Economics 101 Afternoon Exam 10/10/06 1. Read both of the statements below and then determine which of the following answers is correct.A) Numbers suggest that population growth has been negative in the last decade in a few sub-Saharan African countries.B) If the current rate of negative GDP growth continues for 10 more years the countrywill revert back to 1995 GDP levels in absolute terms.a. A and B are both positive statements.b. A is a positive statement and B is a normative statement.c. B is a positive statement and A is a normative statement.d. A and B are both normative statements.Use the following information to answer the next two questions.Economies A and B both produce steel and aluminum. A can produce 300 tons of steel and 0 aluminum, 200 tons of aluminum and 0 tons of steel or any linear combination of the two pairs. B can produce 400 tons of steel and 0 aluminum, 300 tons of aluminum and 0 steel or any linear combination of the two pairs.2. Which of the following is true?a. The opportunity cost of producing 1 ton of steel in A is 1 ton of aluminum.b. The opportunity cost of producing 1 ton of aluminum in A is 3/2 tons of steel.c. The opportunity cost of producing 1 ton of steel in B is 1 ton of aluminum.d. The opportunity cost of producing 1 ton of steel in B is 4/3 tons of aluminum.3. Based on the above data which of the following statements is true?a. A has a comparative advantage in producing steel and an absolute advantage in producing aluminum.b. B has a comparative advantage in producing steel and an absolute advantage in producing aluminum.c. A has a comparative advantage in producing steel and also an absolute advantage in producing steel.d. B has a comparative advantage in producing aluminum and an absolute advantagein producing both aluminum and steel.Use the following information to answer the next question.Macro Island and Small Island produce Grapes and Cherries and have linear PPFs. Both Islands have the same level of resources. The following table shows how many units can be produced in each country per week at two different production points. 4. Small Island has a comparative advantage in the production of Grapes when X is a. greater than 10.b. smaller than 10.c. greater than 20.d. smaller than 20.5. Consider the market for donuts. Holding everything else constant, there is a change in the price of coffee. Donuts and coffee are complements. Therefore, if the price of coffee increases, the equilibrium price in the market for donuts will __________. Conversely, if the price of coffee decreases, then the equilibrium price will _________.a. Increase; decreaseb. Decrease; increasec. Increase; increased. Decrease; decrease6. Which of the following statements is TRUE about an economy which has a quota or tariff compared to an open economy with no impediments to international trade?a. Quotas reduce domestic consumer surplus only and tariffs reduce both domestic consumer surplus and domestic producer surplus.b. Quotas and tariffs reduce both domestic consumer surplus and domestic producer surplus.c. Quotas reduce domestic consumer surplus but increase domestic producer surplus.d. Tariffs reduce domestic consumer surplus only and quotas reduce both domestic consumer and domestic producer surplus.Use the following information to answer the next two questions.Macro IslandGrapes Cherries20 00 10Small IslandGrapes CherriesX 00 52An economy is engaged in producing ears of corn and oranges. The PPF for the economy is given below. A, B, C and D are four points on the PPF and they are consecutively connected by straight lines.A (0,100)B(5,80)C(10,50)D(15,0)7. The maximum ears of corn that can be produced when 8 oranges are being produced isa. 66.b. 74.c. 56.d. 62.8. Which of the following pairs is a feasible but NOT efficient production pair?a. (5,88)b. (7,74)c. (12,50)d. (6,54)3CORNORANGES9. Suppose that the demand curve for light beer in Madison is given by Qd=12 – 6P and the price is currently $1. Holding everything else constant, a. Madison beer producers could increase their total revenue by increasing the price of beer.b. Madison beer producers could increase their total revenue by decreasing the price of beer.c. Madison beer producers cannot increase their revenue by changing the price.d. Madison beer producers could increase their total revenue by decreasing the quality of light beer and thus making it much cheaper to produce. 10. Suppose an economy is engaged in the production of two goods A and B. If the PPF of the economy is bowed out (with A on the x axis and B on the y axis) which of the following statements is true?a. The opportunity cost of producing one more unit of A increases as we increase theproduction of A, but the opportunity cost of producing one more unit of B decreases as we increase the production of B.b. The opportunity cost of producing one more unit of A remains the same all along the PPF, and the opportunity cost of producing one more unit of B remains the same all along the PPF.c. The opportunity cost of producing one more unit of A decreases as we increase the production of A, and the opportunity cost of producing one more unit of B increases as we increase the production of B.d. The opportunity cost of producing 1 more unit of A increases as we increase the production of A, and the opportunity cost of producing one more unit of B increases as we increase the production of B.11. Suppose two economies A and B are engaged in producing oil and gold. Imagine that both economies have linear PPFs and that the two PPFs have different slopes. Which of the following statements CANNOT be true?a. Economy A can have an absolute advantage in producing both gold and oil.b. Economy A can have a comparative advantage in producing both gold and oil.c. Economy A can have a comparative advantage in producing gold and also an absolute advantage in producing gold.d. Economy A can have a comparative advantage in producing gold and an absolute advantage in producing oil.12. Suppose that the domestic demand for tea in an economy is given by P = 100 – Q and the domestic supply by P = Q + 10. If the world price of tea is $ 45 which of the following quota restrictions on the import of tea would NOT be effective in raising the price of tea domestic producers receive?a. A quota of 5 unitsb. A quota of 10 units4c. A quota of 15 unitsd. A quota of 25 unitsUse the following information to answer the next two questions.Consider a market for a good. The supply
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