Binary Choice:
Problem 1. Evaluate whether the following statement is positive or normative:
"Texas has an absolute advantage in producing maple syrup over Vermont."
a) Positive
b) Normative
Problem 2. Evaluate whether the following statement is positive or normative:
"Gross Domestic Product in the United States should be calculated using the expenditure method."
a. Positive
b. Normative
Problem 3. A good is traded in the world market. A small local economy is taking part in the trade of the good. The following equations describe supply and demand in the world market for this good, and in the small economy where Q is the quantity demanded or supplied in the world market measured in millions of units, P is the world price measured in dollars, p is price in the local market measured in dollars and q is the quantity demanded or supplied in the small local economy measured in thousands of units.
World Supply: P= 8Q+10
World Demand: P= 100-2Q
Domestic Supply: p= 8q+10
Domestic Demand: p= 82-2q
Will the small economy export or import the good?
a. Export
b. Import
Problem 4. In a market for a good there are two firms that produce the good. The following equations give the supply curve for each producer (S1 and S2) and the market demand curve (D).
S1: P = Q
S2: P = 10+Q
D: P = 8-Q
What is the value of consumer surplus when this market is in equilibrium?
a. $6
b. $8
Multiple Choice:
Problem 5. The demand and supply curves for a good are linear. They intersect where price is $6 and quantity is 48. The supply curve also goes through the origin. The equation of the supply curve is:
a. P = 6Q + 48
b. P = 8Q + 0
c. P = Q/8
d. There is not enough information to know the equation of the supply curve.
Problem 6. The demand curve has a slope of -2. The supply curve has a slope of 3 and it goes through the origin. Which of the following statements is true?
a. Consumer and producer surplus are equal.
b. Consumer surplus is bigger than producer surplus.
c. Producer surplus is bigger than consumer surplus.
d. There is not enough information to know whether consumer surplus is bigger, smaller or equal to the producer surplus.
Use the following graph to answer the next two (2) questions.
Problem 7. The above figure shows the PPF for a music processing plant that produces both CDs and cassettes. Between points A and B, the opportunity cost of one cassette is:
a. 10 CDs
b. 5 CDs
c. 3 CDs
d. 2 CDs
Problem 8. Which of the following is TRUE given ONLY the information from the above graph?
a. It is possible for the plant to produce at point E.
b. At point A, the plant is under-utilizing its resources.
c. As the plant produces more and more CDs, it must give up an increasing amount of cassettes.
d. The opportunity cost of producing CDs is constant for this firm.
Use the following graphs to answer the next question.
The graphs depict three possible production possibility frontiers (PPFs) for an economy that produces cars and wine.
Problem 9. Suppose that you are told that in this economy the opportunity cost of producing a car in terms of wine is increasing. Which of the above PPFs best describes this economy's PPF?
a. PPF-A
b. PPF-B
c. PPF-C
d. None of these graphs describe the PPF for this economy.
Problem 10. For an economy to produce at a point beyond its current PPF, the economy must
a. Reduce its waste of resources.
b. Be more efficient in its use of available resources and available technology.
c. Reduce its use of the inputs it has.
d. Increase its level of available resources.
Problem 11. Use the following table to answer this question. The table provides the amount of labor that Ben or Tom need in order to produce one sandwich or one loaf of bread.
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Labor requirement per unit of output
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Ben
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Tom
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One Sandwich
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2 hours
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3 hours
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One loaf of Bread
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5 hours
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2 hours
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Given the above table, which of the following statements is true?
a. Gains from trade are possible if Ben makes the sandwich and Tom bakes the bread.
b. No gains from trade are possible.
c. Neither Ben nor Tom has a comparative advantage in producing either good.
d. Gains from trade are possible if Tom makes the sandwich and Ben bakes the bread.
Use the following table to answer the next two (2) questions.
The table describes the production possibility frontiers for Jeff and Brian who produce apples and bananas. Assume that the PPFs for Jeff and Brian are both linear.
The maximum quantities of goods that can be produced per day
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Jeff
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Brian
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Apples
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18 pounds
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12 pounds
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Bananas
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3 pounds
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4 pounds
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Problem 12. Given the above information, the opportunity cost of producing one additional pound of bananas for Jeff is equal to
a. 2.5 pounds of apples
b. 10 pounds of apples
c. 6 pounds of apples
d. 3 pounds of apples
Problem 13. Suppose that Jeff and Brian have identical resources. Using the above table and the given information, which of the following statements is true?
a. Jeff has absolute advantage in apples; Brian has comparative advantage in apples.
b. Jeff has absolute advantage in bananas; Brian has comparative advantage in apples.
c. Jeff has comparative advantage in bananas; Brian has absolute advantage in bananas.
d. Jeff has comparative advantage in apples; Brian has absolute advantage in bananas.
Problem 14. In a market for a good there are two groups of consumers whose demand for the good are given by the demand equations D1 and D2.The market supply curve for this good is given by S. Assume that P is the price per unit and Q refers to the quantity of the good.
D1: P= 10-2Q
D2: P= 4-Q
S: P= (1/3)Q
When this market is in equilibrium, what is the quantity traded in this market?
a. 0 units
b. 3 units
c. 6 units
d. 9 units
Problem 15. In a small economy the domestic supply, domestic demand and world price for a good are given by the following equations:
Domestic Supply: P= 2Q
Domestic Demand: P= 120-3Q
World price: P= 24
Assume the government opens this market to trade but simultaneously imposes an import quota of 15 units. What is the license holder revenue associated with this quota?
a. $85
b. $90
c. $95
d. $100
Problem 16. A good is traded in the world market. A small local economy is taking part in the trade of the good. The following equations describe the supply and demand curves in the world market and the domestic supply and domestic demand curves in the small local economy. Assume that P refers to price and Q refers to quantity.
World Supply: P= (1/9)Q
World Demand: P= 1000-Q
Domestic Supply: P= 4Q+20
Domestic Demand: P= 180-4Q
Who would want to open the small local economy for trade with the rest of the world?
a. Domestic consumers since their consumer surplus will increase if this local economy opens to trade in this market.
b. Domestic producers since their producer surplus will increase if this local economy opens to trade in this market.
c. Both domestic producers and domestic consumers will favor trade since both groups wish to avoid a situation that creates a deadweight loss.
d. Both producers and consumers are indifferent and do not care if the market opens to trade or not given the above information.
Problem 17. Consider a small economy. The domestic demand, domestic supply, and world price are as follows:
Domestic Demand: P= 85-3Q
Domestic Supply: P= (1/3)Q+3
World price: P= 5
Further assume that the government is introducing a somewhat sophisticated taxation scheme: both a tariff and a quota. The government sets a tariff of 5 dollars per unit, and a quota of 5 units. That is, at most only five units of the good can be imported, and importers will have to pay 5 dollars for each unit they import. What is the producer's surplus in this market given the imposition of this policy?
a. $69.5
b. $71.5
c. $72.5
d. $73.5
Problem 18. GDP per capita fell by 10% in 2009. If GDP per capita was $30,000 in 2009, what was the GDP per capita in 2008? (In this question assume GDP per capita has been rounded to the nearest whole number.)
a. $26,000
b. $27,000
c. $33,000
d. $33,333
The following information is required to answer the next two (2) questions.
The demand and supply of hamburgers is given in the following equations:
Demand: P = 50 - 2Q
Supply: Q = 6
Note that the supply for hamburgers is perfectly inelastic. Furthermore, hamburgers and hamburger buns are complements. Due to a decrease in the price of hamburger buns, the demand for hamburgers changes. In particular, the change in the price of hamburger buns causes the quantity demanded at every price to change by two units.
Problem 19. Given the above information and holding everything else constant, what is the new price for which hamburgers are traded in this market?
a. $42
b. $44
c. $46
d. $48
Problem 20. Did the consumer surplus in the hamburger market go up or down due to the decrease in the price of hamburger buns?
a. Consumer surplus increased.
b. Consumer surplus decreased.
c. Consumer surplus did not change.
d. The difference in consumer surplus cannot be determined given the above information.
Problem 21. The following information are given about an economy:
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Gross Domestic Product
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2000 Million
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Consumption
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1300 Million
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Government Transfer
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100 Million
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Government Expenditure
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200 Million
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Exports of goods and service
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300 Million
|
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Tariff Revenue
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350 Million
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Tax Revenue
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300 Million
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Using the national account identity that GDP measurement is based upon, what is the value of total investment in this economy?
a. 200 Million
b. 300 Million
c. 400 Million
d. There is not enough information to know the value of total investment in this economy
Problem 22. The following are the activities of Tom Sawyer in one day:
1. He painted his aunt's garden fence for a jar of cookies worth $10 in the market
2. He worked at the local ice cream store and received $15
3. He bought imported candy worth $5
4. He bought stocks worth $5 in the secondary market for stocks and bonds
5. He gave $5 worth of his aunt's cookies to his friend
How much did Tom contribute to the official U.S. GDP during this day of work?
a. $10
b. $15
c. $20
d. $25
Problem 23. The following are the domestic demand and domestic supply equations for a single good in a small open economy:
Domestic Demand: P=50-2Q
Domestic Supply: P =3Q + 5
Suppose the world price of the good is $26. Furthermore, suppose that this small open economy imposes a tariff of $3 on the good. What is the deadweight loss associated with this tariff?
a. $0
b. $7.50
c. $3.75
d. $96.00
Problem 24. The following are the domestic demand and domestic supply equations for a single good in a small open economy:
Domestic Demand: P=50-2Q
Domestic Supply: P =3Q + 5
Suppose the world price of the good is $26. The government of this small open economy decides to impose an import quota of 5 units in this market. What is the deadweight loss from the imposition of this quota?
a) $0
b) $10.5
c) $21
d) $42