Microeconomics Homework

ECON 102.1001 - Principles of Microeconomics Fall 2012

Mehmet S. Tosun

ECON 102 Homework 1 (Due Tuesday, September 27, 2012) (Answer key is at the bottom of this document) 1. Macroeconomics deals with: A) the working of the entire economy or large sectors of it. B) bits and pieces of the economy. C) how individuals make decisions. D) the question of how a business unit should operate profitably.

2. Microeconomics deals with: A) individual units in the economy. B) the working of the entire economy or large sectors of it. C) gross domestic product. D) economic growth.

3. Which of the following would be a part of macroeconomics? A) a study of recessions B) a study of the change in automobile sales due to a change in the price of automobiles C) a study of the unemployment of workers displaced by technological change in the typesetting industry D) a study of the impact of a tax reduction on the profits of a business

4. Which is not an example of a resource? A) production B) capital C) land D) labor

5. Scarcity in economics means: A) there must be poor people in rich countries. B) not having sufficient resources to produce all the goods and services we want. C) shortages exist in nearly all markets. D) the wants of people are limited.

6. Opportunity cost is: A) the value of the best alternative forgone in making any choice. B) about half of the monetary cost of a product. C) the dollar payment for a product. D) the benefit derived from a product.

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ECON 102 - Principles of Microeconomics

Mehmet S. Tosun

7. In Ventura County, California, strawberry production is limited by the number of acres available for agriculture production. This statement best represents the economic concept of: A) “how much?” is a decision at the margin. B) resources should be used as efficiently as possible to achieve society's goals. C) resources are scarce. D) there are gains from trade.

8. When we are forced to make choices we are facing the concept of: A) the margin. B) ceteris paribus. C) free goods. D) scarcity.

9. When a chef creates a dinner plate of food for a customer, which of the following represents the physical capital resource? A) the oven B) the food ingredients C) the chef's training and experience D) the chef himself/herself

10. The cost of leaving a championship soccer match before it ends is ________, while the cost of staying for the entire match is ________. A) the opportunity cost of not seeing the winning goal with two minutes to go; the opportunity cost of what else you could have done during that time B) the cost of the ticket; also the cost of the ticket C) the opportunity cost of not seeing the winning goal with two minutes to go; zero— the ticket to the match is already paid so there is no cost D) zero—you don't have to pay to leave; zero—the ticket to the match is already paid so there is no cost

11. While buying refreshments for an upcoming party, you notice that a six-pack of Americana Beer costs $2 and a six-pack of Bavarian Beer costs $4. You buy the sixpack of Bavarian Beer although you wonder if maybe two six-packs of Americana Beer would have been a better choice. The opportunity cost of the Bavarian Beer is: A) two six-packs of Americana Beer. B) the $4. C) the $4 and the six-pack of Americana Beer. D) a six-pack of Americana Beer.

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Mehmet S. Tosun

12. It is better to produce corn in Kansas because of the fertile soil rather than in Death Valley, California. This statement best represents the economic concept of: A) markets usually lead to efficiency. B) resources are scarce. C) markets move toward equilibrium. D) resources should be used as efficiently as possible to achieve society's goals.

13. The economic way of thinking has to do with: A) analyzing costs but not benefits. B) making choices at the margin. C) making the distinction between microeconomics and macroeconomics. D) analyzing benefits but not costs.

14. When building a model, economists: A) attempt to duplicate reality in all its complexity. B) are careful to avoid the scientific method. C) simplify reality in order to highlight what really matters. D) ignore the facts, and instead try to determine what the facts should be.

15. The production possibility frontier illustrates: A) the inverse relationship between price and quantity of a particular good. B) the maximum quantity of one good that can be produced given the quantity of the other good produced. C) that people usually exploit opportunities to make themselves better off. D) that when markets don't achieve efficiency, government intervention can improve society's welfare.

16. If the production possibility frontier were a straight line sloping down from left to right, this would suggest that: A) the opportunity costs of the products are constant. B) there are no opportunity costs. C) the two products must have the same price. D) more of both goods could be produced moving along the frontier.

Use the following to answer question 17:

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Mehmet S. Tosun

17. (Table: Production Possibilities Schedule I) If the economy produces 2 units of consumer goods per period, it also can produce at most ________ units of capital goods per period. A) 28 B) 24 C) 18 D) 30

Use the following to answer question 18: Figure: Guns and Butter

18. (Figure: Guns and Butter) On this figure, points A, B, E, and F: A) indicate that society wants butter more than it wants guns. B) indicate combinations of guns and butter that society can produce using all of its factors efficiently. C) indicate constant costs for guns and increasing costs for butter. D) show that the opportunity cost of more guns increases, but that of more butter decreases.

19. If an economy has to sacrifice increasing amounts of good X for each unit of good Y produced, then its production possibility frontier is: A) a straight line. B) a vertical line. C) bowed in toward the origin. D) bowed out from the origin.

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20. All points outside the production possibility frontier represent: A) nonfeasible production points. B) efficient production points. C) economic growth. D) inefficient production points.

21. An economy is said to have a comparative advantage in the production of a good if it can produce that good: A) with a higher opportunity cost than another economy. B) at a lower opportunity cost than another economy. C) with more resources than another economy. D) outside its production possibilities curve.

Use the following to answer question 22: Figure: Bicycles and Radishes I

22. (Figure: Bicycles and Radishes I) The figure shows production possibility frontier for two countries that produce only radishes and bicycles. The axes of both graphs are measured in equivalent units. Country A is now operating at point M, and Country B is now operating at point N. The opportunity cost of producing an additional ton of radishes would be greater in: A) neither; the opportunity cost would be the same in both countries. B) Country A. C) There is not enough information given to answer the question. D) Country B.

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Mehmet S. Tosun

23. If the opportunity cost of manufacturing machinery is lower in the United States than in Britain and the opportunity cost of manufacturing sweaters is higher in the United States than in Britain, then the United States will: A) import both sweaters and machinery from Britain. B) import sweaters from Britain and export machinery to Britain. C) export both sweaters and machinery to Britain. D) export sweaters to Britain and import machinery from Britain.

24. In one day, Kessy can bake 10 cookies or mix 15 glasses of lemonade. His friend, Ava, can make 10 cookies or 10 glasses of lemonade. His other friend, Ian, can make 10 cookies or 20 glasses of lemonade. Who has the lowest opportunity cost in cookie production? A) Kessy and Ava have the same opportunity cost in cookie production. B) Kessy C) Ava D) Ian

25. As long as people have different ________, everyone has a comparative advantage in something. A) benefits B) opportunity costs C) direct costs D) utility

26. The circular-flow diagram illustrates how households ________ goods and services and ________ factors of production. A) own; buy B) own; sell C) buy; buy D) buy; sell

27. Which of the following statements is a positive statement? Which is a normative statement? X. The federal minimum wage is increasing to $6.50 an hour. Y. The minimum wage should be high enough that families will not live in poverty. A) X is normative; Y is normative B) X is positive; Y is normative C) X is positive; Y is positive D) X is normative; Y is positive

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Mehmet S. Tosun

28. Economists may disagree about policies because: A) they may be using different economic models. B) they enjoy disagreeing with each other. C) they may approach the issue using different sets of values and because they may be using different economic models. D) they may approach the issue using different sets of values.

29. The Kansas market for corn is considered a competitive market. This means there are ________ buyers and ________ sellers of corn in Kansas. A) many; many B) many; few C) few; few D) few; many

30. Which of the following factors cause a movement along the demand curve? A) both a change in the price of the good and a change in the population B) change in the population C) change in the prices of related goods D) change in the price of the good

31. A good is normal if: A) income and the demand are unrelated. B) when income increases, the demand remains unchanged. C) when income increases, the demand decreases. D) when income increases, the demand increases.

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Mehmet S. Tosun

Use the following to answer questions 32-33: Figure: Demand for Coconuts

32. (Figure: Demand for Coconuts) If there is an overall increase in taste and preference for coconuts, then the movement that would take place in the model could be: A) B to E. B) C to A. C) A to C. D) B to A.

33. (Figure: Demand for Coconuts) If coconuts are considered a normal good and the overall income level of consumers is falling, then the movement that would take place in the model could be: A) E to B. B) C to A. C) A to C. D) B to A.

34. If people demand more of product A when the price of B falls, then A and B are: A) substitutes. B) complements. C) inferior goods. D) not related.

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Mehmet S. Tosun

35. A decrease in the price of a good will result in: A) an increase in the quantity demanded. B) more being supplied. C) an increase in supply. D) an increase in demand.

36. Which of the following statements is correct? A) Both a change in quantity demanded and a change in demand are movements along the demand curve, only in different directions. B) Both a change in quantity demanded and a change in demand are shifts of the demand curve, only in different directions. C) A change in quantity demanded is a movement along the demand curve and a change in demand is a shift of the demand curve. D) A change in demand is a movement along the demand curve and a change in quantity demanded is a shift of the demand curve.

37. Which of the following is not a determinant of supply? A) the cost of production B) expectations regarding future prices C) consumer tastes D) the technology of production

38. Consider the supply curve for cotton shirts. An increase in the price of cotton will: A) not shift the supply curve for cotton shirts. B) decrease the demand for cotton shirts. C) decrease the supply of cotton shirts. D) increase the supply of cotton shirts.

39. The market for milk is initially in equilibrium. Milk producers now engage in a costly advertising program to encourage milk drinking. Assume that the advertising campaign succeeds in shifting consumer tastes toward drinking milk and that milk producers provide more milk to the market. More milk producers enter the market. Standard demand and supply analysis tells us that: A) the equilibrium price and quantity of milk will fall. B) the equilibrium quantity of milk will rise, but we can't determine how the equilibrium price will be affected. C) the equilibrium price of milk will rise, but we can't determine how the equilibrium quantity will be affected. D) the equilibrium price and quantity of milk will rise.

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Mehmet S. Tosun

Use the following to answer questions 40-41: Figure: DVD Market

40. (Figure: DVD Market) At a rental price of $3, there will be A) an excess supply of 40 DVD rentals. B) equilibrium in the rental market for DVDs. C) an excess demand of 40 DVD rentals. D) an increase in demand.

41. (Figure: DVD Market) The figure shows the weekend rental market for DVDs in Collegetown. The equilibrium price for DVD rentals is ________ and the equilibrium quantity is ________. A) $9; 90 B) $5; 50 C) $6; 40 D) $3; 30

42. Excess supply occurs when: A) the quantity demanded exceeds the quantity supplied. B) the price is below the equilibrium price. C) the quantity demanded exceeds the quantity supplied and when the price is below the equilibrium price. D) the price is above the equilibrium price.

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Mehmet S. Tosun

Use the following to answer question 43: Figure: Demand and Supply of Wheat

43. (Figure: Demand and Supply of Wheat) A temporary price of $4 in this market would result in: A) a surplus of 2,000 bushels. B) a shortage of 4,000 bushels. C) a surplus of 4,000 bushels. D) a shortage of 2,000 bushels.

44. Along a given demand curve, an increase in the price of a good will: A) decrease producer surplus. B) increase consumer surplus. C) decrease consumer surplus. D) have no effect on consumer surplus.

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Mehmet S. Tosun

45. Mark and Rasheed are at the bookstore buying new calculators for the semester. Mark is willing to pay $75 and Rasheed is willing to pay $100 for a graphing calculator. The price for a calculator at the bookstore is $65. How much is Mark's individual consumer surplus? A) $75 B) $10 C) $25 D) $35

Use the following to answer questions 46-47:

46. (Table: Consumer Surplus and Phantom Tickets) Using the information in the table, if the price of a ticket to see Phantom of the Opera is $50, then Robert's consumer surplus is: A) $50. B) $10. C) $240. D) $60.

47. (Table: Consumer Surplus and Phantom Tickets) If the box-office price of a ticket to see Phantom of the Opera is $50, and there is no other market for tickets, then total consumer surplus for the five students is: A) $240. B) $100. C) $175. D) $230.

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Mehmet S. Tosun

Use the following to answer question 48: Figure: Consumer Surplus

48. (Figure: Consumer Surplus) In the figure, when the price rises from $30 to $35, consumer surplus ________ for a total consumer surplus of ________. A) decreases by $5; $44 B) decreases by $15; $34 C) increases by $15; $64 D) increases by $25; $74

Use the following to answer questions 49-50: Figure: Consumer Surplus II

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Mehmet S. Tosun

49. (Figure: Consumer Surplus II) At a price of P1, consumer surplus equals the area: A) AFP1. B) P1P2BF. C) ABP2. D) AQ30. 50. (Figure: Consumer Surplus II) If the price falls from P2 to P1, consumer surplus increases by the area: A) BGF. B) P1P2BF. C) AFP1. D) ABP2.

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Answer Key 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44.

A A A A B A C D A A A D B C B A B B D A B D B C B D B C A D D C B B A C C C B C B D B C

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45. 46. 47. 48. 49. 50.

B B A B A B

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Microeconomics Homework

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