Ag Econ 1042
First Exam, 140 points
February 16, 2012
Name ______KEY____________________
11 a.m. Section
True/False – one point each
T
F
1.
The U.S. is increasing its output of natural gas and petroleum.
T
F
2.
An equilibrium price is simply when buyers and sellers agree on buying and selling
the same quantity.
T
F
3.
Prices are signals that help resources be allocated efficiently in a market economy.
T
F
4.
Incentives affect our decision making.
T
F
5.
Demand is a relationship between the price of a good and the quantity of the good
consumers want to buy.
T
F
6.
A change in demand is illustrated by a new demand curve.
T
F
7.
A change in price that occurs with no change in demand will lead to a change in the
quantity demanded by a consumer.
T
F
8.
Capital is the management capability of resource owners.
T
F
9.
Consumer spending creates income or profit.
T
F
10.
Unemployment has been falling for the last year.
T
F
11.
Inflation is a general increase in prices.
T
F
12.
An increase in supply and decrease in demand suggests that a larger quantity will
always be sold.
T
F
13.
Government expenditures are the largest component of GDP.
T
F
14.
If rising tomato prices reduce pickle prices, pickles and tomatoes are complements.
T
F
15.
The supply of books will decrease because there is a decrease in the price of books.
T
F
16.
If the supply of bottled water increases, the equilibrium price will decrease.
T
F
17.
An increase in the price of chicken will cause the price of pork to rise.
1
T
F
18.
In the market for hybrid vehicles, an increase in wages and employment would
decrease demand.
T
F
19.
If the demand and supply of apples both increase by the same amount, the price of
apples should rise and the quantity sold will remain the same.
T
F
20.
Capital are goods that can be used to produce other goods.
T
F
21.
Making a decision at the margin means making an all or nothing choice.
T
F
22.
When productivity increases, living standards decline.
T
F
23.
Markets are vehicles for consumers to exchange goods in an effort to maximize
their well-being.
T
F
24.
China’s rGDP is increasing over twice as fast as the U.S. rGDP.
T
F
25.
In a market economy, like the U.S., production will be inefficient because of the
lack of a plan to coordinate economic activity.
T
F
26.
GDP is the sum of coins, bills and demand deposits in the economy.
T
F
27.
The expenditures of one person is the income of another.
T
F
28.
Bonds are debt securities issued by corporations and governments.
T
F
29.
A deficit is a shortfall of incoming revenues over outgoing payments; debt is
accumulated deficits.
T
F
30.
Dr. John M. Keynes is chair of the Federal Reserve.
2
Multiple choice – two points each
__a___ 31. Our aggregate standard of living increases
a) If total output increases
b) If prices increase
c) If nominal GDP decreases
d) If there is inflation
e) All of the above
__b___ 32. Real GDP measures changes in
a) Prices, but not output
b) Output, but not prices
c) Prices and output
d) Inflation
e) All of the above
__d___ 33. If demand is inelastic, then
a) Consumer spending does not respond to changes in income
b) Total revenue rises in response to a price decrease
c) Quantity demanded is very responsive to changes in price
d) Quantity demanded is not very responsive to changes in price
e) We buy more when prices increase
__d___ 34. All of the following are factors that will change demand and shift the demand
curve, except
a) The price of related goods
b) Income
c) Preference
d) The price of the good itself
e) The amount supplied
__e___ 35. Which of the following correctly describes market equilibrium?
a) The quantity demanded exceeds the quantity supplied
b) Buyers and sellers respond to price changes the same way
c) There is a surplus
d) The price is different for buyers and sellers
e) Demand and supply intersect
3
Matching are valued at one point each
F
36.
Social security tax rate
A) Price support
J
37.
Unemployment rate
B) Sellers schedule of prices and quantities
L
38.
U.S. economic growth
C) 3%
D
39.
Demand
D) Lowest opportunity cost for buyers
O
40.
Elastic demand
E) Area below demand and above price
K
41.
Government
F) 12.4%
G
42.
Price
G) Measure of scarcity/relative value
H
43.
Taxes
H) Revenue of the government
T
44.
Property rights
I) Source of income
Q
45.
Free market
J) 8.3%
N
46.
Producer surplus
K) Has economic growth goal
M
47.
Unemployment
L) 2.8%
P
48.
Consumption
M) Increases with negative growth
I
49
Trade
N) Net value to sellers
C
50.
Inflation rate
O) Lower price means higher revenue
B
51.
Supply
P) Nearly 70% of GDP
E
52.
Consumer surplus
Q) Economic system of U.S.
A
53.
Minimum wage
R) Annual shortfall of revenues compared to costs
R
54.
Deficit
S) No tendency to change
S
55.
Equilibrium
T) Necessary for successful free markets
4
Short answers are valued at five points each
56. Vehicle sellers expect income and population to continue to rise in Indonesia. Diagram the
change that is occurring in Indonesia’s vehicle market.
$/Q
S0
S1
P0
D
0
Q0
Q1
D1
Q
57. Diagram the overall labor market for the last five months knowing income has been
increasing. Show final consumer surplus.
$/Q
S
P1
P0
D
0
Q0 Q1
D1
Q
58. Social Security program:
a) What is the eventual rate of payments if Congress does not change the program?
(after the trust fund is exhausted)
≈ 75% of current rate
b) How is Social Security funded?
Payroll tax
5
59. Diagram the change in the cattle market from a serious drought. Show final producer
surplus.
S1
$/Q
S
P1
PS
P0
D
0
Q1
Q0
Q
60. Natural gas supplies are increasing. Diagram and show only the change in consumer
surplus.
S0
$/Q
S1
P0
CS P1
D
0
Q0
Q1
Q
61. Show the impact of an increase in income on the market for restaurant prepared meals. (Use
a supply and demand model.)
S
$/Q
P1
P0
D1
D
0
Q0 Q1
Q
6
62. Name the primary goal for the economy and the two related goals.
Economic growth is primary goal
Low unemployment, stable or low inflation
63. The demand for potato chips increases during spring into early summer. Name the
determinant of demand that most likely explains this increase. Diagram the situation.
Preference or utility or price of substitute
$/Q
S
P1
P0
D
0
Q0 Q1
D1
Q
64. What are the two general things that government can do to reduce unemployment?
1.
Increase spending
2.
Reduce taxes
What is the cost incurred immediately if the government does the above?
Increase in deficit or debt
65. Why do resort owners on the Lake of the Ozarks (or at any summer resort area) charge a
lower price in the winter than in the summer?
D lower in winter or utility lower in winter
7
The following are valued at 10 points each
66. Diagram the result of the federal government enacting a minimum wage above the
equilibrium price for unskilled labor. Show the deadweight loss and surplus production.
a) What would result if the minimum wage were below the equilibrium of unskilled
labor?
No change
b) When would the minimum wage lower the revenue received by seller of unskilled
labor?
If labor demand were elastic
S
$/Q
surplus
Mw
DWL
D
0
Qd
Qs
Q
surplus
67. Macroeconomic terminology:
Total output of an economy is abbreviated as ___(r)GDP_________________________
An increase in the price level is called __inflation_______________________
For the U.S. economy to grow there needs to be an increase in __productivity_________
The target rate of inflation is between ___0_________ and _______2_______%
Business purchases of inventory and capital is called ____investment________________
8
68. Diagram the circular flow model.
9