFL. 23. Following the release of a new study showing even more benefits to drinking red wine, economists expect: 1) a shortage of red wine until the price rises. 2) a surplus of red wine until the price falls. 3) that both the price and quantity of red wine will decrease. 4) the supply of red wine will increase immediately. 24. In the market for backpacks, 100 backpacks are sold at $40 each. Then a fall in wages of backpack manufacturing workers results in sales of 500 backpacks at a price of $20 each. Using the midpoint method, what is the value of the elasticity of demand for backpacks? 1) -2.5 2) -0.5 3) -2 4) -1 25. The elasticity of demand for a good is –0.75. A 4 percent increase in price will cause a: 1) 3 percent decrease in quantity demanded. 2) 5.33 percent increase in quantity demanded. 3) 5.33 percent decrease in quantity demanded. 4) 0.19 percent decrease in quantity demanded. 11 Use the following to answer question 26. Figure: Slave Redemption 26. (Figure: Slave Redemption) Refer to the figure. Assume the graph illustrates the Sudanese slave trade. When slave redeemers enter the market with the goal to free every slave they purchase, the total number of freed slaves is ________ and the net gain to the number of freed slaves is ________. 1) 1,500; 500 2) 1,000; 400 3) 1,100; 100 4) 500; 1,000 27. Which of the following factors causes a demand curve to become more elastic over time? 1) New substitutes for the product are discovered. 2) New and important uses for the product are discovered. 3) More producers begin to produce the product. 4) More consumers acquire a desire for the product. 12 28. Why is the war on drugs hard to win? 1) It is not a conventional war. 2) The government has not used adequate resources in the war. 3) Drug dealers get greater revenue following successful government prohibition efforts. 4) The demand for illegal drugs is too elastic. 29. When the supply of good X decreases, total expenditure on good X decreases. When the demand for good X decreases, the quantity sold decreases by a larger percentage than price. Which of the following is true? 1) demand is inelastic; supply is inelastic 2) demand is inelastic; supply is elastic 3) demand is elastic; supply is inelastic 4) demand is elastic; supply is elastic 30. In the market for olive oil, the elasticity of supply at equilibrium is 0.5 and the elasticity of demand at equilibrium is -2.5. If the supply of olive oil increases by 5%, what happens to price? 1) Increases by 2% 2) Decreases by 2.5% 3) Increases by 1.5% 4) Decreases by 1.67% Please turn in your scantron AND cover page. You may keep this test question sheet for review. Make sure NAME and STUDENT# are on scantron! 13
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