Middle East Technical University Department of Economics Econ 211 (01) Instructor: Ozan Eruygur Research Assistant:: Alper Sönmez Problem Set 2 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following statements is FALSE for a command economy? A) The state may own businesses. B) The government decides what is produced. C) The state decides how to distribute what is produced. D) The amount of a good supplied always equals the amount of the good demanded.

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Refer to the information provided in Figure 3.7 below to answer the following questions.

Figure 3.7 2) Refer to Figure 3.7. Assume buyers are initially at Point B on market demand curve D2 and that pizza is a normal good. A decrease in the income of buyers would cause the market ________ to move from Point B to ________. A) demand; a point on demand curve D3. B) demand; a point on demand curve D1. C) quantity demanded; point A on demand curve D2. D) quantity demanded; point C on demand curve D2.

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3) There will be a deadweight loss in a market if A) producer surplus exceeds consumer surplus. B) the actual quantity traded is other than the market equilibrium quantity. C) consumer surplus exceeds producer surplus. D) the actual quantity traded equals the market equilibrium quantity.

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Refer to the information provided in Figure 5.4 below to answer the questions that follow.

Figure 5.4

4) Refer to Figure 5.4. The demand for milkshakes is unitarily elastic at Point C. If the milkshake price falls from P1 to P2, total revenue will A) remain constant. B) increase. C) decrease. D) either increase or decrease.

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5) Kathy eats five slices of pizza on a Saturday night but admits each slice of pizza doesn't taste as good as the previous one. This suggests that for Kathy the A) marginal utility of a slice of pizza is negative. B) total utility of slices of pizza is increasing by larger and larger increments. C) total utility of slices of pizza is declining. D) marginal utility of a slice of pizza is positive but decreasing.

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6) Marginal utility is the A) additional consumption divided by the additional satisfaction gained by the additional consumption. B) total satisfaction gained by consuming the last unit of the good. C) additional satisfaction gained by the consumption of one more unit of a good. D) total satisfaction gained by consuming all units of a good.

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7) Refer to Figure 6.8. The ________ movie rental has a marginal utility of zero. A) first B) second C) third

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D) fourth

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 8) Assuming the properties of normal indifference curves, a consumer will maximize his utility where his indifference curve is just tangent to his budget constraint.

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8)

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Refer to the information provided in Figure 6.10 below to answer the questions that follow.

Figure 6.10 9) Refer to Figure 6.10. Kyle would increase his consumption of turkey sandwiches from 7 to 9 per week if their price fell from $6 to $4. This illustrates the idea of A) the law of diminishing marginal utility. B) consumer surplus. C) cross-price elasticity of demand. D) technical efficiency.

9)

Refer to the information provided in Figure 6.6 below to answer the questions that follow.

Figure 6.6

10) Refer to Figure 6.6. Bill's budget constraint is BD. Bill's income is $800, the price of a bell pepper is $1, and the price of a bag of black beans is $1. At Point B Bill is buying ________ bell peppers and ________ bags of black beans. A) 800; 0 B) 0; 800 C) 600; 200 D) 400; 400

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11) A ________ line is a perfectly price inelastic demand curve. A) horizontal B) positively sloped C) vertical D) negatively sloped

11)

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Refer to the information provided in Figure 5.2 below to answer the questions that follow.

Figure 5.2 12) Refer to Figure 5.2. Using the midpoint formula, if the price of a hamburger is increased from $6 to $8, the price elasticity of demand equals A) -1.4. B) 0.24. C) -2.0. D) 71.0.

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TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 13) When demand is unit elastic, a decrease in price will result in an increase in total revenue.

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14) When the slope of a demand curve is constant, price elasticity of demand is constant as well.

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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 15) A ________ line is a perfectly price elastic demand curve. A) negatively sloped B) positively sloped C) horizontal D) vertical

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15)

Refer to the information provided in Figure 4.2 below to answer the questions that follow.

Figure 4.2 16) Refer to Figure 4.2. If the United States levies no taxes on imported oil, the price of oil in the United States A) would be $8 per barrel, and the United States would import 8 million barrels of oil per day. B) would be $10 per barrel, and the United States would import 5 million barrels of oil per day. C) would be $12 per barrel, and the United States would import 2 million barrels of oil per day. D) after the U.S. government eliminated all taxes on imported oil cannot be determined from this information.

16)

Refer to the information provided in Figure 4.4 below to answer the questions that follow.

Figure 4.4 17) Refer to Figure 4.4. If a $5.00 each computer chip tax is levied on imported computer chips, the United States will import ________ million computer chips. A) 6 B) 2 C) 4 D) 10

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17)

Refer to the information provided in Figure 4.2 below to answer the questions that follow.

Figure 4.2 18) Refer to Figure 4.2. Assume that initially there is free trade. If the United States then imposes a $2 tax per barrel of imported oil, A) the quantity demanded of oil will be reduced by 2 million barrels per day. B) the quantity of oil supplied by U.S. firms will increase by 5 million barrels per day. C) the price of oil in the U.S. will increase to $12 per barrel. D) U.S. imports of oil will increase by 3 million barrels per day.

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19) When the equilibrium price of ginger ale increases while your demand schedule for ginger ale remains unchanged, then your consumer surplus A) decreases. B) remains constant. C) increases. D) may increase or decrease depending on the amount of the price decrease.

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20) The adjustment of ________ is the rationing mechanism in free markets. A) quantity B) price C) demand

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D) supply

Refer to the information provided in Table 3.1 below to answer the questions that follow.

Price per Pizza $4 6 8 10 12

Table 3.1 Quantity Demanded (Pizzas per Month) 1,000 900 800 700 600

Quantity Supplied (Pizzas per Month) 700 750 800 850 900

21) Refer to Table 3.1. In this market there will be an excess demand of 150 pizzas at a price of A) $6. B) $8. C) $10. D) $12.

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21)

22) When it passed through Louisiana in the summer of 2005, a hurricane destroyed approximately a quarter of the sugar cane crop. Ceteris paribus, the A) demand for sugar increased and the price of sugar increased. B) demand for sugar decreased and the price of sugar decreased. C) supply of sugar decreased and the price of sugar decreased. D) supply of sugar decreased and the price of sugar increased.

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23) According to the law of supply, there is a A) positive relationship between price and the quantity of a good supplied. B) negative relationship between price and the quantity of a good supplied. C) positive relationship between price and the change in supply. D) negative relationship between price and the change in supply.

23)

Refer to the information provided in Figure 3.10 below to answer the questions that follow.

Figure 3.10 24) Refer to Figure 3.10. Assume hamburgers are a normal good. An increase in income will cause a ________ from ________. A) shift; D2 to D1 B) movement; Point B to Point A. C) movement; Point A to Point B. D) shift; D1 to D2.

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TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 25) Quantity supplied is determined by how much suppliers are willing and able to supply.

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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 26) If the unemployment rate decreases from 10% to 8%, an economy will move A) from one point to a different point on its production possibilities frontier. B) away from its production possibilities frontier toward a point closer to the origin. C) toward its production possibilities frontier to a point closer to but not on the production possibilities frontier. D) to a point where the economy specializes in producing only one product.

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26)

Refer to the information provided in Figure 2.3 below to answer the questions that follow.

Figure 2.3

27) Refer to Figure 2.3. Assume that in Microland the marginal rate of transformation of snowboards for waterskis is increasing. A graph of this society's production possibility frontier will be represented by A) A. B) B. C) C. D) D.

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28) An economist would classify a farmer's ________ as capital. A) barns B) employees C) fields

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D) shares of stock

29) The basic coordinating mechanism in a free market system is A) a central government authority. B) the corporation. C) price. D) quantity.

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30) In economics, investment refers to A) the act of buying stocks or bonds. C) improving the productivity of labor.

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B) an increase in per capita output. D) the creation of capital.

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