Economics 101, Summer 2003

Section 2-Wenzhuo Shang

Mid-term Exam #1, Version 2

Name: Student ID Number (Last 5-Digits):

Part A: Multiple Choices (4 points per problem)

1. Physical capital differs from raw materials in the sense that raw materials

a. have a longer useful life in production

b. are considered human capital

c. cannot be used to produce goods and services

d. are used up in production

e. are not a resource used in production

2. Microeconomics

a. addresses scarcity from a global perspective

b. examines how individuals, households, and firms make economic decisions

c. is purely theoretical and has little value in explaining real-world phenomena

d. focuses on what is happening in the economy as a whole

3. After graduating from high school, Steve had three choices, listed in order of preference: (1) matriculate at our campus, (2) work in a printed circuit board factory, or (3) attend a rival college. His opportunity cost of going to college here includes which of the following?

a. the cost of books and supplies at the rival college

b. the income he could have earned at the printed circuit board factory plus the cost of his textbooks

c. the benefits he could have received from going to the rival college

d. only the tuition and fees paid for taking classes here

e. cannot be determined from the given information

f. answers the fundamental economic questions of how, when, where, and why

4. Assume that the publishing industry produces novels and textbooks, as shown in the production possibilities frontier in the figure above. Between points F and G, the opportunity cost of one more novel equals _____. Between points G and H, the opportunity cost of one more novel equals _____.

a. 0.4 textbooks; 0.5 textbooks

b. 4 textbooks; 5 textbooks

c. 4 million textbooks; 5 million textbooks

d. 2.5 textbooks; 2 textbooks

e. 10 million textbooks; 5 million textbooks

5. In a perfectly competitive market,

a. there can be few or many buyers and sellers

b. the price can be driven upward by suppliers holding back on goods and services

c. each participant is too small to affect the market price

d. government intervention is needed to ensure that prices are fair for consumers

e. resources are allocated by a central authority

Do problems 6 & 7 with the information given: Huck Finn and his friend Jim live on a raft in the middle of the river. The following table represents their output in a day of work.

Fish Crawdads

1. Huck 20 60

2. Jim 25 100

6. Which individual has the absolute advantage in crawdad production?

a. Jim

b. Huck

7. Which of the following statements is true?

a. Jim has an absolute advantage in both products and a comparative advantage in fishing.

b. Jim has an absolute advantage in both products and a comparative advantage in crawdads.

c. Jim has an absolute advantage in fishing while Huck has an absolute advantage in crawdads.

d. Mark Twain has a comparative disadvantage in both products.

e. Huck has an absolute advantage in both products and a comparative advantage in fishing.

8. The core problem faced by all economic systems is that

a. scarcity forces each of us to make choices

b. the government must intervene to allocate scarce resources

c. capitalism cannot allocate resources equitably

d. of allocating unlimited resources

e. it needs to maximize each household’s material standard of living

9. Which of the following statements about demand is correct?

a. a change in the price of bicycles will not lead to a shift in the demand curve
for bicycles

b. an increase in demand drives the demand curve to the left.

c. a change in demand is equivalent to a movement along a given demand curve

d. when price falls, so does the quantity demanded

e. when the demand curve shifts to the right, so will the supply curve

10. A shift in the production possibilities frontier from DC to EC in the figure above could be due to a

a. technological improvement in the production of ice cream

b. reduction in the rate of unemployment

c. rise in the rate of unemployment

d. technological improvement in the production of frozen yogurt

e. fall in the demand for frozen yogurt

11. In the figure below, the price elasticity of demand equals _____ between points T and U and equals _____ between points V and W.

a. –0.33; –1.86

b. –0.54; –3

c. –3; –0.54

d. –1.86; –0.33

e. –2; –2

12. Which of the following would lead to a change in both demand and supply?

a. a change in the price of a substitute good

b. a change in buyers’ incomes

c. a change in the price of a key input

d. a technological improvement

e. a change in the expected future price of the good

13. After an excise tax is imposed on a good or service,

a. the equilibrium price and quantity are unchanged

b. firms must charge a higher price for any particular quantity

c. firms must charge a lower price for any particular quantity

d. the equilibrium price and quantity will both increase

e. the equilibrium price and quantity will both decrease

14. If the price of food falls by 10 percent and the quantity sold increases by 5 percent, then the price elasticity of demand in that range equals

a. 2, and demand is elastic

b. 0.5, and demand is elastic

c. –2, and demand is inelastic

d. –0.5, and demand is inelastic

e. –15, and demand is elastic

15. Which of the following could lead to an increase in the equilibrium quantity of a good?

a. a decrease in supply and a decrease in demand.

b. an increases in demand and an decrease in supply

c. an increase in demand and an increase in supply.

d. a decrease in demand regardless of supply.

e. both b and c

16. Which of the following would not cause the demand curve for college football tickets
to shift?

a. an increase in the price of professional football tickets

b. a decrease in the price of college basketball tickets

c. an increase in the price of college football tickets

d. a drop in student incomes

e. an increase in student preferences for college football tickets

Part B: Problem Solving

The demand and supply functions are given by Qd = 28 - 3p and Qs = 2p - 2, respectively.

a) Determine the equilibrium price and quantity by imposing the equilibrium condition that Qd = Qs and solving algebraically. (6 points)

b) Plot the demand and supply curves on the graph and confirm your answer. (6 points)

c) Suppose the demand shifts to Qd = 23 - 3p but supply is unchanged. Determine the new equilibrium price and quantity. Use the graph above and also solve algebraically. (10 pints)

d) Although the demand curve shifts to the left by 5, the quantity exchanged does not decrease by 5. Explain why the decrease in quantity exchanged is smaller.(4 points)

e) Suppose that the price had been held constant at its original level in (b). Would there be excess supply or excess demand? (2 points) Why? (3 points) How much is it? (4 points)