ECON 201: Introduction to Macroeconomics
Midterm Exam 1: Answer Packet
October 10, 2011
NAME: _________________________________
Circle your TA’s name:
Agustin
Brian
Circle your section time:
9 a.m.
3 p.m.
Meysam
Directions: This test is in two parts, a multiple choice question part and a short-answer part.
Use this answer packet to complete the exam. Calculators are permitted. Books, notes,
reference materials, etc. are prohibited. Good luck!
Part 1: Referring to the questions in the Multiple Choice Questions Packet, choose the one
alternative that best completes the statement or answers the question. Each question is worth
one point. There is no penalty to guessing, so be sure to answer all of them. Write your
answers in the following table using capital letters.
1
6
11
16
21
26
2
7
12
17
22
27
3
8
13
18
23
28
4
9
14
19
24
29
5
10
15
20
25
30
Part 2: Solve the following five problems in the spaces provided. Show all your work!
PROBLEM 1: 4 points: 2 points per blank
Assume that demand and supply are linear. Use the following tables to determine the demand
and supply equations.
Price
14
8
Quantity Demanded
4
7
1. The demand equation is P = ______________________________.
P = 22 - 2Qd
Price
11
5
Quantity Supplied
8
0
2. The supply equation is P = ______________________________.
P = (3/4)Qs + 5
PROBLEM 2: 2 points: 1 point per blank.
Assume that demand is given by P = 33 – (3/8)Qd
Assume that supply is given by P = 0.5Qs + 5
Complete the following statement.
1. The free-market competitive equilibrium is at a quantity of __________, and a price of
__________.
32, 21
PROBLEM 3: 5 points: 1 point per blank.
Demand for good A is given by PA = 10 + 0.5PB – 2QAd where PB is the price of good B, and
QAd is the quantity of good A demanded.
Supply for good A is horizontal, and is given by PA = 8.
Complete the following statements.
1. Suppose that PB = 4. The demand equation for good A is therefore
PA = ______________________________. The market equilibrium quantity is __________.
PA = 12 - 2QAd, 2
2. Suppose that the price of good B has risen to 8; that is, now PB = 8. The demand equation
for good A is therefore PA = ______________________________. The market equilibrium
quantity is __________.
PA = 14 - 2QAd, 3
3. Given this behavior of the demand curve for good A in response to price changes for good
B, we can conclude that goods A and B are: ______________________________.
(substitutes / complements / normal goods / inferior goods)
substitutes
PROBLEM 4: 4 points: 1 point per column or blank.
Suppose that Ariel has an individual demand curve given by P = 10 – 0.5QA.
Suppose that Bernard has an individual demand curve given by P = 10 – QB.
Suppose that these are the only two demanders in the market.
Hint: You are getting quantities for three different prices. It may be helpful to solve for QA
and QB first; that is, put the equations in “Q =” form.
1. Complete the following table:
Price
8
Quantity Demanded
by Ariel
4
Quantity Demanded
by Bernard
2
Total Quantity
Demanded
6
5
10
5
15
2
16
8
24
2. Complete the following statement: The market demand curve is given by the equation
P = ______________________________.
P = 10 – (1/3)Qd
PROBLEM 5: 15 points: 1 point per row or blank.
Use the PPFs below to answer the following questions.
Butte
r
4
0
Butte
r
Nort
h
Sout
h
15
2 Gun
0 s
1
0
Gun
s
1. What is the opportunity cost of guns (in terms of butter) for the North? __________. What
is the opportunity cost of guns (in terms of butter) for the South? __________.
2, 1.5
2. Who has the comparative advantage in guns? __________. Who has the absolute
advantage in guns? __________.
South, North
3. Suppose North and South are agreeing to a trade such that they consume according to the
following table.
North consumes
South consumes
4 guns
6 guns
33 butter
7 butter
North produces
0__________ guns
40__________ butter
South produces
10__________ guns
0__________ butter
Complete the following table:
Could both countries agree to this trade? __________.
Yes
4. Suppose North and South are agreeing to a trade such that they consume according to the
following table.
North consumes
12 guns
14 butter
South consumes
8 guns
6 butter
Complete the following table:
North produces
10__________ guns
20__________ butter
South produces
10__________ guns
0__________ butter
Could both countries agree to this trade? __________.
No
5. Now the Civil War is over and the economies of the North and South are combined. Each
region maintains its capacity to produce as given in the initial graphs on which your answers
to items 1 through 4 were based. Mark the appropriate box with an “X” if the amounts are
feasible for the reunited country. Mark the appropriate box with an “X” if the amounts are
efficient for the reunited country.
Hint 1: If it isn’t feasible, it can’t be efficient.
Hint 2: The combined PPF of the two countries has the following shape. It is not to scale. It
will help if you sketch the combined PPF using the actual numbers for the North and the
South given at the beginning of the problem.
Butte
r
Gun
s
Hint 3: Notice that the slope of the combined PPF is flat at the top and then becomes steeper.
This occurs because when we move from the vertical intercept down and to the right along
the combined PPF, the South will produce all the guns until it has eliminated its production
of butter. Then moving further downward and to the right, the PPF becomes steeper because
now the North starts shifting from butter to guns at its original higher opportunity cost.
Production
Feasible?
20 guns, 15 butter
X
Efficient?
4 guns, 49 butter
X
X
24 guns, 14 butter
17 guns, 25 butter
X
8 guns, 43 butter
X
X
ECON 201: Introduction to Macroeconomics
Midterm 1: Multiple Choice Questions Packet
October 10, 2011
NAME: _________________________________
Circle your TA’s name:
Agustin
Brian
Circle your section time:
9 a.m.
3 p.m.
Meysam
1) The difference between traditional ticket brokers and StubHub is
A) traditional brokers are scalpers and StubHub is not
B) traditional brokers collect fees from sellers and buyers and StubHub does not
C) traditional brokers hold inventories of tickets while StubHub does not
D) traditional brokers do not have web sites while StubHub does
2) An efficient economy is an economy
A) in which output is steady or growing and there is low inflation.
B) that produces what consumers demand and does so at the least possible cost.
C) that distributes output equally among all consumers.
D) in which there is a fair distribution of wealth.
3) Which of the following solutions does the Economist suggest to cost inflation in higher
education?
A) Cutting professor salaries
B) Make students live at home
C) Reduce college from four to three years
D) B) and C)
4) You have observed that every time you do 30 minutes of cardio exercise before taking an
exam you get an A. You therefore conclude that to get an A on an exam, all you have to do is
30 minutes of cardio exercise before you take an exam. You have committed the
A) fallacy of composition.
B) fallacy of inductive reasoning.
C) post hoc, ergo prompter hoc fallacy.
D) fallacy of division.
5) The market for oranges is competitive and both the law of demand and the law of supply
hold. Suppose the equilibrium quantity of oranges would have been 8.4 million tons. A big
storm destroys some of the harvest and the supply curve shifts to the left by 3 million tons.
Which one could be the (new) equilibrium quantity for oranges?
A) 3 million tons
B) 4 million tons
C) 5 million tons
D) 6 million tons
6) Which of the following would cause both the equilibrium price and equilibrium quantity of
barley (assume that barley is an inferior good) to increase?
A)
B)
C)
D)
an increase in consumer income
a drought that sharply reduces barley output
a decrease in consumer income
unusually good weather that results in a bumper crop of barley
Price per Cheeseburger
$4
5
6
7
8
Quantity Demanded
(Cheeseburgers per Month)
1200
1000
900
800
750
Quantity Supplied
(Cheeseburgers per Month)
700
1000
1100
1300
1400
7) Refer the table above. At what price is there a surplus of 500 cheeseburgers?
A) $4
B) $5
C) $6
D) $7
E) $8
8) The main point of the article on “Off to Work She Should Go” is that participation in the
labor force (i.e., holding jobs that pay money) has ______________ most for _________
women.
A) decreased; the most educated
B) increased; the most education
C) decreased; the least educated
D) increased; the least educated
9) Consider two countries, Japan and Malaysia. Japan devotes a smaller portion of its
production to capital. All other things equal, which of the following statements is most likely
true?
A) Japan is a poorer country than Malaysia.
B) Japan will move up its production possibility curve faster than Malaysia.
C) Malaysia is producing inside its production possibility frontier, whereas Japan is
producing at a point on its production possibility frontier.
D) Malaysia's production possibility frontier will shift up and out farther and faster
than Japan's.
10) Salary caps are imposed when league officials believe some football team owners are
taking advantage of their deep pockets and buying more quality players than the other owners
can afford to buy. Which of the following criteria are they using to guide their actions?
A) growth
B) stability
C) efficiency
D) equity
11) If information is less costly and more easily available, then usually this
A)
B)
C)
D)
makes markets more efficient.
makes markets less efficient.
increases profit opportunities.
increases the opportunity cost of acquiring more information.
Refer to the following figure below to answer the questions that follow.
12) Refer to the figure above. The economy is currently at Point A. The opportunity cost
of moving from Point A to Point B is
A) 3 LCD televisions per plasma television
B) 1.5 LCD televisions per plasma television
C) 2/3 LCD televisions per plasma television
D) none of the above
13) Refer to the figure above. For this economy to move from Point B to Point C so that an
additional 20 plasma televisions could be produced, production of LCD televisions would
have to be reduced by
A) exactly 30.
B) fewer than 30.
C) more than 30.
D) indeterminate from the figure provided.
14) Refer to the figure above. The best point for society would be
A) Point B, as this point is on the 45-degree line
B) between Point B and Point C, where the total amount being produced is
approximately the same.
C) at any of the labeled points, as all of the points represent an efficient allocation of
resources.
D) indeterminate from this information, as we don't have any information about
the society's desires.
15) Health insurance should be provided to every citizen in a wealthy nation such as the
United States. This statement is best described as
A) a positive statement.
B) a normative statement.
C) a descriptive economics statement.
D) an implication of an efficient market.
16) Which of the following would cause the equilibrium price of white bread to decrease and
the equilibrium quantity of white bread to increase?
A) a decrease in the price of flour
B) an increase in the price of flour
C) an increase in the price of rye bread, a substitute for white bread
D) an increase in the price of butter, a complement for white bread
17) Capital, as economists use the term,
A) is the money the firm spends to hire resources.
B) is money the firm raises from selling stock.
C) refers to the process by which resources are transformed into useful forms.
D) refers to things that have already been produced that are in turn used to
produce other goods and services.
18) You have decided that you want to attend a costume party as Iron Man. You estimate that
it will cost $40 to assemble your costume. After spending $40 on the costume, you realize
that the additional pieces you need will cost you $25 more. The marginal cost of completing
the costume is
A) $15.
B) $25.
C) $40.
D) $65.
19) Pineapples and kumquats are substitute goods. A hurricane in Guatemala destroyed a
good portion of the pineapple crop. Ceteris paribus
A) the price of both pineapples and kumquats will increase.
B) the price of both pineapples and kumquats will fall.
C) the price of kumquats will increase and the price of pineapples will fall.
D) the price of kumquats will fall and the price of pineapples will increase.
20) To which of the following “two human appetites” does the Economist attribute the initial
appeal of Communism?
A) greed; justice
B) vengeance; justice
C) envy; greed
D) envy; vengeance
21) Which of the following statements is FALSE?
A) Many planned economies have not fared very well in recent years; many of these
economies have almost completely collapsed.
B) Command economies operate the most efficiently because the government
makes all the production decisions.
C) In command economies consumers still exercise choice.
D) In a command economy the government answers the questions of what to produce,
how to produce it, and how to distribute it.
22) Which of the following would shift the supply curve for MP3 players to the right?
A) an increase in the price of a substitute in production
B) an increase in consumer income (assuming that all MP3 players are normal goods)
C) a decrease in the number of firms that produce MP3 players
D) a decrease in the price of an input used to produce MP3 players
23) Which of the following will definitely occur when there is an increase in demand for and
a decrease in supply of milk?
A) an increase in equilibrium price
B) a decrease in equilibrium price
C) an increase in equilibrium quantity
D) a decrease in equilibrium quantity
24) The main point of the article on “MBA Applications” is most closely related to which
economic concept we have studied?
A) fallacy of composition
B) law of demand
C) law of supply
D) opportunity cost
25) As more of a good, such as television sets, is produced, the opportunity costs of
producing it increases. This most likely occurs because
A) as more of a good is produced the inputs used to produce that good will increase in
price.
B) consumers would be willing to pay higher prices for the good as more of the good is
produced.
C) resources are not equally well suited to producing all goods and as more of a
good is produced it is necessary to use resources less well suited to the
production of that good.
D) as more of a good is produced the quality of that good declines and therefore the
costs
of production increase.
26) Olive oil producers want to sell more olive oil at a higher price. Which of the following
events would have this effect?
A) an increase in the price of olive oil presses
B) a decrease in the cost of transporting olive oil to markets
C) an increase in the price of land used to plant olives
D) research finds that consumption of olive oil reduces the risk of heart disease
27) Because resources are scarce, the opportunity cost of investment in capital is
A) past investment.
B) past consumption.
C) foregone present consumption.
D) future consumption.
28) If the demand for coffee decreases as income decreases, coffee is a(n)
A) normal good.
B) inferior good.
C) substitute good.
D) complementary good.
29) Economists use the phrase “ceteris paribus” to express the assumption
A) “all else equal.”
B) “everything affects everything else.”
C) “scarcity is a fact of life.”
D) “there is no such thing as a free lunch.”
30) If you own a building and you decide to use that building to open a book store,
A) there is no opportunity cost of using this building for a book store because you own
it.
B) there is an opportunity cost of using this building for a book store because it
could have been used in other ways.
C) there are no sunk costs involved in this decision.
D) the only cost relevant to this decision is the price you paid for the building.