YORK UNIVERSITY FACULTY OF LIBERAL ARTS AND PROFESSIONAL STUDIES Introduction to Microeconomics AP/ECON 1000.03C Test #2 (c) Course Director: Ida Ferrara November 13 th, 2009 Name Student Number Instructions: Calculators, digital dictionaries, cell phones, pagers, or other electronic devices are not allowed. All such devices as well as all books, papers, knapsacks, and briefcases must be left at the front of the lecture hall. The only items you may have at your seat are pens, pencils, student ID, purse, and coat. There are 22 multiple choice questions. Record your answer on the Scantron form provided. The maximum number of marks is 22. Time allotted is 45 minutes. Stop: Please fill in your name and student number. Total (22) MARK
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Use the figure below to answer the following question. Figure 6.1.1 1) Refer to Figure 6.1.1. Suppose the demand for rental housing is shown by demand curve D1, and there is a rent ceiling of $150 per room. What is the highest rent that would be charged in a black market? A) $150 a month. B) $175 a month. C) $200 a month. D) $100 a month. E) cannot be determined from the graph, but we know it is greater than $200. 1) Use the table below to answer the following question. Table 8.1.1 Quantity Total Utility Marginal Utility 0 0 30 1 30 12 2 A 5 3 B C 4 50 2) Refer to Table 8.1.1. The value of B is 2) A) 0. B) 18. C) 42. D) 47. E) 30. 1
3) When the income effect dominates the substitution effect, what is true of the supply curve for labour? A) It can be either positively or negatively sloped. B) It is flat. C) It is vertical. D) It is negatively sloped. E) It is positively sloped. 4) Suppose a consumer spends all his income. His marginal utility per dollar on X is 4 and marginal utility per dollar on Y is 2. We know that A) the price of Y must be one-third the price of X. B) utility can be increased by decreasing the consumption of X and increasing the consumption of Y. C) utility is maximized. D) the price of Y must be eight times the price of X. E) utility can be increased by increasing the consumption of X and decreasing the consumption of Y. 3) 4) 5) If the price of the good measured on the vertical axis increases, the budget line 5) A) shifts leftward and becomes steeper. B) shifts rightward and parallel to the original budget line. C) becomes steeper. D) becomes flatter. E) shifts leftward and parallel to the original budget line. Use the figure below to answer the following question. Figure 6.3.1 6) Refer to Figure 6.3.1 showing the market for frisbees before and after a tax is imposed. On each frisbee, the sellers' share of the tax is A) $0.40. B) $1.00. C) $6.60. D) $5.60. E) $0.60. 6) 2
Use the table below to answer the following question. Table 10.2.2 Three methods of making one medical hologram Method Labour Capital 1 5 10 2 10 15 3 15 5 7) Refer to Table 10.2.2. If the price of labour is $20 per unit and the price of capital is $10 per unit, which method is economically efficient? A) 1 only B) 2 only C) 3 only D) 2 and 3 only E) 1 and 3 only 8) Harold can consume apples and oranges. He likes them equally well and currently is in consumer equilibrium. Then the price of oranges rises, while his income remains the same. What will happen to his consumption? A) consumption of oranges increases; consumption of apples increases B) consumption of oranges increases; consumption of apples decreases C) consumption of oranges decreases; consumption of apples increases D) consumption of oranges decreases; consumption of apples decreases E) consumption of oranges decreases; consumption of apples could either increase or decrease 9) If the average variable cost of producing 10 units is $18 and the average variable cost of producing 11 units is $20, we know that, between 10 and 11 units of output, A) average total cost is increasing. B) marginal cost is increasing. C) total cost is either increasing or decreasing. D) average fixed cost is increasing. E) none of the above. 10) Suppose the demand for gasoline is inelastic, but not perfectly inelastic, and the supply is elastic, but not perfectly elastic. A tax on gasoline is paid A) mostly by buyers. B) totally by buyers. C) equally by buyers and sellers. D) mostly by sellers. E) totally by sellers. 7) 8) 9) 10) 11) If income rises, then in the new consumer equilibrium 11) A) total utility from inferior goods increases. B) the marginal utility from normal goods decreases. C) the marginal utility from inferior goods increases. D) the marginal utility from normal goods increases. E) both B and C. 3
Use the figure below to answer the following question. Figure 11.4.3 12) Refer to Figure 11.4.3 which shows a firm's long-run average total cost curve. An increase in production from Q1 to Q2 sweaters per day produces A) economies of scale. B) the minimum efficient scale. C) constant total costs. D) diseconomies of scale. E) constant returns to scale. 12) 13) In a market with an effective production quota 13) A) marginal social cost exceeds marginal social benefit. B) marginal social benefit exceeds marginal social cost. C) marginal social benefit equals marginal social cost. D) marginal social cost is greater than the equilibrium price. E) marginal social benefit is less than the equilibrium price. 14) Governments tend to tax items with inelastic demand because 14) A) governments wish to avoid big rises in after-tax prices. B) these goods yield the most tax revenues. C) sellers pay most of the tax in these cases. D) buyers pay most of the tax in these cases. E) none of the above. 4
Use the table below to answer the following question. Bags of Popcorn Table 8.1.3 Marginal Utility Bottles of Pop 1 120 1 120 2 100 2 70 3 80 3 60 4 70 4 40 Marginal Utility 15) Refer to Table 8.1.3. Henry is maximizing his utility by consuming 3 bags of popcorn and 3 bottles of pop. What is the ratio of the price of popcorn to the price of pop? A) 1 B) 6/5 C) 1/2 D) 3/4 E) 4/3 16) A consumer always has a cup of coffee with a tablespoon of sugar. What would the consumer's indifference curves for these two goods look like? A) vertical along its entire length B) upward sloping C) horizontal along its entire length D) straight-lined E) L-shaped 15) 16) Use the figure below to answer the following questions. Figure 9.3.3 17) Consider an initial budget line labelled RT in Figure 9.3.3. If the budget line becomes RS, the substitution effect is illustrated by the move from point A) A to C. B) A to D. C) B to D. D) B to A. E) C to D. 18) Consider an initial budget line labelled RS in Figure 9.3.3. If the budget line becomes RT, the income effect is illustrated by the move from point A) A to B. B) A to C. C) A to D. D) B to C. E) B to D. 17) 18) 5
19) The range over which average variable cost is decreasing is the same as the range over which 19) A) average product is increasing. B) average product is decreasing. C) marginal cost is increasing. D) average fixed cost is decreasing. E) marginal product is decreasing. 20) The MC curve shifts upward if 20) A) more workers are hired. B) a new technology is introduced. C) factor prices rise. D) all of the above. E) none of the above. 21) Which one of the following statements is correct? 21) A) When average product is less than zero, marginal product is positive. B) When marginal product is zero, total product is at its minimum. C) When average product exceeds marginal product, marginal product is increasing. D) When marginal product is increasing, average product is decreasing. E) When marginal product is increasing, average product is increasing. 22) At the best affordable point, what is the relationship between the indifference curve and the budget line? A) The slope of the indifference curve exceeds the slope of the budget line. B) The slope of the indifference curve equals the slope of the budget line. C) The slope of the budget line exceeds the slope of the indifference curve. D) The budget line and the indifference curve are identical. E) None of the above. 22) 6
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Use the figure below to answer the following question. Figure 6.1.1 1) Refer to Figure 6.1.1. Suppose the demand for rental housing is shown by demand curve D1, and there is a rent ceiling of $150 per room. What is the highest rent that would be charged in a black market? A) $150 a month. B) $175 a month. C) $200 a month. D) $100 a month. E) cannot be determined from the graph, but we know it is greater than $200. 1) Use the table below to answer the following question. Table 8.1.1 Quantity Total Utility Marginal Utility 0 0 30 1 30 12 2 A 5 3 B C 4 50 2) Refer to Table 8.1.1. The value of B is 2) A) 0. B) 18. C) 42. D) 47. E) 30. 1
3) When the income effect dominates the substitution effect, what is true of the supply curve for labour? A) It can be either positively or negatively sloped. B) It is flat. C) It is vertical. D) It is negatively sloped. E) It is positively sloped. 4) Suppose a consumer spends all his income. His marginal utility per dollar on X is 4 and marginal utility per dollar on Y is 2. We know that A) the price of Y must be one-third the price of X. B) utility can be increased by decreasing the consumption of X and increasing the consumption of Y. C) utility is maximized. D) the price of Y must be eight times the price of X. E) utility can be increased by increasing the consumption of X and decreasing the consumption of Y. 3) 4) 5) If the price of the good measured on the vertical axis increases, the budget line 5) A) shifts leftward and becomes steeper. B) shifts rightward and parallel to the original budget line. C) becomes steeper. D) becomes flatter. E) shifts leftward and parallel to the original budget line. Use the figure below to answer the following question. Figure 6.3.1 6) Refer to Figure 6.3.1 showing the market for frisbees before and after a tax is imposed. On each frisbee, the sellers' share of the tax is A) $0.40. B) $1.00. C) $6.60. D) $5.60. E) $0.60. 6) 2
Use the table below to answer the following question. Table 10.2.2 Three methods of making one medical hologram Method Labour Capital 1 5 10 2 10 15 3 15 5 7) Refer to Table 10.2.2. If the price of labour is $20 per unit and the price of capital is $10 per unit, which method is economically efficient? A) 1 only B) 2 only C) 3 only D) 2 and 3 only E) 1 and 3 only 8) Harold can consume apples and oranges. He likes them equally well and currently is in consumer equilibrium. Then the price of oranges rises, while his income remains the same. What will happen to his consumption? A) consumption of oranges increases; consumption of apples increases B) consumption of oranges increases; consumption of apples decreases C) consumption of oranges decreases; consumption of apples increases D) consumption of oranges decreases; consumption of apples decreases E) consumption of oranges decreases; consumption of apples could either increase or decrease 9) If the average variable cost of producing 10 units is $18 and the average variable cost of producing 11 units is $20, we know that, between 10 and 11 units of output, A) average total cost is increasing. B) marginal cost is increasing. C) total cost is either increasing or decreasing. D) average fixed cost is increasing. E) none of the above. 10) Suppose the demand for gasoline is inelastic, but not perfectly inelastic, and the supply is elastic, but not perfectly elastic. A tax on gasoline is paid A) mostly by buyers. B) totally by buyers. C) equally by buyers and sellers. D) mostly by sellers. E) totally by sellers. 7) 8) 9) 10) 11) If income rises, then in the new consumer equilibrium 11) A) total utility from inferior goods increases. B) the marginal utility from normal goods decreases. C) the marginal utility from inferior goods increases. D) the marginal utility from normal goods increases. E) both B and C. 3
Use the figure below to answer the following question. Figure 11.4.3 12) Refer to Figure 11.4.3 which shows a firm's long-run average total cost curve. An increase in production from Q1 to Q2 sweaters per day produces A) economies of scale. B) the minimum efficient scale. C) constant total costs. D) diseconomies of scale. E) constant returns to scale. 12) 13) In a market with an effective production quota 13) A) marginal social cost exceeds marginal social benefit. B) marginal social benefit exceeds marginal social cost. C) marginal social benefit equals marginal social cost. D) marginal social cost is greater than the equilibrium price. E) marginal social benefit is less than the equilibrium price. 14) Governments tend to tax items with inelastic demand because 14) A) governments wish to avoid big rises in after-tax prices. B) these goods yield the most tax revenues. C) sellers pay most of the tax in these cases. D) buyers pay most of the tax in these cases. E) none of the above. 4
Use the table below to answer the following question. Bags of Popcorn Table 8.1.3 Marginal Utility Bottles of Pop 1 120 1 120 2 100 2 70 3 80 3 60 4 70 4 40 Marginal Utility 15) Refer to Table 8.1.3. Henry is maximizing his utility by consuming 3 bags of popcorn and 3 bottles of pop. What is the ratio of the price of popcorn to the price of pop? A) 1 B) 6/5 C) 1/2 D) 3/4 E) 4/3 16) A consumer always has a cup of coffee with a tablespoon of sugar. What would the consumer's indifference curves for these two goods look like? A) vertical along its entire length B) upward sloping C) horizontal along its entire length D) straight-lined E) L-shaped 15) 16) Use the figure below to answer the following questions. Figure 9.3.3 17) Consider an initial budget line labelled RT in Figure 9.3.3. If the budget line becomes RS, the substitution effect is illustrated by the move from point A) A to C. B) A to D. C) B to D. D) B to A. E) C to D. 18) Consider an initial budget line labelled RS in Figure 9.3.3. If the budget line becomes RT, the income effect is illustrated by the move from point A) A to B. B) A to C. C) A to D. D) B to C. E) B to D. 17) 18) 5
19) The range over which average variable cost is decreasing is the same as the range over which 19) A) average product is increasing. B) average product is decreasing. C) marginal cost is increasing. D) average fixed cost is decreasing. E) marginal product is decreasing. 20) The MC curve shifts upward if 20) A) more workers are hired. B) a new technology is introduced. C) factor prices rise. D) all of the above. E) none of the above. 21) Which one of the following statements is correct? 21) A) When average product is less than zero, marginal product is positive. B) When marginal product is zero, total product is at its minimum. C) When average product exceeds marginal product, marginal product is increasing. D) When marginal product is increasing, average product is decreasing. E) When marginal product is increasing, average product is increasing. 22) At the best affordable point, what is the relationship between the indifference curve and the budget line? A) The slope of the indifference curve exceeds the slope of the budget line. B) The slope of the indifference curve equals the slope of the budget line. C) The slope of the budget line exceeds the slope of the indifference curve. D) The budget line and the indifference curve are identical. E) None of the above. 22) 6
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Use the figure below to answer the following question. Figure 6.1.1 1) Refer to Figure 6.1.1. Suppose the demand for rental housing is shown by demand curve D1, and there is a rent ceiling of $150 per room. What is the highest rent that would be charged in a black market? A) $150 a month. B) $175 a month. C) $200 a month. D) $100 a month. E) cannot be determined from the graph, but we know it is greater than $200. 1) Use the table below to answer the following question. Table 8.1.1 Quantity Total Utility Marginal Utility 0 0 30 1 30 12 2 A 5 3 B C 4 50 2) Refer to Table 8.1.1. The value of B is 2) A) 0. B) 18. C) 42. D) 47. E) 30. 1
3) When the income effect dominates the substitution effect, what is true of the supply curve for labour? A) It can be either positively or negatively sloped. B) It is flat. C) It is vertical. D) It is negatively sloped. E) It is positively sloped. 4) Suppose a consumer spends all his income. His marginal utility per dollar on X is 4 and marginal utility per dollar on Y is 2. We know that A) the price of Y must be one-third the price of X. B) utility can be increased by decreasing the consumption of X and increasing the consumption of Y. C) utility is maximized. D) the price of Y must be eight times the price of X. E) utility can be increased by increasing the consumption of X and decreasing the consumption of Y. 3) 4) 5) If the price of the good measured on the vertical axis increases, the budget line 5) A) shifts leftward and becomes steeper. B) shifts rightward and parallel to the original budget line. C) becomes steeper. D) becomes flatter. E) shifts leftward and parallel to the original budget line. Use the figure below to answer the following question. Figure 6.3.1 6) Refer to Figure 6.3.1 showing the market for frisbees before and after a tax is imposed. On each frisbee, the sellers' share of the tax is A) $0.40. B) $1.00. C) $6.60. D) $5.60. E) $0.60. 6) 2
Use the table below to answer the following question. Table 10.2.2 Three methods of making one medical hologram Method Labour Capital 1 5 10 2 10 15 3 15 5 7) Refer to Table 10.2.2. If the price of labour is $20 per unit and the price of capital is $10 per unit, which method is economically efficient? A) 1 only B) 2 only C) 3 only D) 2 and 3 only E) 1 and 3 only 8) Harold can consume apples and oranges. He likes them equally well and currently is in consumer equilibrium. Then the price of oranges rises, while his income remains the same. What will happen to his consumption? A) consumption of oranges increases; consumption of apples increases B) consumption of oranges increases; consumption of apples decreases C) consumption of oranges decreases; consumption of apples increases D) consumption of oranges decreases; consumption of apples decreases E) consumption of oranges decreases; consumption of apples could either increase or decrease 9) If the average variable cost of producing 10 units is $18 and the average variable cost of producing 11 units is $20, we know that, between 10 and 11 units of output, A) average total cost is increasing. B) marginal cost is increasing. C) total cost is either increasing or decreasing. D) average fixed cost is increasing. E) none of the above. 10) Suppose the demand for gasoline is inelastic, but not perfectly inelastic, and the supply is elastic, but not perfectly elastic. A tax on gasoline is paid A) mostly by buyers. B) totally by buyers. C) equally by buyers and sellers. D) mostly by sellers. E) totally by sellers. 7) 8) 9) 10) 11) If income rises, then in the new consumer equilibrium 11) A) total utility from inferior goods increases. B) the marginal utility from normal goods decreases. C) the marginal utility from inferior goods increases. D) the marginal utility from normal goods increases. E) both B and C. 3
Use the figure below to answer the following question. Figure 11.4.3 12) Refer to Figure 11.4.3 which shows a firm's long-run average total cost curve. An increase in production from Q1 to Q2 sweaters per day produces A) economies of scale. B) the minimum efficient scale. C) constant total costs. D) diseconomies of scale. E) constant returns to scale. 12) 13) In a market with an effective production quota 13) A) marginal social cost exceeds marginal social benefit. B) marginal social benefit exceeds marginal social cost. C) marginal social benefit equals marginal social cost. D) marginal social cost is greater than the equilibrium price. E) marginal social benefit is less than the equilibrium price. 14) Governments tend to tax items with inelastic demand because 14) A) governments wish to avoid big rises in after-tax prices. B) these goods yield the most tax revenues. C) sellers pay most of the tax in these cases. D) buyers pay most of the tax in these cases. E) none of the above. 4
Use the table below to answer the following question. Bags of Popcorn Table 8.1.3 Marginal Utility Bottles of Pop 1 120 1 120 2 100 2 70 3 80 3 60 4 70 4 40 Marginal Utility 15) Refer to Table 8.1.3. Henry is maximizing his utility by consuming 3 bags of popcorn and 3 bottles of pop. What is the ratio of the price of popcorn to the price of pop? A) 1 B) 6/5 C) 1/2 D) 3/4 E) 4/3 16) A consumer always has a cup of coffee with a tablespoon of sugar. What would the consumer's indifference curves for these two goods look like? A) vertical along its entire length B) upward sloping C) horizontal along its entire length D) straight-lined E) L-shaped 15) 16) Use the figure below to answer the following questions. Figure 9.3.3 17) Consider an initial budget line labelled RT in Figure 9.3.3. If the budget line becomes RS, the substitution effect is illustrated by the move from point A) A to C. B) A to D. C) B to D. D) B to A. E) C to D. 18) Consider an initial budget line labelled RS in Figure 9.3.3. If the budget line becomes RT, the income effect is illustrated by the move from point A) A to B. B) A to C. C) A to D. D) B to C. E) B to D. 17) 18) 5
19) The range over which average variable cost is decreasing is the same as the range over which 19) A) average product is increasing. B) average product is decreasing. C) marginal cost is increasing. D) average fixed cost is decreasing. E) marginal product is decreasing. 20) The MC curve shifts upward if 20) A) more workers are hired. B) a new technology is introduced. C) factor prices rise. D) all of the above. E) none of the above. 21) Which one of the following statements is correct? 21) A) When average product is less than zero, marginal product is positive. B) When marginal product is zero, total product is at its minimum. C) When average product exceeds marginal product, marginal product is increasing. D) When marginal product is increasing, average product is decreasing. E) When marginal product is increasing, average product is increasing. 22) At the best affordable point, what is the relationship between the indifference curve and the budget line? A) The slope of the indifference curve exceeds the slope of the budget line. B) The slope of the indifference curve equals the slope of the budget line. C) The slope of the budget line exceeds the slope of the indifference curve. D) The budget line and the indifference curve are identical. E) None of the above. 22) 6