Homework Problems
for
Principles of Microeconomics
(Answers at back of packet)
Professor K. Leppel
- GRAPHS
1. If a line slopes upward from left to right, its slope is
a. positive. b. negative. c. zero. d. infinite.
2. If a line slopes downward from left to right, its slope is
a. positive. b. negative. c. zero. d. infinite.
3. If a line is vertical, its slope is
a. positive. b. negative. c. zero. d. infinite.
4. If a line is horizontal, its slope is
a. positive. b. negative. c. zero. d. infinite.
5. If the slope of a curve is positive and the curve is getting steeper as you move from left to right, the curve is
a. concave. b. convex. c. linear.
6. If the slope of a curve is positive and the curve is getting flatter as you move from left to right, the curve is
a. concave. b. convex. c. linear.
7. If the slope of a curve is negative and the curve is getting steeperas you move from left to right, the curve is
a. concave. b. convex. c. linear.
8. If the slope of a curve is negative and the curve is getting flatter as you move from left to right, the curve is
a. concave. b. convex. c. linear.
9. If Y = 10 - 5 X,
a. the vertical intercept is 5 the slope is 10.
b. the vertical intercept is 10 the slope is 5.
c. the vertical intercept is -5 the slope is 10.
d. the vertical intercept is 10 the slope is -5.
10. If Y = 5X - 10,
a. the vertical intercept is 5 the slope is 10.
b. the vertical intercept is 10 the slope is 5.
c. the vertical intercept is 5 the slope is -10.
d. the vertical intercept is -10 the slope is 5.
II. RESOURCE UTILIZATION
1. Individuals are forced to make choices because
a. human wants are limited. c. wants are unlimited resources are scarce.
b. the supply of resources is infinite. d. resources are unlimited.
2. When you use your priorities and values to make economic statements about what should be, you are using
a. macroeconomics.c. normative economics.
b. microeconomics.d. positive economics.
3. Suppose you had $1,000 to spend. If you spent it on a vacation trip rather than on new clothes, your second choice, or 1,000 lottery tickets, your third choice, what was your opportunity cost of going on a vacation trip?
a. $1,000 c. not buying the new clothes
b. the vacation trip itself d. not buying the lottery tickets
4. Each of the following is an example of an economic resource except
a. capital. b. labor. c. land. d. money.
5. Which of the following will shift an economy's production possibilities curve inward?
a. An improvement in technologyc. A decrease in land, labor or capital
b. An increase in the unemployment rate. d. A decrease in the unemployment rate
6. Economic growth can be shown by ______production possibilities curve.
a. an inward shift of thec. a movement from one point to another along the
b. an outward shift of thed. a movement to a point inside the
7. A point on the production possibility frontier represents
a. an output that it is not possible to produce.
b. full and efficient use of resources.
c. unemployment or inefficient use of resources.
8. A point above the production possibility frontier represents
a. an output that it is not possible to produce.
b. full and efficient use of resources.
c. unemployment or inefficient use of resources.
9. A point below the production possibility frontier represents
a. an output that it is not possible to produce.
b. full and efficient use of resources.
c. unemployment or inefficient use of resources.
10. When resources are NOT equally well-suited to producing the economy's goods, the production possibilities curve will be
a. concave. c. linear and upward sloping.
b. convex. d. linear and downward sloping.
11. Consider a country's production possibility curve for guns and butter. If the country is currently operating at the origin, it is producing
a. a moderate amount of both guns and butter. c. only butter.
b. only guns. d. no guns or butter.
12. If Mary has a lower opportunity cost in gardening than Sue, then
a. Mary must have an absolute advantage in gardening over Sue.
b. Sue must have an absolute advantage in gardening over Mary.
c. Mary must have a comparative advantage in gardening over Sue.
d. Sue must have a comparative advantage in gardening over Mary.
Use the information in this paragraph to answer questions 13-20. Suppose both Bolivia and Chile have straight line production possibility curves. Also, suppose if Bolivia used all its resources to produce only tin, it could produce 10 tons of tin; if it used all its resources to produce only copper, it could produce 12 tons of copper. If Chile produced only tin it could produce 8 tons of tin; if it produced only copper, it could produce 15 units of copper.
13. For Bolivia,the opportunity cost of producing 10 units of tin is ______units of copper;
the opportunity cost of producing 1 unit of tin is ______units of copper.
14. For Chile,the opportunity cost of producing 8 units of tin is ______units of copper;
the opportunity cost of producing 1 unit of tin is ______units of copper.
15. For Bolivia,the opportunity cost of producing 12 units of copper is ______units of tin.
the opportunity cost of producing 1 unit of copper is ______units of tin.
16. For Chile,the opportunity cost of producing 15 units of copper is ______units of tin.
the opportunity cost of producing 1 unit of copper is ______units of tin.
17. ______(Bolivia, Chile) has the comparative advantage in the production of tin and ______(Bolivia, Chile) has the comparative advantage in the production of copper.
18. Bolivia should produce and trade ______, while Chile should produce and trade ______.
19. Based on the answers to the previous questions,a unit of tin will trade for more than ______and less than ______units of copper.
20. Based on the answers to the previous questions, a unit of copper will trade for more than ______and less than ______units of tin.
III. SUPPLY AND DEMAND
1.If the price of a product increases,
a. supply increases. c. quantity supplied increases.
b. supply decreases. d. quantity supplied decreases.
2.If the price of a product increases,
a. demand increases. c. quantity demanded increases.
b. demand decreases. d. quantity demanded decreases.
3. If the price of a product decreases, there is a
a. leftward shift of the demand curve.
b. rightward shift of the demand curve.
c. leftward movement along the demand curve.
d. rightward movement along the demand curve.
4. If the price of a product decreases, there is a
a. leftward shift of the supply curve.
b. rightward shift of the supply curve.
c. leftward movement along the supply curve.
d. rightward movement along the supply curve.
5. When quantity demanded is greater than quantity supplied, market price will
a. rise. b. fall. c. stay the same.
6. If market price is above equilibrium price,
a. equilibrium price will rise.
b. equilibrium price will fall.
c. market price will rise.
d. market price will fall.
7. If the equilibrium price is $10, then a price of $12 could be a ______(ceiling, floor), and a ______(shortage, surplus) would result.
8. If demand decreases, the demand curve shifts to the ______(left, right).
9. If supply decreases, the supply curve shifts to the ______(left, right).
10. If demand increases, the demand curve shifts to the ______(left, right).
11. If supply increases, the supply curve shifts to the ______(left, right).
12. If demand for good increases when income increases, the good is
a. a complementary good.c. a normal good.
b. an inferior good.d. a substitute good.
13. If demand for good decreases when income increases, the good is
a. a complementary good.c. a normal good.
b. an inferior good.d. a substitute good.
14. Suppose when the price of good A increases, the demand for good B increases. Then good A is
a. a complementary good.c. a normal good.
b. an inferior good.d. a substitute good.
15. Suppose when the price of good A increases, the demand for good B decreases. Then good A is
a. a complementary good.c. a normal good.
b. an inferior good.d. a substitute good.
16. An increase in the wage rate paid to construction workers will tend to
a. increase the demand for homes.c. increase the supply of new homes.
b. decrease the demand for homes.d. decrease the supply of new homes.
17. Changes in demand are caused by changes in each of the following except
a. changes in income.c. changes in tastes and preferences.
b. changes in prices of related goods.d. changes in supply.
18. The supply of a good will increase if
a. the cost of an input used to produce the good increases.
b. an advance in technology occurs.
c. the weather becomes less favorable for growing the good.
d. all of the above.
19. If you increase demand and supply, does equilibrium quantity increase or decrease?
20. If you increase supply a little and increase demand a lot, does equilibrium price increase or decrease?
21. If you increase supply a lot and increase demand a little, does equilibrium price increase or decrease?
22. If you decrease demand and supply, does equilibrium quantity increase or decrease?
23. If you decrease supply a little and decrease demand a lot, does equilibrium price increase or decrease?
24. If you decrease supply a lot and decrease demand a little, does equilibrium price increase or decrease?
25. If you increase demand and decrease supply, does equilibrium price increase or decrease?
26. If you increase demand a lot and decrease supply a little, does equilibrium quantity increase or decrease?
27. If you increase demand a little and decrease supply a lot, does equilibrium quantity increase or decrease?
28. If you decrease demand and increase supply, does equilibrium price increase or decrease?
29. If you decrease demand a lot and increase supply a little, does equilibrium quantity increase or decrease?
30. If you decrease demand a little and increase supply a lot, does equilibrium quantity increase or decrease?
IV. MIXED ECONOMY & MARKET FAILURE
1. We have a mixed economy because
a. we produce guns and butter.
b. we consume domestically produced goods as well as imports.
c. we consume both goods and services.
d. there is a private sector and a public (or government) sector.
2. Which is the most accurate statement?
a. All countries have mixed economies.
b. China has a purely communist economy.
c. Russia has a purely socialistic economic system.
d. The United States has a purely capitalistic economy.
3. If a company is taxed on the pollution it emits,
a. the supply curve will shift to the left, the equilibrium quantity will decrease, and the equilibrium price will increase.
b. the supply curve will shift to the right, the equilibrium quantity will increase, and the equilibrium price will decrease.
c. the supply curve will shift to the left, the equilibrium quantity will decrease, and the equilibrium price will decrease.
d. the supply curve will shift to the right, the equilibrium quantity will increase, and the equilibrium price will increase.
4. In a pure capitalist economy, "what to produce" is determined by
a. a central planning board.
b. the price mechanism.
c. the issuing of government coupons used along with money to purchase goods.
d. None of these choices are true.
5. The U.S. economy does a good job with respect to
a. both equity and efficiency.c. efficiency, but not equity.
b. equity, but not efficiency.d. neither equity nor efficiency
6. The richest fifth of all American families receives ______percent of our total income.
a. almost 35 b. about 50c. more than 60 d. more than 75
7. Compared to their percentage shares in 1968, over the next 40 years, the percentage shares of each of the lowest four quintiles
a. rose substantially.c. stayed about the same.
b. rose somewhat.d. declined.
8. Between 1968 and 2008 the percentage share of income that went to the top quintile
a. decreased substantially. c. stayed the same.
b. decreased slightly. d. increased.
9. The government defines the poverty line as
a. the lowest income quintile (20%).
b. those receiving public assistance or eligible for public assistance.
c. anyone who does not have to pay federal income tax.
d. a specified dollar amount of income, depending on family size.
10. In an economy with perfect equality the Gini coefficient is equal to
a. 0b. 1c. 100d. infinity
V. PERCENTAGES AND ELASTICITY
1. If demand is inelastic and price is raised, total revenue will
a. rise c. stay the same
b. fall d. possibly rise or possibly fall
2. If demand is elastic and price is lowered, total revenue will
a. rise c. stay the same
b. fall d. possibly rise or possibly fall
3. Total revenue will remain the same when the price is changed, if demand has
a. zero elasticity. b. unit elasticity. c. infinite elasticity.
4. A 5 percent increase in the price of a productcauses the quantity demanded to fall by 15 percent. The demand for the productis
a. inelasticb. unit elastic c. elastic d. perfectly elastic
5. A 5 percent increase in the price of a productcauses the quantity demanded to fall by 5 percent. The demand for the productis
a. inelasticb. unit elastic c. elastic d. perfectly inelastic
6. A 5 percent increase in the price of a productcauses the quantity demanded to fall by 1 percent. The demand for the productis
a. inelasticb. unit elastic c. elastic d. perfectly elastic
7. A 5 percent increase in the price of a productleaves the quantity demanded unchanged. The demand for the productis
a. elasticb. unit elastic c. perfectly elastic d. perfectly inelastic
8. If the demand curve for a company's product is horizontal, the elasticity of demand is
a. inelasticb. unit elastic c. perfectly elastic d. perfectly inelastic
9. If a business advertises in an attempt to expand the demand and increase the brand loyalty for its product, it wants to push its product’s demand curve
a. to the right and to make it more elastic. c. to the left and make it more elastic.
b. to the right and make it less elastic.d. to the left and make it less elastic.
10. Suppose price increased from $45 to $55 and,in response, quantity demanded fell from 110 to 90. Calculate elasticity; state whether demand is elastic, unit elastic, or inelastic; and calculate total revenue when price was $45 and $55.
11. Suppose price increased from $45 to $55 and,in response, quantity demanded fell from 105 to 95. Calculate elasticity; state whether demand is elastic, unit elastic, or inelastic; and calculate total revenue when price was $45 and $55.
12. Suppose price increased from $45 to $55 and,in response, quantity demanded fell from 120 to 80. Calculate elasticity; state whether demand is elastic, unit elastic, or inelastic; and calculate total revenue when price was $45 and $55.
13. If the elasticity of demand is -5, by what percent would the seller need to reduce her price in order to increase the quantity sold by 50 percent?
14. If the elasticity of demand is -3, and the seller increased his price by 5 percent, by what percent would the quantity demanded decrease?
15. If supply is perfectly inelastic, a tax increase is borne
a. only by the buyer c. mostly by the buyer
b. only by the seller d. mostly by the seller
16. If the price of iPods decreases by 50 percent and the quantity of songs demanded on iTunes increases by 25 percent, determine the cross elasticity of demand for iPods and iTunes songs.
17. If the price of laser eye surgery falls by 50 percent and the quantity of contact lenses demanded falls by 25 percent, find the cross elasticity of demand for these two goods.
18. A positive cross elasticity of demand indicates that a good is
a. a complementb. inferior c. normald. a substitute
19. A negative cross elasticity of demand indicates that a good is
a. a complementb. inferior c. normald. a substitute
20. If S2 is more elastic than S1, then S2 is ______(steeper, flatter) than S1.
21. The price elasticity of supply is equal to
a. the change in the price divided by the change in the quantity supplied.
b. the change in the quantity supplied divided by the change in the price.
c. the percentage change in the price divided by the percentage change in the quantity supplied.
d. the percentage change in the quantity supplied divided by the percentage change in the price.
22. If your income rises by 20 percent and you decide to increase your purchases of clothing by 5 percent, find your income elasticity for clothing.
23. Suppose the income elasticity of demand for a good is positive. Then the good is
a. a complementb. inferior c. normald. a substitute
24. Suppose the income elasticity of demand for a good is negative. Then the good is
a. a complementb. inferior c. normald. a substitute
VI. TOTALS, AVERAGES, AND MARGINALS – PART 1
1. If total utility is increasing, then marginal utility is
a. positive.b. negative.c. increasing.d. decreasing.
2. If marginal utility is negative, total utility is
a. increasing.b. decreasing.c. at its maximum.d. at its minimum.
3. If marginal utility is positive but decreasing, total utility must be
a. increasing and the total utility curve getting steeper as you move from left to right.
b. increasing and the total utility curve getting flatter as you move from left to right.
c. decreasing and the total utility curve getting steeper as you move from left to right.
d. decreasing and the total utility curve getting flatteras you move from left to right.
4. If the marginal utility of a fifth cookie is less than the average utility of the first four cookies, then the average utility of five cookies will be ______the average utility of the first four cookies.
a. greater than b. less than c. the same as
5. If the marginal is greater than the average, then the average must be
a. increasingb. decreasingc. at its maximumd. at its minimum
VII. DEMAND AND UTILITY
1. According to the utility-maximization condition, you should consume goods such that
a. the average utility is the same for all goods.
b. the marginal utility is the same for all goods.
c. the total utility is the same for all goods.
d. none of the above.
2. Consider two goods, A and B, whose prices are 3 and 4 respectively. Suppose the marginal utility of good Ais 12 utils and the marginal utility of good B is also 12 utils. Suppose also that you are currently spending all of your money. To maximize your utility, you should
a. you should buy more ofeach good.c. you should buy more A and less B.
b. you should buy less of each good.d. you should buy more B and less A.
3. If you would be willing to spend $5 for a slice of pie and the price of a slice is $3, what is your consumer surplus?
4. You’re in the desert on an extremely hot day and become quite thirsty. Luckily you come upon a stand where they’re selling bottled water. You would be willing to pay $10 for the first bottle, $5 for the second bottle, and $1 for the third. Luckily they’re charging just a dollar. How many bottles do you buy? How much is your consumer surplus from water consumption?
Demand for CDsPrice / Quantity Demanded
10 / 1
8 / 2
6 / 3
4 / 4
2 / 5
5. Consider the demand schedule for CDs shown.
What is your marginal utility from the fourth CD?
What is your total utility from four CDs?
If the price is $2, how much will your consumer surplus be?
6. Consumer surplus is the area
a. above the demand curve below the price.c. below the demand curve above the price.
b. above the supply curve below the price.d. below the supply curve above the price.