EXAM 1 FALL 2011 (Professors Sinan Sarpca and Thomas Crossley)
1. An important element of the market process is that
a. although people trade voluntarily, one party "wins" and the other party "loses."
b. the government determines the extent of market activity in order for all parties to benefit.
c. people are better off if they are self-sufficient than if they trade with others in the market.
d. people trade voluntarily and all parties expect to benefit.
2. Suppose you are considering going to the cinema, and you place a €12 value on your anticipated
enjoyment of the film. The ticket price is €6 and you would be giving up two hours of work, where
you earn €5 per hour. You would go to
a. work; the opportunity cost of the movies exceeds the expected benefit.
b. see the film; your incentive is the €6 excess expected benefit.
c. see the film; your enjoyment will exceed the lost wages by €2.
d. see the film; the benefit of €18 exceeds the lost wages.
3. Refer to the figure below. Suppose an economy has the production possibilities frontier shown in
the diagram and is operating at position A. Which of the statements below is false?
a. This economy could produce more of both capital and consumption goods.
b. This economy is experiencing full employment.
c. This economy could produce more capital goods without decreasing the quantity of consumption
goods produced.
d. This economy could produce more consumption goods without decreasing the quantity of capital
goods produced.
4. If England can produce two rugs or 100 spy novels in an hour, and Turkey can produce one rug or
50 spy novels in an hour
a. Turkey should produce both rugs and spy novels.
b. Turkey should produce only rugs.
c. England should produce only rugs.
d. there are no gains from trade between these two countries with these two goods.
5. Refer to the figure below. This diagram shows the market for roller skates. Which of the following
would cause a move from point A to point B?
a. an increase in the price of bicycles
b. a decrease in the price of bicycles
c. a decrease in consumer incomes
d. a popular new movie that convinces teens that skateboards are really cool
6. Suppose that a large dairy farmer is able to raise the market price of milk by restricting milk supply
to the market. In this case,
a. the milk market is perfectly competitive. b. the demand for milk shifts right.
c. the demand for milk shifts left. d. the milk market is not perfectly competitive.
7. Suppose that the price elasticity of supply of home cleaners is 1.5. If the price of home cleaners
rises 5 per cent, the quantity supplied of home cleaners would:
a. decline 7.5 per cent. b. rise 7.5 per cent. c. rise 1.5 per cent. d. rise 0.3 per cent.
8. When the minimum wage is set above the equilibrium market wage,
a. there will be an excess demand for labour at the minimum wage.
b. it will have no effect on the quantity of labour employed.
c. the unemployment rate will rise.
d. the quality of the labour force will rise.
9. Taxes levied directly on consumers
a. always hurt consumers rather than producers.
b. always hurt producers rather than consumers.
c. generate more revenue than taxes levied on producers.
d. have the same effect as taxes directly levied on producers.
10. Refer to the Figure below (on the left). Consider the impact of a tax on sellers, shown in this
diagram of the market for whisky. In this case, the total tax revenue collected by the government is
a. 3 b.1500 c. 13,500 d. 40,500
11. Refer the figure below. This diagram shows the market for fish, in equilibrium at €20 per kilo. At
this price consumer surplus is:
a. 5.00. b. 12.50. c. 50.00. d. 62.50.
12. Assume that there are spillover benefits associated with keeping cars in good mechanical
condition. Without government intervention (i.e., with a free market), we would expect people to
a. give their cars too much maintenance.
b. stop driving and start walking.
c. subsidize each other's car maintenance bills.
d. not maintain their cars as much as they should.
13. The production possibilities frontier is a downward-sloping straight line when the
a. opportunity cost of producing each good depends on the amount produced.
b. technology of production is constant.
c. opportunity cost of producing each good is independent of the amount of the good produced.
d. economy is industrialized.
14. Refer to the figure below. In the diagram, the slope of the curve is
(Hint: Do not ignore the sign of the slope when deciding increasing/decreasing slope)
a. increasing at a constant rate. b. increasing at a decreasing rate.
c. decreasing at a constant rate. d. decreasing at an increasing rate.
15. The diagram (on the right) below shows the supply of oranges per week provided by Farmer
Jones.
When the price increases from €1.00 per pound to €2.00 per pound, the quantity supplied increases
to: a. 50. b. 100. c. 150. d. 500.
16. The cross-price elasticity of demand for substitute goods must be
a. greater than one. b. less than one. c. zero. d. greater than zero.
17. In a market where the government imposes a price control, the extent of the excess demand or
excess supply created will be determined by the
a. imposed price and the slope of the demand curve.
b. imposed price and the slope of the supply curve.
c. difference between quantity demanded and quantity supplied at the imposed price.
d. difference between the imposed price and the equilibrium price.
18. The government is thinking about increasing the tax on petrol to raise additional revenue rather
than to promote conservation. The tax will result in the greatest amount of tax revenue if the price
elasticity of demand for petrol equals: a. 1.8 b. 1.4 c. 1.0 d.0.5
19. If demand increases when supply is perfectly price elastic, then
a. consumer surplus will remain the same.
b. consumer surplus will increase.
c. it is not possible to predict the change in consumer surplus.
d. consumer surplus will decrease with the increase in price.
20. One response to increased oil prices that reflects the long-run price elasticity of demand and not
the short-run price elasticity is
a. petrol rationing. b. shorter family vacations. c. smaller cars. d. cooler homes and offices in winter.
21. Refer to the figure below. In this diagram, the price elasticity of supply between points A and B is:
a. 1.5 b. 0.33 c. 0.66 d. 3.33
22. Refer to the figure (on the left) below . Consider the impact of a €5 per unit tax in the market
described in this diagram. The equilibrium price and quantity exchanged in the market after the tax is
a. €100 and 25 units. b. €20 and 20 units. c. €24 and 19 units. d. €19 and 19 units.
23. If the government imposes a binding price floor on sugar, it may also have to
a. establish programs to expand supply in the private sector.
b. establish programs to reduce demand in the private sector.
c. produce some sugar itself.
d. purchase the surplus sugar.
24. A per-unit tax on a good creates deadweight loss because
a. it makes demand more price inelastic.
b. it makes supply more price elastic.
c. by increasing the price consumers pay, and reducing the price sellers receive, it prevents some
mutually beneficial trades.
d. the government wastes the tax revenues it receives.
25. Refer to the figure (on the left) below. Consider the impact of a €5 per unit tax in the market
described in this diagram. The deadweight loss attributable to the tax is: a. 2.5 b. 5.0 c. 95 d. 97.5