SL 151 Bremmer II Name CM September 20 2007 1st In Class Exam Chapters 1 5 7 pp 527 530 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 Assume a firm s supply curve is a linear upward sloping line If the supply curve cuts the vertical axis at a nonzero price then the price elasticity of supply is equal to one at every point along the curve the price elasticity of supply is greater than one at every point along the curve the price elasticity of supply is less than one at every point along the curve the price elasticity of supply is equal to zero at every point along the curve the price elasticity of supply is equal to infinity at every point along the curve 2 A B C D E Specialization and free trade according to the principle of comparative advantage does not benefit anyone allows nations to consume combinations of products that are outside their individual production possibilities curves allows nations to produce inside their individual production possibilities curves shifts the production possibilities curve to the right shifts the production possibilities curve to the left 3 A B C D E Which of the following statements is correct The demand for New Balance shoes is more elastic then the demand for shoes in general The larger the proportion of income spent on a good the smaller the elasticity of demand The demand for luxuries is less elastic then the demand for necessities The longer the period of time that consumers have to adjust to a change in prices the less elastic the demand None of the above statements are correct 4 Which of the following statements is are true A A linear downward sloping demand curve has a price elasticity of demand which decreases as price increases B If demand is perfectly inelastic a decrease in supply will cause a decrease in the equilibrium quantity but equilibrium price is unaffected C If demand is unitary elastic then an increase in price implies an increase in total revenue D Given a linear downward sloping demand curve total revenue is maximized at the midpoint where demand is unitary elastic E All of the above statements are true 5 A B C 6 A B C D E 7 A B C D If a 1 per unit excise tax is placed on a product that has a perfectly elastic supply curve then the market price will increase by less than 1 D decrease by more than 1 increase by more than 1 E will not change increase by exactly 1 When the current price of a product is below its equilibrium level a shortage puts downward pressure on the price a shortage puts upward pressure on the price a surplus puts downward pressure on the price a surplus puts upward pressure on the price price will increase causing the demand curve to shift to the right and the supply curve to shift to the left Consider the market for peanut butter If there is an increase in the price of bread a complement for peanut butter along with a drought in peanut growing areas then the equilibrium price of peanut butter will definitely increase but the change in the equilibrium quantity of peanut butter is indeterminate then the equilibrium quantity of peanut butter will definitely increase but the change in the equilibrium price of peanut butter is indeterminate then the equilibrium quantity of peanut butter will definitely decrease but the change in the equilibrium price of peanut butter is indeterminate then the equilibrium price of peanut butter will definitely decrease but the change in the equilibrium quantity of peanut butter is indeterminate Page 1 E then both the equilibrium price and the equilibrium quantity of peanut butter will increase Page 2 8 A B C D E Which of the following will cause the demand curve for product A to shift to the left An increase in income if A is a normal good A decrease in the price of good Y assuming A and Y are complements Consumers expect the future price of A to fall Population growth which causes an expansion in the number of persons consuming A An increase in the price of A 9 A B C D E Which of the following will cause the supply curve for good X to shift to the left An improvement in the technology of producing X Firms expecting the future price of X to fall A decline in the price of good X A decline in the price of a basic raw material used in the production of X A decrease in the number of firms producing X 10 A B C D E Which of the following would cause the production possibilities curve to shift inward An increase in productive resources A better educated labor force The discovery of new sources of raw materials An earthquake that destroys several major factories None of the above because the production possibilities curve can never shift inward 11 Assume an economy can produce pizza and tacos and that it is currently producing only tacos As the country increasingly specializes in producing pizza resources must be transferred from taco production Which of the following types of resources should be transferred from taco production to pizza production first A It makes no difference because the economy is on its production possibilities curve B The least efficient resources at producing pizza C The most efficient resources at producing pizza D The most efficient resources at producing tacos E The cheapest resources 12 Assuming a country producing guns and butter has a negatively sloped linear production possibilities curve which of the following statements is true A Resources are specialized in that some are better suited for gun production and others are better suited for butter production B As the country produces more and more guns it has to give up increasing amounts of butter C Opportunity costs are constant and resources are not specialized they are equally well suited to produce either good D Combinations of goods below the production possibilities curve are unobtainable given current technology and resources E Both A and B 13 A B C D E A concave bowed production possibilities curve implies that resources are not specialized and they are equally productive in all uses indicates that the opportunity cost of a good increases as more of the good is produced implies that resources are specialized and resources are not equally productive in all uses Both A and B Both B and C 14 A B C D E Which of the following would cause a production possibilities curve to shift to the right Increased immigration where new workers enter the country An improvement in technology The unemployment rate falls toward