MECO 6201 Summer 2004 Test 1 Peter Lewin

Multiple choice- select the best alternative. Please keep the question paper and hand in your scantron.

This is a closed book test. Cheating will result among other possible sanctions in a zero

Solution and grade distribution at end.

1. If the supply of oil falls and all other relevant factors remain unchanged, then,

a. the demand for oil will fall.

b. the quantity demanded of oil will fall.

c. the demand for oil will rise.

d. the quantity demanded of oil will rise.

2. 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.

3. Consider Figure 1 above. The cost of producing Guns is

a. decreasing

b. constant

c. increasing

d. there are no costs

4. Consider Figure 1 above. Comparing Curve 1 with Curve 2, along Curve 2

a. butter is cheaper to produce

b. butter is more expensive to produce

c. butter costs the same to produce

d. butter cannot be produced

5. Consider Figure 1 above. Comparing Curve 1 with Curve 2, along Curve 2

a. guns are cheaper to produce

b. guns are more expensive to produce

c. guns costs the same to produce

d. guns cannot be produced

6. Consider Figure 2 above. The cost of producing Guns is

a. decreasing

b. constant

c. increasing

d. there are no costs

7. Consider Figure 2 above. The cost of producing Butter is

a. decreasing

b. constant

c. increasing

d. there are no costs

8. Consider figure 2 above. This production possibility curve illustrates the concept of

a. falling opportunity cost

b. rising opportunity cost

c. constant opportunity cost

d. a free lunch

9. Which of the following assumptions does one need to make to do economics?

a. people are selfish

b. people act in their own self interest

c. people are generous

d. people are good calculators

10. Which of the following is most likely beyond the scope of economic analysis?

a. Family structure.

b. Why some people contribute to charities.

c. Why some people choose to vote.

d. The actions of people who do what voices in their heads tell them to do.

11. When observing people making choices that do not at first appear to be rational, an economist will ask,

a. "How might a psychologist explain this behavior?"

b. "Why do we economists keep believing that people behave rationally?"

c. "How might such behavior be serving someone's purposes?"

d. "What is wrong with these people?"

12. If asked to comment about a new tax on coffee collected from growers who do not grow their plants in the shade of other plants, an economist with no particular expertise in coffee growing might still note that

1. the price received by these coffee producers will fall by the full amount of the tax.

b. the price paid by consumers of this coffee will rise by the full amount of the tax.

c. the legal incidence of the tax does not determine who bears the burden of the tax.

d. the tax was imposed on the wrong party, it should have been placed on buyers.

13. The simultaneous imposition of a 3 cent sales tax and a 5 cent excise tax on the sale of a cup of coffee would have the same effect on coffee sales as:

a. a 2 cent subsidy.

b. a 2 cent excise tax .

c. a 3 cent excise tax .

d. an 8 cent excise tax.

14. If the wages of loggers went up, the supply of logs would:

a. fall, thereby shifting to the right.

b. fall, thereby shifting to the left.

c. rise, thereby shifting to the right.

d. rise, thereby shifting to the left.

15. Which of the following would result in a decrease in the demand for coffee?

a. A frost in Brazil that damages coffee plants.

b. The proliferation of coffee shops in an area.

c. A 10 cent tax on the sale of a doughnut.

d. Colder than normal temperatures in winter.

16. Consider a $4 excise tax that has been levied on suppliers of automobile tires. Legislators, in the interest of fairness, change the law so that the tax is evenly split between suppliers and demanders, with each group legally required to pay $2 per tire. In this situation, we can predict that (you may ignore considerations of collection cost).

1. suppliers will be made better off and demanders will be made worse off.
2. the change will have no economic effect on suppliers and demanders.
3. demanders will "pass back" their share of the tax to the suppliers, so that suppliers continue to pay $4 per tire.
4. the economic incidence of the tax will be evenly split between suppliers and demanders.

17. Assume that the demand curve for apples is downward-sloping and the supply curve for apples is upward-sloping. If the government imposes an excise tax of 10¢ per apple, then the total price (including the tax) that demanders must pay for an apple

1. remains unchanged.
2. rises by less than 10¢ per apple.
3. rises by exactly 10¢ per apple.
4. rises by more than 10¢ per apple.

18. A simultaneous increase in both the demand for computers and the supply of computers must increase

a. the number of computers bought and sold.

b. the price of computers.

c. both the equilibrium price and quantity of computers.

d. the shortage of computers in the market.

19. Consider the market for restaurant meals. Statistics show that wealthier families spend a greater proportion of their income on restaurant meals than do poorer families. If households' incomes rise substantially during an economic recovery, then we can expect

a. an increased demand for restaurant meals.

b. an increased supply of restaurant meals.

c. a lower price for restaurant meals.

d. the demand curve for restaurant meals to shift to the left.

20. Comparing the population of rich and poor countries the rich spend ___________ proportion of their wealth on food

a. a greater

b. a smaller

c. the same

d. an unknown

21. Comparing the population of rich and poor countries the rich spend ___________ proportion of their wealth on vacations

a. a greater

b. a smaller

c. the same

d. an unknown

22. The income elasticity of demand for food is

a. less than 1

b. greater than 1

c. equal to 1

d. equal to 0

23. The income elasticity of demand for vacations is

a. less than 1

b. greater than 1

c. equal to 1

d. equal to 0

24. When the demand curve is steep relative to the supply curve, the ___________ will tend to pay most of an excise tax on the product

a. buyer

b. seller

c. government

d. children

25. An increase in the minimum wage that is above the market wage, will ____________ the cost of non-union labor

a. increase

b. decrease

c. leave unaffected

d. never be compared to

26. Which of the following are examples of price fixing?

a. rent controls

b. minimum wages

c. price ceilings on gasoline

d. all of the above

e. a and b of the above

27. Which of the following is a possible outcome of rent controls?

a. housing decay and abandonment

b. a shortage of nice housing

c. an abundance of rent controlled houses sufficient to meet the demand

d. all of the above

e. a and b of the above

28. Which of the following concepts do we use when analyzing the effect on Revenue of a change in price?

a. price elasticity of demand

b. income elasticity of demand

c. supply side taxes

d. demand resistance

29. When the price elasticity of demand is equal to 1, total revenue will be ____________.

a. rising

b. falling

c. constant

d. elastic

30. When the price of a product is equal to zero, the price elasticity of demand is equal to

a. 1

b. infinity

c. 0

d. 1.5

31. As we move up a straight line demand curve from the quantity intercept to the price intercept the value of the elasticity of demand

a. rises

b. falls

c. remains the same

d. is always greater than 1

32. If the slope of the demand curve is constant, if follows that

a. the elasticity of demand is constant

b. the amount demanded will always increase by the same amount for the same decrease in price over the range of the curve

c. both of the above

d. none of the above

33. An Engel curve that goes through the origin has an income elasticity of demand equal to

a. 1

b. 1.5

c. 2

d. 0

34. The Engel curve for a luxury will

a. have a constant slope

b. will bend down toward the income axis

c. will bend up toward the quantity axis

d. will have a negative slope

35. Income elasticity of demand must always be

a. positive

b. negative

c. constant

d. none of the above is true

36. If a minimum wage is set below the market wage, it will

a. increase unemployment

b. decrease unemployment

c. have no effect

d. it is impossible to say

37. The imposition of an excise tax

a. decreases consumer surplus

b. decreases producer surplus

c. both of the above

d. none of the above

38. Proportionally speaking which of the following has the largest consumer surplus under current conditions?

a. water

b. diamonds

c. desert sand

d. it is impossible to say

39. Which of the following is an accurate statement?

a. all value is subjective

b. the value of anything is determined by the cost of producing it

c. the price of something is its value

d. all of the above

e. none of the above

40. Consider Figure 3. The demand curves are parallel. Let Ed represent the price elasticity of demand, then

a. Ed is greater at A than at B

b. Ed is lower at A than at B

c. Ed is the same at A than at B

d. it is impossible to say unless you measure the curves

41. Consider Figure 3. The demand curves are parallel. Let Ed represent the price elasticity of demand, then

a. Ed is greater at C than at B

b. Ed is lower at C than at B

c. Ed is the same at C than at B

d. it is impossible to say unless you measure the curves

42. Consider Figure 3. The demand curves are parallel. Let Ed represent the price elasticity of demand, then Ed at __ is the largest of the three

a. A

b. B

c. C

d. it is impossible to say unless you measure the curves

43. Consider Figure 4. Let Ed represent the price elasticity of demand, then

a. Ed is greater at A than at B

b. Ed is lower at A than at B

c. Ed is the same at A than at B

d. it is impossible to say unless you measure the curves

44. A 1% excise tax will yield a greater tax revenue when the elasticity of demand is

a. higher

b. lower

c. constant

d. equal to 1

45. If you are self employed you pay all of the social security tax. If you are employed by an employer he/she pays half of the social security tax. This means

a. that the employer would be better off if you were self employed and contracted your labor

b. that self employed people pay twice as much social security tax

c. that it is never profitable to be self employed

d. all of the above

e. none of the above

46. The collection of tax revenues paid out as subsidies has no overall effect on

a. consumer surplus

b. producer surplus

c. resource usage

d. all of the above

e. none of the above is true

47. The usage of which of the following is least likely to be affected by an excise tax

a. land

b. labor

c. capital

d. beef

48. Consider and economic good. If the price of its substitute goes up, expenditure on it will go up when the cross price elasticity of demand is

a. less than 1

b. equal to 1

c. greater than 1

d. it will always go up

49. Which of the following are complements in consumption

a. bread and butter

b. gas and automobiles

c. butter and margarine

d. all of the above

e. a and b of the above

50. When is the elasticity of demand for ice cream likely to be lowest

a. in the summer

b. in the winter

c. in the spring

d. in the fall

e. it is impossible to say

Grade Distribution:

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

40	A
30	B
Else	C

Solution:

1. b

2. a

3. b

4. a

5. b

6. c

7. c

8. b

9. b

10. d

11. c

12. c

13. d

14. b

15. c

16. b

17. b

18. a

19. a

20. b

21. a

22. a

23. b

24. a

25. a

26. d

27. e

28. a

29. c

30. c

31. a

32. b

33. a

34. c

35. d

36. c

37. c

38. a

39. a

40. a

41. b

42. a

43. d

44. b

45. e

46. e

47. a

48. d

49. e

50. a