Econ2Z03 Sample Exam Questions_Ch2,3,4
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Suppose that the demand for artichokes (Qa) is given as: Qa = 120 - 4P At what price if any is the demand for artichokes unit elastic?
A) 15 B) 10 C) 20 D) 30
2) Which of the following will NOT cause a shift in the supply of gasoline?
A) An increase in the wage rate of refinery workers B) An improvement in oil refining technology
C) A decrease in the price of gasoline D) A decrease in the price of crude oil
3) Plastic and steel are substitutes in the production of body panels for certain automobiles. If the price of plastic increases, with other things remaining the same, we would expect:
A) the demand curve for plastic to shift to the left.
B) the price of steel to fall.
C) the demand curve for steel to shift to the left.
D) nothing to happen to steel because it is only a substitute for plastic.
E) the demand curve for steel to shift to the right.
Scenario 2.1:
The demand for books is: Qd = 120 - P
The supply of books is: Qs = 8P+30
4) Refer to Scenario 2.1. What is the equilibrium quantity of books sold?
A) 10
B) 110
C) 50
D) 75
E) none of the above
5) A vertical demand curve is
A) infinitely elastic. B) highly (but not infinitely) elastic.
C) completely inelastic. D) highly (but not completely) inelastic.
6) The price elasticity of gasoline supply in the U.S. is 0.4. If the price of gasoline rises by 8%, what is the expected change in the quantity of gasoline supplied in the U.S.?
A) +0.32% B) -3.2% C) +3.2% D) +32.0%
7) Suppose the U.S. government imposes a maximum price of $5 per gallon of gasoline, and the current equilibrium price is $3.50 per gallon. This policy represents a:
A) binding price ceiling. B) binding price floor.
C) non-binding price ceiling. D) non-binding price floor.
Scenario 2.2:
In 1992, the Occupational Safety and Health Authority passed the Bloodborne Pathogens Standard (BBP), which regulates dental office procedures. This regulation is designed to minimize the transmission of infectious disease from patient to dental worker. The effect of this regulation was both to increase the cost of providing dental care and to ease the fear of going to the dentist as the risk of contracting an infectious disease.
8) Refer to Scenario 2.2. What is the effect of the BBP on the equilibrium price of dental care?
A) It increases only if demand shifts more than supply.
B) It unambiguously increases.
C) It unambiguously decreases.
D) It increases only if supply shifts more than demand.
9) Which of the following statements is NOT true?
A) Unemployment in the economy represents an excess demand for labor.
B) A surplus maybe reduced by shifting both the supply and demand curves.
C) A surplus maybe reduced by shifting the demand curve rightward.
D) A shortage maybe reduced by shifting the supply rightward.
10) Refer to Figure 2.1. At point D, demand is:
A) elastic, but not infinitely elastic.
B) inelastic, but not completely inelastic.
C) unit elastic.
D) unknown.
E) completely inelastic.
Alvin's preferences for good X and goodY are shown in the diagram below.
11) Based on Figure 3.2, it can be inferred that:
A) Alvin regards good X and goodY as perfect complements.
B) Alvin does not consider good X as "good."
C) Alvin regards good X and goodY as perfect substitutes.
D) Alvin will never purchase any of goodY.
E) none of the above
12) An upward sloping indifference curve defined over two goods violates which of the following assumptions from the theory of consumer behavior?
A) more is preferred to less.
B) transitivity.
C) preferences are complete.
D) all of the above
E) none of the above
13) Mikey is very picky and insists that his mom make his breakfast with equal parts of cereal (C) and apple juice (A). Any other combination and it ends up on the floor. Mikey's utility function of consuming cereal and apple juice is U=min(C, A). Cereal costs 4 cents per tablespoon and apple juice costs 6 cents per tablespoon. If Mikey's mom budgets $8 per month for Mikey's breakfast, how much cereal and juice does she buy?
A) 100 tablespoons of cereal and 67 tablespoons of juice
B) 40 tablespoons of cereal and 75 tablespoons of juice
C) 80 tablespoons each of cereal and juice
D) 40 tablespoons each of cereal and juice
14) The endpoints (horizontal and vertical intercepts) of the budget line:
A) indicate the highest level of satisfaction the consumer can achieve.
B) measure the rate at which one good can be substituted for another.
C) represent the quantity of each good that could be purchased if all of the budget were allocated to that good.
D) measure the rate at which a consumer is willing to trade one good for another.
E) measure its slope.
15) If the quantity of good A (QA) is plotted along the horizontal axis, the quantity of good B (QB) is plotted along the vertical axis, the price of good A is PA, the price of good B is P B and the consumer's income is I, then the
slope of the consumer's budget constraint is .
A) -PA/P B B) I/PA or I/P B C) -QB/Q A D) -PB/PA E) -QA/QB
16) The fact that Alice spends no money on travel:
A) implies that her MRS does not equal the price ratio.
B) implies that she is at a corner solution.
C) implies that she does not derive any satisfaction from travel.
D) any of the above are possible.
17) Bill currently uses his entire budget to purchase 5 cans of Pepsi and 3 hamburgers per week. The price of Pepsi is $1 per can, the price of a hamburger is $2, Bill's marginal utility from Pepsi is 4, and his marginal utility from hamburgers is 6. Bill could increase his utility by:
A) increasing Pepsi consumption and reducing hamburger consumption.
B) maintaining his current consumption choices.
C) increasing hamburger consumption and reducing Pepsi consumption.
D) We do not have enough information to answer this question.
18) The magnitude of the slope of an indifference curve is:
A) always equal to the ratio of the prices of the goods.
B) called the marginal rate of substitution.
C) equal to the ratio of the total utility of the goods.
D) all of the above
E) A and C only
19) The curve in the diagram below is called
A) the price-consumption curve.
B) the income-consumption curve.
C) the demand curve.
D) the Engel curve.
E) none of the above
20) The change in the price of one good has no effect on the quantity demanded of another good. These goods are:
A) complements.
B) both Giffen goods.
C) both inferior.
D) substitutes.
E) none of the above
21) As we move downward along a demand curve for apples,
A) the marginal utility of apples decreases.
B) consumer well-being decreases.
C) the marginal utility of apples increases.
D) Both A and B are true.
E) Both A and C are true.
22) The income-consumption curve for Dana between Qa and Qb is given as: Qa = Qb. His budget constraint is given as:
120 = Qa + 4Qb
How much Qa will Dana consume to maximize utility?
A) 0 B) 30 C) 60 D) 24
E) More information is needed to answer this question.
23) Your income response for bicycle riding changes with the amount of income you earn. At low levels of income, you view bicycle riding as an inferior good and substitute other types of transportation (e.g., auto travel) as your income rises. However, you view bicycle riding as a normal good after your income rises above a particular level. What shape does your Engel curve for bicycle riding have?
A) C-shaped
B) Horizontal line
C) Vertical line
D) Upward sloping
E) none of the above
Scenario 4.1:
Daniel derives utility from only two goods, cake (Qc) and donuts (Qd). The marginal utility that Daniel receives from cake (MUc) and donuts (MUd) are given as follows:
MUc = Qd MUd = Qc
Daniel has an income of $240 and the price of cake (Pc) and donuts (Pd) are both $3.
24) See Scenario 4.1. What quantity Qc will maximize Daniel's utility given the information above?
A) 60 B) 0 C) 40 D) 24 E) none of the above
25) Use the following statements to answer this question:
I. A price-consumption curve is derived by varying the price of asparagus. If the price-consumption curve is an upward sloping straight line, the demand curve for asparagus must be downward sloping.
II. Fred consumes only food and clothing. Fred's Engel curve traces out the utility maximizing combinations of food and clothing associated with each and every income level.
A) I and II are false. B) I is true, and II is false.
C) I is false, and II is true. D) I and II are true.
Use the figure below to answer the following questions.
26) Which one of the graphs in Figure 9.2.1 shows perfect substitutes?
A) (a) B) (b) C) (c) D) (d) E) (c) and (d)
27) The shape of a person's indifference curves between two goods depends on
A) the degree of substitutability between the two goods.
B) the prices of the two goods.
C) the level of satisfaction for the person.
D) the person's income.
E) all of the above.
28) Suppose the price of potatoes falls and there is a decrease in the purchases of potatoes, what can we infer?
A) The income effect is negative and exceeds the substitution effect.
B) The income effect is negative and reinforces the substitution effect.
C) The income effect is positive and reinforces the substitution effect.
D) The income effect is negative and just about offsets the substitution effect.
E) The income effect is positive and exceeds the substitution effect.
Use the figure below to answer the following questions.
29) Consider an initial budget line labelled RS in Figure 9.3.3. If the budget line becomes RT, the income effect is illustrated by the move from point
A) A to B. B) A to C. C) A to D. D) B to C. E) B to D.
30) The following data pertain to products A and B, both of which are purchased by Madame X. Initially, the prices of the products and quantities consumed are:
PA= $10, QA= 3, PB = $10, QB = 7.
Madame X has $100 to spend per time period. After a reduction in price of B, the prices and quantities consumed are:
PA= $10, QA= 2.5, PB= $5, QB = 15.
Assume that Madame X maximizes utility under both price conditions above. Also, note that if after the price reduction enough income were taken away from Madame X to put her back on the original indifference curve, she would consume this combination of A and B:
QA = 1.5, QB = 9
Determine the substitution effect.
A) 2 B) 4 C) 6 D) 8