This document contains an economics exam with multiple choice and short answer questions. The exam is divided into 6 pages and includes questions about international trade, costs and benefits of repairs, supply and demand diagrams, tax incidence, substitutes and complements, production possibilities, elasticities, and consumer choice. The student is asked to show work and explanations for their answers on the exam pages.
This document contains an economics exam with multiple choice and short answer questions. The exam is divided into 6 pages and includes questions about international trade, costs and benefits of repairs, supply and demand diagrams, tax incidence, substitutes and complements, production possibilities, elasticities, and consumer choice. The student is asked to show work and explanations for their answers on the exam pages.
This document contains an economics exam with multiple choice and short answer questions. The exam is divided into 6 pages and includes questions about international trade, costs and benefits of repairs, supply and demand diagrams, tax incidence, substitutes and complements, production possibilities, elasticities, and consumer choice. The student is asked to show work and explanations for their answers on the exam pages.
This document contains an economics exam with multiple choice and short answer questions. The exam is divided into 6 pages and includes questions about international trade, costs and benefits of repairs, supply and demand diagrams, tax incidence, substitutes and complements, production possibilities, elasticities, and consumer choice. The student is asked to show work and explanations for their answers on the exam pages.
First Name: ____________________ Student Number: ________________
Economics 100 Professor James E. Pesando
Term Test 1 October 23, 2009
Length: 1 hour, 5 minutes
Answer ALL questions in the space provided
Aids: Pen/ Pencil and non-programmable calculator
________________________________________________
Please enter the multiple choice answers in the box below: 1 2 3 4 5 6 7 8 ________________________________________________
Examiners report: question points 1 2 3 4 5
total
Page 2 of 6 Question 1 (16 points)
Russia can produce 50 cars per week or 200 computers per week. Japan can produce 20 cars per week or 20 computers per week.
(a) If trade takes place, which good will Russia export? Why?
(b) If the trade ratio is 2 computers for one car, would Russia gain from trade? Illustrate your answer by showing, in an appropriate diagram, the production possibilities frontier of Russia and Russias consumption possibilities.
(c) If the trade ratio were one computer for one car, would Russia gain from trade? Would Japan gain from trade? Explain your answer.
Page 3 of 6 Question 2 (8 points)
You purchase a broken machine for $600, knowing that you can sell it for $1,000 after it is repaired. You thought that the cost of the repairs would be $200, but discover that the cost will be $700.
(a) If you cannot resell the machine unless you fix it, should you pay for the repairs? Why or why not?
(b) Suppose you could sell the broken machine for $400. Because you would suffer a loss, you should not do so. Is this correct? Explain.
Question 3 (16 points)
The demand curve for apples is as follow:
Price Quantity Demanded
12 12 10 16 8 20 6 24 4 28
The supply of apples is perfectly inelastic. The equilibrium price of apples is $8 per apple.
(a) On a diagram, show the equilibrium price and quantity in this market.
Page 4 of 6
(b) The governments imposes a $2 sales tax on an apple, to be paid by sellers.
i) How much of the tax will be paid by buyers? How much will be paid by sellers? Explain your answer.
ii) By how much will market output change? Why?
Question 4 (28 points)
Explain whether the following statements are True, False, or Uncertain. (All marks are for the explanation).
(a) You buy a bottle of wine for $50. Your friend also buys the same bottle of wine, but pays $35. You could sell your bottle of wine for $40. If your next best alternative is to sell the wine, the opportunity cost if you choose to drink the wine is $50.
(b) Oranges and apples are substitutes. If the price of apples falls, and the total revenues received by orange producers falls, the demand for apples must be inelastic.
Page 5 of 6
(c) The government removes a sales tax of $10 that had been levied on sellers (i.e. sellers had to pay the tax). If the market price does not change, we can conclude that the supply curve is perfectly elastic.
(d) Two groups of students go out for pizza. Group A goes to a pizza shop where each student must pay $10 to enter, but can eat as many slices of pizza as he or she wants at no additional cost. Group B goes to a different pizza shop, where the students pay $2 for each slice of pizza they consume. Students in Group B will, on average, consume more slices of pizza.
5. Multiple Choice. Circle the correct answer. (28 points, 4 each)
For Questions 1) and 2) Your demand curve for baseball tickets is as follows:
1) You buy 2 tickets at $10 each. The value to you of the two tickets is:
(a) $10 (b) $20 (c) $30 (d) Less than $30, but more than $20 (e) $32
2) The game is sold out, and you must buy tickets from a scalper. The scalper offers to sell one ticket at $20 and a second ticket at $10. If you accept this offer, what is the value of your consumer surplus?
(a) $10 (b) $20 (c) $30 (d) More than 30, but less than $32 (e) $0 Page 6 of 6
3) A firm increases its price. Its demand curve is perfectly inelastic. As a result:
(a) quantity sold increases and total revenue increases; (b) quantity sold increases and total revenue declines; (c) quantity sold decreases and total revenue increases (d) quantity sold decreases and total revenue decreases; (e) none of the above.
4) The equilibrium wage rate for unskilled workers is $8 per hour. The government introduces a law which sets the minimum wage rate at $6 (so that an unskilled worker cannot be paid less than $6 per hour). As a result:
(a) employment of unskilled workers will fall; (b) the wage rate will fall; (c) firms will not want to hire as many unskilled workers; (d) the wage rate will rise; (e) none of the above.
5) Your demand curve for apples is unit elastic. If the price of apples goes down:
(a) you will consume more apples; (b) your total expenditure on apples will increase; (c) you will consume more oranges, a substitute for apples; (d) you will consume the same number of apples; (e) none of the above.
6) John can produce 10 units of X per week or 5 units of Y per week. Jane can produce 20 units of X per week or 10 units of Y per week. Which statement is true?
(a) John has a comparative advantage in the production of good X. (b) Jane will export good X, if trade occurs. (c) Jane will not benefit from trade. (d) Jane can produce good Y at a lower opportunity cost than John. (e) None of the above.
7) The price elasticity of demand for widgets is 4, while the income elasticity of demand is 2 (so widgets are a normal good). The supply curve for widgets is perfectly elastic. If there is an increase in income:
(a) price will rise and total revenue will fall; (b) price will rise and total revenue will increase; (c) price will rise and the impact on total revenue cannot be determined; (d) price will be unchanged and total revenue will increase; (e) none of the above.
8) The price of X is $5 and the price of Y is $10. At present, you are consuming 4 units of X and 6 units of Y. The marginal utility of the last unit consumed is 10 for good X and 22 for good Y. As a result:
(a) you should consume 6 units of good X; (b) you should consume more of good Y; (c) you should consume 5 units of good X; (d) you should not change your consumption of X and Y; (e) none of the above.