SL 151 Bremmer II Name CM December 20 2005 1st In Class Exam Chapters 1 7 Part I Multiple Choice 3 points each For each of the following questions indicate the best answer in the space provided 1 A B C D E Which of the following would shift the supply curve of good X to the left A decrease in the price of an input used to produce good X An improvement in the technology used to produce good X An increase in the number of firms that produce good X A decrease in the price of X None of these answers 2 According to the average product and marginal product curves shown in Figure 1 diminishing returns initially sets in when D workers are hired output is maximized when B workers are hired output is maximized when C workers are hired a profit maximizing firm will never hire more than D workers output increases at a decreasing rate between points A and B A B C D E 3 A B C D E Which of the following could explain a simultaneous increase in the equilibrium price of good X and a decrease in the equilibrium quantity of good X An increase in the supply of good X A simultaneous decrease in both the demand and supply of good X A simultaneous increase in both the demand and supply of good X A simultaneous decrease in the demand for good X and an increase in the supply of good X An increase in the demand for good X 4 Assume the supply curve is perfectly inelastic and the demand curve is a downward sloping straight line If the government establishes a price ceiling 2 below the free market equilibrium price A it won t be binding and no shortage or surplus will occur D the surplus will be greater the more elastic the demand B the shortage will be greater the more elastic the demand E the surplus will be greater the less elastic the demand C the shortage will be greater the less elastic the demand 5 A B C D E 6 A B C D Which of the following statements about a linear downward sloping demand curve and the price elasticity of demand is false As price decreases along the demand curve the price elasticity of demand also decreases Consumer expenditures are maximized at the midpoint of the demand curve Along the demand curve a change in price will always result in a change in total revenue The price elasticity of demand equals one at the midpoint of the demand curve At high prices demand is elastic and at low prices demand is inelastic Assume the demand curve for good X is a linear downward sloping line If an increase in the price of X causes an increase in the total revenue of firms producing X then the price elasticity of demand in this price range is less than 1 the price elasticity of demand in this price range is greater than 1 the absolute value of the percentage change in price is greater than the absolute value of the percentage change in quantity demanded Both A and C E Both B and C 7 Figure 2 shows the tire market before and after the imposition of an excise tax According to Figure 2 the excise tax equals A 10 B 30 C 40 D 50 E None of these answers 8 According to Figure 2 Page 1 A the government s tax receipts equal 200 B supply is less elastic than demand C the tax causes a deadweight social loss of 100 D Both A and C E Both B and C 9 If a linear upward sloping supply curve cuts the horizontal axis at some output rather than zero then A at every point on the curve the percentage change in quantity supplied is greater than the percentage change in price B the price elasticity of supply is greater than one at every point on the curve C the price elasticity of supply is less than one at every point on the curve D the price elasticity of supply is equal to one at every point on the curve E Both A and B 10 Referring to the production possibilities curve shown in Figure 3 which of the following statements is true A Given current resources and current technology the bundle of goods at point A is unobtainable B Figure 1 indicates that resources are not specialized and they are perfectly interchangeable between the production of compact discs and fast food meals C The bundle of goods at point D can be produced with current resources and technology but it implies the inefficient use of resources D The opportunity cost of a fast food meal is greater at point C than it is at point B E None of the above statements are true 11 Referring to Figure 4 which of the following statements is false A A minimum wage of 8 hr causes 40 thousand workers to be unemployed B The imposition of a minimum wage of 8 hr causes 20 thousand workers to lose their jobs C Between a wage of 8 hr and 6 hr the demand for labor is inelastic D Imposing a minimum wage of 8 hr causes 20 thousand new workers to enter the labor market E Imposing a minimum wage of 8 hr increases the demand for skilled union labor 12 Which of the following would cause the production possibilities curve to shift inwards A An increase in capital B An increase in the labor supply C A recession that increases the unemployment rate D A decrease in the supply of natural resources E Both C and D 13 A B C D E Which of the following would shift the demand curve for good X to the right A decrease in the price of good S a substitute for good X An increase in the price of good K a complement good with good X A decrease in income assuming good X is an inferior good A decrease in the price of good X A decrease in population 14 In Figure 5 a shift in the production possibilities curve from curve a to curve b suggests A a general improvement in the technology used in producing both consumer and capital goods B an improvement in capital goods technology but not in consumer good technology C an improvement in consumer goods technology but not in capital goods technology D a movement from unemployment to full employment E an increase in labor supply Page 2 15 According to Figure 5 other things being equal society s current choice of point P on curve a will A be unobtainable because it exceeds the productive capacity of the economy B be inefficient because it implies unemployed resources C allow it to achieve more rapid economic growth than would the choice of point N D entail a slower rate of economic growth than would the choice of point N E entail the same rate of growth as would the choice of point N Page 3 Part II Short Answer Questions …