Leader: Shealyn Course: Econ 101 Instructor: Peter Orazem Date: April 17, 2012

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1 Supplemental Instruction Iowa State University Practice Exam *graphs will be provided in the session. 1) Which graph below shows marginal utility? 2) Which one shows total utility? Leader: Shealyn Course: Econ 101 Instructor: Peter Orazem Date: April 17, ) What is the definition of nonsatiation? a) less is more b) more is better c) more goes farther d) never satisfied 4) What do indifference curves show? a) a consumer s level of utility b) a consumer s commitment to a good c) the cost of each good d) combinations of goods that give the same utility 5) Calculate the budget constraint for a consumer in the market of pencils and notebooks from the information below. The prices of pencils are $2 each and the prices of notebooks are $7 each. Income is $700. 6) What is the y-intercept? What is the slope? 7) In a graph that shows the budget constraint and the indifference curve for a consumer where the two are tangent is where consumer equilibrium is. What equality represents this? a)mu x /MU y = P x /P y b)mu x /MU y = MR x /MR y c) P x /P y = MC x /MC y d) none of these 8) If MU x /MU y > P x /P y you should consume more of the good. 9) Draw a graph showing the consumer s budget constraint from #5 and label where goods are affordable, unaffordable, or efficient. Supplemental Instruction 1060 Hixson-Lied Student Success Center

2 10) Using income effect if both goods are normal and the price of one good increases you shift away from both goods. 11) Determine the total effect if good A is normal, good B is inferior, and the price of good A increases. 12) Given the three individual demand curves below construct a market demand curve. 13) What are the three reasons that a demand curve slopes downwards? a) diminishing marginal utility, substitution effect, increasing prices b) substitution effect, income effect, diminishing marginal utility c) substitution effect, income effect, more consumers enter market at price falls d) more consumers enter market as price falls, increasing prices, income effect 14) There are two types of corporations, S corporations and C corporations, which is liable for corporate taxes and taxes on dividends? a) S corporations b) C corporations 15) S corporations are smaller corporations with earning taxed as regular income, how many shareholders do they have? a) 100 or fewer b) 500 or fewer c) 100 d) ) In the pie graph label which slice is for sole proprietorships, partnerships, and corporations ( this includes the break down into S corporations and C corporations). 17) What is the present value of a bond that matures in three years, pays $110 in one year, $350 in two years, and $880 in three years? The interest rate is 15%.

3 18) What is the future value of an account that currently has $2,675 in it in 8 years if the interest rate on it is 10%? 19) The graph below shows the demand and supply of a bond with a face value of $2,000. If high inflation is expected how will each curve shift? What did this do to the interest rate? 20) Why was the price of the bond at equilibrium less than the face value of the bond? a) the bond depreciated in value b) consumers were willing to pay that price c) there was a discount on the bond d) the market was failing 21) How would you calculate the price earnings ratio of a stock? a) E/r b) 1/r c) 1/E = P/r d) P/E = 1/r 22) Which input(s) are variable in the short run? a) none b) all c) labor d) labor and technology 23) Which input(s) are variable in long run? a) none b) all c) labor d) labor and technology 24) Which equation do you use to calculate profit in the short run when taking fixed costs into consideration? a) π = L(ARP-w) rk b) π = p(arp-w) rk c) π = Q(MRP-w) rk d) π = L(MRP-w) - rk 25) Calculate the missing values in the table below. If wage is $200 and price is $5 L TP AP MP TR ARP MRP FC TVC TC )How many workers should the firm hire? a) 8 b) 7 c)6 d)5 27) This point is also the firms in the short run. a) profit maximizing supply b) profit maximizing demand for inputs c) profit maximizing production d) profit maximizing demand for labor

4 28) If labor productivity increases what happens to the MRP curve? a) shifts out b) shifts in c) stays the same d) slope becomes steeper 29) When MP < AP then AP is decreasing. 30) When MC > AVC then AVC is decreasing. 31) When MC > ATC then ATC is increasing. 32) What does it mean when a firm is a price taker? a) workers decide on their own wage b) market determines the price of inputs c) market determines the prices of inputs and outputs d) firm decides on its product s price 33) Randall is the owner of a small business that sells water bottles. His revenue this year was $50,000. His total rent for the year was $7,300, his workers cost him $17,200, and inputs cost him $13, 500. Randall does this job full time, but he could have taken on a part-time job selling dog outfits that would have paid $12,000 a year. a) What is Randall s accounting profit this year? b) What is Randall s economic profit this year? c) Did he have normal economic profit? 34) In the graph below which price would a firm want to sell their good at to be a profit maximizing firm? 35) In the same graph which price is one where the firm would be shut down? 36) Which curve is a firm s supply curve in the short-run and on which part of the curve will the firm actually be supplying goods? a) MC, whole curve b) MC, part above ATC c)mc, part above AVC d)mc, part between AVC and ATC 37) Use the following firm supply curves to construct one market supply curve.

5 38) Draw a LRAC curve from the SRATC curves and label the sections as either increasing returns to scale, constant returns to scale, or decreasing returns to scale. 39) Using the two graphs below find the number of firms in the market. 40) Using the above graphs to find the long run equilibrium for a profit maximizing firm 41) What action causes firms to make the shift from the profit maximizing point in the short run to that same point in the long run? a) time period b) diminishing marginal returns c) increased productivity d) more firms enter the market 42) In the graphs in question 39 more firms will enter the market and shift the supply curve outwards. Why is that? a) price is above ATC b) profits are high c) price is above AVC d) MC is decreasing