Ag Econ 1041
First Exam, 140 points
September 22, 2011
Name ________KEY________________________
8 a.m. Section
True/False – one point each
T
F
1.
Scarcity arises from wants exceeding available resources.
T
F
2.
There is a negative relationship between the price of a good and the quantity
supplied of that good.
T
F
3.
Scarcity is an issue only in a centrally planned economy.
T
F
4.
An increase in the price of attending college will reduce the supply of college
education available.
T
F
5.
Markets work best when the government dictates the price.
T
F
6.
Supply is upward sloping due to increasing opportunity costs.
T
F
7.
A decline in the price of vanilla ice cream will increase the demand for
vanilla ice cream.
T
F
8.
An increase in the price of hot dogs will likely increase the demand for hot
dog buns.
T
F
9.
An inferior good is one that experiences a decline in market demand when
consumers’ income increases.
T
F
10.
If I get more benefit out of the second hot dog at a St. Louis Cardinal’s game
than popcorn, I will buy the second hot dog before the popcorn.
T
F
11.
If the demand for gasoline decreases as supply increases, then the price of
gasoline will fall.
T
F
12.
If the income elasticity for rice is -0.8, rice is a normal good.
T
F
13.
The choice with the lowest opportunity cost also has the greatest net benefit.
T
F
14.
A reduction in price will increase the quantity demanded.
T
F
15.
Trade takes place when both the buyer and seller expect to be better off.
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T
F
16.
Increasing price provides an incentive to suppliers to make more available
for sale.
T
F
17.
Opportunity cost is what we give up when we act on a decision.
T
F
18.
Always buy the item that provides the greatest utility.
T
F
19.
Marginal utility always slopes upward.
T
F
20.
A person will be willing to buy a good if the ratio of marginal utility to
marginal cost is less than one.
T
F
21.
An explicit cost is one that must be paid to another party.
T
F
22.
Consumers have no impact on the prices they pay for goods at Wal-Mart or
other retail stores.
T
F
23.
My decision of purchasing an iPod depends on how many iPods are available
in Columbia.
T
F
24.
Scarcity can result from increases in demand.
T
F
25.
Since I enjoy fishing everyone must enjoy fishing, is an example of the
fallacy of composition.
T
F
26.
Marginality refers to incremental change.
T
F
27.
If there is a price increase for steak, we expect the demand for seafood to
decline.
T
F
28.
Incentives change at least some of our decisions.
T
F
29.
Voluntary exchange makes buyers worse off but sellers better off.
T
F
30.
An increase in price reduces demand.
Multiple choice – two points each
___c___ 31. As a result of a limited resources
a) People buy more goods
b) Businesses sell more products
c) Output choice must be made, which involve tradeoffs
d) All of the above
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___c___ 32. In economics, “capital” refers to
a) Money
b) Savings put aside for future investment
c) Goods that can be used to produce other goods
d) The value of a corporation’s assets
e) None of the above
___d___ 33. A market is defined as
a) A physical place where people buy only goods
b) A physical place where people buy both goods and services
c) A store where people buy physical goods
d) Any arrangement that brings buyers and sellers together
e) A place where one good is bartered for another
___d___ 34. The quantity demanded of a good or service is
a) A list of quantities demanded at different prices
b) A supply curve because the supply shows how much people will be able to
buy
c) The one quantity that is demanded at several different prices
d) One quantity at one price
e) The same as the demand for the good or service
___a___ 35. The price of cotton falls. As a result
a) The quantity demanded of cotton clothing increases
b) The demand for cotton increases
c) The quantity demanded of cotton clothing decreases
d) The demand for cotton clothing decreases
e) Both the demand and the quantity demanded of cotton clothing increases
___d___ 36. Because the supply of computers is increasing the
a) Quantity supplied is decreasing
b) Demand is elastic
c) Supply is elastic
d) Quantity demanded is increasing
e) Cross-price elasticity is increasing
___a___ 37. The cross elasticity of demand for butter and margarine is likely to be
a) Positive because they are substitutes
b) Positive because they are complements
c) Negative because they are substitutes
d) Negative because they are complements
e) Positive because they are normal goods
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___b___ 38. If the cross elasticity of demand between Coke and Pepsi is 2.02, then Coke and
Pepsi are
a) Complements
b) Substitutes
c) Normal goods
d) Inferior goods
e) Both answers B and C are correct
___a___ 39. The income elasticity of demand is
a) Positive for a normal good
b) Zero for an inferior good
c) Less than one for an income elastic normal good
d) Only answers A and B are correct
e) Answers A, B and C are correct
___c___ 40. The cross elasticity between computers and software is
a) Negative because they are substitutes
b) Positive because they are substitutes
c) Negative because they are complements
d) Positive because they are complements
e) Positive because they are normal goods
Short answers are valued at 5 points each
41. Use the decision rule to show the situation where you buy Coke instead of orange juice or
water.
MU c > MU oj > MU w
MC
MC
MC
42. The prices of new cars are lower than last year; however the quantity sold is approximately
the same. Income of consumers has fallen from last year. Diagram the changes in the car
market.
$/Q
S
S1
1
P0
P1
D1
Q0/Q1
D
Q
4
43. Diagram the market for airlines. Show the effects of increased fuel prices.
S1
$/Q
S
P1
P0
D
0
Q1 Q0
Q
44. What do all supply curves have in common when graphed?
Positive or upward slope
45. What causes a movement along the demand curve?
Change in price
46. What happens to the demand for computers when consumer income decreases?
Falls
47. Diagram the U.S. flower market. Show the changes that occur if wealth increases while the
price of flowers decreases.
$/Q
S
S1
P0
P1
D1
D
0
Q0
Q1
Q
5
48. All supermarkets in Columbia are having a sale on Coca-Cola. What happens to both
demand and supply for Pepsi? State and graph your response. ↓ D, S no change
$/Q
S
P0
P1
D
D1
0
Q1 Q0
Q
49. Why are markets a successful way for an economy to function?
Efficient
50. What do all demand curves have in common when graphed?
Downward or negative slope
51. If suddenly we expect prices for furniture to decline in the future, what happens to the
current demand for furniture?
Declines
52. What change does an increase in utility cause for amusement park rides?
D ↑ so P ↑ and Q ↑
53. What determines the equilibrium or market clearing price for backpacks?
Qs = Qd or D intersects S
54. A technological innovation in soybean farming will likely cause what change in market
outcomes? Why?
P ↓ Q ↑; S ↑
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55. Why might profitability increase for farmers if prices of farm products rise but reduce
profitability for a restaurant that raises its prices?
Price elasticity differences or farm products have inelastic demand, not restaurants
56. I regularly purchase orange juice, cookies, pears and bread. Last week I bought a lot of
orange juice, bread and no cookies or pears. Explain this using the decision rule.
MU oj ≈ MU b > MU c > MU p
MC
MC
MC
MC
57. What happens to the demand for most goods when income increases?
Demand ↑
58. How does the marginal utility from a good change as the quantity of the good increases?
It eventually diminishes
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