MECO 6201 –Business Economics, Spring 2001– Test 1. Peter Lewin.

Please read the following carefully:

Multiple Choice – 25 questions. Please use a 50 question scantron (882-ES) with a pencil. Hand in only the scantron (you may keep this question paper).

This is a closed book exam. Cheating will result in a zero (among other possible sanctions).

Among the possibilities given in each question select the best alternative.

SOLUTION AND GRADE DISTRIBUTION AT THE END.

1. What is the main difference between partial and general equilibrium analysis?
1. partial equilibrium analysis focuses on normative issues, general equilibrium analysis on positive issues
2. partial equilibrium analysis includes only a few markets, general equilibrium analysis includes all markets.
3. partial equilibrium analysis concentrates on a single market, general equilibrium analysis on more than one market
4. b and c of the above
5. all of the above

2. Which of the following is concerned with how the market gets into equilibrium
1. comparative statics
2. dynamics
3. partial equilibrium
4. general equilibrium
5. b and d of the above

3. According to the law of demand, if other relevant factors remain unchanged, then a rise in the price of a commodity will cause
1. a reduction in the equilibrium quantity
2. excess supply
3. suppliers to reduce their production in reaction to the lower demand
4. a fall in the quantity demanded
5. a and d of the above

4. The term demand refers to

a. a collection of numbers, listing the quantities demanded at a variety of hypothetical prices

b. the information on tastes, incomes, and prices needed to determine people's desired purchases of a commodity

c. the amount of a commodity that is being purchased under current market conditions

d. the quantity purchased at each and every possible level of income

e. all of the above

5. Which of the following would cause the demand curve for peanuts to shift to the right?

a. a rise in the price of peanuts

b. a blight that destroyed 75% of the peanut harvest

c. a report claiming that peanuts are helpful in reducing harmful cholesterol

d. a tariff that doubles the price of imported pistachio nuts.

e. a and c of the above

6. At the equilibrium point of a market
1. supply equals demand
2. neither demanders nor suppliers are satisfied
3. the quantities supplied and demanded are equal
4. suppliers will refuse any price increases offered by demanders
5. a and c of the above

7. Suppose there is a shortage of water. Which of the following is true?
1. the price is too high to clear the market
2. the price is too low to clear the market
3. there is insufficient regulation in water production
4. there is insufficient regulation in water distribution
5. b and d of the above

8. Which of the following are examples of non-price rationing?
1. minimum wage regulation
2. maximum price ceilings on rents
3. farm subsidies
4. taxes
5. a and b of the above

9. A fixed per unit excise tax is always paid by
1. the buyer
2. the seller
3. both the buyer and the seller
4. none of the above
5. all of the above

10. Why do you suppose that excise taxes are usually collected from the seller?
1. because sellers are more trustworthy than buyers
2. because there are fewer sellers than buyers and this reduces collection costs
3. because sellers always pay the tax anyway
4. a and b of the above
5. none of the above

11. A demand curve applies to a
1. a particular market
2. well defined good or service
3. a particular period of time
4. all of the above
5. none of the above

12. If we are discussing the demand for 1999 Ford 4-wheel drive vehicles, a rise in the price of gasoline will cause demand to

1. move to the right
2. move to the left
3. remain unchanged
4. any of the above is possible
5. none of the above is true

13. Compare points A and B in Figure 1. The price elasticity of demand at point A is ___________than the price elasticity of demand at point B.
1. greater
2. less
3. the same as
4. it is impossible to tell

14. Look at Figure 1 again. The price elasticity of demand a point C is equal to (in absolute value):
1. 1
2. 2
3. 0
4. infinity
5. it is impossible to tell

15. Consider Figure 1 again. Demand Curve 1 is parallel to Demand Curve 2. The price elasticity of demand at point F is __________ the price elasticity of demand at point B.
1. greater
2. less
3. the same as
4. it is impossible to tell

16. Consider Figure 1 again. Demand Curve 3 is flatter than Demand Curve 2. The price elasticity of demand at point G is __________ the price elasticity of demand at point B.
1. greater
2. less
3. the same as
4. it is impossible to tell

17. Consider Figure 1 again. Which of the following is a correct statement?
1. Demand Curve 3 is less price elastic than Demand Curve 2
2. Demand Curve 3 is more price elastic than Demand Curve 2
3. Demand Curve 3 has the same price elasticity as Demand Curve 2
4. there is no meaningful way to compare the price elasticities of different downward sloping straight line demand curves

18. Most trade union workers get paid well above the minimum wage. By supporting increases in the minimum wage law, labor unions are able to benefit
1. their members
2. all workers in the industry
3. all workers in the economy
4. a and b of the above
5. none of the above

19. At current prices the consumer surplus to society from water consumption _________ the consumer surplus to society from diamond consumption.
1. is greater than
2. is less than
3. is equal to
4. it is impossible to tell

20. At the equilibrium price in a competitive market
1. producer surplus is maximized, consumer surplus is minimized
2. consumer surplus is maximized, producer surplus is minimized
3. producer and consumer surplus are both maximized
4. producer and consumer surplus are both minimized

21. The establishment of a minimum wage above the equilibrium market wage will result in
1. unemployment
2. a loss of some consumer surplus
3. a loss of some producer surplus
4. all of the above
5. none of the above

22. The American Medical Association controls the number of medical schools in this country and the number of foreign doctors who may obtain licenses to practice medicine legally. Currently entrance into medical school is seriously rationed – many more apply than are admitted. If the American Medical Association allowed the number of medical schools to double which of the following is likely to happen?
1. the quality of medical service would fall dramatically
2. the price of physicians’ services would fall
3. patients would be confused by too many doctors in competition with one another
4. a and c of the above
5. none of the above

23. Current agricultural policy contains generous price supports for farmers. The federal government stands ready to buy any surplus that may result in the production of many types of agricultural products. Which of the following effects may be expected from this policy?
1. food prices are lower than they would otherwise be
2. food production is higher than it would otherwise be
3. food prices are higher than they would otherwise be
4. food production is lower than it would otherwise be
5. b and c of the above

24. Which of the following is never positive in value?
1. the income elasticity of demand
2. the price elasticity of demand
3. the cross price elasticity of demand
4. the price elasticity of supply
5. b and c of the above

25. When does the buyer pay the entire value of an excise tax?

1. when the demand curve is vertical
2. when the supply curve is vertical
3. when the supply curve is horizontal
4. a and b of the above
5. a and c of the above

GRADE DISTRIBUTION:

If you score is greater than or equal to: your grade is

19	A
18	B+
16	B
15	C+
ELSE	C

Solution:

1. c
2. b
3. d
4. a
5. c
6. c
7. b
8. e
9. c or d
10. b
11. d
12. b
13. a
14. e
15. a
16. d
17. d
18. a
19. a
20. c
21. d
22. b
23. e or b
24. b
25. a