Econ 251 Spring 2012 Final Exam PINK Page 1 of 13 ECON 251 Final Exam Pink Spring 2012 1. Robert just graduated from Purdue. He has three options: He can work at an investment bank for $60,000 a year, he can play professional basketball in Europe for $100,000 a year, or he could work as a researcher at the Department of Education for $35,000 a year. What is the opportunity cost for Robert of playing professional basketball? a. $35,000 b. $40,000 c. $60,000 d. $95,000 Katie and John produce tennis racquets and brownies. In one hour, Katie can produce 3 tennis racquets or 10 brownies. In one hour, John can produce 4 tennis racquets or 12 brownies. Use this information to answer the following X questions. 2. What is the opportunity cost for Katie of producing 1 brownie? a. 3 tennis racquets b. 1 tennis racquet c. 3/10= 0.3 of a tennis racquet d. 1/10= 0.1 of a tennis racquet 3. _________ has an absolute advantage in producing brownies, and _________ has a comparative advantage in producing brownies. a. Katie; Katie b. Katie; John c. John; Katie d. Katie; Katie 4. If John and Katie work together to produce brownies and tennis racquets which of the following points would be on their economy wide PPF? a. 22 brownies and 7 tennis racquets b. 12 brownies and 3 tennis racquets c. 10 brownies and 4 tennis racquets d. Both b and cEcon 251 Spring 2012 Final Exam PINK Page 2 of 13 5. What is the slope of John’s individual PPF if the quantity of tennis racquets produced is measured on the x axis? a. -3/10 b. -3 c. -1/3 d. -10/3 6. Which of the following would you expect to decrease the demand for tennis racquets? a. A decrease in the price of tennis balls which are complements in consumption of tennis racquets b. An increase in the supply of tennis racquets c. An increase in the price of tennis racquets d. None of the above would decrease the demand for tennis racquets 7. How will the equilibrium price and quantity of tennis racquets be affected by a decrease in the demand for tennis racquets? a. Equilibrium price will fall, and equilibrium quantity will rise. b. Equilibrium price will rise, and equilibrium quantity will rise. c. Equilibrium price will fall, and equilibrium quantity will fall. d. Equilibrium price will rise, and equilibrium quantity will fall. 8. Tennis racquets and tennis balls are complements in consumption, while tennis racquets and racquetball racquets are substitutes in production. If the price of tennis balls increases at the same time that the price of racquetball racquets increases, how will equilibrium in the market for tennis racquets be affected? a. Equilibrium price will fall, and equilibrium quantity will fall. b. Equilibrium price will be indeterminate, and equilibrium quantity will fall. c. Equilibrium price will rise, and equilibrium quantity will be indeterminate. d. Equilibrium price will be indeterminate, and equilibrium quantity will rise.Econ 251 Spring 2012 Final Exam PINK Page 3 of 13 Consider the market for pop. Use the demand and supply equations below to answer the following 5 questions. Qd=100-20P Qs=5P 9. What is the marginal benefit of the 10th can of pop? a. $1.50 b. $3.75 c. $4.50 d. $10.00 10. What is the equilibrium price of a can of pop? a. $1 b. $2 c. $3 d. $4 11. If the government imposes a price ceiling of $2 in the market for pop, which of the following will occur? a. There will be a shortage of 50 cans of pop. b. There will be a shortage of 40 cans of pop. c. There will be a surplus of 10 cans of pop. d. There will be neither a surplus nor a shortage because the price ceiling is ineffective. 12. What deadweight loss will result from a price ceiling of $2 in the market for pop? a. $12.50 b. $37.50 c. $50.00 d. $45.25 13. Starting from equilibrium in the market for pop, suppose the government imposes a tax of $1 per can on pop. What is the new price that consumers pay for a can of pop after the tax is imposed? a. $3.80 b. $4.00 c. $4.20 d. $5.00Econ 251 Spring 2012 Final Exam PINK Page 4 of 13 14. Based on the tax incidence found in the previous questions we know that demand for pop was ________ elastic than supply of pop. a. more b. less c. equally d. indeterminate 15. How much tax revenue is generated from the $1 tax on a can of pop? a. $1 b. $12 c. $16 d. $20 16. The demand for widgets is given by: Qd = 10 – (1/2)*P. If the price changes from $12 to $14, what is the price elasticity of demand? a. 13/7 = 1.86 b. 52/7 = 7.43 c. 13/3 = 4.33 d. -2 17. Ronaldo has a store which sells soccer balls. The price elasticity of demand for his soccer balls is equal to 4.2. Based on this information, which of the following is true? a. The demand for soccer balls is inelastic. b. The slope of the demand curve for Ronaldo’s soccer balls is -4.2. c. If Ronaldo increases the price of soccer balls by 10%, the quantity demanded of soccer balls will increase by 42%. d. If Ronaldo increases the price of soccer balls, the revenue Ronaldo earns from soccer ball sales will decrease. 18. Across the street from Ronaldo, Rafael has a store which sells tennis balls. Ronaldo and Rafael have found that the cross-price elasticity between tennis balls and soccer balls is equal to 2. This implies that tennis balls and soccer balls are a. Complements in consumption b. Complements in production c. Substitutes in consumption d. Substitutes in productionEcon 251 Spring 2012 Final Exam PINK Page 5 of 13 Princess Emu has a $140 weekly allowance to spend on sparkly headbands and dresses. The price of a sparkly headband is $20 and the price of a dress is $40. Use the table below to answer the following 4 questions. Her utility from headbands and dresses is below. Quantity Total Utility from Headbands Total Utility from dresses 1 300 640 2 550 1120 3 750 1440 4 900 1600 5 1000 1620 19. If the quantity of headbands purchased is measured on the x axis, what is the slope of Princess Emu’s budget line? a. -1/4 b. -1/2 c. -1 d. -2 20. What is her marginal utility per dollar spent on the 4th headband? a. 7.5 b. 15 c. 35 d. 45 21. Given her $140 income, to maximize her utility Princess Emu should purchase _______ headbands and ______ dresses. a. 1; 3 b. 2; 2 c. 3; 2 d. 5; 1Econ 251 Spring 2012 Final Exam PINK Page 6 of 13 22. Assume headbands and dresses are normal goods. If the price of headbands