Ag Econ 1041
Second Exam, 140 Points
October 23, 2007
Name _________
3:30 p.m. Section
KEY __________________
Multiple choice – two points each
_____ 1. If both the supply and demand for computer games increase, then the equilibrium a.) price of the games is indeterminate and the equilibrium quantity rises b.) price of the games is indeterminate and the equilibrium quantity falls c.) price of the games falls and the equilibrium quantity falls d.) price of the games falls and the equilibrium quantity is indeterminate
_____ 2. Which of the following causes the PPC to shift? a.) level of resources b.) technology development c.) more effective management d.) all of the above
_____ 3. In 1975, a frost destroyed nearly two-thirds of the Brazilian coffee crop.
According to supply and demand models this should have resulted in a(n): a.) increase in the price of tea b.) increase in the price of sugar c.) increase in the demand for coffee d.) decrease in the demand for coffee
_____ 4. The imposition of a price ceiling in a market often result in: a.) an increase in investment in the industry b.) a persistent surplus in the market c.) the diversion of income toward black-market suppliers d.) lower prices being offered on the black-market e.) none of the above
_____ 5. The production possibilities frontier is: a.) a map which shows the margin of cultivation for a country-the frontier beyond which agriculture is unprofitable b.) a graph that shows the various combinations of output that can possibly be produced given the available resources and technology c.) a graph which shows the various combinations of resources that can be used to produce a given level of output d.) a map which shows areas of the world in which capitalist production is now possible
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_____ 6. When the relationship between two variables changes: a.) there is movement from one point on the curve to another point on the curve b.) the curve is not affected c.) the entire curve shifts d.) the curve becomes linear
_____ 7. A shift in the supply curve of bicycles resulting from higher steel prices will lead
to: a.) higher prices of bicycles b.) lower prices of bicycles c.) a shift in the demand curve for bicycles d.) larger output of bicycles e.) no change in the price of bicycles
_____ 8. Scarcity exists because of: a.) the allocation of goods by prices b.) specialization and division of labor c.) the market mechanism d.) unlimited wants and limited resources
_____ 9. Chicken and fish are substitutes. Therefore, the cross-elasticity of demand
between chicken and fish: a.) is negative b.) is positive c.) is zero d.) any of the above is possible
_____ 10. Which of the following is not a determinant of demand? a.) income b.) the cost of inputs in production c.) the price of related goods d.) future price expectations
_____ 11. According to the law of supply, when the price of a good increases, we would
predict that: a.) less will be produced b.) less will be consumed c.) more will be produced d.) more will be consumed
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_____ 12. If the price of ground beef increases, the demand for hamburger buns is predicted
to: a.) increase b.) decrease c.) remain constant d.) shift to the right
_____ 13. An increase in the demand for fast food will: a.) decrease the equilibrium price b.) shift the supply curve to the left c.) shift the demand curve to the left d.) increase the equilibrium price
_____ 14. Natural gas and electricity are close substitutes for purposes of home heating. A
decrease in the price of electricity will tend to: a.) increases demand of electricity b.) decrease the supply of natural gas c.) increase the demand for natural gas d.) none of the above
_____ 15. Price elasticity of demand is defined as the ____________________ change in
quantity demanded divided by the __________________ change in price. a.) total, percentage b.) percentage, marginal c.) marginal, percentage d.) percentage, percentage
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True/False – one point each
16. If the demand for apples increases at the same time supply of apples falls, the price of
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F apples will tend to fall.
17. The law of diminishing marginal utility is consistent with the consumer behavior that produces a negatively sloped demand curve.
18. Even as a true lover of chocolate, if you consume more and more, the extra satisfaction that you get from each bite eventually decreases.
19. A price cut will increase the revenue a firm receives if the demand for its product is elastic.
20. A cost that has already been incurred is an opportunity cost.
21. Diminishing returns are a reality in the production of any good whether produced by an individual or business.
22. The demand curve represents the lowest opportunity cost selection at every price.
23. A reduction in input costs will reduce supply.
24. An increase in consumers’ income will likely decrease the demand for ski passes at
Steamboat Springs, CO.
25. Producer surplus is a measure of the net value of a good to a consumer.
26. A reduction in interest rates will reduce the supply of many goods.
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27. Improvements in technology related to building computers will decrease demand.
28. The supply of a good is a single number showing the quantity of a good that will be purchased over a certain period.
29. Opportunity cost is the highest valued alternative foregone when making a decision.
30. Marginality refers to change. If we add up the marginal revenue of producing and selling each good, we would have the total revenue of the enterprise.
31. Price ceilings cause surpluses.
32. If the demand for an agricultural product is inelastic, a bumper (very large) crop will lower price and decrease total revenue.
33. A technological advance that lowers production costs would shift the supply curve left.
34. If two goods are substitutes for consumers, a decline in the price of one will cause an increase in the demand for the other.
35. An increase in the supply of donuts, with demand constant, will increase the price of donuts.
36. Once we know the demand for a product we can predict how much will be produced.
37. A market demand schedule shows the amount of a good that people would like to buy and be able to buy at various possible prices.
38. A production possibilities curve shows how we respond to price change.
39. When both the supply and demand curves shift in the same direction, the direction of quantity will be in the same direction as the shifting curves.
40. Consumer and producer surplus will both decline if supply increases.
41. As the price of leather increases, the quantity of leather shoes demanded will decrease.
42. Consumer surplus is the same as the net benefit obtained from buying a given quantity of a good.
43. Own-price elasticity measures how much the demand curve shifts when the price of the good changes.
44. A supply curve for tomatoes might intersect the horizontal axis rather than the vertical axis because some will be produced at a zero price.
45. To collect the greatest tax revenue, the government should place an excise tax on goods with elastic demand.
46. Marginal product is the change in a person’s satisfaction or well-being caused by consuming an additional good or service.
47. If Brent would be willing to pay $10 for a haircut, and the actual price of the haircut is
$10, his consumer surplus would be $20.
48. Increasing government taxation and regulation on an industry generally increases the supply of goods.
49. Increasing opportunity cost occurs because some productive resources cannot be easily adapted from production of one good or service, like steel manufacturing, to another, like entertainment.
50. If the supply of diamonds on the world market decreases, diamonds become more valuable and therefore the consumer surplus derived by diamond consumers rises.
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Short answers are valued at 5 points each
51.
Diagram the market situation in the computer market where wage rates increase for workers at computer manufacturers. Show the change in consumer surplus.
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52.
How can we shift the production possibilities curve?
Increase resources. Increase technology/management
53.
An individual with a lower opportunity cost is said to have a
____ comparative ______ _____ advantage _______________.
54.
As the price of solar heating declines what happens in the market for natural gas and heating oil? (both are used for home heating) Show with a diagram.
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55.
Why does an average Mizzou student go to more Mizzou football games than MSU football games?
MU miz > MU msu
MC MC
56.
Compare the difference of a change in the price of tomatoes to a change in the knowledge that tomatoes may benefit health. Use graphs.
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Show on a graph how the price of wine can be falling in the U.S. as more people enjoy drinking wine.
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58.
Why does the marginal product curve eventually decline?
Diminishing returns
59.
How do we decide where to produce on a production possibilities curve?
Tangent to iso revenue
The following questions are valued at 10 points each
60.
Below diagram a price support (floor) set above the current market equilibrium.
Label completely and show the consumer surplus and producer surplus after the price
support is instituted. Show what it would cost the government to buy the surplus.
Be complete.
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Cost to buy surplus
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61. What do you know about supply? a.) Definition willingness and ability to sell different quantities at different prices b.) Name a reason for the positive slope of supply
Diminishing returns or declining MP c.) The level or amount to be supplied is determined by what? price d.) How is producer surplus measured?
Price – Supply = PS e.) An excise tax causes supply to do what?
Shift left or back
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62. Below diagram the situation when a new excise tax is charged by the government
and collected by the sellers on a product.
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Q a.) how does this differ from an increase in input costs?
It does not differ b.) why would the government want to enact an excise tax?
Change consumption, conserve resources or raise revenue
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