Ag Econ 1041
Exam 1, 130 points
September 23, 2010
Name ________KEY__________________
8 a.m. Section
True/False – one point each
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T
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F
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F
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T
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F
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T
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T
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T
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T
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T
T
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T
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T
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F
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F
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T
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F
21.
Demand is a measure of the net marginal benefit of a good perceived by the
buyer.
Increases in income and the prices of substitutes would typically decrease the
demand of most goods.
If the price per gallon of gasoline declines from 2.69 to 2.49, we would expect
the quantity demanded of gasoline to increase.
The law of demand is illustrated by a demand curve that is upward sloping.
If consumer tastes changed in favor of cotton fabrics, the demand curve for
cotton shifts left.
A decrease in demand for Pepsi could be caused by an increase in the price of
Coke.
The price of textbooks would be expected to increase if the technology used in
printing textbooks improves.
Prices are signals that play a role in directing consumption of final outputs as
well as input choices by producers.
Marginal costs are a measure of the accumulated costs that change with
production.
Marginal utility is the change in a person’s satisfaction or well-being caused by
consuming an additional good or service.
The basic assumption made by economists about human behavior is that people
try to make themselves as well off as possible.
The fallacy of composition is the false assumption that what is true for the part
is certainly true for the whole.
A combination of goods beyond the production possibilities curve cannot be
produced currently.
A comparative advantage arises from having a lower opportunity cost.
Equilibrium is reached in a market when there is no reason to change from the
current price and quantity exchanged.
Demand is downward sloping because as price falls, we have more purchasing
power and the good with the lower price is a better deal.
Gasoline prices tend to rise fast when supplies are restricted because demand is
inelastic.
The supply of wheat may shift to the right if the weather is poor for producing
wheat.
As Post cereals lower the price for breakfast cereals, it expects sales of cereal to
decline.
Utility is a measure of the personal value that we get from a particular activity
or purchase.
If the price of hamburger decreases, we expect the price of hamburger buns to
fall.
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T
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T
25.
Our decision about the color of t-shirt is based on the difference in utility we
anticipate from the various colors.
The equilibrium price of bread is the price where buyers and sellers agree on the
amount of bread exchanged.
Demand is the relationship between price and the quantity the consumers are
willing and able to buy.
A comparative advantage is related to opportunity cost.
Multiple choice – two points each
__D___ 26. Demand and supply may be employed to explain how price is determined in
a) Product markets
b) Resource markets
c) Markets for foreign currency
d) All of the above
__A___ 27. The demand for oranges is more likely to shift to the right if
a) Incomes of consumer increase
b) The price of oranges decreases
c) Population decreases
d) The price of grapefruit decreases
__D___ 28. A decrease in demand and an increase in supply will
a) Increase price and increase the quantity exchanged
b) Decrease price and decrease the quantity exchanged
c) Increase price and the effect upon quantity exchanged will be indeterminate
d) Decrease price and the effect upon quantity exchanged will be indeterminate
__D___ 29. Which of the following could not cause an increase in the supply of cotton?
a) Improvements in the art of producing cotton
b) A decrease in the price of soybeans
c) A decrease in the price of machinery used in cotton production
d) An increase in the price of cotton
__C___ 30. The price elasticity of demand for a good is the response of
a) Demand to a one percent change in the price of that good
b) Demand to a one percent change in the price of a related good
c) Quantity demanded to a one percent change in the price of that good
d) Demand to a one percent change in income
2
__D___ 31. The demand for a good is inelastic with respect to price if the price elasticity of
demand is
a) Equal to one
b) Greater than one
c) Equal to negative one
d) Less than one
e) Greater than negative one
__C___ 32. Generally speaking, demand for a good will be more inelastic
a) When the good represents a large share of the consumer’s budget
b) In the long run
c) If few substitutes exists
d) If the product is not necessary
e) When many substitutes exist
__C___ 33. The supply curve is expected to be
a) Downward sloping to the right
b) Horizontal
c) Upward sloping to the right
d) Vertical
__B___ 34. If the price of a good increases by 20% and that leads to a decrease in quantity
demanded by 60%, what is the price elasticity for that good?
a) 30
b) 3
c) 1/3
d) 2/6
e) None of the above
__A___ 35. If consumers’ incomes increase, one would expect
a) The demand for theater tickets to shift to the right
b) The quantity demanded of theater tickets to increase
c) The price of theater tickets to decrease
d) The supply of theater tickets to decrease
e) None of the above
3
Short answers – five points each
36. Diagram the result in the ethanol industry when workers become more productive.
S
$Q or P
S1
P0
P1
D
0
Q0
Q1
Q
37. Sara eats salads more than hamburgers, which she consumes more than fish sandwiches.
Use the decision rule to explain why.
MU s > MU h > MU f
MC
MC
MC
38. Show with a diagram how price would remain the same when the quantity exchanged
decreases.
S1
$/Q or P
S
P0
D
D1
0
Q1
Q0
Q
39. List the market dimensions that distinguish individual markets.
Legal; cultural; standards & measurements; physical
4
40. Diagram a typical marginal utility curve. What happens if the price or cost rises for this
activity? __buy less or do less_________________
u/q
Mu
Q
41. Since I like Neil Young’s music everyone likes Neil Young’s music is an example of what?
Fallacy of composition
42. Why do reduced cheeseburger prices cause an increase in the quantity demanded of French
fries?
Complements
43. Why is demand downward sloping? (3 reasons)
Diminishing MU; income effect; substitution effect
44. What do we call the best option foregone when a decision is made?
Opportunity cost
45. Diagram the change in the market situation for winter coats when temperatures begin to
decline in the autumn.
S
P
P1
P0
D1
D
0
Q0 Q1
Q
5
46. Diagram the result of lower income in the market for flat screen televisions.
$/Q or P
S
P0
P1
D
D1
0
Q1 Q0
Q
Ten point questions
47. Diagram a production possibility curve for a hospital providing diagnostic and room care.
Show the change resulting from better technology that applies to both activities. Show an
output that is not efficient in either case.
diagnostic
inefficient
PPC0
PPC1
care
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48. Diagram the results of an increase in income for consumers in general and lower cost
technology for producers of mini tractors. Would you expect price to remain the same?
______no________________
P or $/Q
S
S1
P1
P0
D
0
Q0
Q1
D1
Q
49. Name the five determinants of demand and give an example of each as it relates to the
demand for t-shirts.
Utility
like more or less
Income
buy more or less
Price of other goods
substitute/complement
Expectations
more or less – Y, P or U
# of buyers
More ↑, less ↓
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