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Quiz 1(B)
Economics (I), 2013
Due Date: 2013.10.30
Part I. Multiple Choices (50 points: 2.5 points of each )
Please fill your answers in below blanks.
1
2
3
4
5
6
7
8
9
10
A
A
A
C
A
B
C
B
C
A
11
12
13
14
15
16
17
18
19
20
A
D
C
B
B
A
D
D
B
D
Figure 1
1. Refer to Figure 1. If the economy is currently producing at point Y, what is the
opportunity cost of moving to point W?
A) Zero
B) 16 million tons of paper
C) 2 million tons of steel
D) 9 million tons of paper
2. Refer to Figure 1. If the economy is currently producing at point W, what is the
opportunity cost of moving to point X?
A) 5 million tons of paper
B) 3 million tons of steel
C) 9 million tons of paper
D) 19 million tons of steel
Figure 2
3. Refer to Figure 2. Which two arrows in the diagram depict the following
transaction: Carter earns a $400 commission for selling men's designer shoes at
Brooks Brothers.
A) J and M
B) K and M
C) K and G
D) J and G
4. Which of the following is not a flow in the circular flow model?
A) the flow of income earned by households and the flow of expenditures
incurred by households
B) the flow of revenue received by producers and the flow of payments to
resource owners
C) the flow of profit and the flow of revenue
D) the flow of goods and services and the flow of resources to produce goods
and services
Figure 3
5. Refer to Figure 3. The figure above represents the market for coffee grinders.
Assume that the market price is $21. Which of the following statement is true?
A) There is a shortage that will cause the price to increase; quantity demanded
will then decrease and quantity supplied will increase until the price equals
$25.
B) There will be a shortage that will cause the price to increase; demand will
then decrease and supply will increase until the price equals $25.
C) There is a shortage that will cause the price to decrease; quantity demanded
will then increase and quantity supplied will decrease until the price equals
$25.
D) There is a shortage that will cause the price to increase; quantity supplied will
then decrease and quantity demanded will increase until the price equals
$25.
6. Refer to Figure 3. The figure above represents the market for coffee grinders.
Assume that the price of tote bags is $50. At this price:
A) there is a surplus equal to 90 coffee grinders and the price of coffee grinders
will fall until demand is equal to supply.
B) there is a surplus equal to 90 coffee grinders that will be eliminated when the
price falls to $25.
C) the supply exceeds the demand by 90. Some producers will have an incentive
to offer to sell tote bags at a lower price.
D) the quantity supplied exceeds the quantity supplied by 100. The price will
eventually fall to $25 where quantity demanded will equal quantity supplied.
Figure 4
7. Refer to Figure 4. The graph in this figure illustrates an initial competitive
equilibrium in the market for motorcycles at the intersection of D1 and S1 (point
A). If the price of motorcycle engines increases, and the wages of motorcycle
workers increase, how will the equilibrium point change?
A) The equilibrium point will move from A to E.
B) The equilibrium point will move from A to C.
C) The equilibrium point will move from A to B.
D) The equilibrium will first move from A to B, then return to A.
8. A demand curve which is ________ represents perfectly inelastic demand, and a
demand curve which is ________ represents inelastic demand.
A) downward sloping; vertical
B) vertical; downward sloping
C) horizontal; downward sloping
D) upward sloping; horizontal
Figure 5
9. Refer to Figure 5. If the price is $25
A) there would be a surplus of 200 units.
B) there would be a shortage of 300 units.
C) there would be a surplus of 300 units.
D) there would be a shortage of 200 units.
10. Refer to Figure 5. If the current market price is $10, the market will achieve
equilibrium by
A) a price increase, increasing the quantity supplied and decreasing the quantity
demanded.
B) a price decrease, decreasing the quantity supplied and increasing the
quantity demanded.
C) a price decrease, decreasing the supply and increasing the demand.
D) a price increase, increasing the supply and decreasing the demand.
Figure 5
11. Refer to Figure 5. Identify the two goods which are substitutes.
A) Good X and Good Z
B) Good Y and Good Z
C) It is not possible to distinguish any relationship among the goods.
D) Good X and Good Y
12. Refer to Figure 6-5. Identify the two goods which are complements.
A) Good X and Good Y
B) It is not possible to distinguish any relationship among the goods.
C) Good X and Good Z
D) Good Y and Good Z
13. Which of the following is a result of a market economy?
A) environmental protection
B) an equal income distribution
C) voluntary exchange
D) agreement on equity
14. Which of the following is a normative economic statement?
A) When the price of gasoline rises, the quantity of gasoline purchased falls.
B) The price of gasoline is too high.
C) The current high price of gasoline is the result of strong worldwide demand.
D) When the price of gasoline rises, transportation costs rise.
15. Fast food restaurants produce a range of menu items such as hamburgers,
chicken sandwiches, salads, and french fries. What fundamental economic
question are they addressing by offering this range of items?
A) Why produce a variety of menu items?
B) What to produce?
C) How to produce goods that consumers want?
D) Who to produce the menu items for?
One Cell Phone
Estonia
40 hours
Finland
16 hours
Lumber (per board
foot)
8 hours
4
hours
Table 1
Table 1 shows the number of labor hours required to produce a cell phone and a
board foot of lumber in Estonia and Finland
16. Refer to Table 1. Estonia has a comparative advantage in the production of
A) lumber.
B) neither product.
C) cell phones.
D) both products.
17. Refer to Table 1. If the two countries specialize and trade, who should export
lumber?
A) There is no basis for trade between the two countries.
B) They should both be exporting lumber.
C) Finland
D) Estonia
18. In 2004, hurricanes damaged a large portion of Florida's orange crop. As a result
of this, many orange growers were not able to supply fruit to the market. At the
pre-hurricane equilibrium price (i.e., at the initial equilibrium price), we would
expect to see
A) the quantity demanded equal to the quantity supplied.
B) an increase in the demand for oranges.
C) a surplus of oranges.
D) a shortage of oranges.
19. Which of the following would cause the equilibrium price of ketchup to increase
and the equilibrium quantity of ketchup to decrease?
A) an increase in the price of french fries, a complement for ketchup.
B) an increase in the price of tomatoes.
C) a decrease in the price of tomatoes.
D) an increase in the price of mustard, a substitute for ketchup.
20. A decrease in the demand for eggs due to changes in consumer tastes,
accompanied by a decrease in the supply of eggs as a result of an outbreak of
Avian flu, will result in
A) a decrease in the equilibrium price of eggs and no change in the equilibrium
quantity.
B) a decrease in the equilibrium price of egg; the equilibrium quantity may
increase or decrease.
C) a decrease in the equilibrium quantity of eggs and no change in the
equilibrium price.
D) a decrease in the equilibrium quantity of eggs; the equilibrium price may
increase or decrease.
Part II. Problems: 50%
Almonds
Possible Output
Cashews
Combinations
(thousands of pounds)
A
35
0
B
30
20
C
25
35
D
20
47
E
15
57
F
10
64
G
5
68
H
0
70
(thousands of
pounds)
Table 2
1. Refer to Table 2.
The Nut House produces only cashews and almonds. The
table above shows the maximum possible output combinations of the two nuts
using all resources and currently available technology.
a. Graph The Nut House's production possibilities frontier. Put almonds on the
horizontal axis and cashews on the vertical axis. Be sure to identify the output
combination points on your diagram.
b. Suppose The Nut House is currently producing at point C. What is the
opportunity cost of producing an additional 12,000 pounds of almonds?
c. Suppose The Nut House is currently producing at point C. What happens to
the opportunity cost of producing more and more almonds? Does it increase,
decrease or remain constant? Explain your answer.
d. Suppose The Nut House is currently producing at point F. What happens to
the opportunity cost of producing more and more cashews? Does it increase,
decrease or remain constant? Explain your answer.
e. Suppose The Nut House is plagued by a variety of white root-rot disease,
which destroys cashew trees but not almond trees. Show in a graph what
happens to its PPF.
2. Is it possible for a firm to have a comparative advantage in producing something
without having an absolute advantage? Why or why not?
Price per Bushel
Quantity
Quantity
Demanded
Supplied
(bushels)
(bushels)
$3
30,000
0
6
26,000
4,000
9
22,000
9,000
12
18,000
12,000
15
15,000
15,000
18
12,000
22,000
21
8,000
28,000
24
4,000
36,000
Table 3
3. Refer to Table 3. The table contains information about the corn market. Use
the table to answer the following questions.
a. What are the equilibrium price and quantity of corn?
b. Suppose the prevailing price is $9 per bushel. Is there a shortage or a surplus
in the market?
c. What is the quantity of the shortage or surplus?
d. How many bushels will be sold if the market price is $9 per bushel?
e. If the market price is $9 per bushel, what must happen to restore equilibrium
f.
g.
h.
i.
j.
in the market?
At what price will suppliers be able to sell 22,000 bushels of corn?
Suppose the market price is $21 per bushel. Is there a shortage or a surplus
in the market?
What is the quantity of the shortage or surplus?
How many bushels will be sold if the market price is $21 per bushel?
If the market price is $21 per bushel, what must happen to restore
equilibrium in the market?
4. In 2004, hurricanes destroyed a large portion of Florida's grapefruit crop. How did
this affect the market price and market quantity of grapefruit? Please use the
Demand-Supply model for your analysis.
5. Suppose a 4 percent increase in income results in a 2 percent decrease in the
quantity demanded of a good. Calculate the income elasticity of demand for the
good and determine what type of good it is.