1 ECON 202-503, SPRING 2011 Principles of Microeconomics Final Exam Wednesday, May 11th Instructor: Sung Ick Cho 1) Tabitha shares a flea market booth with her sister. Her share of the rent is $150 per month. She is considering moving to her own, larger booth which she will not have to share with anyone. The larger booth rents for $450 per month. Recently, you ran into Tabitha in the grocery store and she tells you that she has rented the larger booth. Tabitha is as rational as any other person. As an economics major, you rightly conclude that A) Tabitha did not have a choice; her sister was overcharging her. B) Tabitha figures that the additional benefit of having her own booth (as opposed to sharing) is at least $300. C) Tabitha figures that the benefit of having her own booth (as opposed to sharing) is at least $450. D) the cost of having one's own booth outweighs the benefits. Answer: B Comment: Recurring Diff: 2 Page Ref: 7/7 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 Special Feature: None 2) Competition forces firms to produce and sell products as long as the ________ to consumers exceeds the ________ of production. A) marginal benefit; marginal cost B) marginal benefit; marginal benefit
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ECON 202-503, SPRING 2011
Principles of Microeconomics
Final Exam
Wednesday, May 11th
Instructor: Sung Ick Cho
1) Tabitha shares a flea market booth with her sister. Her share of the rent is $150
per month. She is considering moving to her own, larger booth which she will not
have to share with anyone. The larger booth rents for $450 per month. Recently, you
ran into Tabitha in the grocery store and she tells you that she has rented the larger
booth. Tabitha is as rational as any other person. As an economics major, you
rightly conclude that
A) Tabitha did not have a choice; her sister was overcharging her.
B) Tabitha figures that the additional benefit of having her own booth (as opposed to
sharing) is at least $300.
C) Tabitha figures that the benefit of having her own booth (as opposed to sharing) is
at least $450.
D) the cost of having one's own booth outweighs the benefits.
Answer: B
Comment: Recurring
Diff: 2 Page Ref: 7/7
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
Special Feature: None
2) Competition forces firms to produce and sell products as long as the ________ to
consumers exceeds the ________ of production.
A) marginal benefit; marginal cost
B) marginal benefit; marginal benefit
2
C) marginal cost; marginal cost
D) marginal cost; marginal benefit
Answer: A
Comment: Recurring
Diff: 2 Page Ref: 10/10
Topic: Efficiency
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?
AACSB: Reflective Thinking
Special Feature: None
3) The economic analysis of minimum wage involves both normative and positive
analysis. Consider the following consequences of a minimum wage:
a. The minimum wage law causes unemployment.
b. Unemployment would be lower without a minimum wage law.
c. Minimum wage laws benefit some workers and harm others.
d. The minimum wage should be more than $7.25 per hour.
Which of the consequences above are positive statements and which are normative
statements?
A) a, b, and c are positive statements and d is a normative statement.
B) a and b are positive statements, c and d are normative statement.
C) Only a is a positive statement, b, c and d are normative statements.
D) a and c are positive statements, b and d are normative statements
Answer: A
Diff: 2 Page Ref: 13/13
Topic: Normative and Positive Analysis
Objective: LO3: Understand the role of models in economic analysis.
AACSB: Analytic Skills
3
Special Feature: Don't Let This Happen to YOU!: Don't Confuse Positive Analysis
with Normative Analysis
Figure F-1
4) Refer to Figure F-1. ________ is (are) inefficient in that not all resources are
being used.
A) Point A
B) Point B
C) Point C
D) Points A and C
Answer: A
Comment: Recurring
Diff: 1 Page Ref: 38/38
Topic: Production Possibilities Frontiers
Skill: Graphing
Objective: LO1: Use a production possibilities frontier to analyze opportunity costs
and trade-offs.
AACSB: Reflective Thinking
Special Feature: None
4
Figure F-2
Figure F-2 shows the production possibilities frontiers for Costa Rica and Guatemala.
Each country produces two goods, pineapples and coconuts.
5) Refer to Figure F-2. Which country has a comparative advantage in the
production of coconuts?
A) Guatemala
B) They have equal productive abilities.
C) Costa Rica
D) neither country
Answer: A
Comment: Recurring
Diff: 2 Page Ref: 46-47/46-47
Topic: Comparative Advantage
Skill: Graphing
Objective: LO2: Understand comparative advantage and explain how it is the basis
for trade.
AACSB: Analytic Skills
Special Feature: None
6) Refer to Figure F-2. 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 both pineapples and coconuts?
A) Guatemala
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B) neither country
C) Costa Rica
D) cannot be determined
Answer: B
Comment: Recurring
Diff: 2 Page Ref: 46-47/46-47
Topic: Absolute Advantage
Skill: Graphing
Objective: LO2: Understand comparative advantage and explain how it is the basis
for trade.
AACSB: Analytic Skills
Special Feature: None
Figure F-3
7) Refer to Figure F-3. An increase in the price of a complement would be
represented by a movement from
A) A to B.
B) B to A.
C) D1 to D2.
D) D2 to D1.
Answer: D
Comment: Recurring
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Diff: 2 Page Ref: 72/72
Topic: Price of Related Goods
Skill: Graphing
Objective: LO1: Discuss the variables that influence demand.
AACSB: Analytic Skills
Special Feature: None
8) The supply curve for umbrellas
A) shows the supply of umbrellas consumers are willing and able to buy at any given
price.
B) is downward sloping.
C) shows the relationship between the quantity of umbrellas firms are willing and
able to supply and the quantity of umbrellas consumers are willing and able to
purchase.
D) shows the relationship between the price of umbrellas and the quantity of
umbrellas supplied.
Answer: D
Comment: Recurring
Diff: 1 Page Ref: 74/74
Topic: Supply Curves
Objective: LO1: Discuss the variables that influence demand.
AACSB: Reflective Thinking
Special Feature: None
Figure F-4
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9) Refer to Figure F-4. The figure above represents the market for coffee
grinders. Assume that the market price is $21. Which of the following statement is
true?
A) There is a shortage that will cause the price to increase; quantity demanded will
then decrease and quantity supplied will increase until the price equals $25.
B) There is a shortage that will cause the price to increase; quantity supplied will
then decrease and quantity demanded will increase until the price equals $25.
C) There will be a shortage that will cause the price to increase; demand will then
decrease and supply will increase until the price equals $25.
D) There is a shortage that will cause the price to decrease; quantity demanded will
then increase and quantity supplied will decrease until the price equals $25.
Answer: A
Comment: Recurring
Diff: 2 Page Ref: 79/79
Topic: Shortage
Skill: Graphing
Objective: LO3: Use a graph to illustrate market equilibrium.
AACSB: Analytic Skills
Special Feature: None
Figure F-5
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Figure F-5 shows the market for granola. The market is initially in equilibrium at a
price of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2
in order to raise the price to P2.
10) Refer to Figure F-5. What area represents consumer surplus at P2?
A) A
B) A + B
C) B + C
D) A + B + D + F
Answer: A
Comment: Recurring
Diff: 1 Page Ref: 103-104/103-104
Topic: Economic Surplus
Skill: Graphing
Objective: LO2: Understand the concept of economic efficiency.
AACSB: Analytic Skills
Special Feature: None
Figure F-6
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Figure F-6 shows the market for cigarettes. The government plans to impose a unit
tax in this market.
11) Refer to Figure F-6. How much of the tax is paid by buyers?
A) $8
B) $5
C) $4
D) $3
Answer: D
Comment: Recurring
Diff: 2 Page Ref: 113/113
Topic: Tax Incidence
Skill: Graphing
Objective: LO4: Analyze the economic impact of taxes.
AACSB: Analytic Skills
Special Feature: None
12) Refer to Figure F-6. As a result of the tax, is there a loss in producer surplus?
A) Yes, because producers are not selling as many units now.
B) No, because the consumer pays the tax.
C) No, because the market reaches a new equilibrium
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D) No, because producers are able to raise the price to cover their tax burden.
Answer: A
Comment: Recurring
Diff: 2 Page Ref: 113/113
Topic: Tax Incidence
Skill: Graphing
Objective: LO4: Analyze the economic impact of taxes.
AACSB: Analytic Skills
Special Feature: None
13) To calculate the price elasticity of demand we divide
A) the percentage change in quantity demanded by the percentage change in price.
B) the percentage change in price by the percentage change in quantity demanded.
C) rise by the run.
D) the average price by the average quantity demanded.
Answer: A
Comment: Recurring
Diff: 1 Page Ref: 168-169/168-169
Topic: Price Elasticity of Demand
Objective: LO1: Define price elasticity of demand and understand how to measure
it.
AACSB: Reflective Thinking
Special Feature: None
Figure F-7
11
14) Refer to Figure F-7. The section of the demand curve labeled "A" represents
A) the inelastic section of the demand curve.
B) the unit-elastic section of the demand curve.
C) the elastic section of the demand curve.
D) the perfectly elastic section of the demand curve.
Answer: C
Comment: Recurring
Diff: 1 Page Ref: 169/169
Topic: Elastic and Inelastic Demand
Skill: Graphing
Objective: LO1: Define price elasticity of demand and understand how to measure
it.
AACSB: Reflective Thinking
Special Feature: None
15) Suppose when Nablom's Bakery raised the price of its breads by 10 percent, the
quantity demanded fell by 15 percent. What was the effect on sales revenue?
A) Sales revenue increased.
B) Sales revenue remained unchanged.
C) Sales revenue decreased.
D) It cannot be determined without information on prices.
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Answer: C
Comment: Recurring
Diff: 2 Page Ref: 177-178/177-178
Topic: Price Elasticity of Demand and Total Revenue
Objective: LO3: Understand the relationship between the price elasticity of demand
and total revenue.
AACSB: Reflective Thinking
Special Feature: None
Table F-1
Price Quantity
Demanded
Quantity
Supplied
$6 5,000 2,000
7 4,000 2,000
8 3,000 2,000
9 2,000 2,000
10 1,000 2,000
The town of Bloomfield is well known for its basketball team. The price of basketball
game tickets is determined by market forces. Table F-1 above shows the demand and
supply schedules for basketball games tickets.
16) Refer to Table F-1. What is the most distinctive feature of the supply curve?
A) The supply curve is perfectly inelastic.
B) The supply curve is horizontal.
C) The supply curve is upward sloping.
D) The supply curve is perfectly elastic.
Answer: A
Comment: Recurring
Diff: 2 Page Ref: 185-186/185-186
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Topic: Price Elasticity of Supply
Objective: LO6: Define price elasticity of supply and understand its main