Ag Econ 1041
First Exam, 140 points
September 22, 2011
Name _______KEY_________________________
11 a.m. Section
True/False – one point each
T
F
1.
If after I consume three pieces of pizza, the value of the utility is less than the price,
I will buy a fourth piece.
T
F
2.
Coca Cola’s increase in sales suggests a decrease in demand.
T
F
3.
Diminishing marginal utility will lead to an increase in my willingness to pay more
for subsequent units of a good.
T
F
4.
Income elasticity information can be very important if incomes are changing
substantially within a given market.
T
F
5.
Property rights of citizens must be protected for free markets and capitalism to be
effective at creating wealth.
T
F
6.
If demand is elastic then the elasticity coefficient is greater than one and marginal
revenue is positive.
T
F
7.
Voluntary exchange makes both buyers and sellers worse off.
T
F
8.
Scarcity is only a problem in a market economy.
T
F
9.
The fallacy of composition is the false assumption that what is true for the part is
true for the whole.
T
F
10.
In the case of positive relationships, two variables move in the same direction, both
increase or both decrease.
T
F
11.
Scarcity arises from the mismatch of wants and available resources.
T
F
12.
Choosing the alternative with the highest opportunity cost is the same as choosing
the alternative where MU > MC by the greatest amount.
T
F
13.
A firm need not provide utility in excess of cost to a consumer after the firm
becomes large.
T
F
14.
Marginal utility will eventually increase as we consume more of a good.
T
F
15.
Demand represents the lowest opportunity cost for a good at various levels of price.
1
T
F
16.
Decisions are made based on marginal benefits and costs, not total benefits and
costs.
T
F
17.
If we get less utility from a good today than yesterday, demand has increased.
T
F
18.
Increased scarcity would cause prices to fall.
T
F
19.
Elasticity is the same as slope.
T
F
20.
The decision to build an additional parking garage on campus should be based on
the average number of parking spaces occupied.
T
F
21.
When you buy a bottle of water or juice you make the seller better off but you are
not better off.
T
F
22.
As we consume more of a favorite food in a day its value to us will eventually
decline.
T
F
23.
Demand for rice slopes downward because of the income and substitution effects.
T
F
24.
Since I enjoy chocolate everyone must enjoy chocolate.
T
F
25.
A rising price is a signal to sellers to produce less.
T
F
26.
Choosing the option with the lowest opportunity cost is the same as choosing the
option with the highest net benefit.
T
F
27.
We always rent the housing that will provide us with the greatest utility.
T
F
28.
Property rights must be clear and defendable for a free market to function
effectively.
T
F
29.
Demand will change as the price of complements and substitutes change.
T
F
30.
An increase in income will cause the short run supply to increase or shift to the
right.
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Multiple choice – two points each
___d___ 31. Hot dogs and hot dog buns are complements. If the price of hot dogs falls,
a) The demand for hot dogs will increase
b) The demand for hot dog buns will decrease
c) The quantity demanded of hot dogs will decrease
d) The demand for hot dog buns will increase
e) The quantity demanded of hot dog buns will increase
___b___ 32. A buyer is said to have demand for a good only when
a) The buyer wants to own the good
b) The buyer is both willing and able to purchase the good
c) The price of the good is low
d) There is adequate supply of the good available for purchase
___c___ 33. Which of the following can change without shifting the demand curve?
a) Income
b) Taste
c) The price of the good itself
d) The price of other goods
e) All of the above
___b___ 34. The price elasticity of demand is a measure of
a) The equilibrium price of a product
b) Buyers’ responsiveness to changes in the price of a product
c) The amount of a product purchased when income increases
d) Whether a product is a substitute or a complement
e) How much a change in demand affects the equilibrium price
___a___ 35. The opportunity cost of buying a good rises only slightly as the quantity
bought increases. This good has
a) An inelastic demand
b) An elastic demand
c) An elastic supply
d) An inelastic supply
e) A perfectly elastic supply
___b___ 36. If the percentage change in the price of a good exceeds the percentage change in
the quantity demanded, then the demand is
a) Elastic
b) Inelastic
c) Unit elastic
d) Perfectly inelastic
e) Perfectly elastic
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___c___ 37. The market demand curve
a) Cannot show how quantity demanded responds to a price change
b) Can show a change in demand for a good
c) Is the horizontal sum of individual demand curves
d) Is the vertical sum of individual demand curves
e) Is upward sloping
___c___ 38. If income increases and the demand for bus rides decreases,
a) Bus rides are a normal good
b) Consumers are behaving irrationally
c) Bus rides are an inferior good
d) Bus rides are a substitute
e) Bus rides must be a complement good with some other good
___c___ 39. The law of supply states that other things remaining the same,
a) Demand increases when supply increases
b) If the price of a good increases, firms buy less of it
c) If the price of a good increases, the quantity supplied increases
d) As people’s income increase, the supply of goods increases
e) If the price of a good increases, the supply increases
___b___ 40. A supply curve
a) Slopes downward
b) Slopes upward
c) Is a graph of the relationship between quantity supplied of a good and its price
d) Both answers B and C are correct
e) Both answers A and C are correct
Short answers are valued at five points each
41. All supermarkets in Columbia are having a sale on Coca Cola. What happens to both
demand and supply for Pepsi? Graph your response. Dp ↓; no change in S
S
$/Q
P0
P1
D
D1
0
Q1 Q0
4
42. Diagram the market for gasoline in Missouri. Now show on the same graph the
impact of decreased income.
S
P = $/Q
P0
P1
D
D1
0
Q1
Q0
Q
43. Farmers in Missouri are prepared to raise either soybeans or corn. Draw the market situation
for corn. Now on the same graph show the impact of rising soybean prices.
P = $/Q
S1
S
P1
P0
D
0
Q1 Q0
Q
44. Differentiate between a movement along a supply curve and a shift in the supply curve.
P = $/Q
movement
$/Q
S
P1
P0
D1
D1
0
Q0
Q1
Q
0
D
Q
5
45. Free markets require that people have certain rights protected. What kind of rights?
Property rights
46. Nathan would not be interested in more pizza eventually because of what?
Diminishing marginal utility
47. What happens to the supply of soybeans if the price of herbicides and fertilizer increase?
S↓
48. Diagram the market for bagels showing the result of higher input costs and lower prices for
consumption complements.
$/Q
S1
S
P1
P0
D0
Q0
Q
D1
Q
49. Use the decision rule to show why a person purchases five boxes of cookies, two bags of
chips and one apple.
MU cookies > MU chips > MU apple
MC
MC
MC
6
50. Beef prices are rising due to increased feed costs and drought. Diagram this situation.
$/Q
S1
S
P1
P0
D
0
Q1
Q0
Q
51. Diagram the situation as we consume more of a good during a given time period.
u/q
MU
Q
52. If I own a hotel and learn demand for room rentals is inelastic, how should I change price if
at all?
Raise price
53. Use the decision rule to show why a person would chose to buy cut flowers rather than a
potted plant.
MU f > MU p
MC
MC
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54. Ethanol prices are rising due to rising gasoline and corn prices. Diagram this situation.
$/Q
S1
S
P1
P0
D
Q1 Q0
55. On the same graph draw a demand and supply curve that represents the market for apples.
Show the market result of a large harvest.
$/Q
S
S1
P0
P1
D
0
Q0 Q1
Q
56. Show on a diagram the relationships that exist among demand, marginal revenue and
own-price elasticity.
$/Q
Ep > 1
Ep < 1
D
0
Q
MR
8
The following question is valued at 10 points
57. The following relate to elasticity
a) What type of good has an income elasticity of 0.4? _____normal_________________
b) Which way will the demand curve shift for a good with an income elasticity of -0.2 if
income falls? __increase_________________
c) If the % change in quantity demanded is greater than the relative change in price,
demand is _elastic__________________
d) Complements have a __negative_____________ cross price elasticity
e) If I want to increase the revenue I earn from selling a product and the own price
elasticity of demand is 0.82, what should I try to do? __raise price_______________
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