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1;PART I Multiple Choice Questions (Weight 7 Points each) Choose best answer.;1. Democracy is associated with capitalism because;a) The free market does not require that factors of production be mobile.;b) Capitalism takes many of the planning decisions from the market and gives them;to the government to determine.;c) Public ownership of the means of production decreases governmental power.;d) Continuous government regulation of all aspects of the economy is essential to a;market economy.;e) None of the above.;2. In contrast to a socialist economic organization, a capitalist system would;a) Have elections for government officials.;b) Allow critics of the regime free speech.;c) Have labor unions to resolve work disputes and job grievances.;d) Encourage the private ownership of capital and the means of production.;3. Assumptions made in conjunction with economic theorizing;a) Can be unrealistic, if when they are relaxed, the outcome is essentially;unchanged.;b) Make the output of economic modeling useless.;c) Must be avoided to the extent possible.;d) Must be realistic and consistent with known real-world conditions if the predictions;of the theory are to be useful for practical purposes.;4. The production possibilities (or transformation) curve illustrates the basic principle;a) An economy's capacity to produce increases in proportion to its population size;b) More of one good can be produced without a decrease in the production of the;other good while holding inputs and technology constant.;c) The production of more and more of one good will require larger and larger cuts in;the production of the other good.;d) An economy will automatically seek that level of output at which all of its;resources are employed.;5. The concept of opportunity cost;a) Is irrelevant if the production possibilities curve is shifting to the right.;B) is irrelevant in socialist economies because of central planning.;c) Suggests that the cost of resources for any particular product is the alternative;outputs foregone because these resources are not available for alternative;production.;d) Suggests that insatiable wants can be fulfilled only if the opportunity costs for;fulfilling them approach zero or are negative while the society continues to pay;the prevailing wage.;2;6.;Which of the below will not cause the demand for X, a normal good, to increase?;a) A decrease in the price of X.;b) A change in consumer taste in favor of product X.;c) An increase in consumer incomes.;d) An increase in the price of a substitute good.;e) A decrease in the price of a good that is a complement to X.;7. A price ceiling;a) Is established by individual firms.;b) Does not requires government sanction for violators;c) Will result in a shortage of the good concerned.;d) Will cause new firms to enter the market.;8. If a producer overproduces and sets the price of his product too high to allow him to;sell all of his production;a) This will cause a lasting surplus of the good.;b) This will create a lasting shortage of the good.;c) This will cause a temporary excess-demand condition.;d) This will cause a temporary excess-supply condition.;9. A price floor;a) Raises consumer welfare.;b) Must be established by the government.;c) Will increase the demand of the good concerned.;d) None of the above.;10. An unusually bountiful crop of Florida oranges might be expected to;a) Decrease the supply of oranges.;b) Reduce the price of orange juice.;c) Increase the demand for California oranges.;d) All of the above.;11. If the own-price elasticity of demand for gasoline is -.30 and there is a 10% decrease;(-.10) in the price of gasoline, this will cause the quantity of gasoline demanded to;a) Increase by.30 (30%).;b) Increase by.03 (3%).;c) Decrease by.03 (-3%).;d) Decrease by.30 (-30%).;12. A black market is;a) Something that happens when producers sell goods for a greater price than the;government mandated price ceiling.;b) A characteristic of a surplus or excess supply condition.;c) Legal but frowned upon by economists who feel it violates consumer sovereignty.;d) None of the above.;3;13. The Illinois Central Railroad once asked the Illinois Commerce Commission for;permission to increase its commuter rates by 20 percent. The railroad argued that;declining revenues made this rate increase essential. Opponents of the rate increase;argued that the railroad's revenues would fall because of the rate hike. It can be;concluded that;a) The railroad felt that the demand for passenger service was elastic and;opponents of the rate increase felt that it was inelastic.;b) The railroad felt that the demand for passenger service was inelastic and;opponents of the rate increase felt that it was elastic.;c) Elasticity of demand was not at issue, that railroad felt they needed more revenue;to continue operations.;d) Both groups felt that demand was inelastic but for different reasons.;e) None of the above.;14. In the P1 to P2 price-range, demand is;a) Perfectly elastic.;b) Relatively elastic.;c) Perfectly inelastic.;d) Relatively inelastic.;15. In the P3 to P4 price-range, demand is;a) Perfectly elastic.;b) Relatively elastic.;c) Perfectly inelastic.;d) Relatively inelastic.;16. Utility refers to the;a) Usefulness of a product.;b) Relative scarcity of a product.;c) Price reasonableness of a product.;d) Affordability of a good or service to a consumer.;e) Satisfaction which a consumer derives from a good or service.;17. Equilibrium is the condition where;a) The plans of suppliers and demanders coincide;b) The supply and demand curves are tangent.;c) The budget line crosses the indifference curve.;d) Only demanders are motivated to change their quantity demanded.;e) None of the above.;4;18. The marginal rate of substitution;a) Is constant at all points on the budget line.;b) Increases in absolute value as one moves southeast along an indifference curve.;c) Decreases in absolute value as one moves southeast along an indifference;curve.;d) May increase or decrease in absolute value as one moves southeast along an;indifference curve, depending upon whether the substitution or income effect is;dominant.;19. A price floor is illustrated in which graph above?;a) A;b) B;c) C;d) D;20. When price is $5, the quantity of excess;supply in the graph to the right is;a) 25;b) 50;c) 175;d) 200;e) 225;5;PART II: QUANTITATIVE PROBLEMS;PROBLEM 1. (Weight 30 points);a. Own Price elasticity. Given the data to the right, compute;the POINT elasticity of demand of a good as its price goes from;$1.00 to $1.50.;Price;Quantity;1.00;10;SHOW FORMULA AND WORK (No credit for magic numbers).;1.50;9;b. Is the demand for this good in this range elastic or inelastic?;PROBLEM 2 (Weight 50 points). If the wage bill per unit of labor (L) is $30 and the cost of;capital (K) is $200 in the short run, fill in the BLANKS in the table below. Put the formulas;in the cells above the variable names. Do not enter formulas in cells with "///" in them.;None;///;Formulas;///;L;TVC;Q;0;0;1;4;2;10;Given;///;MPL;APL;AVC;TFC;TC;ATC;MC;6;PART III: GRAPHICAL PROBLEMS;PROBLEM 3 (Weight 40 points).;a. Determine whether the typical firms depicted below are earning profits or losses then;show graphically how economic forces will cause the industry to move to a zero;economic profit for the typical firm. Be sure your graph indicates whether firms will;enter or leave the industry and shows how the equilibrium industry price and;quantity are changed.;$ NEW FIRMS C;q INDUSTRY;$;q;FIRMS B;$;q;FIRMS A;$;Q;MC;MC;S;ATC;ATC;P1;P1;AVC;1;P1;AVC;P1;In parts b through e below, answer in writing what you answered graphically above.D;Answers that address two or more possibilities will receive half credit if both;0answers are correct. 0;q;q;0;q;0;Q;Q;1;b) In the above graph, do new firms enter the industry or do existing firms leave the;industry? What causes them to do so?;c) As the number of firms in the industry changes what happens to the industry supply;curve? Why?;d) As the industry supply curve shifts, what happens to the price?;e) As the price changes, what happens to the profit or loss situation in the industry?;7;PROBLEM 4 (Weight 40 points). Complete the graphs below;a) Draw the line representing the profit-maximizing level of output, q *.;b) Label ATC at output level q*.;c) Draw and shade in, the profit or loss rectangle.;d) Label rectangles "profit" or "loss" or "Zero Economic Profit.;$;q;$;q;$;q;MC;MC;MC;ATC;ATC;AVC;ATC;P1;AVC;AVC;P1;P1;0;q;0;q;0;1;PART I Multiple Choice Questions (Weight 7 Points each) Choose best answer.;1. Democracy is associated with capitalism because;a) The free market does not require that factors of production be mobile.;b) Capitalism takes many of the planning decisions from the market and gives them;to the government to determine.;c) Public ownership of the means of production decreases governmental power.;d) Continuous government regulation of all aspects of the economy is essential to a;market economy.;e) None of the above.;2. In contrast to a socialist economic organization, a capitalist system would;a) Have elections for government officials.;b) Allow critics of the regime free speech.;c) Have labor unions to resolve work disputes and job grievances.;d) Encourage the private ownership of capital and the means of production.;3. Assumptions made in conjunction with economic theorizing;a) Can be unrealistic, if when they are relaxed, the outcome is essentially;unchanged.;b) Make the output of economic modeling useless.;c) Must be avoided to the extent possible.;d) Must be realistic and consistent with known real-world conditions if the predictions;of the theory are to be useful for practical purposes.;4. The production possibilities (or transformation) curve illustrates the basic principle;a) An economy's capacity to produce increases in proportion to its population size;b) More of one good can be produced without a decrease in the production of the;other good while holding inputs and technology constant.;c) The production of more and more of one good will require larger and larger cuts in;the production of the other good.;d) An economy will automatically seek that level of output at which all of its;resources are employed.;5. The concept of opportunity cost;a) Is irrelevant if the production possibilities curve is shifting to the right.;B) is irrelevant in socialist economies because of central planning.;c) Suggests that the cost of resources for any particular product is the alternative;outputs foregone because these resources are not available for alternative;production.;d) Suggests that insatiable wants can be fulfilled only if the opportunity costs for;fulfilling them approach zero or are negative while the society continues to pay;the prevailing wage.;2;6.;Which of the below will not cause the demand for X, a normal good, to increase?;a) A decrease in the price of X.;b) A change in consumer taste in favor of product X.;c) An increase in consumer incomes.;d) An increase in the price of a substitute good.;e) A decrease in the price of a good that is a complement to X.;7. A price ceiling;a) Is established by individual firms.;b) Does not requires government sanction for violators;c) Will result in a shortage of the good concerned.;d) Will cause new firms to enter the market.;8. If a producer overproduces and sets the price of his product too high to allow him to;sell all of his production;a) This will cause a lasting surplus of the good.;b) This will create a lasting shortage of the good.;c) This will cause a temporary excess-demand condition.;d) This will cause a temporary excess-supply condition.;9. A price floor;a) Raises consumer welfare.;b) Must be established by the government.;c) Will increase the demand of the good concerned.;d) None of the above.;10. An unusually bountiful crop of Florida oranges might be expected to;a) Decrease the supply of oranges.;b) Reduce the price of orange juice.;c) Increase the demand for California oranges.;d) All of the above.;11. If the own-price elasticity of demand for gasoline is -.30 and there is a 10% decrease;(-.10) in the price of gasoline, this will cause the quantity of gasoline demanded to;a) Increase by.30 (30%).;b) Increase by.03 (3%).;c) Decrease by.03 (-3%).;d) Decrease by.30 (-30%).;12. A black market is;a) Something that happens when producers sell goods for a greater price than the;government mandated price ceiling.;b) A characteristic of a surplus or excess supply condition.;c) Legal but frowned upon by economists who feel it violates consumer sovereignty.;d) None of the above.;3;13. The Illinois Central Railroad once asked the Illinois Commerce Commission for;permission to increase its commuter rates by 20 percent. The railroad argued that;declining revenues made this rate increase essential. Opponents of the rate increase;argued that the railroad's revenues would fall because of the rate hike. It can be;concluded that;a) The railroad felt that the demand for passenger service was elastic and;opponents of the rate increase felt that it was inelastic.;b) The railroad felt that the demand for passenger service was inelastic and;opponents of the rate increase felt that it was elastic.;c) Elasticity of demand was not at issue, that railroad felt they needed more revenue;to continue operations.;d) Both groups felt that demand was inelastic but for different reasons.;e) None of the above.;14. In the P1 to P2 price-range, demand is;a) Perfectly elastic.;b) Relatively elastic.;c) Perfectly inelastic.;d) Relatively inelastic.;15. In the P3 to P4 price-range, demand is;a) Perfectly elastic.;b) Relatively elastic.;c) Perfectly inelastic.;d) Relatively inelastic.;16. Utility refers to the;a) Usefulness of a product.;b) Relative scarcity of a product.;c) Price reasonableness of a product.;d) Affordability of a good or service to a consumer.;e) Satisfaction which a consumer derives from a good or service.;17. Equilibrium is the condition where;a) The plans of suppliers and demanders coincide;b) The supply and demand curves are tangent.;c) The budget line crosses the indifference curve.;d) Only demanders are motivated to change their quantity demanded.;e) None of the above.;4;18. The marginal rate of substitution;a) Is constant at all points on the budget line.;b) Increases in absolute value as one moves southeast along an indifference curve.;c) Decreases in absolute value as one moves southeast along an indifference;curve.;d) May increase or decrease in absolute value as one moves southeast along an;indifference curve, depending upon whether the substitution or income effect is;dominant.;19. A price floor is illustrated in which graph above?;a) A;b) B;c) C;d) D;20. When price is $5, the quantity of excess;supply in the graph to the right is;a) 25;b) 50;c) 175;d) 200;e) 225;5;PART II: QUANTITATIVE PROBLEMS;PROBLEM 1. (Weight 30 points);a. Own Price elasticity. Given the data to the right, compute;the POINT elasticity of demand of a good as its price goes from;$1.00 to $1.50.;Price;Quantity;1.00;10;SHOW FORMULA AND WORK (No credit for magic numbers).;1.50;9;b. Is the demand for this good in this range elastic or inelastic?;PROBLEM 2 (Weight 50 points). If the wage bill per unit of labor (L) is $30 and the cost of;capital (K) is $200 in the short run, fill in the BLANKS in the table below. Put the formulas;in the cells above the variable names. Do not enter formulas in cells with "///" in them.;None;///;Formulas;///;L;TVC;Q;0;0;1;4;2;10;Given;///;MPL;APL;AVC;TFC;TC;ATC;MC;6;PART III: GRAPHICAL PROBLEMS;PROBLEM 3 (Weight 40 points).;a. Determine whether the typical firms depicted below are earning profits or losses then;show graphically how economic forces will cause the industry to move to a zero;economic profit for the typical firm. Be sure your graph indicates whether firms will;enter or leave the industry and shows how the equilibrium industry price and;quantity are changed.;$ NEW FIRMS C;q INDUSTRY;$;q;FIRMS B;$;q;FIRMS A;$;Q;MC;MC;S;ATC;ATC;P1;P1;AVC;1;P1;AVC;P1;In parts b through e below, answer in writing what you answered graphically above.D;Answers that address two or more possibilities will receive half credit if both;0answers are correct. 0;q;q;0;q;0;Q;Q;1;b) In the above graph, do new firms enter the industry or do existing firms leave the;industry? What causes them to do so?;c) As the number of firms in the industry changes what happens to the industry supply;curve? Why?;d) As the industry supply curve shifts, what happens to the price?;e) As the price changes, what happens to the profit or loss situation in the industry?;7;PROBLEM 4 (Weight 40 points). Complete the graphs below;a) Draw the line representing the profit-maximizing level of output, q *.;b) Label ATC at output level q*.;c) Draw and shade in, the profit or loss rectangle.;d) Label rectangles "profit" or "loss" or "Zero Economic Profit.;$;q;$;q;$;q;MC;MC;MC;ATC;ATC;AVC;ATC;P1;AVC;AVC;P1;P1;0;q;0;q;0;q;8;q;8

 

Paper#24249 | Written in 18-Jul-2015

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