microeconomics midterm

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ECON 202-502, SPRING 2012

Principles of Microeconomics

Mid-term Exam 1

Instructor: Sung Ick Cho

1) In economics, choices must be made because we live in a world of

A) unemployment.

B) scarcity.

C) greed.

D) unlimited resources.

Answer: B

Comment: Recurring

Diff: 1 Page Ref: 4/4

Topic: Scarcity

Objective: LO1: Explain these three key economic ideas: People are rational. People

respond to incentives. Optimal decisions are made at the margin.

AACSB: Reflective Thinking

Special Feature: None

2) Soo Jin shares a one-bedroom apartment with her classmate. Her share of the rent

is $700 per month. She is considering moving to a studio apartment which she will

not have to share with anyone. The studio apartment rents for $950 per month.

Recently, you ran into Soo Jin on campus and she tells you that she has moved into

the studio apartment. Soo Jin is as rational as any other person. As an economics

major, you rightly conclude that

A) Soo Jin did not have a choice; her roommate was a slob.

B) Soo Jin figures that the additional benefit of having her own place (as opposed to

sharing) is at least $250.

C) Soo Jin figures that the benefit of having her own place (as opposed to sharing) is

at least $950.

D) the cost of having one's own space outweighs the benefits.

Answer: B

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Comment: Recurring


Topic: Optimal Decisions Are Made at the Margin

Objective: LO1: Explain these three key economic ideas: People are rational. People

respond to incentives. Optimal decisions are made at the margin.

AACSB: Analytic Skills


3) The idea that because of scarcity, producing more of one good or service means

producing less of another good or service refers to the economic concept of

A) optimization.

B) efficiency.

C) trade-off.

D) equity.

Answer: C

Comment: Recurring


Topic: Trade-offs

Objective: LO2: Discuss how an economy answers these questions: What goods and

services will be produced? How will the goods and services be produced? Who will

receive the goods and services?



Figure 1-2

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4) Refer to Figure 1-2. Calculate the area of the triangle A.

A) $1.3 million

B) $2.6 million

C) $3.4 million

D) $5.2 million

Answer: B

Comment: Recurring


Topic: Formulas

Skill: Graphing

Objective: Appendix: Review the use of graphs and formulas



5) The production possibilities frontier shows the ________ combinations of two

products that may be produced in a particular time period with available resources.

A) minimum attainable

B) maximum attainable

C) only

D) equitable

Answer: B

Comment: Recurring


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Topic: Production Possibilities Frontiers

Objective: LO1: Use a production possibilities frontier to analyze opportunity costs

and trade-offs



6) If the production possibilities frontier is ________, then opportunity costs are

constant as more of one good is produced.

A) bowed out

B) bowed in

C) non-linear

D) linear

Answer: D

Comment: Recurring


Topic: Production Possibilities Frontiers


and trade-offs



Figure 2-2

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Figure 2-2 above shows the production possibilities frontier for Mendonca, an

agrarian nation that produces two goods, meat and vegetables.

7) Refer to Figure 2-2. What is the opportunity cost of one pound of vegetables?

A) 43

pound of meat

B) 1.2 pounds of meat

C) 1 31

pounds of meat

D) 12 pounds of meat

Answer: A


Topic: Opportunity Cost

Skill: Graphing


and trade-offs


Special Feature: Solved Problem: Drawing a Production Possibilities Frontier for

Rosie's Boston Bakery

Figure 2-3

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8) Refer to Figure 2-3. Sergio Vignetto raises cattle and llamas on his land. His land

is equally suitable for raising either animal. Which of the graphs in Figure 2-3

represent his production possibilities frontier?

A) Graph A

B) Graph B

C) Graph C

D) either Graph A or Graph C

E) either Graph B or Graph C

Answer: A

Comment: Recurring



Skill: Graphing


and trade-offs



9) Refer to Figure 2-3. Sergio Vignetto raises cattle and llamas on his land. A

portion of his land is more suitable for raising cattle, and the other portion is better

suited for raising llamas. Which of the graphs in Figure 2-3 represent his production

possibilities frontier?

A) Graph A

B) Graph B

C) Graph C

D) either Graph A or Graph C

E) either Graph B or Graph C

Answer: C

Comment: Recurring



Skill: Graphing

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and trade-offs



Figure 2-5

10) Refer to Figure 2-5. If the economy is currently producing at point W, what is

the opportunity cost of moving to point X?

A) 3 million tons of steel

B) 19 million tons of steel

C) 5 million tons of paper

D) 9 million tons of paper

Answer: C



Skill: Graphing


and trade-offs


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Special Feature: An Inside LOOK: Detroit Challenges Hybrids with New

Technology

Figure 2-7

Figure 2-7 shows the production possibilities frontiers for Pakistan and Indonesia.

Each country produces two goods, cotton and cashews.

11) Refer to Figure 2-7. What is the opportunity cost of producing 1 bolt of cotton in

Pakistan?

A) 3/8 of a pound of cashews

B) 5/8 of a pound of cashews

C) 1 3/5 pounds of cashews

D) 150 pounds of cashews

Answer: B

Comment: Recurring

Diff: 2 Page Ref: 46-7/46-7


Skill: Graphing

Objective: LO2: Understand comparative advantage and explain how it is the basis

for trade



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12) Refer to Figure 2-7. Which country has a comparative advantage in the

production of cotton?

A) Indonesia

B) They have equal productive abilities.

C) Pakistan

D) neither country

Answer: A

Comment: Recurring


Topic: Comparative Advantage

Skill: Graphing


for trade



13) Refer to Figure 2-7. If the two countries have the same amount of resources and

the same technological knowledge, which country has an absolute advantage in the

production of cotton?

A) Indonesia

B) They have the same advantage.

C) Pakistan

D) cannot be determined

Answer: A

Comment: Recurring


Topic: Absolute Advantage

Skill: Graphing


for trade



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14) A movement along the demand curve for toothpaste would be caused by

A) a change in the price of toothbrushes.

B) a change in consumer income.

C) a change in the price of toothpaste.

D) a change in population.

Answer: C

Comment: Recurring


Topic: Quantity Demanded

Objective: LO1: Discuss the variables that influence demand.



Figure 3-1

15) Refer to Figure 3-1. An increase in population would be represented by a

movement from

A) A to B.

B) B to A.

C) D1 to D2.

D) D2 to D1.

Answer: C

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Comment: Recurring


Topic: Population and Demographics

Skill: Graphing




16) Refer to Figure 3-1. A decrease in the price of the product would be represented

by a movement from

A) A to B.

B) B to A.

C) D1 to D2.

D) D2 to D1.

Answer: A

Comment: Recurring


Topic: Quantity Demanded

Skill: Graphing




17) The following appeared in a Florida newspaper a week after a hurricane hit the

state. "Floridians are relieved that the storm produced no fatalities but

homeowners face weeks, if not months, of rebuilding. Matters are made worse by

the soaring prices of plywood and other building materials that always follow in a

hurricane's path. Complaints of profiteering and price gouging have not deterred

firms from raising their prices by over 100 percent." Which of the following offers

the best explanation for the price increases referred to in the article?

A) The hurricane reduced the number of suppliers of building materials.

B) The hurricane created an artificial shortage of building materials.

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C) The hurricane caused an increase in the demand for building materials.

D) There was a reduction in supply as firms shipped plywood and other materials to

locations not affected by the storm.

Answer: C

Comment: Recurring


Topic: Shifts in Demand

Objective: LO4: Use demand and supply graphs to predict changes in prices and

quantities.



18) Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200

for a new racquet, but buys one on sale for $125. Paul's consumer surplus from the

purchase is

A) $325

B) $200

C) $125

D) $75

Answer: D

Comment: Recurring


Topic: Consumer Surplus

Objective: LO1: Distinguish between the concepts of consumer surplus and

producer surplus.



Table 4-1

Consumer Willingness to Pay

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Tom $40

Dick 30

Harriet 25

19) Refer to Table 4-1. The table above lists the highest prices three consumers,

Tom, Dick and Harriet, are willing to pay for a short-sleeved polo shirt. If the price

of one of the shirts is $28 dollars

A) Tom will buy two shirts, Dick will buy one shirt and Harriet will buy no shirts.

B) Tom will receive $12 of consumer surplus from buying one shirt.

C) Tom and Dick receive a total of $70 of consumer surplus from buying one shirt

each. Harriet will buy no shirts.

D) Harriet will receive $25 of consumer surplus since she will buy no shirts.

Answer: B

Comment: Recurring




producer surplus.



20) Refer to Table 4-1. The table above lists the highest prices three consumers,

Tom, Dick and Harriet, are willing to pay for a short-sleeved polo shirt. If the price

of the shirts falls from $28 to $20

A) total consumer surplus increases from $14 to $35.

B) Tom will buy two shirts; Dick and Harriet will each buy one shirt.

C) consumer surplus will increase from $70 to $95.

D) Harriet will receive more consumer surplus than Tom or Dick.

Answer: A

Comment: Recurring



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producer surplus.



Figure 4-3

Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium

at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to

40 in order to raise the price to $18.

21) Refer to Figure 4-3. What is the value of consumer surplus at a price of $18?

A) $60

B) $120

C) $180

D) $240

Answer: A

Comment: Recurring


Topic: Economic Surplus

Skill: Graphing

Objective: LO2: Understand the concept of economic efficiency.


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22) Refer to Figure 4-3. At a price of $18 consumers are willing to buy 40 pounds of

tiger shrimp. Is this an economically efficient quantity?

A) No, the marginal benefit of the 40th unit exceeds the marginal cost of that 80th

unit.

B) Yes, otherwise consumers would not buy 40 units.

C) Yes, because $18 shows what consumers are willing to pay for the product.

D) No, the marginal cost of the 40th unit exceeds the marginal benefit of the 40th

unit.

Answer: A

Comment: Recurring


Topic: Economic Efficiency

Skill: Graphing

Objective: LO2: Understand the concept of economic efficiency.



23) In cities with rent controls, the actual rents paid can be higher than the legal

maximum. One explanation for this is

A) rent control laws are so complicated that landlords and tenants may not be aware

of what the legal price is.

B) landlords are allowed to charge more than the legal maximum on some

apartments so long as they charge less on others.

C) because there is a shortage of apartments, tenants often are willing to pay rents

higher than the law allows.

D) the legal penalty landlords face for charging more than the legal maximum rent is

less than the revenue earned by charging their tenants more than the maximum rent.

Answer: C


Topic: Price Ceilings

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Objective: LO3: Explain the economic effect of government-imposed price ceilings

and price floors.


Special Feature: Solved Problem: What's the Economic Effect of a "Black Market"

for Apartments?

Figure 4-8

Figure 4-8 shows the market for beer. The government plans to impose a unit tax in

this market.

24) Refer to Figure 4-8. How much of the tax is paid by buyers?

A) $2

B) $5

C) $7

D) $12

Answer: B

Comment: Recurring

Diff: 2 Page Ref: 112-113/112-113

Topic: Tax Incidence

Skill: Graphing

Objective: LO4: Analyze the economic impact of taxes.


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25) Refer to Figure 4-8. How much of the tax is paid by producers?

A) $2

B) $5

C) $7

D) $12

Answer: A

Comment: Recurring

Diff: 2 Page Ref: 112-113/112-113

Topic: Tax Incidence

Skill: Graphing

Objective: LO4: Analyze the economic impact of taxes.



microeconomics midterm

Documents

production

production

key economic

40th unit

soo jin figures

analyze opportunity

graphing analytic

sleeved polo