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if a nonbinding price ceiling is imposed on a market, then the

ECO 2003

Multiple Choice

Identify the choice that best completes the statement or answers the question.

____ 1. A surplus results when a

a. nonbinding price floor is imposed on a market.

b. nonbinding price floor is removed from a market.

c. binding price floor is imposed on a market.

d. binding price floor is removed from a market.

Figure 6-3

Panel (a) Panel (b)

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quantity quantity

____ 2. Refer to Figure 6-3. A nonbinding price floor is shown in

a. both panel (a) and panel (b).

b. panel (a) only.

c. panel (b) only.

d. neither panel (a) nor panel (b).

Figure 6-6

image2

____ 3. Refer to Figure 6-6. If the government imposes a price ceiling of $12 on this market, then there will be a. no shortage.

b. a shortage of 10 units.

c. a shortage of 20 units.

d. a shortage of 40 units.

Figure 6-9

image3

____ 4. Refer to Figure 6-9. At which price would a price ceiling be binding? a. $4

b. $5

c. $6

d. $7

Figure 6-11

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____5. Refer to Figure 6-11. Which of the following statements is not correct?a. A government-imposed price of $9 would be a binding price floor if market demand is Demand A and a binding price ceiling if market demand is Demand B.b. A government-imposed price of $15 would be a binding price ceiling if market demand is either Demand A or Demand B.c. A government-imposed price of $3 would be a binding price ceiling if market demand is either Demand A or Demand B.d. A government-imposed price of $12 would be a binding price floor if market demand is Demand A and a non-binding price ceiling if market demand is Demand B.
____6. When a tax is imposed on the sellers of a good, the supply curve shifts

a. upward by the amount of the tax.

b. downward by the amount of the tax.

c. upward by less than the amount of the tax.

d. downward by less than the amount of the tax.

Figure 6-25

Panel (a) Panel (b)

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quantity quantity

Panel (c)

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____ 7. Refer to Figure 6-25. In which market will the majority of the tax burden fall on buyers? a. market (a)

b. market (b)

c. market (c)

d. All of the above are correct.

Table 7-6

BuyerWillingness to Pay
Michael$500
Earvin$400
Larry$350
Charles$300
____8. Refer to Table 7-6. You have four essentially identical extra tickets to the Midwest Regional Sweet 16 game in the men’s NCAA basketball tournament. The table shows the willingness to pay of the four potential buyers in the market for a ticket to the game. You offer to sell the tickets for $400. How many tickets do you sell, and what is the total consumer surplus in the market? a. one ticket; $100b. two tickets; $100c. two tickets; $0d. three tickets; $0
____9. Suppose there is an early freeze in California that reduces the size of the lemon crop. What happens to consumer surplus in the market for lemons? a. Consumer surplus increases.b. Consumer surplus decreases.c. Consumer surplus is not affected by this change in market forces.d. We would have to know whether the demand for lemons is elastic or inelastic to make this determination.
____ 10. All else equal, what happens to consumer surplus if the price of a good increases?

a. Consumer surplus increases.

b. Consumer surplus decreases.

c. Consumer surplus is unchanged.

d. Consumer surplus may increase, decrease, or remain unchanged.

Figure 7-5

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____11. Refer to Figure 7-5. If the government imposes a price floor of $120 in this market, then consumer surplus will decrease by (Remember, area of a triangle is 1/2 * b * h) a. $75.b. $125.c. $225.d. $300.
____12. Producer surplus isa. measured using the demand curve for a good.b. always a negative number for sellers in a competitive market.c. the amount a seller is paid minus the cost of production.d. the opportunity cost of production minus the cost of producing goods that go unsold.
____13. If Gina sells a shirt for $40, and her producer surplus from the sale is $32, her cost must have been

a. $72.

b. $32.

c. $8.

d. We would have to know the consumer surplus in order to make this determination.

Table 7-10

SellerCost
LeBron$700
Kobe$600
Kevin$450
Steve$400

____ 14. Refer to Table 7-10. You want to hire a professional photographer to take pictures of your family. The table shows the costs of the four potential sellers in the local photography market. You take bids from the sellers. Who offers the winning bid, and what does he offer to charge for the photography session? a. Steve; more than $400 but less than $450

b. Steve; $399

c. LeBron; more than $700

d. LeBron; more than $600 but less than $700

Figure 7-15

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____15. Refer to Figure 7-15. If the government imposes a price floor of $60 in this market, then total surplus will be a. $110.50.b. $125.00.c. $187.50.d. $225.25..
____16. A tax on a gooda. raises the price that buyers effectively pay and raises the price that sellers effectively receive.b. raises the price that buyers effectively pay and lowers the price that sellers effectively receive.c. lowers the price that buyers effectively pay and raises the price that sellers effectively receive.d. lowers the price that buyers effectively pay and lowers the price that sellers effectively

receive.

____ 17. Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will

a. fall entirely on the buyers of fast-food French fries.

b. fall entirely on the sellers of fast-food French fries.

c. be shared equally by the buyers and sellers of fast-food French fries.

d. be shared by the buyers and sellers of fast-food French fries but not necessarily equally.

Figure 8-6

The vertical distance between points A and B represents a tax in the market.

image9

____ 18. Refer to Figure 8-6. When the tax is imposed in this market, producer surplus is a. $450.

b. $600.

c. $900.

d. $1,500.

Figure 8-7

The vertical distance between points A and B represents a tax in the market.

image10

____ 19. Refer to Figure 8-7. The deadweight loss associated with this tax amounts to

a. $60, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses.

b. $60, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.

c. $40, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses.

d. $40, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.

____ 20. The deadweight loss from a tax of $8 per unit will be smallest in a market with

a. elastic demand and elastic supply.

b. elastic demand and inelastic supply.

c. inelastic demand and elastic supply.

d. inelastic demand and inelastic supply.

____ 21. For any country, if the world price of zinc is higher than the domestic price of zinc without trade, that country should

a. export zinc, since that country has a comparative advantage in zinc.

b. import zinc, since that country has a comparative advantage in zinc.

c. neither export nor import zinc, since that country cannot gain from trade.

d. neither export nor import zinc, since that country already produces zinc at a low cost compared to other countries.

Figure 9-1

The figure illustrates the market for wool in Scotland.

image11

____ 22. Refer to Figure 9-1. With trade, Scotland will

a. export 11 units of wool.

b. export 5 units of wool.

c. import 15 units of wool.

d. import 6 units of wool.

Figure 9-4. The domestic country is Nicaragua.

image12.jpg

____ 23. Refer to Figure 9-4. Consumer surplus in Nicaragua without trade is

a. $375.

b. $2,000.

c. $2,250.

d. $8,700.

Figure 9-9

image13.jpg

____ 24. Refer to Figure 9-9. Consumer surplus in this market before trade is

a. A.

b. A + B.

c. A + B + D.

d. C.

Figure 9-10. The figure applies to Mexico and the good is rifles.

image14.jpg

____ 25. Refer to Figure 9-10. The price and quantity of rifles in Mexico before trade is

a. P0 and Q0.

b. P1 and Q1.

c. P2 and Q2.

d. P1 and Q0.

Figure 9-11

image15.jpg

____ 26. Refer to Figure 9-11. Consumer surplus in this market after trade is

a. A.

b. C + B.

c. A + B + D.

d. B + C + D.

____ 27. Refer to Figure 9-11. Producer surplus in this market before trade is

a. C.

b. B + C.

c. A + B + D.

d. B + C + D.

Figure 9-17

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4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 96 100 Quantity

____28. Refer to Figure 9-17. Without trade, total surplus isa. $600.b. $1,200.c. $1,800.d. $2,250.
____29. When a country allows trade and becomes an importer of a good,a. domestic producers become better off, and domestic consumers become worse off.b. domestic producers become worse off, and domestic consumers become better off.c. domestic consumers become better off, but the effect on the well-being of domestic producers is ambiguous.d. domestic producers become worse off, but the effect on the well-being of domestic consumers is ambiguous.
____30. Which of the following is an example of an implicit cost?

(i) the owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm

(ii) interest paid on the firm’s debt

(iii) rent paid by the firm to lease office space

a. (ii) and (iii) only

b. (i) and (iii) only

c. (i) only

d. (iii) only

____ 31. When the marginal product of an input declines as the quantity of that input increases, the production function exhibits

a. increasing marginal product.

b. diminishing marginal product.

c. diminishing total product.

d. Both b and c are correct.

____ 32. Variable cost divided by the change in quantity produced is

a. average variable cost.

b. marginal cost.

c. average total cost.

d. None of the above is correct.

Table 13-10

Eileen’s Elegant Earrings produces pairs of earrings for its mail order catalogue business. Each pair is shipped in a separate box. She rents a small room for $150 a week in the downtown business district that serves as her factory. She can hire workers for $275 a week. There are no implicit costs.

Number ofWorkersBoxes ofEarringsProduced per WeekMarginalProduct of LaborCost ofFactoryCost ofWorkersTotal Cost ofInputs
00
1330$150$275$425
2630
3150$825$975
4890
595060$1,375
610$1,800

____ 33. Refer to Table 13-10. What is the total cost associated with making 890 boxes of earrings per week? a. $1,250

b. $1,325

c. $1,400

d. $1,575

____ 34. When average cost is greater than marginal cost, marginal cost must be a. rising.

b. falling.

c. constant.

d. The direction of change in marginal cost cannot be determined from this information.

Figure 13-9

The figure below depicts average total cost functions for a firm that produces automobiles.

image17.jpg

____ 35. Refer to Figure 13-9. The firm experiences economies of scale at which output levels? a. output levels less than M

b. output levels between M and N

c. output levels greater than N

d. All of the above are correct as long as the firm is operating in the long run.

QUESTION 37 – EXTRA CREDIT (WORTH 1 POINT)

Starting in fall 2014, an introductory economics (ECO 2003, 2013, or 2023) will no longer be a required Core course for all students. Instead it will be one choice among several social and behavioral science courses. Suppose that choice had been given to you this year before you signed up for ECO 2003. What would your choice likely have been?

A. I would likely have chosen another course.

B. I would likely still have taken this economics class.

C. It would greatly depend on the other course choices.

—–********************************************************************************

.

PART I

Table 3

Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate.

Labor Hours Needed to Make 1
CoolerRadio
Aruba25
Iceland14

Refer to Table 3-2

1. Draw Aruba’s production possibilities frontier when 100 labor hours are available.

2. Draw Iceland’s production possibilities frontier when 100 labor hours are available.

3. What is the slope of Aruba’s PPF? Of Iceland’s?

4. Assuming that Aruba and Iceland each has 80 labor hours available, if each country divides its time equally between the production of coolers and radios, then total production is how many coolers and radios?

PART II

The only two countries in the world, Alpha and Omega, face the following production possibilities.

Alpha’s Production Possibilities Frontier Omega’s Production Possibilities Frontier

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25 50 75 100 125 150 175 200 225 250 peanuts 25 50 75 100 125 150 175 200 225 peanuts

1. Assume that each country decides to use half of its resources in the production of each good. Show these points on the graphs for each country as point A.

2. If these countries choose not to trade, what would be the total world production of popcorn and peanuts?

3. Now suppose that each country decides to specialize in the good in which each has a comparative advantage. By specializing, what is the total world production of each product now?

4. If each country decides to trade 100 units of popcorn for 100 units of peanuts, show on the graphs the gain each country would receive from trade. Label these points B.

PART III

1. Explain the difference between absolute advantage and comparative advantage. Which is more important in determining trade patterns, absolute advantage or comparative advantage? Why?

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