Reference no: EM131022158

First Midterm - I

Binary Choice:

1. Two countries both produce and consume only goods A and B. The trading price of one unit of good A will be within the boundaries set by the opportunity costs of good B for the two countries.

a) True

b) False

2.  If the world price of a good is greater than the domestic price of the good, the country will import the good.

a) True

b) False

3.  On Mars, the Martian colony produces only 2 goods: Water (W) and Plants (P).  The opportunity cost of 1 bottle of Water (W) is a constant equal to 3 Plants (P).  The Martian colony is producing efficiently if they produce 1 plant and 3 water bottles.  What is the Production Possibility Function for the Martian colony?

a) P = 2 -(1/3)W

b) P = 10 - 3W

4. Evaluate whether the following statement is positive or normative: "The 2012 United States GDP was 3.14 trillion dollars."

a. Positive

b. Normative

5. Which of the following is the definition of economics from class?

a) Economics: It's the study of aggregate information and choices in a world with scarce resources.

b) Economics: It's the study of the allocation, production, and distribution of goods and services in a world with scarce resources.

6. Income is a flow measure of dollars and thus is measured at a single point in time.

a) True

b) False

7. The government wants to discourage consumption of hot dogs and decides to implement a $1 tax on every hot dog sold.  Holding everything else constant, what happens in the market for hot dog buns?

a) The demand curve for hot dog buns shifts to the left.

b) The supply curve for hot dog buns shifts to the left.

8. What does the slope of a linear PPF represent?

a) The opportunity cost of the good on the X axis.

b) The opportunity cost of the good on the Y axis.

9. Denmark is an open economy.  The world price for sugar is $2 per pound.  The domestic demand for sugar in Denmark is P = 144 - 12Q. The domestic producer surplus is $50.  Domestic producers have a linear supply curve and supply 100 pounds of sugar when this market is open to trade. What is the equation for the domestic supply curve of sugar in Denmark?

a) P = (1/50)Q

b) P = (1/100)Q + 1

10. The Green Bay Packers and Chicago Bears are playing a game of football where they produce 2 goods (Touchdowns and Interceptions). The Green Bay Packers have the absolute advantage in producing Touchdowns.  The Chicago Bears have the comparative advantage in producing Touchdowns.  Both teams have linear PPF's.  Which team has the comparative advantage in producing Interceptions?

a) The Green Bay Packers have the comparative advantage in producing Interceptions

b) Either team could have the comparative advantage in producing Interceptions; not enough information has been given in this question to determine with certainty which team has the comparative advantage in producing Interceptions.

Multiple Choice:

11. Assume a country only produces two goods: apples and bananas. It can produce either a basket of 20 apples and 10 bananas, or a basket of 15 apples and 25 bananas. Furthermore, suppose this country's production possibility frontier for these two goods is linear. What is the slope of the production possibility frontier if apples are measured on the x-axis?

a) -2

b) -1/3

c)  -3

d) -3/5

12. Which of the following statements is true for a PPF in an economy that only produces two goods?

a) A country with a two good PPF will always use its resources efficiently.

b) If the country is fully utilizing its resources then the only way to increase the production of one good is to reduce the production of the other good.

c) If this country experiences an advance in the available technology this will cause the PPF to shift in toward the origin.

d) Economic growth in this economy depends solely on the quantity of available labor.

Use the following information to answer the next FOUR questions.

Assume there are only two countries, Germany and the U.S., and they produce only two goods, airplanes and cars. Germany can produce 25 airplanes and 0 cars or 100 cars and 0 airplanes. The U.S. can produce 50 airplanes and 0 cars or 80 cars and 0 airplanes. Assume that both countries have linear PPFs.

13. If Germany wants to trade with the U.S., which goods would Germany export and import?

a) Germany would export airplanes and import cars.

b) Germany would export cars and import airplanes.

c) Germany would only export airplanes.

d) Germany would only import cars.

14. Suppose the U.S. also wants to trade with Germany. Suppose the market price of an airplane is 2 cars and the price of a car is ½ of an airplane. Will trade take place under the given market prices? Given these market prices

a) only airplanes will be traded.

b) only cars will be traded.

c) both cars and airplanes will be traded.

d) neither cars nor airplanes will be traded.

15. Suppose the U.S. and Germany collaborate in producing airplanes and cars. If all the resources of the countries are used for production and 60 airplanes are produced, how many cars can be produced?

a) 60 cars

b) 80 cars

c) 120 cars

d) 140 cars

16. Suppose there has been a change in technology which results in the U.S. having the comparative advantage in the production of cars. Given this information, which of the following new technology shocks must have happened?

a)  In the U.S. (and only in the U.S.) the blueprint for airplane assembly was eaten by a dog making it very difficult to now assemble airplanes for the U.S.  As a result, the U.S. can only produce 10 airplanes.

b)  3D printing of metals has been invented and patented in the U.S., allowing the U.S. to produce an additional 120 cars.

c) The assembly line process becomes outlawed in the U.S. (a negative technology shock) and the U.S. can only produce 5 cars.

d) The U.S. creates a robot that now allows them to produce an additional 25 airplanes.

17.  Sam is an undergraduate student. Which of the following is NOT an opportunity cost of being in college for Sam?

a) the tuition Sam pays to his college.

b) the rent Sam pays for his apartment.

c) the campus fees he is required to pay as a student in order to provide funding for student organizations on campus.

d) the earnings he would earn if he were to stop attending college and get a full-time job.

18. Assume that on Friday night Kate can choose between 10 different activities. The opportunity cost from choosing one activity is

a) the summed value of all the other alternative activities.

b) the value of the next most valuable alternative activity minus the value of the chosen activity.

c) the summed value of all her activities minus the value of the chosen activity.

d) the value of the next most valuable alternative activity.

19. Julie makes 10 dollars for every hour she works, and can work up to 40 hours a week.  She can hire a sitter for her child at 5 dollars an hour or she can take an hour off work in order to watch her child.  Her child must be watched for those 40 hours a week.  What is the opportunity cost of working 30 hours a week if the other option is working 40 hours a week and hiring a sitter full-time?

a) $50

b) $150

c) $100

d) $400

20. An effective import quota for sugar is implemented by the United States (US).  Who is made better off by this policy?

a) Domestic Consumers in the US.

b) Domestic Producers in the US.

c) Both Domestic Consumers and Domestic Producers in the US.

d) Neither Domestic Consumers nor Domestic Producers in the US.

21. If the world price of baseball bats is four dollars, how many baseball bats are imported/exported if the domestic supply curve is given by Q = 2P, and the domestic demand is given by Q = 15 - P and the domestic baseball bat market is open to trade?

a) The country will export three baseball bats.

b) The country will import seven baseball bats.

c) The country will import five baseball bats.

d) The country will import three baseball bats.

22. Badgerland is a small economy whose domestic demand and supply equations for T-shirts are given by the following equations where Q is the quantity of T-shirts and P is the price per T-shirt:

Domestic Supply: Q = 2P

Domestic Demand: Q = 15 - P

The world price of T-shirts is four dollars per T-shirt. Which of the following policies would yield the same equilibrium price and quantity as a closed economy?

a) A quota restricting imports to four units.

b) A tariff of one dollar on each unit imported.

c) A tariff of six dollars on each unit imported.

d) A quota restricting imports to one unit.

23. There are 3 types of consumers for UW-Badger memorabilia; students, alumni, and the general public.  The demand for memorabilia of each group of consumers is given below:

Students: Q = 50 - P

Alumni:  Q = 100 - P

General Public: Q = 300-3P

What is the equation for the market demand curve for UW-Badger memorabilia?

a) 3Q = 450 - 5P  if P < 50

Q = 100 - P  if P ≥ 50

b) P = 90 - (1/5)Q  if P < 50

P = 100 - (1/4)Q  if P ≥ 50

c) P = 90 - (3/5) Q  if P < 50

P = 100 - (4/5)Q if  50 ≤ P < 100

P = 300 - Q if P ≥ 100

d) Q = 300 - 3P if P ≥ 100

Q = 400 - 4P if 100 > P ≥ 50

Q = 450 - 5P if P < 50

24. In Miami, the market for Duct Tape was initially represented by the following two equations where Q is the quantity of duct tape and P is the price per unit of duct tape:

Demand for Duct Tape: Q = 100 - 29P

Supply of Duct Tape: Q = (1/4)P - 20

Not so long ago, Dexter moved to Miami and he had a great demand for duct tape.  Now, the market demand for duct tape includes both the original Miami residents' demand for duct tape as well as Dexter's demand for duct tape. Dexter's Demand for Duct Tape is given by the following equation:

Q = 200 - P

Holding everything else constant, what is the new equilibrium price and quantity of Duct Tape in Miami?

a) P = $20, Q = 180

b) P = $40, Q = 10

c) P = $74, Q = 16

d) P = $176, Q = 24

25. The market for Milk in Wisconsin was originally in equilibrium with a price of $2 per gallon, and an equilibrium quantity sold of 100,000 gallons.

The price of gasoline increases from $3.25 to $4.37 (the semi trucks used to transport milk run on gasoline).  The price of Orange Juice (a substitute for milk) increases from $1.50 per gallon to $1.75 per gallon.  Also, the price of double-stuffed Oreos (a complement of milk) decreases from $3 per pack to $2.50 per pack.

What happens to the equilibrium price and quantity of milk?

a) Both the equilibrium price and the equilibrium quantity of milk increase given this information.

b) Both the equilibrium price and the equilibrium quantity of milk are indeterminate given this information.

c) The equilibrium price of milk increases and the equilibrium quantity of milk is indeterminate given this information.

d) The equilibrium price of milk decreases and the equilibrium quantity of milk increases given this information.