Economics 101 Afternoon Exam 10/10/06
1. Read both of the statements below and then determine which of the following answers
is correct.
A) Numbers suggest that population growth has been negative in the last decade in a
few sub-Saharan African countries.
B) If the current rate of negative GDP growth continues for 10 more years the country
will revert back to 1995 GDP levels in absolute terms.
a.
b.
c.
d.
A and B are both positive statements.
A is a positive statement and B is a normative statement.
B is a positive statement and A is a normative statement.
A and B are both normative statements.
Use the following information to answer the next two questions.
Economies A and B both produce steel and aluminum. A can produce 300 tons of steel
and 0 aluminum, 200 tons of aluminum and 0 tons of steel or any linear combination of
the two pairs. B can produce 400 tons of steel and 0 aluminum, 300 tons of aluminum
and 0 steel or any linear combination of the two pairs.
2. Which of the following is true?
a. The opportunity cost of producing 1 ton of steel in A is 1 ton of aluminum.
b. The opportunity cost of producing 1 ton of aluminum in A is 3/2 tons of steel.
c. The opportunity cost of producing 1 ton of steel in B is 1 ton of aluminum.
d. The opportunity cost of producing 1 ton of steel in B is 4/3 tons of aluminum.
3. Based on the above data which of the following statements is true?
a. A has a comparative advantage in producing steel and an absolute advantage in
producing aluminum.
b. B has a comparative advantage in producing steel and an absolute advantage in
producing aluminum.
c. A has a comparative advantage in producing steel and also an absolute advantage
in producing steel.
d. B has a comparative advantage in producing aluminum and an absolute advantage
in producing both aluminum and steel.
Use the following information to answer the next question.
Macro Island and Small Island produce Grapes and Cherries and have linear PPFs. Both
Islands have the same level of resources. The following table shows how many units can
be produced in each country per week at two different production points.
Macro Island
Small Island
Grapes Cherries
20
0
0
10
Grapes Cherries
X
0
0
5
4. Small Island has a comparative advantage in the production of Grapes when X is
a. greater than 10.
b. smaller than 10.
c. greater than 20.
d. smaller than 20.
5. Consider the market for donuts. Holding everything else constant, there is a change in
the price of coffee. Donuts and coffee are complements. Therefore, if the price of coffee
increases, the equilibrium price in the market for donuts will __________. Conversely, if
the price of coffee decreases, then the equilibrium price will _________.
a. Increase; decrease
b. Decrease; increase
c. Increase; increase
d. Decrease; decrease
6. Which of the following statements is TRUE about an economy which has a quota or
tariff compared to an open economy with no impediments to international trade?
a. Quotas reduce domestic consumer surplus only and tariffs reduce both domestic
consumer surplus and domestic producer surplus.
b. Quotas and tariffs reduce both domestic consumer surplus and domestic producer
surplus.
c. Quotas reduce domestic consumer surplus but increase domestic producer surplus.
d. Tariffs reduce domestic consumer surplus only and quotas reduce both domestic
consumer and domestic producer surplus.
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Use the following information to answer the next two questions.
An economy is engaged in producing ears of corn and oranges. The PPF for the economy
is given below. A, B, C and D are four points on the PPF and they are consecutively
connected by straight lines.
A (0,100)
CORN
B(5,80)
C(10,50)
D(15,0)
ORANGES
7. The maximum ears of corn that can be produced when 8 oranges are being produced is
a. 66.
b. 74.
c. 56.
d. 62.
8. Which of the following pairs is a feasible but NOT efficient production pair?
a. (5,88)
b. (7,74)
c. (12,50)
d. (6,54)
9. Suppose that the demand curve for light beer in Madison is given by Qd=12 – 6P and
the price is currently $1. Holding everything else constant,
a. Madison beer producers could increase their total revenue by increasing the price
of beer.
b. Madison beer producers could increase their total revenue by decreasing the price
of beer.
c. Madison beer producers cannot increase their revenue by changing the price.
d. Madison beer producers could increase their total revenue by decreasing the
quality of light beer and thus making it much cheaper to produce.
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10. Suppose an economy is engaged in the production of two goods A and B. If the PPF
of the economy is bowed out (with A on the x axis and B on the y axis) which of the
following statements is true?
a. The opportunity cost of producing one more unit of A increases as we increase the
production of A, but the opportunity cost of producing one more unit of B
decreases as we increase the production of B.
b. The opportunity cost of producing one more unit of A remains the same all along
the PPF, and the opportunity cost of producing one more unit of B remains the
same all along the PPF.
c. The opportunity cost of producing one more unit of A decreases as we increase
the production of A, and the opportunity cost of producing one more unit of B
increases as we increase the production of B.
d. The opportunity cost of producing 1 more unit of A increases as we increase the
production of A, and the opportunity cost of producing one more unit of B
increases as we increase the production of B.
11. Suppose two economies A and B are engaged in producing oil and gold. Imagine that
both economies have linear PPFs and that the two PPFs have different slopes. Which of
the following statements CANNOT be true?
a. Economy A can have an absolute advantage in producing both gold and oil.
b. Economy A can have a comparative advantage in producing both gold and oil.
c. Economy A can have a comparative advantage in producing gold and also an
absolute advantage in producing gold.
d. Economy A can have a comparative advantage in producing gold and an absolute
advantage in producing oil.
12. Suppose that the domestic demand for tea in an economy is given by P = 100 – Q and
the domestic supply by P = Q + 10. If the world price of tea is $ 45 which of the
following quota restrictions on the import of tea would NOT be effective in raising the
price of tea domestic producers receive?
a. A quota of 5 units
b. A quota of 10 units
c. A quota of 15 units
d. A quota of 25 units
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Use the following information to answer the next two questions.
Consider a market for a good. The supply curve and the demand curve of the good are
given by
Supply:
Demand:
P=Q+1
P = -2Q + 16
13. The equilibrium price and quantity in this market are:
a. P = 6; Q = 5
b. P = 5; Q = 4
c. P = 6.33; Q = 5.33
d. P = 7; Q = 6
14. Assume that the unit of prices is US$. What do the consumer surplus (CS) and
producer surplus (PS) equal?
a. CS= $25, PS= $12
b. CS= $25, PS= $12.50
c. CS= $50, PS= $25
d. CS= $50, PS= $12.50
15. Consider the market for Coke and Pepsi. These two goods are clearly substitutes.
Suppose the price of Coke increases while simultaneously the cost of producing Pepsi
increases. In the market for Pepsi, which of the following statements is correct?
a. The change in the equilibrium price is ambiguous and the equilibrium quantity
increases.
b. The change in the equilibrium quantity is ambiguous and the equilibrium price
increases.
c. The equilibrium quantity increases and the equilibrium price decreases.
d. The equilibrium quantity decreases and the equilibrium price decreases.
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Use the following graph to answer the next two questions.
Cheese
A
D
B
E
C
F
Eggs
16. Which of the points of production is efficient?
a. E and F.
b. D.
c. B and E.
d. A, B and C.
17. As we move from A to B to C, the opportunity cost of Eggs
a. rises.
b. falls.
c. stays constant.
d. rises and then falls.
18. You are interested in the market for automobiles. Holding everything else constant,
the cost of producing automobiles increases. In the market for automobiles, the
equilibrium price will _________. At the same time, the equilibrium quantity will
___________.
a. Increase; increase
b. Decrease; decrease
c. Decrease; increase
d. Increase; decrease
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19. A fall in the price of a paper back book from $10 to $8 causes a decrease in the
quantity of magazines demanded from 1,000 to 900. What is the cross-price elasticity of
demand between paperback books and magazines? (hint: use percentage change
formula)
a. 0.5
b. -0.5
c. 2.0
d. Without information about what was the change in income, it is not possible to
calculate the cross-price elasticity of demand.
20. A 10 percent increase in income increases the demand for coffee by 3 percent. Then
the income elasticity of demand for coffee is
a. -0.3
b. 3.3
c. 0.3
d. 10.0
Use the following information to answer the next two questions.
Suppose market demand for movie tickets (in millions per year) is given by the equation
Q=18-2P, while tickets are supplied according to the market supply equation Q=P-2.
Suppose the government imposes an excise tax on movie tickets of $4 each. An excise
tax is a per unit tax on suppliers.
21. What will be the new equilibrium price in this market after the imposition of the tax?
a. $7
b. $5
c. $3
d. $8
22. What is the government tax revenue?
a. $1
b. $4
c. $8
d. $24
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23. If the supply curve is perfectly inelastic while the demand curve is a typical
downward sloping demand, the economic incidence of a $5 tax on sellers will fall on
a. The sellers only.
b. The buyers only.
c. Both buyers and sellers: they will share the economic burden of the tax.
d. Neither the buyers nor the sellers will bear the economic burden of the tax.
24. Sony decides to lower the price of PS2 to $99 when its current price of $129. If this
price decrease increases total revenue, which of the following statements must be true?
a. PS2 is an inferior good.
b. Demand is inelastic at $129.
c. Demand is elastic at $129.
d. Demand is perfectly elastic.
Use the following information to answer the next two questions.
Consider the market for DVDs in Massachusetts, with demand given by P = 50 – Qd and
supply given by P = Qs + 10.
25. The state government has just guaranteed that suppliers will receive $35 per DVD
sold via a price subsidy. The price received by sellers is now _____ than before the
subsidy program and the quantity supplied to society is now _____.
a. lower; 15
b. higher; 20
c. higher; 25
d. higher; 30
26. Later, the state government removes the subsidy program and instead sets a price
floor of $35 in the DVD market. The number of DVDs purchased by consumers is
______
a. now lower than the amount consumers demanded under the subsidy program.
b. now higher than the amount consumers demanded under the subsidy program.
c. now the same as the amount consumers demanded under the subsidy program.
d. now equal to the equilibrium quantity in the market when there is no government
intervention in this market.
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27. Holding everything else constant, if the price of chairs increases, then the quantity
demanded of chairs __________. If the price of tables increases, then the demand for
chairs will ___________ if tables and chairs are ____________.
a. Decreases / increase / complements
b. Decreases / decrease / substitutes
c. Increases / decrease / substitutes
d. Decreases / decrease / complements
28. Which of the following policies cannot increase the price of a good above its
equilibrium level?
a. Price support
b. Price subsidy
c. Price ceiling
d. Price floor
Use the following information to answer the next two questions.
Let the demand for hockey tickets per game in Kansas City be given by P = 550 – Qd,
and let the supply per game be given by P = (1/10)Qs.
29. Assume that the city government wishes to guarantee team owners a price of $60 per
ticket via a price support. This policy will create a _______ of _______ tickets in the
market.
a. shortage; 100
b. surplus; 110
c. surplus; 120
d. surplus; 130
30. How much will this price support program cost to the city government per game?
a. $0
b. $4400
c. $5500
d. $6600
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Use the following information to answer the next three questions.
The country of Atlantis imports fish sticks. Assume there are no substitutions for fish
sticks in the Atlantis economy. The demand curve for fish sticks is P = 50 – Q. Some
fish sticks are produced domestically according to the domestic supply curve P = 2Q + 5.
Currently the world price of fish sticks in Atlantis is 20.
31. Which of the following is true?
a. Atlantis is not producing any fish sticks.
b. Atlantis is not trading with the world.
c. Atlantis imports 7.5 fish sticks.
d. Atlantis imports 22.5 fish sticks.
32. Now the government in Atlantis imposes a quota limit of 7.5 on the number of fish
sticks that can be imported. Holding other things constant, what happens?
a. The price of fish sticks increases.
b. The price of fish sticks remains unchanged.
c. The price of fish sticks decreases.
d. Atlantis begins exporting fish sticks.
33. The government in Atlantis decides to repeal the quota on fish sticks and instead
impose a tariff that increases the price of each unit of imported fish sticks to $10 above
the world price of fish sticks. Holding other things constant, what happens?
a. The number of imports increases to 25.
b. The number of imports is the same as with the quota.
c. The number of imports decreases to 5.
d. There are no more imports of fish sticks.
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Answers:
1a, 2b, 3d, 4a, 5b, 6c, 7d, 8d, 9c, 10d, 11b, 12d, 13a, 14b, 15b, 16d, 17a, 18d, 19a, 20c,
21d, 22c, 23a, 24c, 25c, 26a, 27d, 28c, 29b, 30d, 31d, 32a, 33b
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