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 Recurring Comment: Topic:

Diff: 1 Page Ref: 4/4 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 None Special Feature:

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
1

Comment: Topic:

Recurring

Diff: 2 Page Ref: 7/7 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 None Special Feature:

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 Recurring Comment:

Diff: 1 Page Ref: 8/8 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? AACSB: Reflective Thinking None Special Feature:

Figure 1-2

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 Recurring Comment: Topic: Skill:

Diff: 1 Page Ref: 33/33 Formulas Graphing Analytic Skills None

Objective: Appendix: Review the use of graphs and formulas AACSB: Special Feature:

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 Recurring
3

Comment:

Diff: 2 Page Ref: 38/38

Topic:

Production Possibilities Frontiers

Objective: LO1: Use a production possibilities frontier to analyze opportunity costs and trade-offs AACSB: Reflective Thinking None Special Feature:

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 Recurring Comment: Topic:

Diff: 2 Page Ref: 39/39 Production Possibilities Frontiers Objective: LO1: Use a production possibilities frontier to analyze opportunity costs and trade-offs AACSB: Reflective Thinking None Special Feature:

Figure 2-2

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?

3 A) 4 pound of meat
B) 1.2 pounds of meat

1 C) 1 3 pounds of meat
D) 12 pounds of meat Answer: Topic: Skill: A Opportunity Cost Graphing Diff: 2 Page Ref: 40/40

Objective: LO1: Use a production possibilities frontier to analyze opportunity costs and trade-offs AACSB: Analytic Skills Solved Problem: Drawing a Production Possibilities Frontier for Special Feature:

Rosie's Boston Bakery

Figure 2-3

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 Recurring Comment: Topic: Skill:

Diff: 2 Page Ref: 40/40 Opportunity Cost Graphing

Objective: LO1: Use a production possibilities frontier to analyze opportunity costs and trade-offs AACSB: Reflective Thinking None Sergio Vignetto raises cattle and llamas on his land. A Special Feature:

9) Refer to Figure 2-3.

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 Recurring Comment: Topic: Skill:

Diff: 2 Page Ref: 42/42 Opportunity Cost Graphing

6

Objective: LO1: Use a production possibilities frontier to analyze opportunity costs and trade-offs AACSB: Reflective Thinking None Special Feature:

Figure 2-5

10) Refer to Figure 2-5. 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: Topic: Skill: C Opportunity Cost Graphing Diff: 1 Page Ref: 43/43

If the economy is currently producing at point W, what is

the opportunity cost of moving to point X?

Objective: LO1: Use a production possibilities frontier to analyze opportunity costs and trade-offs AACSB: Analytic Skills

Special Feature: Technology Figure 2-7

An Inside LOOK: Detroit Challenges Hybrids with New

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 Recurring Comment: Topic: Skill:

Diff: 2 Page Ref: 46-7/46-7 Opportunity Cost Graphing

Objective: LO2: Understand comparative advantage and explain how it is the basis for trade AACSB: Analytic Skills None
8

Special Feature:

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 Recurring Comment: Topic: Skill:

Diff: 2 Page Ref: 46-7/46-7 Comparative Advantage Graphing

Objective: LO2: Understand comparative advantage and explain how it is the basis for trade AACSB: Analytic Skills None Special Feature:

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 Recurring Comment: Topic: Skill:

Diff: 2 Page Ref: 46-7/46-7 Absolute Advantage Graphing

Objective: LO2: Understand comparative advantage and explain how it is the basis for trade AACSB: Analytic Skills None
9

Special Feature:

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 Recurring Comment: Topic: AACSB:

Diff: 1 Page Ref: 68/68 Quantity Demanded Reflective Thinking None Objective: LO1: Discuss the variables that influence demand. Special Feature:

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
10

Comment: Topic: Skill:

Recurring

Diff: 2 Page Ref: 72/72 Population and Demographics Graphing Analytic Skills None

Objective: LO1: Discuss the variables that influence demand. AACSB: Special Feature:

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 Recurring Comment: Topic: Skill:

Diff: 2 Page Ref: 72/72 Quantity Demanded Graphing Analytic Skills None

Objective: LO1: Discuss the variables that influence demand. AACSB: Special Feature:

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 Matters are made worse by homeowners face weeks, if not months, of rebuilding. hurricane's path.

the soaring prices of plywood and other building materials that always follow in a 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.
11

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 Recurring Comment: Topic:

Diff: 2 Page Ref: 83/83 Shifts in Demand Objective: LO4: Use demand and supply graphs to predict changes in prices and quantities. AACSB: Analytic Skills None Special Feature:

18) Paul goes to Sportsmart to buy a new tennis racquet. for a new racquet, but buys one on sale for $125. purchase is A) $325 B) $200 C) $125 D) $75 Answer: D Recurring Comment: Topic:

He is willing to pay $200

Paul's consumer surplus from the

Diff: 1 Page Ref: 98/98 Consumer Surplus LO1: Distinguish between the concepts of consumer surplus and Analytic Skills None Objective: AACSB:

producer surplus. Special Feature:

Table 4-1 Consumer Willingness to Pay

12

Tom Dick Harriet 19) Refer to Table 4-1.

$40 30 25

The table above lists the highest prices three consumers, If the price

Tom, Dick and Harriet, are willing to pay for a short-sleeved polo shirt. 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. B Recurring D) Harriet will receive $25 of consumer surplus since she will buy no shirts. Answer: Comment: Topic:

Diff: 2 Page Ref: 99/99 Consumer Surplus LO1: Distinguish between the concepts of consumer surplus and Analytic Skills None The table above lists the highest prices three consumers, If the price Objective: AACSB:

producer surplus. Special Feature:

20) Refer to Table 4-1.

Tom, Dick and Harriet, are willing to pay for a short-sleeved polo shirt. 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 Recurring Comment: Topic:

Diff: 2 Page Ref: 99/99 Consumer Surplus

13

Objective: AACSB:

LO1: Distinguish between the concepts of consumer surplus and Analytic Skills None

producer surplus. Special Feature: 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 Recurring Comment:

Diff: 1 Page Ref: 104/104 Topic: Economic Surplus Skill: Graphing Analytic Skills
14

Objective: LO2: Understand the concept of economic efficiency. AACSB:

Special Feature:

None At a price of $18 consumers are willing to buy 40 pounds of

22) Refer to Figure 4-3.

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 Recurring Comment:

Diff: 1 Page Ref: 104/104 Topic: Economic Efficiency Skill: Graphing Analytic Skills None Objective: LO2: Understand the concept of economic efficiency. AACSB: Special Feature:

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: Topic: C Price Ceilings
15

Diff: 2 Page Ref: 109/109

Objective: LO3: Explain the economic effect of government-imposed price ceilings and price floors. AACSB: Reflective Thinking Solved Problem: What's the Economic Effect of a "Black Market" Special Feature: for Apartments? Figure 4-8

Figure 4-8 shows the market for beer. this market. 24) Refer to Figure 4-8. A) $2 B) $5 C) $7 D) $12 Answer: B Recurring Comment:

The government plans to impose a unit tax in

How much of the tax is paid by buyers?

Diff: 2 Page Ref: 112-113/112-113 Topic: Tax Incidence Skill: Graphing Analytic Skills
16

Objective: LO4: Analyze the economic impact of taxes. AACSB:

Special Feature:

None How much of the tax is paid by producers?

25) Refer to Figure 4-8. A) $2 B) $5 C) $7 D) $12 Answer: A Recurring Comment:

Diff: 2 Page Ref: 112-113/112-113 Topic: Tax Incidence Skill: Graphing Analytic Skills None Objective: LO4: Analyze the economic impact of taxes. AACSB: Special Feature:

17