Econ 101, Sections 3 and 4, S11, Schroeter Final Exam, Special code = 0002 Choose the single best answer for each question. Do all of your scratch-work in the side and bottom margins of pages. 1. The term "market failure" a. means the same thing as "market power." b. refers to the disappearance of a market when firms decide that it is no longer profitable to produce a particular product. *. refers to the failure of a market to produce an efficient allocation of resources. d. describes a situation in which the prices of domestically-produced goods are undercut by foreign competitors. 2. Which of the following is most likely to be a part of your opportunity cost of going to college? a. the income you earn at your part-time job with ISU Dining Services. b. the rent that you pay for your off-campus apartment. c. the money you spend on entertainment in Campus Town. *. the cost of books required for your classes. 3. Which of the following is an example of a positive, as opposed to a normative statement? *. "Pollution taxes decrease the amount of pollution generated by firms." b. "The minimum wage should be abolished." c. "It's not fair to cut Medicare benefits in order to give tax breaks to the rich." d. "Taking care of society's underprivileged is more important that balancing the budget." 4. Suppose that a nation is currently producing at a point inside its production possibilities frontier. In this case, the nation a. is producing an efficient combination of goods and services. b. is producing beyond its capacity, so depletion of resources will occur over time. *. is not using all of its resources, or is using them inefficiently, or both. d. will incur a large opportunity cost if it tries to increase the production of any good. 5. Mike and Rachel are two furniture makers who both make tables and chairs. Each of them has a production possibility frontier that is a straight line. If Mike devotes all of his time to making tables, he can make 4 per month. If he devotes all of his time to making chairs, he can make 20 per month. If Rachel devotes all of her time to one activity or the other, she could make either 6 tables or 18 chairs in a month. Which of the following is true? a. Rachel has the comparative advantage in making chairs. *. Mike has the comparative advantage in making chairs. c. Neither Mike nor Rachel has the comparative advantage in making chairs. d. Impossible to determine without more information.2Questions 6 and 7 are based on the following information. Two small countries, Humboldt and Hamilton, use their labor resources to produce two goods: steel and cement. The table below gives the number of hours of labor needed to produce one ton of each type of good in each country. Hours need to produce one ton of steel cement Humboldt 4 1 Hamilton 3 2 6. Which of the following is true? *. Hamilton has the comparative advantage in the production of steel. b. The resource cost of one ton of steel in Humboldt is 0.25 hours. c. The opportunity cost of one ton of cement in Hamilton is 1.5 tons of steel. d. None of the above is true. 7. Suppose that there is an international market in which steel and cement can be traded. If the trade price of one ton of steel is 2 tons of cement, *. Humboldt would want to buy steel and Hamilton would want to buy cement. b. Humboldt would want to buy cement and Hamilton would want to buy steel. c. both countries would want to buy steel. d. both countries would want to buy cement. 8. Which of the following would lead to an increase in the supply of a good? a. an increase in the good's own price. b. an increase in the price of an input used to produce the good. c. an increase in the demand for the good. *. none of the above. 9. In the competitive market for a certain good, we observe an increase in equilibrium quantity and a simultaneous decrease in equilibrium price. This is likely the result of a. an increase in demand for the good. *. an increase in supply of the good. c. a decrease in demand for the good. d. a decrease in supply of the good. 10. In the competitive market for widgets, which of the following would definitely lead to an increase in equilibrium quantity while allowing the possibility that equilibrium price could increase, could decrease, or could stay the same? a. a cost-saving technological advance in the production of widgets combined with a decrease in the demand for widgets. *. an increase in the price of a substitute good combined with an increase in the supply of widgets. c. an increase in the price of a complement good combined with a decrease in the supply of widgets. d. None of the above.3Questions 11, 12, and 13 refer to the following graph of supply and demand in a competitive market. 11. At a price of p1, there is a. excess demand in quantity Q2 - Q1 units/week. *. excess supply in quantity Q3 - Q1 units/week. c. excess demand in quantity Q3 - Q2 units/week. d. none of the above. 12. At a price of p2, the quantity demanded is a. Q1 units/week. b. Q2 units/week. c. equal to the quantity supplied. *. both b and c. 13. A shift in equilibrium to quantity Q1 and price p1 would require a. a decrease in demand. b. an increase in demand. *. a decrease in supply. d. an increase in supply. 14. In a competitive market with inelastic demand, supply increases. As a result equilibrium price will a. increase and the revenue of sellers of the good will increase. b. increase and the revenue of sellers of the good will decrease. c. decrease and the revenue of sellers of the good will increase. *. decrease and the revenue of sellers of the good will decrease. ($/unit) p1 p2 Q1 Q2 Q3 (units/week) Demand Supply415. Suppose that scientists announce their discovery that chocolate increases the levels of good cholesterol for those who eat it. At the same time, the price of cocoa beans (the main ingredient used to make chocolate) increases. What effects would we expect to see in the competitive market for chocolate? The equilibrium price of chocolate *. would increase and the equilibrium quantity of chocolate could either increase, decrease, or stay the same. b. would decrease and the equilibrium quantity of chocolate could either increase, decrease, or stay the same. c. could either increase, decrease, or stay the same, and the equilibrium quantity of chocolate would increase. d. could either increase, decrease, or stay the same, and the equilibrium
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