Reference no: EM131021880

First Midterm

Part I: Multiple Choice

The demand and supply schedules in the table below reflect the weekly demand and supply of movie tickets in Portage. Answer the next four questions using the information in this table.

1. As the price of a movie ticket falls from $8 to $7
a. The quantity demanded of movie tickets increases from 800 to 1000.
b. The quantity demanded of movie tickets increases from 600 to 800.
c. The quantity supplied of movie tickets increases from 600 to 800.
d. The quantity supplied of movie tickets decreases from 800 to 1000.
e. There will be an excess supply of movie tickets.

2. The market for movie tickets will be in equilibrium when the
a. Equilibrium price is $6.00 and the equilibrium quantity is 600.
b. Equilibrium price is $6.00 and the equilibrium quantity is 1000.
c. Equilibrium price is $4.00 and the demanders get the entire 1400 units they want.
d. Equilibrium price is $7.00 and the equilibrium quantity is 800.
e. Equilibrium price is $5.00 and the equilibrium quantity is 1200.

3. If there is a decrease in the demand for movie tickets, then at a price of $7
a. The supply will also fall relative to its initial level.
b. With this change it is impossible to tell the level of quantity supplied in this market.
c. Quantity demanded will equal 800.
d. Quantity demanded will be less than 800.
e. Quantity demanded will be greater than 800.

4. At a price of $9.00, there is an
a. An excess supply of 800 movie tickets.
b. An excess supply of 200 movie tickets.
c. An excess demand of 200 movie tickets.
d. An excess supply of 1000 movie tickets.
e. An excess demand of 800 movie tickets.

5. If the market for pens clears, then we know
a. That everyone who wanted to buy a pen can.
b. That it must be because the government has enacted an effective price floor on pens.
c. That everyone who wanted to sell a pen can.
d. That everyone who wanted to buy or sell a pen at the equilibrium price can.
e. That it must be because the government has enacted an effective price ceiling on pens.

6. Towards the end of the pay period when money gets tight, Joe eats a lot of Ramen noodles. Joe doesn't eat Ramen because he likes them, but because they are inexpensive. If Joe experiences an increase in his income, we expect his
a. Demand for Ramen noodles will decrease.
b. Supply of Ramen noodles will increase.
c. Supply of Ramen noodles will decrease.
d. Demand and supply curves for Ramen noodles to decrease.
e. Demand for Ramen noodles will increase.

7. Which of the following is an example of a normative statement?
a. Reform of the welfare system should start with provisions for education and childcare for children under age ten.
b. Reform of the welfare system will increase the market work done by low-income families.
c. Reform of the welfare system will result in substantial savings to the federal government.
d. Welfare reform will improve the grades of low-income students.
e. Welfare reform will save the government billions of dollars in funding.

8. An economic model:
a. Uses no assumptions to arrive at its conclusions.
b. Represents a simplified view of the problem under study.
c. Must be able to accurately model a variety of economic changes simultaneously in order to be useful.
d. Is a complete replication of reality.
e. Is so out of touch with reality that it has no explanatory significance.

9. Economics is primarily concerned with
a. Unemployment.
b. Poverty and the distribution of income.
c. The proper role of government.
d. Choices when faced with scarcity.
e. The production of goods and services.

Use the following information to answer the next two questions.

The following table represents the daily production possibilities frontier for a bakery.

10. The opportunity cost of increasing the production of bagels from 100 to 150 is:
a. 40 croissants.
b. 140 croissants.
c. 50 bagels.
d. 180 croissants.
e. 180 bagels.

11. Which of these combinations of bagels and croissants represents a situation of inefficient production?
a. 100 bagels and 140 croissants.
b. 250 bagels and 0 croissants.
c. 100 bagels and 180 croissants.
d. 50 bagels and 200 croissants.
e. 150 bagels and 140 croissants.

Use the following information to answer the next two questions.

Answer the next two questions using the information below. Each entry in the table gives the number of hours it takes a typical worker in the given country to produce one unit of the given good. Thus, it takes a Norwegian worker two hours to produce one sweater, and four hours to catch a fish. Assume that both countries have an equal number of hours available to knit sweaters and/or fish.

12. Which of the following statements is true?
a. Norway has the absolute advantage in the production of fish.
b. Denmark has the comparative advantage in the production of both goods.
c. Norway has the absolute advantage in the production of both goods.
d. Norway has the comparative advantage in the production of both goods.
e. Norway has the absolute advantage in the production of sweaters.

13. Norway's opportunity cost of producing one fish is:
a. 2 fish.
b. 4 hours.
c. 1 sweater.
d. 2 sweaters.
e. 2/3 sweater.

14. The difference between microeconomics and macroeconomics is that:
a. Microeconomics studies the performance of the private sector, while macroeconomics studies the performance of the government.
b. Microeconomics studies what is happening in the economy now, while macroeconomics studies what happened in the past.
c. Microeconomics studies businesses while macroeconomics studies people.
d. Microeconomics studies individual decision makers while macroeconomics studies the economy's overall performance.
e. Microeconomics is about what is, while macroeconomics is about what ought to be.

15. Inflation is costly because:
a. People's incomes always lag behind the increase in prices.
b. Once it begins, it can never be limited.
c. It creates uncertainty with regard to financial transactions.
d. It reduces government revenue and increases the budget deficit.
e. It never benefits anyone.

16. Mary borrows $100 from Joe and agrees to pay him 20% interest one year from now. Mary anticipates that the inflation rate will be 14%. Suppose the inflation rate is actually 10%. What is the real rate of interest that Mary will pay and who benefits because the inflation rate is less than was expected?
a. 6%; Joe
b. 6%; Mary
c. 10%; Mary
d. 10%; Joe
e. 4%; Joe

17. If the current value of the CPI is 75, prices now are:
a. 75% lower than last year.
b. 75% lower than in the base year.
c. 25% lower than last year.
d. 25% lower than in the base year.
e. 75 times higher than in the base year.

18. If the CPI rises from 100 to 120, and the price of your favorite tennis shoes simultaneously rises from $50 to $90, the real price of the shoes has risen to:
a. $60
b. $75
c. $90
d. $100
e. $120

19. Which of the following is most likely to benefit from unexpected inflation?
a. A retired person owning U.S. Savings Bonds.
b. A family with a savings account.
c. A mortgage company that makes 30 year fixed rate mortgage loans.
d. A saver who has made a loan to a neighbor.
e. A student who has borrowed to finance her education.

Use the following information to answer the next three questions. Suppose the market for ice cream cones per week in a small town is characterized by the following demand and supply curves:

Demand: 5Q = 5000 - 1000P
Supply: Q = 600P - 600

20. The value of consumer surplus in the market for ice cream cones is equal to
a. $150 per week
b. $300 per week
c. $600 per week
d. $900 per week
e. $1800 per week

Suppose an excise tax of $3.00 per cone is levied on the producers of this good.

21. The new price for an ice cream will be
a. $5.00 per cone
b. $4.50 per cone
c. $4.25 per cone
d. $4.00 per cone
e. $3.50 per cone

22. Given the excise tax that was imposed, the value of the deadweight loss from this tax is equal to
a. $450
b. $675
c. $1012.50
d. $1200
e. $1350

23. Which of the following statements is true?
a. In calculating the CPI, the market basket of goods "priced" varies from year to year.
b. Real GDP is measured in constant dollars.
c. Nominal interest rates are always higher than real interest rates.
d. Inflation does not benefit anyone.
e. Real interest rates are always higher than nominal interest rates.

24. Which of the following statements is true?
a. To be considered unemployed one must be sixteen years old, available for work, and actively seeking employment during the past four weeks.
b. Those who choose not to work are considered unemployed.
c. Those who choose not to work are included in the labor force.
d. The unemployment rate overstates the level of unemployment due to its treatment of discouraged workers.
e. The labor force includes both the employed and unemployed over eighteen years of age in an economy.

25. Which of the following statements is true?
a. Economic expansion implies a relatively low level of employment and an economy that is producing at a level of output above the long run trend line.
b. Economic recession implies a relatively low level of employment and an economy that is producing at a level of output below the long run trend line.
c. In an economic expansion the economy is operating on the long run trend line for the economy.
d. In an economic recession the economy is operating on the long run trend line for the economy.
e. There is little relationship between the level of real GDP and the level of employment in most economies.

Part II: Short Answers (each response is worth one point each)

1. For each of the following, use the following symbols to categorize each example:

C to indicate a consumption good or service
I for a private investment good
G for a government good or service
+NX for an increase in net exports
- NX for a decrease in net exports
T for an intermediate good

1. A pair of sunglasses _______
2. A new copy machine for an office _____
3. Gasoline used in a taxi ____
4. Gasoline bought by a family ____
5. Tuition at a private school _____
6. A pair of goggles for a soldier ______
7. Feed for pigs _______
8. U.S. wheat shipped to Egypt ______
9. The provision of police services ______
10. Steel from Germany used in a U.S. car ____

2. For each of the following, indicate the kind of unemployment that results.

1. Sue is fired from her job because her company invested in equipment that could do her job in less time. Sue is _______________________ unemployed.

2. The economy is sluggish and orders for new cars are 10% below their usual level. Charles, a steelworker, is laid off. He is __________________ unemployed.

3. Mike, unhappy with his job at Taco Bell, quits in order to look for another job. Mike is ______________________ unemployed.

4. Joe works at a downhill ski resort during December, January, February, and early March. In the summer he is employed as an exhibition skier at the Wisconsin Dells. During late March, April, May, early June, September, October and November Joe is ______________________ unemployed.

5. Mary would like to find a job: she is available for work and she has applied to 14 jobs during the last four weeks. Mary is ______________ unemployed.

Part III: Short Calculations

A. Use the following information to answer the next two questions. You are given the following data for Economy A for the year 2002:

Wages and Salaries = $650
Private Investment = $200
Net Exports = -$100
Interest = $100
Consumption = $600
Profit = $200
Government Purchases = $300
Rent = $X

1. Calculate the value of GDP for this simple economy using the expenditure approach? Show your work.

2. What is the value of rent for this economy? Show your work. (Base your calculation on the simple circular flow model of the economy.)

B. For the next three questions, calculate the unemployment rate in percentage terms for each of the three cases you are given. Show your work and any formulas used.

1. Unemployed = 15,000 while the employed = 45,000

2. Unemployed = 40,000 while the labor force = 200,000

3. Employed = 180,000 while the labor force = 200,000