SL 151 Bremmer I Name CM September 20 2007 1st In Class Exam Chapters 1 7 pp 569 572 Part I Multiple Choice 3 points each For each of the following questions indicate the best answer in the space provided Figure 1 1 Referring the production possibilities curve in Figure 1 which of the following points represents a combination of goods that cannot be produced in this economy A Point A B Point B C Point C D Point D E Point E 2 A B C D E Referring to the production possibilities curve in Figure 1 if the economy is producing at point A the economy is at full employment and full production the output of clothing is at its maximum the output of clothing could increase only if food output were reduced the output of food and clothing could increase None of the above 3 Referring to Figure 1 which of the following statements is are true A Resources in this economy are not specialized and can be freely moved between clothing and food production at constant opportunity costs B The opportunity cost of producing one more unit of food is greater at point D than it is at point B C The opportunity cost of producing one more unit of food is greater at point B than it is at point D D Both A and B E Both A and C 4 A B C D E Which of the following will shift the production possibilities curve in Figure 1 to the right A decrease in the supply of raw materials The unemployment rate falls toward the level of unemployment that is consistent with full employment An improvement in technology A decrease in capital Both B and C The next two questions refer to Figure 2 in which line AB is Country I s production possibilities curve and line AC is Country I s after trade consumption possibilities curve Figure 2 5 Referring to the curves in Figure 2 you can correctly conclude that A Country I has a comparative advantage in producing gidgets B Country I has chosen to specialize in the production of gidgets C Country I is relatively more efficient than its trading partners in producing both widgets and gidgets D compared to other countries Country I gives up the smallest amount of gidgets when it produces one more widget E Both A and B 6 A B C D Referring to Figure 2 given free trade the international price or the terms of trade is the slope of line AB is the slope of line AC could lie anywhere between the slopes of lines AB and AC cannot be determined on the basis of the information given 7 Assume the demand for a product is perfectly inelastic If the government establishes a price floor which is 2 above the equilibrium then A there will be no shortage or surplus as the price floor isn t binding B the resulting surplus will be greater the more elastic the supply C the resulting surplus will be greater the less elastic the supply Page 1 D E 8 A B C D E the resulting shortage will be greater the more elastic the supply the resulting shortage will be greater the less elastic the supply Which of the following would cause the demand curve for good X to shift to the right A decrease in the price of good X A decrease in population Consumers expect the future price of good X will fall A fall in the price of good S a substitute for good X A decrease in income assuming good X is an inferior good 9 A B C D E Which of the following would cause the supply curve for good X to shift to the left Producers expect the future price of good X to fall A decrease in the number of firms A decrease in input prices A decrease in the price of good X The government gives producers a subsidy of 1 per unit 10 A B C D E If there is a surplus of good X you can correctly predict that the price of good X will rise the price of good X will decline the supply curve will shift to the right and the demand curve will shift to the left thereby eliminating the surplus the supply curve will shift to the left and the demand curve will shift to the right thereby eliminating the surplus Both B and C 11 A B C D E One can say with certainty that equilibrium quantity will decrease when supply and demand both increase supply increases and demand decreases supply and demand both decrease supply decreases and demand increases supply increases and demand remains constant 12 A B C D E Assume good X is a normal good Which of the following would cause the price of good X to increase A decrease in income An increase in the price of good K assuming goods X and K are complements A technological improvement in the production of good X Government imposes a 1 per unit excise tax on the producers of good X A decrease in the price of good S assuming consumers view goods X and S as substitutes 13 Assume the supply of good X is perfectly elastic while the demand for good X is a linear negatively sloped line If the government gives all producers of good X a 1 per unit subsidy then A the price of good X will increase by 1 B the price of good X will decrease by more than 1 C the price of good X will decrease by less then 1 D the price of good X will increase by less than 1 E the price of good X will fall by exactly 1 14 A B C Which of the following statements is are true If price increases and demand is elastic total revenue will increase If the demand for good X is a linear downward sloping line the price elasticity of demand will increase as price falls If demand is inelastic the absolute value of the percentage change in quantity demanded is greater than the absolute value of the percentage change in price D If demand is unitary elastic a decrease in price implies no change in total revenue E Given a horizontal demand curve at every quantity the price elasticity of demand is equal to zero 15 A B C D E Which of the following statements is false If the income elasticity of demand for lard is 3 00 lard is an inferior good If a linear positively sloped supply curve cuts the vertical axis at every price supply is elastic The cross price elasticity of demand between complementary products is positive If supply is perfectly elastic an increase in demand will not affect the market price but firms total revenue will increase If the price elasticity of demand equals 1 35 then demand is elastic Page 2 Page 3 Part II Short Answer Questions 55 points total For each of the following questions give a concise but complete answer When appropriate …