PORTLAND STATE UNIVERSITY
EC 201 - PRINCIPLES OF MICROECONOMICS
EXAM ONE -- Fall 2003
Jack Richards, Instructor
Name: __________________
OPEN BOOKS AND OPEN NOTES
Turn-in both your test and scantron. Your test cannot be graded unless both are turned-in. Be certain that your name is
on both. Both will be returned to you. Do not staple them together. If you erase on the scantron, you must write the
answer you want to count to the RIGHT side of the scantron (the machine won't grade the scantron if anything is
written on the left side.)
1. The price of new textbook increases from $75 to $90 while the price of used copies of the textbook
increases from $50 to $65. Other things equal, we would expect to observe:
A. The quantity demanded for the used textbook to increase while the quantity demanded of
the new textbook to fall.
B. The quantity demanded of both to fall.
C. The demand for the new textbooks to increase while the demand for the used textbook
to decrease.
D. the quantity demanded for the used textbook to decrease and the quantity demanded of
the new textbook to increase.
E. None of the above are correct.
2. A demand schedule holds
A. Price constant.
B. Quality constant.
C. Quantity constant.
D. Equilibrium constant.
E. None of the above are correct.
3. Assume that beef and chicken are substitutes. Given a downward-slopping demand curve for beef, a
fall in beef prices will result in:
A. An increase in the demand for chicken.
B. A decrease in the demand for chicken.
C. An outward shift of the supply curve for both beef and chicken.
D. An inward shift of the supply curve for both beef and chicken.
E. None of the above are correct.
4. Which of the following will shift the supply curve to the right?
A. Input prices rise.
B. Sales taxes increase.
C. Prices are expected to be higher in the future.
D. Prices are expected to be lower in the future.
E. None of the above are correct.
Exam 1- Fall 2003
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5. Suppose that the number of units of good X fall 6 percent when the price of good Y falls 4 percent.
The cross elasticity of demand between goods X and Y is:
A. 0.66
B. 1.75
C. 2.0
D. 1.5.
E. None of the above are correct.
6. When two goods are substitutes for each other, the cross elasticity of demand
A. Will be negative.
B. Will be zero.
C. May be either positive or negative.
D. Will be positive.
E. None of the above are correct.
7. Suppose that when the price of good X changes, the quantity of good Y remains the same. We would
expect the cross elasticity of demand to be
A. Zero.
B. Positive.
C. Negative.
D. Either positive or negative.
E. None of the above are correct.
8. When the price of chicken is $2.00/lb, the quantity demanded for hamburger is 50 units; when the
price of chicken is $3.00/lb, the quantity demanded of hamburger is 60 units. The cross-price
elasticity of demand between chicken and hamburger is
A. –50/110
B. +10
C. +1/10
D. +5/11
E. None of the above are correct.
9. Other things equal, demand is less elastic
A. The more expensive the good.
B. The smaller the percentage of a total budget that a family spends on a good.
C. The longer the time period for adjustment.
D. The more substitutes a good has.
E. None of the above are correct.
10. Income elasticity refers to
A. A movement down a demand curve.
B. A movement up a demand curve.
C. A horizontal shift in a demand curve.
D. The percentage change in quantity demanded divided by the percentage change in the price.
E. None of the above are correct.
Exam 1- Fall 2003
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11. The price elasticity of demand would be the lowest for
A. A McDonalds hamburger.
B. Salt.
C. A Cadillac DeVille.
D. Shell gasoline.
E. Peaches.
12. The more sensitive people are to a change in the price, the
A. Greater a change in price must be to induce a certain change in quantity demanded.
B. Greater the price elasticity of demand.
C. Less the price elasticity of demand.
D. Closer the price elasticity of demand is to one.
E. None of the above are correct.
For Question 13: Look at the following production possibilities table for drill presses and corn. The table
shows the maximum combination of drills and bushels of corn that can be produced, when all resources are
fully employed.
Drill Presses
Corn (bushels)
10
150
20
140
30
120
40
90
50
500
13. Based on the above information
A. There is a constant trade-off between corn and drill presses.
B. The opportunity cost of producing 30 instead of 20 drill presses is 120 bushels of corn.
C. The opportunity cost of producing 40 instead of 30 drill presses is 30 bushels of corn.
D. The production possibilities curve for drill presses and corn will be straight line.
E. None of the above are correct.
For Question 14:
Price Per Unit
Quantity Demanded Per Week
$10.00
9.50
9.00
8.50
8.00
7.50
7.00
6.50
6.00
5.50
5.0
25
30
35
40
45
50
55
60
65
70
75
Exam 1- Fall 2003
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14. According to the above table what is the price elasticity of demand if price falls from $8.00 to $7.50?
(Use $8 as the base.)
A. 0.563
B. 1.76
C. 0.1
D. 1.0
E. 1.63
15. A firm wishes to reduce an excess inventory of 20,000 units within 20 weeks. Current sales are
5,000 units per week. How much must it lower its price if price elasticity of demand is –2.5
A. 2.5%
B. 5.0%
C. 4.0%
D. 10%
E. None of the above are correct.
16. The price reduction in question 15 will:
A. Cause total revenue (i.e. total receipts) to increase.
B. Cause total revenue (i.e. total receipts) to decrease.
C. Will not change total revenue.
D. Will cause profit to increase.
E. Both “a” and “d” are correct.
17. The price reduction in question 16 will:
A. Cause the demand curve to shift to the right.
B. Cause the supply curve to shift to the right.
C. Cause the demand curve to shift to the left.
D. Cause the supply curve to shift to the left.
E. None of the above are correct.
18. If the price of hot dogs is increased by 10%, this would:
A. Shift the demand curve to shift to the right.
B. Shift the demand curve to shift to the left.
C. Shift the supply curve to shift to the right.
D. Shift the supply curve to shift to the left.
E. None of the above are correct.
19. If people expect the price of coffee to fall next week, coffee demand will:
A. Decrease now.
B. Stay the same now and increase next week.
C. Increase now.
D. Stay the same now and next week.
E. None of the above are correct.
Exam 1- Fall 2003
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20. If the demand for airline tickets to Miami Beach is unit elastic:
A. Airline revenue will increase if supply increases.
B. Airline revenue will increase if supply decreases.
C. A large change in the price will cause a small shift of the demand curve.
D. A small change in price will cause a large shift of the demand curve.
E. None of the above are correct.
21. If a quantity of 25 are purchased at a price of $8 and sales increase to 30 if price is lowered to 6, in
this price range we know that the price elasticity of demand is:
A. -1.25
B. -.636
C. -2.1
D. -2.41
E. None of the above are correct.
22. If price elasticity is -1.5 while income elasticity is 2.0, during a period when incomes are increasing
by 4% annually, if the firm decreases its prices by 4%, we would expect sales to:
A. Decrease by 2 percent.
B. Increase by 6 percent.
C. Increase by 14 percent.
D. No change since the two impacts will cancel each other.
E. None of the above are correct.
23. The price elasticity of demand for peaches is -0.6. Assuming that there is no change in the demand
for peaches, a 12 percent increase in sales implies that prices have been reduced by:
A. 4 percent.
B. 8 percent
C. 16 percent
D. 20 percent
E. None of the above are correct.
24. X and Y are complementary goods. A decrease in the price of X has occurred. For Y this will lead
to:
A. An increase in price and a decrease in quantity.
B. An increase in price and an increase in quantity.
C. A decrease in price and a decrease in quantity.
D. A decrease in price and an increase in quantity.
E. None of the above are correct.
25. If price increases and the quantity purchased increases, we know that:
A. Supply increased.
B. Supply decreased.
C. Demand increased.
D. Demand decreased.
E. Price increased but demand and supply did not change.
Exam 1- Fall 2003
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26. John is currently spending all of his income. For the last unit of Good A consumed he gets 20
units of utility and for the last unit of Good B consumed he gets 10 units. The price of Good A
is $2 and the price of Good B is $5. If John wants to maximize is utility, he should:
A. Continue to purchase the same amount of Good A and Good B.
B. Increase the consumption of Good A and decrease the consumption of Good B.
C. Decrease the consumption of Good A and increase the consumption of Good B.
D. Decrease the consumption of Good A and decrease the consumption of Good B.
E. None of the above are correct.
27. The price of X falls by ten percent and the quantity demanded of X increases by 10 percent.
Meanwhile the quantity demanded of Y increases by 10 percent also. We would conclude that:
A. The demand for X is elastic and X and Y are substitutes.
B. The demand for X is elastic and X and Y are complements.
C. The demand for X is unit elastic and X and Y are complements.
D. The demand for X is unit elastic and X and Y are substitutes.
E. None of the above are correct.
28. The cross elasticity of demand between two goods is 50 We can conclude that:
A. The two goods are very complementary and probably are sold together.
B. The two goods are poor substitutes for each other.
C. The demand for either of these goods is likely to be inelastic.
D. The demand for either of these goods is likely to be very elastic.
E. None of the above are correct.
29. Janice earns an income of $2,000 each week and goes out to lunch 3 times a week. If her income
increased to $2,100 she would go out to lunch 4 times a week. Compute Janice’s income
elasticity of demand:
A. .17
B. 5.86
C. 7
D. 100
E. None of the above are correct.
Answers Exam 1, Fall 2003
1) D
6) D
11) B
16) A
21) B
26) B
2) B
7) A
12) B
17) E
22) C
27) C
3) B
8) D
13) C
18) E
23) D
28) D
EXAM ONE – Fall 2003
4) C
9) B
14) E
19) A
24) B
29) B
5) D
10) C
15) E
20) E
25) C