Title: Spring 2002 Multiple Choice
1Spring 2002 Multiple Choice
- 1. Tiger Woods can mow the grass of a golf course
in 2 hours. In these 2 hours he could be taping a
commercial for Nike and earn US100,000. Forrest
Gump can mow the grass in 4 hours and in these 4
hours he could earn US40 working at McDonalds. - A) Tiger Woods has an absolute advantage in
mowing grass. - B) Forrest Gump has a comparative advantage in
mowing grass. - C) They would trade if Tiger Woods pays Forrest
Gump between US40 and US100,000. - D) All of the above.
2Spring 2002 Multiple Choice
- 1. Tiger Woods can mow the grass of a golf course
in 2 hours. In these 2 hours he could be taping a
commercial for Nike and earn US100,000. Forrest
Gump can mow the grass in 4 hours and in these 4
hours he could earn US40 working at McDonalds. - A) Tiger Woods has an absolute advantage in
mowing grass. - B) Forrest Gump has a comparative advantage in
mowing grass. - C) They would trade if Tiger Woods pays Forrest
Gump between US40 and US100,000. - D) All of the above.
3Spring 2002 Multiple Choice
- 2. England and Italy produce only butter and
potatoes according to the following table - England Italy
- Butter (lbs. per unit of worker) 2 1
- Potatoes (lbs. per unit of worker) 2 1
- Number of workers 1000 3000
- a. England has an absolute advantage in the
production of butter and Italy has an absolute
advantage in the production of potatoes - b. England has an absolute advantage in the
production of potatoes and Italy has an absolute
advantage in the production of butter - c. England has an absolute adv. in both the prod.
of butter potatoes - d. Italy has an absolute adv. in both the
production of butter potatoes.
4Spring 2002 Multiple Choice
- 2. England and Italy produce only butter and
potatoes according to the following table - England Italy
- Butter (lbs. per unit of worker) 2 1
- Potatoes (lbs. per unit of worker) 2 1
- Number of workers 1000 3000
- a. England has an absolute advantage in the
production of butter and Italy has an absolute
advantage in the production of potatoes - b. England has an absolute advantage in the
production of potatoes and Italy has an absolute
advantage in the production of butter - c. England has an absolute adv. in both the prod.
of butter potatoes - d. Italy has an absolute adv. in both the
production of butter potatoes. - Reason England can produce more of each with the
same number of resources. The number of workers
is immaterial.
5Spring 2002 Multiple Choice
- 2. England and Italy produce only butter and
potatoes according to the following table - England Italy
- Butter (lbs. per unit of worker) 2 1
- Potatoes (lbs. per unit of worker) 2 1
- Number of workers 1000 3000
- England Italy will agree to trade if the price
of 1 lb. of butter is - A) Between 1 2 lbs. of potatoes.
- B) Between 1/2 2 lbs. of potatoes.
- C) Between 1/2 1 lbs. of potatoes.
- D) None of the above.
6Spring 2002 Multiple Choice
- 2. England and Italy produce only butter and
potatoes according to the following table - England Italy
- Butter (lbs. per unit of worker) 2 1
- Potatoes (lbs. per unit of worker) 2 1
- Number of workers 1000 3000
- England Italy will agree to trade if the price
of 1 lb. of butter is - A) Between 1 2 lbs. of potatoes.
- B) Between 1/2 2 lbs. of potatoes.
- C) Between 1/2 1 lbs. of potatoes.
- D) None of the above the opportunity cost of the
two is the same.
7Spring 2002 Multiple Choice
- 4. The following table shows Lynns utility from
days skiing - Total Days Skiing Total Utility
- 0 0
- 1 200
- 2 300
- 3 350
- 4 340
-
- If each day skiing will cost Lynn 60 what will
be her consumer surplus from skiing? - a. 350 b.180
- c. 170 d. We dont know how many days Lynn will
choose, so we cannot calculate C.S.
8Spring 2002 Multiple Choice
- 4. The following table shows Lynns utility from
days skiing - Total Days Skiing Total Utility
- 0 0
- 1 200
- 2 300
- 3 350
- 4 340
-
- If each day skiing will cost Lynn 60 what will
be her consumer surplus from skiing? - a. 350 b.180 CS TU - TE 300 - 120 180 for
Q3 - c. 170 d. We dont know how many days Lynn will
choose, so we cannot calculate C.S.
9Spring 2002 Multiple Choice
- 5. Which of the following could not shift out the
market demand curve for a good? - a) Increase in income of the population.
- b) Increase in price of the good.
- c) Increase in population.
- d) Increase in the price of substitutes for the
good.
10Spring 2002 Multiple Choice
- 5. Which of the following could not shift out the
market demand curve for a good? - a) Increase in income of the population.
- b) Increase in price of the good.
- c) Increase in population.
- d) Increase in the price of substitutes for the
good. - Reason a change in the price of a good results
in a shift along the demand curve, not a shift of
the demand curve.
11Spring 2002 Multiple Choice
- 6. If the supply curve is perfectly inelastic
and the demand curve has an elasticity (in
absolute value) of 0.7 and we impose a per-unit
tax in this market on the demand side, then - a. Consumers and Producers share the burden of
the tax. - b.Consumers pay the whole tax, while producers do
not pay anything. - c. Producers pay the whole tax, while consumers
do not pay anything. - d.None of the above.
12Spring 2002 Multiple Choice
- 6. If the supply curve is perfectly inelastic
and the demand curve has an elasticity (in
absolute value) of 0.7 and we impose a per-unit
tax in this market on the demand side, then - a. Consumers and Producers share the burden of
the tax. - b.Consumers pay the whole tax, while producers do
not pay anything. - c. Producers pay the whole tax, while consumers
do not pay anything. Reason supply perfectly
inelastic. - d.None of the above.
13Spring 2002 Multiple Choice
- 7. Suppose that the supply and the demand for
blank CDs can be characterized by -
- Supply Qs 100 3P
- Demand Qd 160 P
- where Qs is the supply of CDs, and Qd is the
demand for CDs. What is the equilibrium price? - a. 10 b. 30
- c. 15 d. 75
14Spring 2002 Multiple Choice
- 7. Suppose that the supply and the demand for
blank CDs can be characterized by -
- Supply Qs 100 3P
- Demand Qd 160 P
- where Qs is the supply of CDs, and Qd is the
demand for CDs. What is the equilibrium price? - The equilibrium price is a P such that Qs(P)
Qd(P), or - 100 3P 160 P
- 4P 60
- P 15.
15Spring 2002 Multiple Choice
- 8. Suppose that the supply and the demand for
blank CDs can be characterized by -
- Supply Qs 100 3P
- Demand Qd 160 P
- where Qs is the supply of CDs, and Qd is the
demand for CDs. If a tax of 5 is imposed per CD,
the number of CDs purchased after the tax will
be - a. Less than 145 CDs. b. 145 CDs.
- c. More than 145 CDs. d. We do not have
enough information to answer this.
16Spring 2002 Multiple Choice
- 8. Suppose that the supply and the demand for
blank CDs can be characterized by -
- Supply Qs 100 3P
- Demand Qd 160 P
- where Qs is the supply of CDs, and Qd is the
demand for CDs. If a tax of 5 is imposed per CD,
the number of CDs purchased after the tax will
be - At a price of 15, without tax there would be
- Qs(15) Qd(15) 100 315 145
- Taxes will reduce the number bought, so less than
145 CDs will be bought.
17Spring 2002 Multiple Choice
- 9. Which one of the following could not occur if
there was a price ceiling on a good? - A).A surplus would develop
- B).Equilibrium price would be below the ceiling
- C).A black market would arise
- D).Less firms would enter the industry
18Spring 2002 Multiple Choice
- 9. Which one of the following could not occur if
there was a price ceiling on a good? - A).A surplus would develop
- B).Equilibrium price would be below the ceiling
- C).A black market would arise
- D).Less firms would enter the industry
- Reason a surplus only occurs when the quantity
supplied is greater than the quantity demanded.
Normally, this would cause prices to drop, and a
price ceiling wont prevent this. A price floor
would.
19Spring 2002 Multiple Choice
- 10. In January, 2,500 quarts of ice cream are
sold in Boston at 2 a quart. In February, the
price went down by 10 and the quantity sold
increased by 2. This means that the price
elasticity for ice cream (disregarding the minus
sign) is - A. 1
- B. .2
- C. 2
- D. .1
20Spring 2002 Multiple Choice
- 10. In January, 2,500 quarts of ice cream are
sold in Boston at 2 a quart. In February, the
price went down by 10 and the quantity sold
increased by 2. This means that the price
elasticity for ice cream (disregarding the minus
sign) is - A. 1
- B. .2 Elasticity DQ/DP 2/10
- C. 2
- D. .1
21Spring 2002 Multiple Choice
- 11. A consultant has suggested that the Eatwell
food truck lower its prices to increase revenue.
The consulted must be assuming that - a. The food at Eatwell has close substitutes and
thus demand elasticity is greater than 1. - b. The food at Eatwell has few close substitutes
and thus demand elasticity is greater than 1. - c. The food at Eatwell has close substitutes and
thus demand elasticity is less than 1. - d. The food at Eatwell has few close substitutes
and thus demand elasticity is less than 1.
22Spring 2002 Multiple Choice
- 11. A consultant has suggested that the Eatwell
food truck lower its prices to increase revenue.
The consulted must be assuming that - a. The food at Eatwell has close substitutes and
thus demand elasticity is greater than 1. - b. The food at Eatwell has few close substitutes
and thus demand elasticity is greater than 1. - c. The food at Eatwell has close substitutes and
thus demand elasticity is less than 1. - d. The food at Eatwell has few close substitutes
and thus demand elasticity is less than 1.
23Spring 2002 Multiple Choice
- 12. One of the benefits of the market system in
allocating goods is that - a. Everyone who can produce a good produces it.
- b. Everyone who wants a good buys it.
- c. Consumers who value the good the most buy
it. - d. Producers with the highest opportunity
costs produce it.
24Spring 2002 Multiple Choice
- 12. One of the benefits of the market system in
allocating goods is that - a. Everyone who can produce a good produces it.
- b. Everyone who wants a good buys it.
- c. Consumers who value the good the most buy
it. - d. Producers with the highest opportunity
costs produce it.
25- Spring 2002 Short Answer
- 1. Over the Christmas shopping season of 2000 a
local department store sold 250 scarves at 35
each. The following year (2001) they sold only
220 scarves despite a lower price of 30 each.
Use the general model of supply demand curve to
explain this change by answering the following
questions - a. Draw typical Supply Demand curves for
scarves with an equilibrium price quantity that
reflect the situation in year 2000. - b. What shift of the demand curve is consistent
with the change between 2000 2001? Show this
graphically explain. - c. Suppose that only thing that changed between
2000 2001 is that incomes declined. What does
this imply about income elasticity? Is this a
normal or an inferior good? - d. Now suppose incomes did not change between
2000 2001. What other reason may cause the
shift in demand you described in part b? - e. Could the changes from 2000 to 2001 be
explained by a shift of the supply curve alone?
Explain.
26- Spring 2002 Short Answer
- 1. Over the Christmas shopping season of 2000 a
local department store sold 250 scarves at 35
each. The following year (2001) they sold only
220 scarves despite a lower price of 30 each.
Use the general model of supply demand curve to
explain this change by answering the following
questions - a. Draw typical Supply Demand curves for
scarves with an equilibrium price quantity that
reflect the situation in year 2000. - Answer graph a supply demand that intersect at
Q250 P35 - 6 points as follows
- D S curves 2 points
- Label Axis (ex P Q scarves) 2 points
- Show correct equilibrium (Q250, P35) 2 points.
27- Spring 2002 Short Answer
- 1. Over the Christmas shopping season of 2000 a
local department store sold 250 scarves at 35
each. The following year (2001) they sold only
220 scarves despite a lower price of 30 each.
Use the general model of supply demand curve to
explain this change by answering the following
questions - b.What shift of the demand curve is consistent
with the change between 2000 2001? Show this
graphically explain. - Answer In the new equilibrium prices are lower
but quantity demanded is lower too, this is
consistent with a shift in of the D-curve. - 5 points as follows
- New D-curve 2 points
- New equilibrium 2 points
- Explanation 1 point.
28- Spring 2002 Short Answer
- 1. Over the Christmas shopping season of 2000 a
local department store sold 250 scarves at 35
each. The following year (2001) they sold only
220 scarves despite a lower price of 30 each.
Use the general model of supply demand curve to
explain this change by answering the following
questions - c. Suppose that only thing that changed between
2000 2001 is that incomes declined. What does
this imply about income elasticity? Is this a
normal or an inferior good? - Answer We see that as income declined demand
shifted in. That means that income elasticity is
positive so this is a normal good. Note that
E(I)?Q/?I, here both numerator denominator
are negative so that E(I) must be positive. - 5 points as follows
- Income elasticity positive 3 points (1 for
stating fact, 2 for explanation as above) - Normal good 2 points.
29- Spring 2002 Short Answer
- 1. Over the Christmas shopping season of 2000 a
local department store sold 250 scarves at 35
each. The following year (2001) they sold only
220 scarves despite a lower price of 30 each.
Use the general model of supply demand curve to
explain this change by answering the following
questions - d. Now suppose incomes did not change between
2000 2001. What other reason may cause the
shift in demand you described in part (b)? - Answer Thee are many possible correct answers
here. Examples include A change in the taste for
scarves such as a decline in their trendiness,
global warming and there by a reduced need for
scarves. - 5 points as follows
- 3 for a possible change
- 2 for relating that change to the correct shift
in demand. - Clarification An answer that states that tastes
changes without explaining in which direction
would get only 3 points.
30- Spring 2002 Short Answer
- 1. Over the Christmas shopping season of 2000 a
local department store sold 250 scarves at 35
each. The following year (2001) they sold only
220 scarves despite a lower price of 30 each.
Use the general model of supply demand curve to
explain this change by answering the following
questions - e. Could the changes from 2000 to 2001 be
explained by a shift of the supply curve alone?
Explain. - Answer No. If only supply changed we would have
to get from the original equilibrium to the new
one by moving along the demand curve. And that
would mean D-curve is upward sloping which
contradict our assumptions. - 5 points as follows
- 2 for this would mean a movement along D-curve
(or similar notion) - 3 for rest of logic.
- Note If you wrote yes, as long as demand is
upward sloping you can get a maximum of 4 points
here.
31- Spring 2002 Short Answer
- 2. Italy has three workers. They can all produce
wine and/or beer but they have different
abilities, according to the following table - ITALY Worker 1 Worker 2 Worker 3
- Wine (barrels) 1 1 4
- Beer (Kegs) 2 5 1
- a. Draw Italys PPF. (Explain briefly).
- b. What is the opp. cost of increasing the prod
of wine from 2 to 3 barrels? - c. Suppose that in Italy wine and beer are
consumed in equal amounts. Identify the
consumption point in the PPF graph derived in
part a above. (Explain briefly.) - d. Suppose Spain (a country that also produces
wine beer) is prepared to trade with Italy at a
price of 2 barrels of wine for every keg of beer.
Would Italy agree to trade? Would it change its
production point (and if so, to what)? Would it
export or import wine from Spain? Explain.
32- Spring 2002 Short Answer
- 2. Italy has three workers. They can all produce
wine and/or beer but they have different
abilities, according to the following table - ITALY Worker 1 Worker 2 Worker 3
- Wine (barrels) 1 1 4
- Beer (Kegs) 2 5 1
- a. Draw Italys PPF. (Explain briefly).
- 6 Points as follows
- 2 points for any PPF (as long as axis correct)
- 2 extra pints for correct PPF
- 2 points for explanation/calculation etc.
beer
ITALY
8 7 5
wine
4 5 6
33beer
- Spring 2002 Short Answer
- 2. Italy has three workers. They can all produce
wine and/or beer but they have different
abilities - ITALY Worker 1 Worker 2 Worker 3
- Wine (barrels) 1 1 4
- Beer (Kegs) 2 5 1
- b. What is the opportunity cost of increasing the
production of wine from 2 to 3 barrels? - Answer As you increase production of wine from 2
to 3 barrels you must shift an extra part of
worker 3 from beer making to wine making.
Specifically you must give up ¼ of his time
making beer, so you give up ¼ barrels of beer.
The O.C. of wine at that point is therefore ¼
kegs of beer. - 6 points as follows
- 2 for correct answer.
- 4 for explanation (either algebraic, graphic or
in words as above).
ITALY
8 7 5
wine
4 5 6
34- Spring 2002 Short Answer
- 2c. Suppose that in Italy wine and beer are
consumed in equal amounts. Identify the
consumption point in the PPF graph derived in
part a above. (Explain briefly.) - Answer Italy would produce consume 5 barrels
of wine and five barrels of beer. You can see
this by either finding the intersection of the
45-degree line with the PPF, or by noting that if
workers 1 3 produce wine and worker 2 produces
beer we have 5 units of each. This point must be
indicated in the PPF correctly. - 6 points as follows
- 2 for (5,5)
- 2 for adding it to PPF as requested
- 2 points for explanation (graphic or algebraic).
Beerwine
beer
ITALY
8 7 5
Consumption point
wine
4 5 6
35- Spring 2002 Short Answer
- d. Suppose Spain (a country that also produces
wine beer) is prepared to trade with Italy at a
price of 2 barrels of wine for every keg of beer.
Would Italy agree to trade? Would it change its
production point (and if so, to what)? Would it
export or import wine from Spain? Explain. - Answer Yes. Italy would be prepared to trade.
Italy would now produce wine with worker 3 as
their O.C. of wine is greater that the price
ratio of 2 wine to 1 beer (or 1 wine to ½ beer).
Workers 1 2 would produce beer. Italy is now
producing 4 units of wine 7 units of beer. In
order to continue the consumption at a ratio of
11 it must sell (or export) beer and buy (or
import) wine. - 8 points as follows
- 2 for yes to trade.
- 2 for new production point (4 wine, 7 beer)
- 2 for explanation of how to get new production
point - 2 points for Italy exporting beer
Beerwine
beer
ITALY
8 7 5
Consumption point
wine
4 5 6