ECN 6100 WINTER 2016 CH. 1-7 - 96622

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Question ECN 6100 Winter 2016 Ch. 1-7 Multiple Choice (5 points per question) Identify the choice that best completes the statement or answers the question. 1. A normative economic statement: a. is a model used to collect data. b. is a statement of fact. c. is a statement of what ought to be, not what is. d. indicates what will occur if certain assumptions are true. 2. If everyone expects the price of almonds to rise in the near future, what will happen to the market for almonds? a. People will buy the same amount now. b. People will buy less now, causing a decrease in demand. c. The amount bought and sold today will increase. d. The supply will increase today. e. The amount bought and sold today will decrease. 3. Which of the following may cause a change in demand (shift to a new demand schedule) for a product? a. A change in the profitability of producing another product b. A decrease in the cost of producing the product c. A change in consumer incomes d. A change in the price of the product e. A change in the plans of producers Table 2.3 Table 2.3 Price per Loaf Quantity Demanded Quantity Supplied $5 $4 $3 $2 $1 30 48 66 84 102 102 84 66 48 30 4. Beginning with equilibrium in Table 2.3, an increase in price of $1 would a. cause a shortage of 36. b. cause a surplus of 36. c. cause a shortage of 72. d. cause a surplus of 72. e. lead to an increase in demand. 5. An equilibrium in a market results when the market a. produces a surplus. b. produces an output at which the price consumers are willing to pay exactly equals the price producers are willing to accept. c. produces an output at which the demand curve lies above the supply curve. d. results in a product that can be purchased at many different prices. e. produces an output at which the supply curve lies above the demand curve. Exhibit 2-10 Production possibilities curve data A B C D E Capital goods 0 1 2 3 4 Consumption goods 25 23 19 13 0 6. Suppose an economy is faced with the production possibilities table shown in Exhibit 2-10. The second unit of capital goods production will cost ____ units of consumption goods, and the third unit of capital goods production will cost ____ units of consumption goods. a. 4; 6 b. 25; 23 c. 23; 19 d. 1; 23 e. 2; 19 7. The ability to produce at a lower opportunity cost than someone else is referred to as: a. absolute advantage. b. comparative advantage. c. absolute superiority. d. competitive disadvantage. e. comparative disadvantage. 8. Table 3.1 shows the quantities demanded and supplied at different prices. If the price were $1.40, a. the excess demand would cause the price to fall. b. the excess demand would cause the price to rise. c. the market would be in equilibrium. d. the excess supply would cause the price to fall. e. the excess supply would cause the price to rise. 9. To finance medical care, the federal government raises the tax per pack paid by sellers of cigarettes. Other things being equal, the price of cigarettes rises because of a(n): a. upward movement along the supply curve for cigarettes. b. rightward shift of the supply curve for cigarettes. c. upward movement along the demand curve for cigarettes. d. leftward shift of the supply curve for cigarettes. 10. If the quantity supplied of a product decreases at every price (shifting the supply curve leftward) and the demand curve for the product is relatively inelastic, equilibrium quantity will _____, equilibrium price will _____, but equilibrium _____ will change proportionately more. a. decrease; increase; price b. increase; decrease; price c. decrease; decrease; price d. increase; increase; quantity e. increase; decrease; quantity Exhibit 4-3 Supply and demand curves 11. Initially the market shown in Exhibit 4-3 is in equilibrium at P3, Q3 (E3). Changes in market conditions result in a new equilibrium at P2, Q2 (E2). This change is stated as a(n): decrease (shift) in demand and an increase (shift) in supply. decrease (shift) in demand and a decrease in quantity supplied. decrease in quantity demanded and an increase in quantity supplied. decrease in quantity demanded and an increase (shift) in supply. 12. Which of the following is not a common [non-price] effect of imposing a rent control? a. Discriminatory practices by landlords. b. More time on waiting lists and searching for housing. c. A "black market" for rentals. d. An excess supply of rentals at the controlled price. 13. [Formula: Elasticity = % change in Quantity Demanded / % change in Price] Assume that the price elasticity of demand is 0.20. Given a 10 percent increase in price, we will see a a. 20 percent increase in the quantity demanded. b. 2 percent decrease in the quantity demanded. c. 20 percent decrease in the quantity demanded. d. 0.2 percent decrease in the quantity demanded. e. 2 percent increase in the quantity demanded. 14. If the total cost of producing 6 units is $228 and the total cost of producing 7 units is $245, what is the marginal cost of producing the seventh unit? $35 $245 $3 $38 $17 15. Consider the market for bicycles. If a dealer cuts prices by 10 percent and sells 20 percent more bikes, then demand for bicycles is: a. inelastic, and total revenue will increase. b. elastic, and total revenue will increase. c. inelastic, and total revenue will decrease. d. elastic, and total revenue will decrease. e. unit elastic, and total revenue will remain the same. 16. The marginal product of labor can be defined as: a. the change in profit divided by the change in labor, other factors of production held constant. b. the change in total output divided by the change in labor, other factors of production held constant. c. the total output divided by the total labor utilized. d. the change in labor utilized divided by the change in total output, other factors of production held constant. e. the change in labor utilized divided by the change in total output, other factors of production held constant. 17. Use the table below to answer the following question. Units of Output Total Fixed Cost (dollars) Total Variable Cost (dollars) 1 1,000 1,200 2 1,000 2,400 3 1,000 3,600 4 1,000 5,000 5 1,000 6,600 What is the average total cost at an output level of four units? a. $1,200. b. $1,400. c. $1,500. d. $2,000. 18. A profit-maximizing firm that is operating in the short run will sell an additional unit of output as long as: a. as doing so reduces the firm's per-unit costs. b. doing so reduces the firm's marginal costs. c. doing so adds more to revenue than it adds to cost. d. there is additional plant capacity with which to produce. Figure 7-C 19. Refer to Figure 7-C. If the market price decreased from the equilibrium price to $4.70 in Graph B, this firm should: a. seek to increase its marginal costs. b. increase output. c. decrease output. d. continue producing the same level of output. 20. A firm that is a price taker in a perfectly competitive market can: a. substantially change the market price of its product by changing its level of production. b. sell all of its output at the market price. c. sell some of its output at a price higher than the market price. d. decide what price to charge for its product. Exhibit 7-11 A firm's cost and marginal revenue curves 21. In Exhibit 7-11, when the price is $5, the firm: a. is making a profit.. b. should produce output equal to 10. c. is breaking even. d. should produce output equal to 8.. e. should produce output equal to 7. 22. If the demand curve for a product is relatively inelastic and there is a fall in the price of an input used in the manufacture of the product, equilibrium quantity will _____, equilibrium price will _____, but equilibrium _____ will change proportionately more. decrease; decrease; price increase; decrease; price increase; increase; quantity increase; decrease; quantity increase; increase; price 23. Figure 4.5 shows a shift of the supply curve for a product from S1 to S2, as a result of a tax levied on the product. The amount of the tax is _____ and the amount of the tax the consumers bear is _____. P2 – P1; P3 – P2 P3 – P1; P3 – P2 P3 – P1; P2 – P1 P3 – P2; P2 – P1 P2 – P1; P3 – P1 True/False (3 points per question) Indicate whether the statement is true or false. 24. The statement "The income tax is unfair to those who work hard to earn their incomes" is an example of positive economic analysis. True False 25. The demand schedule is a table or list of the prices and corresponding quantities demanded of a particular good or service. True False 26. More television sets are being sold today than one year ago, and the selling price has increased. This could have been caused by an increase in demand. True False 27. All points on the production possibilities curve represent efficient levels of production. True False 28. If input prices increase, the supply curve for cheese will shift to the right. True False 29. If the supply curve decreases while the demand curve remains unchanged, the equilibrium price would decrease. True False 30. As output increases, marginal cost increases, reaches a maximum, and then falls. True False 31. From an economic perspective, one of the problems with the illegal drug market is that drug suppliers do not pay income taxes or social security taxes. True False Short Answer/Essay (11 points available) 32. You have been hired by the city to determine whether or not an increase in the price of tickets for the mass transit system would raise system revenues. The debate has been heated and the city council seems to be divided. One side argues that in order to increase revenues from the transit system, prices must be increased. The opposing side argues that a price increase at this time will lower revenues. What assumptions are each side making about the price elasticity of demand, and how might you determine the best course of action?
Solution Description

Question

ECN 6100 Winter 2016 Ch. 1-7

Multiple Choice (5 points per question)

Identify the choice that best completes the statement or answers the question.

1. A normative economic statement:

a. is a model used to collect data.

b. is a statement of fact.

c. is a statement of what ought to be, not what is.

d. indicates what will occur if certain assumptions are true.

2. If everyone expects the price of almonds to rise in the near future, what will happen to the market for almonds?

a. People will buy the same amount now.

b. People will buy less now, causing a decrease in demand.

c. The amount bought and sold today will increase.

d. The supply will increase today.

e. The amount bought and sold today will decrease.

3. Which of the following may cause a change in demand (shift to a new demand schedule) for a product?

a. A change in the profitability of producing another product

b. A decrease in the cost of producing the product

c. A change in consumer incomes

d. A change in the price of the product

e. A change in the plans of producers

Table 2.3

Table 2.3

Price per Loaf

Quantity Demanded

Quantity Supplied

$5

$4

$3

$2

$1

30

48

66

84

102

102

84

66

48

30

 

4. Beginning with equilibrium in Table 2.3, an increase in price of $1 would

a. cause a shortage of 36.

b. cause a surplus of 36.

c. cause a shortage of 72.

d. cause a surplus of 72.

e. lead to an increase in demand.

5. An equilibrium in a market results when the market

a. produces a surplus.

b. produces an output at which the price consumers are willing to pay exactly equals the price producers are willing to accept.

c. produces an output at which the demand curve lies above the supply curve.

d. results in a product that can be purchased at many dif