Principles of Economics - Midterm Exam

Which of the following best illustrates the economic concept of scarcity?

A college athlete is considering skipping practice to attend a concert. The ticket costs $50, and he would need to hire a tutor for $30 to keep up with missed coursework. What is the opportunity cost of attending the concert?

According to the principle of rational decision-making at the margin, a consumer should purchase an additional unit of a good if:

When the government imposes a tax on gasoline to reduce consumption, what is the likely result?

Which of the following is an example of an externality?

In the circular-flow diagram, which of the following flows from firms to households through the market for factors of production?

A point located outside the production possibilities frontier (PPF) represents:

A bowed-out (concave) production possibilities frontier illustrates the concept of:

Which of the following statements is a positive economic statement?

Macroeconomics is the study of:

Country A can produce 10 cars or 5 computers in one hour. Country B can produce 6 cars or 6 computers in one hour. Which country has the comparative advantage in producing computers?

When two countries specialize according to comparative advantage and trade with each other:

According to the law of demand, holding everything else constant:

An increase in the price of coffee, a substitute for tea, will most likely:

If both the demand and supply of a product increase simultaneously, what is the result?

A shift to the right of the supply curve indicates:

If the price elasticity of demand for a good is 0.5, the demand is:

If demand is inelastic and the price of a good increases, total revenue will:

Using the midpoint method, if the price of a good rises from $8 to $10 and quantity demanded falls from 100 to 80, what is the price elasticity of demand?

An inferior good is one for which demand:

If the cross-price elasticity of demand between two goods is positive, the goods are:

Supply is generally more elastic in the long run than in the short run because:

A binding price ceiling is set below the equilibrium price. Which of the following is the expected result?

Rent control is an example of a:

If the minimum wage is set above the equilibrium wage in the labor market, the result is:

When the government imposes a tax on a good, who bears the burden of the tax depends on:

A tax is levied on sellers. What happens in the market?

If supply is elastic and demand is inelastic, who bears the larger share of a tax?

Why does a tax on luxury goods in the 1990s (the U.S. luxury tax) end up falling largely on producers rather than consumers?

Suppose the price of good X rises from $5 to $7, and the quantity supplied rises from 100 to 140 units. Using the midpoint method, the price elasticity of supply is approximately:

Suppose two countries, Alpha and Beta, can produce two goods, wheat and cloth. Alpha can produce 10 tons of wheat or 5 units of cloth per worker per day. Beta can produce 8 tons of wheat or 8 units of cloth per worker per day. Using the concept of comparative advantage, analyze the following: (a) Which country has the comparative advantage in wheat and which in cloth? (b) Show the gains from trade if Alpha specializes in wheat and trades 1 ton of wheat for 2 units of cloth. (c) Discuss how the terms of trade affect the distribution of gains between the two countries.

Use a supply-and-demand diagram to analyze the effects of a binding price ceiling (such as rent control) on a housing market. In your answer, address: (a) What happens to the quantity supplied and quantity demanded at the controlled price? (b) What is the resulting shortage, and how does it evolve over the short run versus the long run? (c) Identify at least two unintended consequences that may arise and explain why economists generally oppose such price controls.

Suppose the government imposes a $2 per unit tax on producers of a good. Use the supply-and-demand model to analyze and explain: (a) How the supply curve shifts and what happens to the equilibrium price paid by buyers and the equilibrium price received by sellers. (b) Why tax incidence does not depend on whether the tax is legally levied on buyers or sellers. (c) How the elasticities of supply and demand determine which side of the market bears the larger burden of the tax. Provide a specific numerical example in your analysis.

Consider the following scenario: A new technology is invented that allows farmers to produce wheat at much lower cost. Using the supply-and-demand model, explain: (a) How the supply curve shifts and what happens to the equilibrium price and quantity of wheat. (b) Why farmers' total revenue might actually fall as a result, even though production is more efficient. (c) How this connects to the concepts of elasticity and total revenue. (d) Why governments sometimes pay farmers to reduce output even though productivity has improved.