UNIVERSITY OF HAWAII AT MANOA

DEPARTMENT OF ECONOMICS

ECON 130 (003): PRINCIPLES OF ECONOMICS (MICRO)

Spring 2004

Professor Russo

First MidtermExamination

Thursday, February 12, 2004

Time: 12:00pm – 1:15pm

Room: BIL 152

60 MULTIPLE CHOICE QUESTIONS

SELECT THE BEST ANSWER

ONLY ONE CORRECT ANSWER PER QUESTION

ANSWER ALL QUESTIONS

NO PENALTY FOR GUESSING

Signature______

Name______

Questions #1-6 refer to the following table:

Minutes needed to make one:

PizzaMilkshake

Heidi 15 3

Christine 20 2

1. What is Christine's opportunity cost of making one pizza?

  1. 1/10 of a milkshake
  2. 3 milkshakes
  3. 5 milkshakes
  4. 10 milkshakes
  5. 20 milkshakes

2. What is Heidi's opportunity cost of making one pizza?

  1. 1/5 of a milkshake
  2. 3 milkshakes
  3. 5 milkshakes
  4. 10 milkshakes
  5. 15 milkshakes

3. What is Christine's opportunity cost of making one milkshake?

  1. 1/10 of a pizza
  2. 1/5 of a pizza
  3. 2 pizzas
  4. 3 pizzas
  5. 10 pizzas

4. What is Heidi's opportunity cost of making one milkshake?

  1. 1/10 of a pizza
  2. 1/5 of a pizza
  3. 3 pizzas
  4. 5 pizzas
  5. 15 pizzas

5. Christine has a comparative advantage in _____ and an absolute advantage in _____.

  1. milkshakes.....neither good
  2. milkshakes....both goods
  3. milkshakes.....milkshakes
  4. pizza....milkshakes
  5. both goods.....milkshakes

6. Heidi has a comparative advantage in _____ and an absolute advantage in _____.

  1. pizza.....milkshakes
  2. pizza.....pizza
  3. milkshakes.....pizza
  4. milkshakes.....milkshakes
  5. pizza.....neither good

7. If two countries are to engage in free trade, they should each specialize in producing

the good in which it has

  1. an absolute advantage
  2. a comparative advantage
  3. higher opportunity cost
  4. lower opportunity cost
  5. both (b) and (d)

Questions #8-9 refer to the following figure.


A country's production possibilities curve for wheat and coffee.

8. At point E, it can be said that this country

  1. cannot increase production of either good any further
  2. cannot currently attain this specific combination of coffee and wheat production, but may be able to in the future with technological improvements
  3. can increase the production of both coffee and wheat with the same amount of resources
  4. is more inefficient than when it produces at point F
  5. has a low rate of unemployment

9. Which of the following statements are true?

  1. There is efficiency at point F
  2. There is efficiency at point A
  3. The production combination at point E is optimal for this country
  4. Both (a) and (b)
  5. All of the above

Questions #11-14 refer to the following system of equations.

QD = 55 - 3P

QS = 5+ 2P

11. The equilibrium price is

  1. $12.00
  2. $10.50
  3. $10.00
  4. $9.50
  5. $9.00

12. If a per-unit tax of $2.50 was imposed, what would be the price paid by consumers?

  1. $12.50
  2. $11.00
  3. $10.50
  4. $10.00
  5. $9.50

13. What would be the price received by producers after the $2.50 per-unit tax?

  1. $11.00
  2. $10.50
  3. $9.50
  4. $9.00
  5. $8.50

14. What would be the tax revenue generated by the $2.50 per-unit tax?

  1. $22.00
  2. $33.00
  3. $45.00
  4. $55.00
  5. $62.50

15. If the demand for a product is perfectly price elastic and there is an increase in the

price of an input used to manufacture the product, equilibrium quantity will ____ and

equilibrium price will ____.

  1. remain constant…..increase
  2. remain constant…..decrease
  3. decrease…..remain constant
  4. increase…..remain constant
  5. decrease, decrease

Questions #16-19 refer to the following graph.

16. In the figure shown, the free-trade price and domestic quantity demanded would be

  1. P1 and Q1, respectively
  2. P1 and Q4, respectively
  3. P2 and Q2, respectively
  4. P1 and Q2, respectively
  5. P2 and Q3, respectively

17. In the figure shown, the domestic price and quantity demanded after the tariff would

be

  1. P2 and Q3, respectively
  2. P1 and Q2, respectively
  3. P2 and Q2, respectively
  4. P1 and Q4, respectively
  5. P1 and Q1, respectively

18. In the figure shown, government revenue generated from the tariff can be represented

by the area

  1. C + D + E + F
  2. D + E + F
  3. E + F
  4. E + B
  5. E

19. In the figure shown, deadweight loss can be represented by the area

  1. D
  2. B
  3. F
  4. D + F
  5. D + E + F

Questions #20-22 refer to the following system of equations.

QD = 30 - 2P

QS = -12 + 4P

20. The market equilibrium price and quantity combination is

  1. $3 and 16 units, respectively
  2. $3 and 24 units, respectively
  3. $7 and 16 units, respectively
  4. $7 and 18 units, respectively
  5. $7 and 32 units, respectively

21. If a per-unit tax of $6 was imposed on this good, the price received by producers

would be

  1. $3
  2. $4
  3. $5
  4. $6
  5. $7

22. The economic incidence of the tax is such that firms pay ____ of the tax and

consumers pay ____ of the tax.

  1. 2/3…..1/3
  2. 1/3…..2/3
  3. 4/5…..1/5
  4. 1/5…..4/5
  5. ½…..½

23. If the income elasticity of demand equals 2 and income decreases by 5 percent, one

could predict that the quantity demanded would

  1. increase by 2 percent
  2. increase by 5 percent
  3. increase by 10 percent
  4. decrease by 5 percent
  5. decrease by 10 percent

24. When the price of cell phones increases, purchases of cell phones decline. This

means that

  1. the demand curve for cell phones has shifted to the right
  2. the demand curve for cell phones had shifted to the left
  3. the quantity of cell phones demanded has increased
  4. the quantity of cell phones demanded has decreased
  5. both (b) and (d)

Questions #25-28 refer to the following figure.

Price

S

$30

$20

$15

$10

D

Quantity

75 160 230 300 325

25. For the market shown, the market-clearing price and quantity are

  1. $20 and 160 units, respectively
  2. $20 and 230 units, respectively
  3. $20 and 300 units, respectively
  4. $15 and 160 units, respectively
  5. $15 and 300 units, respectively

26. If a price ceiling is imposed at $10,

  1. there would be a surplus of 140
  2. there would be a shortage of 140
  3. there would be a surplus of 225
  4. there would be a shortage of 225
  5. the market would clear

27. If a price ceiling is imposed at $30,

  1. there would be a surplus of 165
  2. there would be a shortage of 165
  3. there would be a surplus of 25
  4. there would be a shortage of 25
  5. the market would clear

28. A price floor in this market would only be binding if it is imposed at

  1. $10
  2. $15
  3. $20
  4. $30
  5. both (a) and (b)

Questions #29-30 refer to the following table.

Labor hours needed to produce one:

CarAirplane

U.S. 30 150

Japan 40 160

29. The U.S. has a comparative advantage in _____ and Japan has a comparative

advantage in _____.

  1. airplanes…..airplanes
  2. cars…..airplanes
  3. airplanes…..cars
  4. neither good…..both goods
  5. both goods…..neither good

30. The U.S. has a lower opportunity cost of producing ______and Japan has a lower

opportunity cost of producing ______.

  1. cars…..cars
  2. neither good…..both goods
  3. airplanes…..cars
  4. both goods…..neither good
  5. cars…..airplanes

31. In a two-good market, a positive cross-price elasticity of demand indicates that

  1. the two goods are complements
  2. the two goods are substitutes
  3. one good is inferior and one good is normal
  4. both goods are normal
  5. a decrease in the price of one good will increase the demand for the other

32. If an increase in the price of U.S. steel results in a decrease in total revenue, then

  1. the demand for U.S. steel is perfectly price elastic
  2. the demand for U.S. steel is perfectly price inelastic
  3. the demand for U.S. steel is price elastic
  4. the demand for U.S. steel is price inelastic
  5. the demand for U.S. steel is price unit elastic

33. Which of the following would result in a shift of the demand curve for Adidas shoes?

  1. A change in the price of Nike shoes
  2. The Nike shoe company goes out of business
  3. A change in the salaries of Adidas employees
  4. National income changes
  5. Both (a) and (d)

Questions #34-36 refer to the following diagram.

34. At the market-clearing equilibrium in the figure shown, total surplus is represented

by the area

  1. D + E + F
  2. A + B + C
  3. A + B + D + F
  4. A + B + C + D + E + F
  5. A + B + C + D + E + F + G + H

35. In the figure shown, if a price ceiling is imposed at P3, producer surplus is

represented by the area

a. G

  1. F
  2. B + D + F
  3. D + E + F
  4. B + D
  1. In the figure shown, if a price ceiling is imposed at P1, producer surplus is

represented by the area

  1. A
  2. E
  3. F
  4. D + E + F
  5. G + H

37. A binding price ceiling will make it necessary to

  1. develop a way of rationing the product because there will be a shortage
  2. develop a better marketing plan because there will be a surplus
  3. increase supply of the product
  4. increase consumer demand for the product because there will be a surplus
  5. none of the above because the market will clear at the equilibrium quantity

38. What would happen in the market for economic textbooks if enrollment in economic

courses fell at the same time that printing costs rose?

  1. The equilibrium price of economic textbooks would increase, but the impact on the amount of economic textbooks sold would be ambiguous
  2. The equilibrium price of economic textbooks would decrease, but the impact on the amount of economic textbooks sold in the market would be ambiguous
  3. Both the equilibrium price and quantity of economic textbooks would increase
  4. The equilibrium quantity of economic textbooks would increase, but the impact on the equilibrium price of economic textbooks would decrease
  5. The equilibrium quantity of economic textbooks would decrease, but the impact on the equilibrium price of economic textbooks would be ambiguous

39. Which of the following most appropriately illustrates the law of supply?

  1. More resources means more goods can be produced
  2. It is supply, not demand, that sets market values
  3. As prices rise, sellers find that they are willing to sell more goods than before
  4. Business firms are the source of all economic production
  5. As prices increase, consumers buy fewer goods than before

40. An economic surplus of good X

  1. puts upward pressure on the price of good X
  2. decreases the supply of good X
  3. increases the demand for good X
  4. puts downward pressure on the price of good X
  5. increases the price of good Y

41. Suppose that a decrease in income causes the demand for good X to decrease and the

demand for good Y to increase. This means that

  1. goods X and Y are substitute goods
  2. goods X and Y are complementary goods
  3. good X is a normal good and good Y is an inferior good
  4. good X is an inferior good and good Y is a normal good
  5. both (a) and (d)


Question #42-44 refer to the following figure.

42. After the imposition of the tax, the area representing producer surplus can be

represented by

  1. A
  2. D
  3. B + D
  4. A + B + D
  5. there is no producer surplus

43. After the imposition of the tax, the area representing consumer surplus can be

represented by

  1. A
  2. A + B
  3. A + B + C
  4. A + B + D
  5. there is no consumer surplus

44. The absolute value of the price elasticity of the demand curve in the above graph is

  1. equal to zero
  2. equal to infinity
  3. between zero and one
  4. greater than one
  5. equal to one

45. The own price elasticity of demand for a good is 1.5 in absolute value. If prices

increase from $2.50 to $2.75,the quantity demanded will

  1. rise by 10%
  2. rise by 15%
  3. rise by 25%
  4. fall by 10%
  5. fall by 15%

46. Which of the following is not a determinant of the supply of good X?

  1. The state of technology
  2. The price of an input to produce good X
  3. The demand for good X
  4. The number of firms producing good X
  5. All of the above are determinants of the supply of good X

47. If the Mai Tai Bar increases the price of beer in order to increase its total revenue,

they must believe that the demand for beer is

  1. steeply sloped
  2. flat
  3. perfectly price elastic
  4. price elastic
  5. price inelastic

48. Which of the following is an example of a normative economic statement?

  1. The free market system is flawed because allowing consumers to “vote with their dollars” is unfair and shouldn’t be allowed
  2. Raising money through a personal income tax may discourage work effort, but is a better way to raise tax revenue because it is fairer
  3. Minimum wage laws are bad for an economy because it’s unfair to force small employers to pay workers more than they may be worth
  4. All of the above are examples of normative economic statements
  5. None of the above is an example of a normative economic statement.

49. Consider the market for umbrellas. If the demand for umbrellas is perfectly price

inelastic and the cost of vinyl used in their production increases, equilibrium quantity

of umbrellas will _____ and equilibrium price of umbrellas will _____.

  1. increase…..remain constant
  2. decrease…..remain constant
  3. increase…..decrease
  4. remain constant…..increase
  5. remain constant…..decrease

Questions #50-53 refer to the following diagram.

$/QSupply w/tax

A Per-Unit Tax

P1

B Supply

C D

P2

E F

P3

G

H I

Q

50. According to the graph, consumer surplus without the tax is represented by the area

  1. A
  2. A + B + C + D + E + F + G
  3. A + B + C + D
  4. A + B
  5. E + F + G

51. According to the graph, total production cost with the tax is represented by the area

  1. H
  2. G + H
  3. H + I
  4. C + E + G + H
  5. B + C + E + G + H

52. According to the graph, total tax receipts with the tax are represented by the area

  1. C + D + E + F + G
  2. B + C + E + G + H
  3. B + C + E + G
  4. B + C + E
  5. B + C

53. According to the graph, the amount of the per-unit tax is

  1. P1 - P2
  2. P1 - P3
  3. P3 - P1
  4. P2 - P3
  5. P2 - P1

Questions #54-56 refer to the following figures.

Coffee Coffee

25 25

WheatWheat

1050

Brazil Production Possibilities Frontier US Production Possibility Frontier

(Assume both countries only produce these two goods)

54. The U.S. internal terms of trade is

  1. ½ coffee = 1.5 wheat
  2. 1 coffee = ½ wheat
  3. 1 coffee = 2 wheat
  4. 2 coffee = 4 coffee
  5. 1 coffee = 1 wheat

55. Brazil’s internal terms of trade is

  1. ½ coffee = 1 wheat
  2. 1 coffee = 2/5 wheat
  3. 1 coffee = 2 wheat
  4. 2 coffee = 4 wheat
  5. 2/5 coffee = 1 wheat

56. The U.S. has a comparative advantage in producing ______and Brazil has a

comparative advantage in producing ______.

  1. neither good…..both goods
  2. wheat…..neither good
  3. coffee…..wheat
  4. both goods…..neither good
  5. wheat…..coffee

Questions #57-59 refer to the following system of equations.

QD = 24 - 3P

QS = 6

57. The equilibrium quantity sold in this market is

  1. 10
  2. 8
  3. 7
  4. 6
  5. 5

58. If a price ceiling is set at $5.00,

  1. the market would still clear at the original equilibrium price
  2. the market would still clear at the original equilibrium quantity
  3. there would be a shortage of 3 units in the market
  4. there would be no effect on this market because the price ceiling would be a non-binding constraint
  5. there would be a surplus of 3 units in the market

59. The supply curve in the system of equations is

  1. perfectly price inelastic
  2. perfectly price elastic
  3. horizontal
  4. price elastic
  5. both (a) an (c)

60. A tariff

  1. lowers the price of the imported good below the world price
  2. keeps the price of the exported good the same as the world price
  3. raises the price of the exported good above the world price
  4. lowers the price of the exported good below the world price
  5. raises the price of the imported good above the world price

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