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    MORNING EXAM

    VERSION 1

    ECONOMICS 101 PROFESSOR KELLY

NAME:________________________________

SECTION YOU

    ATTEND:______________________________

    You have 75 minutes to complete this exam. There are 39 multiple choice questions. Each question is worth 2.5 points for a total of 97.5 points. The remaining 2.5 points will be added to your score for filling out your scantron EXACTLY as instructed. Your NAME and STUDENT ID (NOT social security

    number) go in the appropriate areas of the scantron. Your DISCUSSION

    SECTION YOU ATTEND must go in the special codes section as described

    below. Discussion numbers are on the back of this exam.

How to fill in the special codes section of the scantron:

    1) Write the number of the section YOU ATTEND in the special codes

    spaces ABC and fill in the bubbles. The discussion sections are listed on

    the back of the exam.

    2) Write the VERSION NUMBER of the exam under special codes space D

    and fill in the bubble. The version number is at the top of every page of

    the exam including this one.

    The proctors cannot answer any questions about the content of the exam. Raise your hand if you have a question regarding a procedural issue (i.e. if you do not understand the above instructions regarding filling in the special codes section of the scantron)

    If there is an error on the exam or if you do not understand something, make a note on your exam booklet and the issue will be addressed AFTER the

    examination is complete. No questions regarding the exam can be addressed while the exam is being administered.

GOOD LUCK!!!

    0

    MORNING EXAM

    VERSION 1

    ECONOMICS 101 PROFESSOR KELLY

1) The term market failure refers to

     a. a situation where there are only two producers in the market.

     b. a situation where there are too many firms in the market.

     c. a situation in which the market on its own, fails to allocate resources

     efficiently.

     d. a situation where a firm is forced out of business because of losses.

     e. a situation in which imposition of a tax causes a deadweight loss.

    2) Let TC denote total cost, Q the quantity produced, FC fixed cost, VC variable

     cost and MC marginal cost. Then, the average total cost equals:

     a. (FC + VC) / change in Q

     b. MC / Q.

     c. (MC x Q) + FC.

     d. VC / Q.

     e. (FC + VC) / Q

    3) If Good X is normal but Good Y is inferior, then the income-consumption Line

     will:

     a. be a horizontal line.

     b. be a vertical line.

     c. have a negative slope.

     d. have a positive slope.

     e. be indeterminate without information on prices.

    4) Average total cost is greater than average variable cost when:

     a. the marginal cost is decreasing.

     b. the marginal cost is zero.

     c. marginal cost equals average variable cost.

     d. marginal cost equals average total cost

     e. fixed costs are positive.

    5) If the average tax rate increases as income increases, the tax is a(n)

     a. progressive tax.

     b. regressive tax.

     c. proportional tax.

     d. flat tax.

     e. efficient tax.

    1

    MORNING EXAM

    VERSION 1

    ECONOMICS 101 PROFESSOR KELLY

For the next TWO questions consider the following information:

    Consider a market where demand is P=10-2Q. There is a positive consumption externality of $2.50/unit of consumption. In the answers, Qm=market equilibrium quantity, Pm=market price, Qs=socially optimal quantity, Ps=socially optimal price.

    6) Calculate the market and socially optimal equilibrium if supply is equal to Q=4.

     a. Qm=4, Pm=4; Qs=4, Ps=4.50

     b. Qm=4, Pm=2; Qs=4, Ps=2

     c. Qm=4, Pm=2; Qs=4, Ps=4.50

     d. Qm=4, Pm=4; Qs=2, Ps=4

     e. Qm=4, Pm=2; Qs=2, Ps=2

    7) Consider the market if supply is P=Q/2. Calculate the market equilibrium and the socially optimal equilibrium.

     a. Qm=4, Pm=4; Qs=4, Ps=4

     b. Qm=4, Pm=2; Qs=5, Ps=2.5

     c. Qm=4, Pm=2; Qs=4, Ps=2.5

     d. Qm=4, Pm=4; Qs=5, Ps=4

     e. Qm=4, Pm=2; Qs=4, Ps=2.5

    8) Which of the following is NOT true for the Coase Theorem?

     a. We can get the socially efficient outcome with bargaining even if there

     is an externality going on.

     b. Property rights must be well defined.

     c. There should be low or no transaction cost.

     d. Only small number of people should be involved with the externality.

     e. The government can induce the efficient outcome by order.

    9) Suppose the marginal social benefit of an action is greater than the marginal

     private benefit. Then there is ______________, and the equilibrium

     quantity in the market is ________ than the efficient quantity.

     a. positive externality, smaller

     b. positive externality, greater

     c. negative externality, smaller

     d. negative externality, greater

     e. public good, smaller

    2

    MORNING EXAM

    VERSION 1

    ECONOMICS 101 PROFESSOR KELLY

    10) Which of the following facts about normal indifference curves is false?

     a. Indifference curves slope downwards.

     b. Indifference curves never intersect.

     c. The slope of an indifference curve is constant.

     d. Indifference curves are bowed towards the origin.

     e. Each Indifference curve represents a different but constant level of

     satisfaction.

11) The marginal tax rate is:

     a. total taxes paid divided by taxable income.

     b. taxable income divided by total taxes paid.

     c. the change in taxes paid divided by taxable income.

     d. the change in taxes paid divided by the change in taxable income.

     e. total taxes paid divided by the change in taxable income.

12) Which of the following comprises the largest percentage of federal spending?

     a. Interest Payments

     b. Income Security

     c. Healthcare

     d. National Defense

     e. Social Security

13) If the total cost curve is upward sloping over some range of output with an

     increasing slope, then this fact must reflect:

     a. Decreasing average variable cost

     b. Increasing fixed costs.

     c. Increasing variable costs.

     d. both (a) and (b).

     e. both (b) and (c).

    3

    MORNING EXAM

    VERSION 1

    ECONOMICS 101 PROFESSOR KELLY

    Use the following graph for the next TWO questions. (Note: MSC=marginal social cost, MPC=marginal private cost.) NOTE: Figure not necessarily to scale!!!

14) You are told the equilibrium at point c has P=6, Q=2. Consumer surplus in

     the market equilibrium is:

     a. $2

     b. $3

     c. $4

     d. $5

     e. It cannot be determined from the information given.

15) To remedy the problem here, the government could impose a tax. What is

    the deadweight loss from the tax that results in the socially optimal

    quantity?

     a. $2

     b. $2/3

     c. $4/3

     d. $8/3

     e. $10/7

    4

    MORNING EXAM

    VERSION 1

    ECONOMICS 101 PROFESSOR KELLY

Use the following table about donut production in “Square donuts & Co.” to

    answer the next TWO questions.

    Output Total Costs

    10 5

    20 15

    30 30

    40 50

    50 75

    60 105

    70 140

16) If you only had the table to go by, which of the above figures best

     represents Square Donuts & Co’s marginal cost (as usual, on the

     horizontal axis we have the level of production and on the vertical axis the

     marginal cost):

     a. Figure A

     b. Figure B

     c. Figure C.

     d. Figure D.

     e. None of them.

    17) Regarding fixed costs, we can conclude that:

     a. they are increasing.

     b. they are decreasing.

     c. they are constant.

     d. they are 5.

     e. they are less than 5.

    5

    MORNING EXAM

    VERSION 1

    ECONOMICS 101 PROFESSOR KELLY

For the next THREE questions consider the following figure.

    18) Assume that the consumer depicted in the figure has an income of $20. The

     price of Skittles is $2 and the price of M&M’s is $4. This consumer will

     choose a consumption bundle where the marginal rate of substitution is

     a. 2. b. 2/3. c. 1/2. d. 1/3. e. 1

    19) Assume that the consumer depicted in the figure has an income of $20. The

     price of Skittles is $2 and the price of M&M’s is $2. This consumer will

     choose to optimize by consuming

     a. bundle A.

     b. bundle B.

     c. bundle C.

     d. bundle D.

     e. none of above.

    20) Assume that the consumer depicted in the figure faces prices and income such that she optimizes at point B. According to the graph, what change forces the consumer to move to point A?

     a. a decrease in the price of Skittles.

     b. a decrease in the price of M&M’s.

     c. an increase in the price of Skittles.

     d. an increase in income.

     e. an increase in the price of M&M’s.

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    MORNING EXAM

    VERSION 1

    ECONOMICS 101 PROFESSOR KELLY

21) In the figure directly above, which of the graphs shown represent indifference

    curves for perfect substitutes?

     a. graph (a)

     b. graph (b)

     c. graph (c)

     d. All of the above are correct.

     e. None of the above are correct.

    22) Someone is definitely a free rider if he

     a. produces a good and never gets paid for it.

     b. consumes a good without paying for it.

     c. enjoys leisure more than work at the margin.

     d. generates externalities in production.

     e. does not pay taxes.

    7

    MORNING EXAM

    VERSION 1

    ECONOMICS 101 PROFESSOR KELLY

Refer to the following information for the next THREE questions.

Ivan has decided to start a new business producing homemade beer. During the

    first year of his business, Ivan sold 15000 cans of beer for $4/can. The technology of production Ivan is using has a constant average variable cost of

    $2/can with a fixed cost of $5000.

23) Ivan’s profit from the first year of production was:

     a. $0

     b. $30000

     c. $25000

     d. $60000

     e. --$10000

24) Which of the following best represents Ivan’s cost function?

     a. TC = 15000 + 4*Q

     b. TC = 5000 + 2*Q

     c. TC = 5000 + 4*Q

     d. TC = 4*Q

     e. TC = 5000

25) According to the technology Ivan is using to produce beer, we could say that

     the marginal cost of production is:

     a. increasing

     b. decreasing

     c. increasing when the production is low, and decreasing when the

     production is high.

     d. decreasing when the production is low, and increasing when the

     production is high.

     e. constant

26) Indifference curves graphically represent

     a. an income level sufficient to make an individual happy.

     b. the constraints faced by individuals.

     c. the money individual could have.

     d. the relative price of commodities.

     e. an individual's preferences.

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    MORNING EXAM

    VERSION 1

    ECONOMICS 101 PROFESSOR KELLY

    27) According to the figure, it is possible to say that:

     a. The demand for Macaroni & Cheese is perfectly inelastic.

     b. The demand for caviar is perfectly inelastic.

     c. The demand for Macaroni & Cheese is perfectly elastic.

     d. The demand for Caviar is a perfectly elastic.

     e. The price of caviar is changing.

    9

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