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ECONOMICS 202 -- EXAM 1A -- SPRING 2009
1.
Which of the following is not considered to be an economic resource:
a. the knowledge of all of the faculty of the University of Texas
b. the knowledge of the student body of the University of Texas
c. the stocks, bonds and checking account balances owned by parents of the TAMU student body
d. the land upon which this building was constructed
e. none of the above, i.e., all of the above are considered economic resources
2.
Microeconomics is the study of decision making undertaken by individuals (or households) and by
firms. Maroeconomics is the study of the behavior of the economy as a whole, including such
phenomena as changes in unemployment, the general price level and national income.
3.
The “Economic Problem” is a set of three questions:
a. When? How? What?
b. Who? When? How?
c. What? Where? For Whom?
d. How? For Whom? What?
e. None of the above is the correct set of questions.
4.
In the circular flow diagram of a market economy, the money flow labeled “expenditures” is
connected to the market where the _____ question is primarily answered.
a. Where? b. For Whom? c. What? d. How?; e. both b and d.
5.
In the circular flow diagram of a market economy, households are suppliers in the resource market
but businesses are the suppliers in the product market.
6.
If we observe that Bill’s demand curve for hamburgers is vertical between $2.00 and $6.00, we are
observing a violation of the assumption of rational self-interest.
7.
An important feature of market economies is voluntary exchange. In voluntary exchanges all parties
to the exchange expect to be better off after the exchange than before.
8.
Consider the following quote from the New York Times: “The survey of business economists reveals
that 80 percent believe the national debt is too large and should be reduced.” This report about the
survey is positive, but the economists responding to the surveyor’s questions were being
normative.
9.
The basic source of the Economic Problem is:
a. governments world-wide have tax rates that are too high.
b. government regulations make producers inefficient
c. the combined national debt of all nations is too high
d. unions rules make both employers and employees inefficient.
e. none above.
10.
One of your reading assignments was about Pollution (pp. 818 - 820). This discussion included the
following conclusion(s).
a. Because the marginal cost of increasing air cleanliness rises whereas the marginal benefit falls, the
optimal degree of air cleanliness is where the marginal cost and marginal benefit are equal.
b. Because the marginal cost of increasing air cleanliness falls whereas the marginal benefit rises, the
optimal degree of air cleanliness is where the marginal cost and marginal benefit are equal.
c. Because the marginal cost and marginal benefit of increasing air cleanliness both rise, the optimal
degree of air cleanliness is zero.
d. Because the marginal cost and marginal benefit of increasing air cleanliness both fall, the optimal
degree of air cleanliness is zero.
e. none above.
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11.
The primary consideration for determining the usefulness of an economic model or theory is:
a. whether it provides usable predictions and implications for the real world.
b. how consistent it is with the assumption of rational self-interest.
c. how detailed and realistic its assumptions are.
d. how consistent it is with the fact we live in a world of scarcity.
e. how accurately it captures the basic human trait of greed.
12.
In a “competitive” market:
a. consumers are price-takers and producers are price-setters.
b. consumers are price-setters and producers are price-takers.
c. both consumers and producers are price-takers.
d. both consumers and producers are price-setters.
ANSWER THE NEXT 5 QUESTIONS WITH REFERENCE TO THE FOLLOWING DIAGRAM
13.
Which of the following combinations of goods Y and X is considered to be “inefficient?”
a. 50Y, 0X; b. 0Y, 100X; c. 30Y, 30X; d. 20Y, 100X; e. 40Y, 30X.
14.
Assume we move from point D to point C. The cost per unit of these additional units of Y is:
a. 0.5 X; b. 2.0 X; c. 10 Y; d. 20 X; e. none of the above.
15.
The cost of producing a unit of X is greater at E than at D, and the cost of producing a unit of Y is
greater at B than at C.
16.
Production Possibility Boundaries are “bowed-out” because of the:
a. law of demand
b. law of supply
c. law of one-price equilibrium
d. law of decreasing costs.
e. none of the above.
17.
Assume Y is “Capital Goods” and X is “Consumer Goods.” Production at B will cause tomorrow’s
PPB to shift farther to the right than production at E.
18.
To determine whether a good is normal or inferior we:
a. compare the direction of a price change and the resulting direction of the change in demand.
b. examine whether the quantity supplied increases or decreases when price rises.
c. compare the direction of a change in income with the resulting direction of the change in demand.
d. examine whether the PPB is bowed-out or bowed-in.
e. compare the direction of a price change for one good with the resulting direction of the change in
demand for another good.
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ANSWER THE NEXT 3 QUESTIONS WITH REFERENCE TO THE FOLLOWING TABLE.
WalMart is planning to hire more guards to reduce shoplifting. The following cost and benefits of each
hour of guard services is shown in the following table. (MB = Marginal Benefit; TC = Total Cost).
19.
The marginal cost of the 3rd hour =:
a. 25; b. 45; c. 110; d. 105; e. 5
20.
The Total Benefit of 2 hours = :
a. 85; c. 125; c. 185; d. 275; e. none above
21.
The optimum number of hours = :
a. 2; b. 3; c. 4; d. 5; e. 6
22.
If consumers are “frustrated” but producers are “content, then:
a. there is a shortage in the market
b. there is a surplus in the market
c. it must be that QS > QD
d. we know QEXCH = QD
e. the market is not in equilibrium, but there’s not enuf info to know whether there is a shortage or a surplus.
23.
If there is a surplus in the market,:
a. QEXCH = QS < QEQUIL
b. QEXCH = QD < QEQUIL
c. the current price > the equilibrium price
d. both a. and c.
e. both b. and c.
USE THE ADJACENT DIAGRAMS TO ASSIST YOU IN ANSWERING THE NEXT 2 QUESTIONS
24.
Assume both markets are in equilibrium
and then an import tariff is levied on
foreign tires, c.p. Then the following
will occur EXCEPT.
a. Both Pd & Pf rise
b. Sf shifts left, Dd shifts right
c. Pf rises, Domestic Total Revenue rises
d. Both Qf and Qd increase
e. Wealth is transferred from consumers
to domestic producers
25.
Assume both markets are in equilibrium and then an import quota is set at some quantity that is
greater than Qf. The consequence(s) of this quota is (are):
a. Pd rises & Pf falls; b. Pf rises, Domestic Total Revenue falls; c. Both Qf and Qd fall;
d. exactly the same as if an import tariff were levied on the foreign tires
e. None above
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26.
If all transactions in a market are voluntary, there is no price at which the quantity exchanged will
be greater than the quantity demanded. (Look at the standard Supply and Demand diagram to help
you with this.)
27.
A black market transaction occurs when a good is exchanged at a price above a price ceiling.
ANSWER THE NEXT 4 QUESTIONS WITH REFERENCE TO THE ADJACENT DIAGRAM OF A LABOR
MARKET FOR UNSKILLED LABOR
28
If this market has no price controls, the level of
UNemployment is:
a. OX; b. X; c. BG; d. OG; e. zero
29.
If the current wage is at K, total EMployment is:
a. B; b. F; c. X; d. G; e. none above
30.
If a minimum wage is set at T, UNemployment =
a. FX; b. BG; c. XG; d. FA; e. none above
31.
The “disemployment effect of a minimum wage at T =:
a. FX; b. BG; c. XA; d. FA; e. none above
32.
If the price of peanut butter rises, c.p., and this causes the demand for jelly rise, economic analysis
leads us to conclude that peanut butter and jelly are:
a. substitutes in consumption.
b. complements in consumption
c. substitutes in production
d. complements in production
e. not related in either production or consumption.
33.
If the price of butter rises, c.p., and this causes the supply of margarine to fall, economic analysis
leads us to conclude that butter and margarine are:
a. substitutes in consumption.
b. complements in consumption
c. substitutes in production
d. complements in production
e. not related in either production or consumption.
34.
Assume the equilibrium price for Good K is $25. At prices equal to or greater than $25, K is not
scarce. However, at prices below $25, K is scarce.
35.
If something keeps the market from reaching equilibrium, the outcome is said we are “inefficient”
because:
a. not all mutually beneficial exchanges have occurred and the gains from trading have not been maximized.
b. price is higher than consumers can afford
c. the quantity supplied is greater than the quantity exchanged
d. business profits are unfairly high
e. none above.
36.
Your text’s concludes that the primary beneficiaries of Rent Controls are _____, whereas the losers
are _________ and _________.
a. low-income individuals, property owners, upper-income professionals
b. upper-income professionals, low-income individuals, current tenants
c. upper-income professionals, low-income individuals, property owners
d. homeless individuals, rent control bureaucrats, property owners
e. low-income individuals, property owners, taxpayers.
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37.
If neither the supply curve nor the demand curve for Good K is vertical or horizontal, an effective
price ceiling always causes the quantity exchanged for Good K to be less than the equilibrium
quantity, but an effective price floor sometimes causes the quantity exchanged for Good K to exceed
the equilibrium quantity.
38.
Suppose the market for Good K is now in equilibrium. If both demand and supply of K decrease,
we expect the direction of the change in equilibrium price and quantity to be:
a. P up, Q unknown; b. P up, Q down; c. P down, Q down; d. P up, Q up; e. P unknown, Q down.
39.
Assume the market for Good J was in equilibrium but then some event caused the equilibrium price
and the equilibrium quantity to fall. Which of the following could have caused these changes in the
equilibrium price and equilibrium quantity:
a. a decrease in taxes on producers of J, c.p.
b. an increase in the wage rate of labor used in the production of J, c.p.
c. an improvement in the technology used to produce J, c.p.
d. an increase in the price of X a substitute in consumption, c.p.
e. an increase in income if J is an inferior good, c.p.
40.
Assume that in 2009 the President establishes a price ceiling on all prescription drugs at today’s
equilibrium price. Assume this ceiling remains constant for the next two yeas, but that during this
time the population increases by 1 percent and income increases by 10 percent. No other
determinate of supply and demand changes during these two years. Using your standard supply
and demand diagram, which of the following predictions is false.
a. in 2011 people will not be able to purchase as much as they demand at the ceiling price.
b. the quantity supplied in 2011 will equal the quantity supplied in 2009.
c. In 2011 the equilibrium price will be above the ceiling price.
d. in 2011 we would call this an "ineffective" price ceiling.
e. if the President removed the price ceiling in 2011, the quantity exchanged would rise and the market
price would rise.
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ECONOMICS 202, SPRING 2009
KEY TO EXAM 1
WHITE
ANS
1
C
2
A
3
D
4
C
5
A
6
B
7
A
8
A
9
E
10
A
11
A
12
C
13
C
14
B
15
A
16
E
17
A
18
C
19
B
20
D
21
C
22
A
23
E
24
D
25
E
26
A
27
A
28
E
29
A
30
D
31
A
32
A
33
C
34
B
35
A
36
C
37
B
38
E
39
E
40
D