Exam 1          Student Name: __________________________________
Microeconomics
Exam Dates: 5th week, late September 2006

Instructions:
I)    On your Scantron card you must print three things:
1) Print your full name clearly;
2) Print the day and time of your section (for example MW 1:25);
3) Notice the number I have written in ink in the upper right corner of your test? Write that number on the Scantron card. (This number tells me which version of the test you have. Without it your test cannot be graded properly and you get no credit for your answers.)      
II)   Answer on your Scantron card, using a #2 pencil.
III) Warning: SOME QUESTIONS MUST BE ANSWERED SEVERAL
      TIMES! Such questions will begin with a phrase such as this:
   Repeat this answer on lines 37, 38 and 39.
                 Remember to do it!
IV)   You must turn in this written exam along with your Scantron card to get credit for your Exam score.
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Questions:


1.
(Repeat answer on Scantron line 26.) As stated in lecture, if we wish to be completely accurate, the law of demand states that:
A.
sellers supply less of a good when its price increases.
B.
buyers buy less of a good when its price increases only if their income increases at the same time. buyers never buy more of a good if its price increases.
C.
buyers buy less of a good when its price increases even if other demand determinants change at the same time.
D.
buyers buy less of a good when its price increases, provided all shift factors of demand are fixed.
E.
buyers never buy less of a good if its price decreases, and never buy more if its price increases.


2.
Which of the following is a true statement?
A.
The federal government relies primarily on income taxes; state and local governments rely to a greater extent on sales and property taxes.
B.
The federal government relies primarily on sales and property taxes; state and local governments rely to a greater extent on income taxes.
C.
The federal government relies primarily on excise and property taxes; state and local governments rely on sales taxes.
D.
The federal government relies primarily on sales taxes; state and local governments rely on excise and property taxes.


            Figure of Demand Curve

Reference: Delta S_D versus Delta Quant S_D

3.
(Repeat answer on Scantron lines 27 and 28.) Evaluate the following statements and choose the best answer below.
1. If market equilibrium moves from point G to point D, both demand and supply have decreased.
2. Equilibrium at points E and A have almost exactly the same demand.
3. A market equilibrium at point F definitely has higher demand than the one at point D.
A.
Statements 1, 2 and 3 are all false.
B.
Statements 1, 2 and 3 are all true.
C.
Only statement 1 is true.
D.
Only statement 2 is true.
E.
Only statement 3 is true.


4.
(Repeat answer on Scantron lines 29 and 30.) Choose the best answer. The Wealth of Nations
A.
is the phrase used to stand for a crucial concept in economics, namely the economics of the growth, progress and development of nations.
B.
is the title of a Table maintained by the International Bank for Cooperation and Development (usually called The World Bank). As mentioned in lecture, The Wealth of Nations table summarizes the standard of living in every nation in the world.
C.
was published in 1776 and was written by John Kenneth Galbraith, and was the first book attempting to describe the fundamental principles of economics.
D.
was published in 1776 and was written by the moral philosopher Adam Smith, and was the first book attempting to describe the fundamental principles of economics.
E.
is the title of an important textbook in economics--the most important competitor to the text we are using in this course.


5.
(Repeat your answer on Scantron line 31.) An example of "derived demand" is,
A.
the demand curve you are able to derive from analysis of the impact of own price on the demand for a product.
B.
an increase in the demand for nails because of an increase in the demand for new houses.
C.
an increase in the supply of dog food in response to an increase in the number of families who have dogs as pets.
D.
none of the other answers.
E.
the increased demand for oranges caused by a rise in the price of a substitute such as apples.


6.
(Repeat answer on Scantron lines 32 and 33.) Select the best answer. Money is crucial to our wellbeing and the successful operation of a modern economy because,
A.
without money, specialization and the division of labor could only occur to a very limited extent.
B.
producers and consumers have gotten used to using money in their day to day life.
C.
useful money tends to be quite durable.
D.
money makes the world go around.
E.
without the existence and use of money, it would be impossible to get rid of the goods you have produced.


7.
Capitalism differs from mercantilism because:
A.
craft guilds rather than merchants own capital.
B.
the "invisible hand" is more important than the government.
C.
industrialists' views are represented by craft guild organizations.
D.
the state plays a more active role in coordinating economic activity.


8.
U.S. output represents about what percentage of total world output?
A.
5 percent.
B.
10 percent.
C.
25 percent.
D.
50 percent.


Reference: Figure 4-19

9.
(Repeat answer on Scantron line 34.) Referring to the above diagram of an initial market equilibrium, if equilibrium then moved to somewhere in area A, we could be sure that:
A.
demand increased and supply decreased.
B.
demand decreased and supply increased.
C.
both demand and supply increased.
D.
both demand and supply decreased.
E.
there is not enough information to make any determination.


10.
The largest number of businesses are:
A.
partnerships.
B.
sole proprietorships.
C.
corporations.
D.
nonprofit companies.


11.
The largest percentage of businesses receipts are by:
A.
partnerships.
B.
sole proprietorships.
C.
corporations.
D.
nonprofit companies.




Reference: Simple supply and demand curves

12.
(Repeat answer on Scantron line 35.) Refer to the four diagrams above and then choose the best answer. The law of demand, as discussed in lecture, is best represented by:
A.
Diagram A
B.
Diagram B
C.
Diagram C
D.
Diagram D
E.
Diagrams B and D together.


13.
(Repeat answer on Scantron line 36.) The economic policy of leaving coordination of individuals' actions to the market is called:
A.
comparative advantage.
B.
laissez faire.
C.
government regulation.
D.
specialization.


14.
(Repeat answer on Scantron line 37.) What percentage of total output in the United States is consumed by government at all levels?
A.
5 percent.
B.
20 percent.
C.
40 percent.
D.
60 percent.


15.
(Repeat answer on Scantron lines 38 and 39.) Choose the best answer. Based on lectures, your professor believes:
A.
...it is always best to use a model which will be as accurate as possible.
B.
Should we increase the minimum wage? This is a question in "positive economics".
C.
as properly corrected in lecture, we definitely have a correct and useful Law of Demand and also a correct and useful Law of Supply.
D.
the example of the Irish Potato famine, in which an increase in the price of potatos due to a failure of the potato crop apparently was accompanied by an increase in quantity demanded, may be an example which violates the so-called Law of Supply.
E.
the example of the Irish Potato famine, in which an increase in the price of potatoes due to a failure of the potato crop apparently was accompanied by an increase in quantity demanded, may be an example which violates the so-called Law of Demand.


16.
(Repeat answer on Scantron line 40.) Choose the best answer. The opportunity cost of a cup of coffee is:
A.
the value of what you would have bought instead of the coffee plus the value of the time spent purchasing the coffee, plus the value of the pleasant experience you would have had while purchasing whatever you would have bought instead of the coffee (a candy bar sold by your favorite movie star).
B.
the value of what you would have bought instead of the coffee plus the value of the time spent purchasing the coffee, plus the value of the pleasant experience you had while purchasing the coffee (which was sold to you by your favorite movie star).
C.
the value of what you would have bought instead of the coffee plus the value of the time spent purchasing the coffee.
D.
the market price of the cup of coffee plus the time spent buying the coffee.
E.
the market price of the cup of coffee.


17.
(Repeat answer on Scantron lines 41 and 42.) Suppose that college tuition is higher this year than last year and that more students are enrolled in college this year than last year. Based on this information, we can best conclude that:
A.
the law of demand is invalid.
B.
despite the increase in price, quantity demanded rose due to some other factor changing.
C.
this situation has nothing to do with the law of demand.
D.
the demand for a college education is positively sloped.


18.
(Repeat answer on Scantron line 43.) Choose the best answer. Suppose, in a market, the quantity supplied goes up. Then you can be pretty sure...
A.
supply has increased, but not demand.
B.
demand has increased, but not supply.
C.
quantity demanded has gone up.
D.
the market price has gone down.
E.
the market price has gone up.


19.
(Repeat answer on Scantron lines 44 and 45.) Consider the following statements about the demand for a particular consumer good, say, Dingbats. Then select the best answer from A) through E) below.
   1) If the own price of the good goes up, demand will remain unchanged or decline. (Think!)
   2) If the price of a substitute for the good goes down, demand will decrease.
   3) If the average incomes of customers increase, demand definitely will increase.
   4) If the price of a complement of the good goes up, demand will decrease.
A.
Only statement 2 is correct.
B.
Only statements 2 and 4 are correct.
C.
Only statement 3 is correct.
D.
Only statements 2 and 3 are correct.
E.
Unfortunately, none of the other choices include statement 1 and claim it is correct. If one of them did, that choice would be the best one. As it stands, though, no other answer is correct, so this answer is the best choice.


20.
Which of the following is an informal international institution?
A.
The IMF.
B.
The United Nations.
C.
The Group of Eight.
D.
The World Bank.


21.
A primary goal of the World Bank is to
A.
promote economic negotiations and cooperation among industrialized countries.
B.
foster economic growth in developing countries.
C.
protect the interests of the U.S. abroad.
D.
negotiate trade agreements between nations.


22.
(Repeat answer on Scantron line 46.) Which of the following would most likely generate a positive externality?
A.
Roller coaster rides.
B.
Pollution.
C.
Alcoholic beverages.
D.
Education.


23.
(Repeat answer on Scantron line 47 and 48.) Decide which of the following would cause the supply of fax machines to increase immediately, and then select the best answer from A) through E) below.
   1) An increase in the demand for fax machines.
   2) A decrease in the demand for fax machines.
   3) A decline in the price of printing mechanisms used inside fax machines.
   4) An new expectation that the market price of fax machines will rise three weeks in the future.
A.
Only statements 1 and 3 are correct.
B.
Only statements 1, 3 and 4 are correct.
C.
Only statements 3 and 4 are correct.
D.
None of the other answers are correct.
E.
Only statement 3 is correct.


24.
(Repeat answer on Scantron line 49.) In a free market economy, resources are unlikely to be allocated to the provision of public goods due to the free rider problem. All of the following illustrate this problem except:
A.
Amy does not contribute to public television, but she watches it every day.
B.
Roger refuses to help pay for the private security officer who patrols his neighborhood.
C.
Amanda, a taxpayer, prefers to check out books from her local library rather than purchasing them herself.
D.
Frank enjoys the fireworks from his lawn and does not purchase a ticket to view the display from the stadium.


25.
(Repeat answer on Scantron line 50.) Market failures:
A.
can always be corrected through government action.
B.
can never be corrected through government action.
C.
are sometimes made worse by government failures.
D.
lead to a desired allocation of resources.


Answer Key

1. E
2. A
3. D
4. D
5. B
6. A
7. B
8. C
9. A
10. B
11. C
12. E
13. B
14. B
15. E
16. A
17. B
18. C
19. B
20. C
21. B
22. D
23. E
24. C
25. C