Name ______

ECO 2023 Principles of Macroeconomics

Test 1

Spring, 2002

Directions: Record the letter for the most correct answer for the multiple choice on your scantron (4 points each).

1.Which of the following is associated with macroeconomics?

  1. an examination of the incomes of Wharton Business School graduates
  2. an empirical investigation of the general price level and unemployment rates in the 1970s
  3. a study of the trend of corn prices since World War II
  4. a case study of pricing and production in the beer industry

2.Ben says: “The imposition of a tax on beer will raise its price.” Holly argues: “Taxes should be imposed on beer because college students drink too much.” We can conclude that:

a.Ben’s statement is normative, but Holly’s is positive.

  1. Holly’s statement is normative, but Ben’s is positive.

c.Both statements are normative.

d.Both statements are positive.

3. “If you leave a basketball game at the end of the third quarter, you will avoid traffic and get home more quickly. Therefore, everyone should leave the game early.” This illustrates the

a. moral hazard problem.

b.adverse selection problem.

c.fallacy of composition problem.

d.problem of normative criteria.

Production possibilities (alternatives)

ABCDEF

Capital goods543210

Consumer goods059121415

4. Refer to the above data. If the economy is producing at production alternative C, the opportunity cost of the fourth unit of capital goods will be:

  1. 4 units of capital goods.
  2. 2 units of capital goods.
  3. 4 units of consumer goods.
  4. 1.3 of a unit of consumer goods.
  5. 2 units of consumer goods.

5. Refer to the above data. In order for this economy to produce a total output of 4 units of capital goods and 7 units of consumer goods it must:

  1. increase its available resources or technology or both.
  2. use its resources more efficiently than the data in the table now indicate.
  3. allocate its available resources most efficiently among alternative uses.
  4. achieve the full employment of available resources.

6. Deltonia produces both consumer and capital goods. If it reduces the percentage of its output devoted to capital goods, then:

a. its rate of growth will tend to decline.

  1. its production possibilities curve will shift to the left.
  2. it must also reduce the percentage of its output devoted to consumer goods.

d. its rate of growth will tend to increase.

7. Suppose that in each of four successive years producers sell more of their product and at lower prices. This could be explained:

  1. by small annual increases in supply accompanied by large annual increases in demand.
  2. in terms of a stable supply curve and increasing demand.
  3. in terms of a stable demand curve and increasing supply.
  4. as an exception to the law of supply.

8. Assume a household would consume $100 worth of goods and services per week if its weekly income were zero and would spend an additional $80 per week for each $100 of income. Letting C represent consumption and Y represent income, the equation which summarizes this relationship is:

  1. C = 80 + 100Y.
  2. C = 100 + .8Y.
  3. C = 100 + 80Y.
  4. C = 80 + .1Y.

9. If in the market for beer there was an increase in the number of college fraternities in an area at the same time the price of hops (an ingredient in beer) went up, what would happen to the supply and demand curve for beer respectively?

  1. increase; decrease
  2. decrease; increase
  3. both decrease
  4. both increase

10. In the scenario in question 19 above, what would happen respectively to equilibrium price and quantity?

  1. increase; decrease
  2. decrease; increase
  3. both decrease
  4. indeterminate; increase

11.The opportunity cost of studying for an economics exam is:

a.high if you end up receiving a low score anyway.

b.measured by the lower grade you will receive on your English exam because you did not use the time to study English

c.determined by how much money you could have made from working during the time you spent studying

d.the highest-valued alternative that you sacrificed in order to study economics

12.Answer this question on the basis of the following information. The supply for commodity x is represented by the equation Qs = 750 + 5P and demand by the equation Qd = -25P +2550. The equilibrium price for X is:

a.2

b.50

c.60

d.40

e.90

13.Answer this question on the basis of the equations from the preceding question. The equilibrium quantity for X is:

a.800

b.650

c.1050

d.4000

e.450

14.When the price of a product increases, a consumer is willing to buy less of it with a given money income. This describes:

a.the cost effect

b.the inflationary effect

c.the income effect

d.the substitution effect

e.none of the above

15.You want to travel from Chicago to Denver either by bus or by airplane. The bus ticket costs $60 and the trip takes 12 hours. The plane ticket costs $160 and the plane trip takes 2 hours. What value would you have to place on your time in order to make the plane the cheapest way to travel?

a.at least $10.01 per hour

b.at least $ 8.01 per hour

c.at least $ 6.01 per hour

d.at least $ 4.01 per hour

16.Which of the following is a normative economic statement?

a.The temperature is high today.

b.The humidity is high today so golf would be uncomfortable.

c.Because the temperature is so hot today fewer golfers will pay to play today.

d.It should cool off later this evening, which should cause more business at the course.

17.AIn the wheat market, demand often exceeds supply and supply sometimes exceeds demand. The market quantity of corn rises and falls in response to changes in supply and demand.@ In which of these two statements are the terms Ademand@ and Asupply@ being used correctly?

a.in neither statement

b.in the second statement

c.in the first statement

d. in both statements

18.Refer to the above diagram. A price of $20 in this market will result in:

a.equilibrium.

b.a shortage of 50 units.

c.a surplus of 50 units.

d.a surplus of 100 units.

e.a shortage of 100 units.

19.Refer to the above diagram. The lowest price that sellers will be willing and able to accept for 200 units of this product is:

a.$30

b.$60

c.$40

d.$20

20.To say that people make decisions at the margin suggests that:

a.most people just barely get by on the incomes they earn and live from day to day on the very edge of subsistence

b. given a choice, most people would prefer to make their own decisions concerning the things that affect their lives.

c.they usually wait until the last minute before making a decision to buy a good

d.they weigh the additional costs and benefits of various goods and then purchase the one with the largest net benefit

TRUE-FALSE(2 point each)

DIRECTIONS:Blacken A if the statement is true and B if it is false on your scantron.

21. TFThe Law of Demand implies that what is true for the individual is necessarily true for the group.

22. TFThe production possibility curve reflects the monetary costs of two products.

23. TFThe fundamental problem associated with economics is the surplus of good beer.

24. TFIf price fall, there will be a decrease in supply.

25. TFAn effective price ceiling in a competitive market will result in persistent shortages of a product.

(5 points) 26. On a first quadrant graph on the back of your scantron, label the horizontal axis "tax rate in percent," and the vertical axis "tax revenue in dollars." Construct a curve that first increases at a decreasing rate from the origin to the right up until the next movement would be horizontal. Then, continue the curve so that it decreases at an increasing rate from left to right until it once again hits the horizontal axis. Label that point 100%. Label the point of maximum revenue "R," and then label two points on the curve ("A" and "B") where revenue would be the same, but with different tax rates.

(5 points) 27. Two countries, upper and lower Swabovia (two independent countries on the continent of North Damiki) have linear production possibility frontiers, for the production of two goods, relatias and freolates. Both goods are measured in tons. Lower Swabovia can produce 20 relatias if it allocates all of its resources to the production of this good, and 40 freolates if it is the only good produced. Upper Swabovia can produce at most 25 relatias or 100 freolates.

  1. What would constitute fair terms of trade between the two countries ______?
  2. Which country should specialize in the production of relatias? ______?

(place your answers to a and b on the back of your scantron identified as 27a and 27b.)

EXTRA CREDIT

(5 points) Suppose that the City of Jacksonville mandates that parking spaces around Alltel stadium may not be sold for less than $250 per parking space on game days. [PUT YOUR ANSWERS ON THE BACK OF YOUR SCANTRON]

  1. Identify what type of economic phenomenon this would imply and what it would cause (two words).
  2. What would this do to the price of parking spaces just beyond the City designated area ______?