Summer 2003MBA 501-01Economics SurveyTong

Tutorial #1

Multiple Choice Questions (One point each)Identify the letter of choice that best completes the statement or answers the question.

1. The optimal or allocatively efficient point on a production possibilities curve is achieved where: A) the smallest physical amounts of inputs are used to produce each good. B) each good is produced at a level where marginal benefits equal marginal costs. C) large amounts of capital goods are produced relative to consumer goods. D) large amounts of consumer goods are produced relative to capital goods.

2. The concept of opportunity cost: A) is irrelevant in socialistic economies because of central planning. B) suggests that the use of resources in any particular line of production means that

alternative outputs must be forgone. C) is irrelevant if the production possibilities curve is shifting to the right. D) suggests that insatiable wants can be fulfilled.

3. In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of: A) scarcity and opportunity costs. B) money and real capital. C) complementary economic goals. D) full production.

4. The simple circular flow model shows that: A) households are on the buying side of both product and resource markets. B) businesses are on the selling side of both product and resource markets. C) households are on the selling side of the resource market and on the buying side of

the product market. D) businesses are on the buying side of the product market and on the selling side of the

resource market.

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Use the following to answer question 5:

5. Refer to the above diagram. An improvement in technology will:A) shift the production possibilities curve from PP1 to PP2.

B) shift the production possibilities curve from PP2 to PP1.

C) move the economy from A to C along PP1.

D) move the economy from A, B, or C on PP1 to D.

6. Which of the following is assumed in constructing a typical production possibilities curve? A) the economy is using its resources inefficiently. B) resources are perfectly shiftable among alternative uses. C) production technology is fixed. D) the economy is engaging in international trade.

7. A country can achieve some combination of goods outside its production possibilities curve by: A) idling some of its resources.B) specializing and engaging in international trade. C) buying the debt (bonds and stocks) of foreign nations. D) producing more capital goods and fewer consumer goods.

8. Opportunity cost is best defined as: A) the monetary price of any productive resource. B) the amount of labor that must be used to produce one unit of any product. C) the ratio of the prices of imported goods to the prices of exported goods. D) the amount of one product that must be given up to produce one more unit of another

product.

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9. The money payments made to owners of land, labor, capital, and entrepreneurial ability are: A) interest, wages, rent, and profits respectively. B) rent, wages, dividends, and interest respectively. C) rent, profits, wages, and interest respectively. D) rent, wages, interest, and profits respectively.

10. Assume that a change in government policy results in greater production of both consumer goods and investment goods. We can conclude that:A) the economy was suffering from unemployment and/or the inefficient use of

resources before the policy change. B) the economy's production possibilities curve has been shifted to the left as a result of

the policy decision. C) this economy's production possibilities curve is convex (bowed inward) to the origin. D) the law of increasing opportunity costs does not apply in this society.

11. Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 5 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis incorporates the idea of:A) opportunity costsB) marginal benefits that exceed marginal costs.C) imperfect information.D) normative economics.

12. In constructing models, economists: A) make simplifying assumptions. B) include all available information. C) must use mathematical equations. D) attempt to duplicate the real world.

13. The problems of aggregate inflation and unemployment are: A) major topics of macroeconomics. B) not relevant to the U.S. economy. C) major topics of microeconomics. D) peculiar to socialistic economies.

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Use the following to answer question 14:

14. Refer to the above diagram. The slope of the line: A) is - 1/4.

B) is + 1/4.

C) is .40. D) cannot be determined from the information given.

Use the following to answer question 15:

Answer the next question on the basis of the following five data sets wherein it is assumed that the variable shown on the left is the independent variable and the one on the right is the dependent variable. Assume in graphing these data that the independent variable is shown on the horizontal axis and the dependent variable on the vertical axis.

(1 ) (2 ) (3 ) (4 ) (5 )J K L M N P R T U V

0 1 0 0 -1 5 1 0 0 4 0 0 -1 5 0 04 0 2 0 3 0 -5 8 0 5 0 2 0 -2 5 5 1 08 0 3 0 6 0 5 6 0 6 0 4 0 -3 5 1 0 2 0

1 2 0 4 0 9 0 1 5 4 0 7 0 6 0 -4 5 1 5 3 01 6 0 5 0 1 2 0 2 5 2 0 8 0 8 0 -5 5 2 0 4 02 0 0 6 0 1 5 0 3 5 0 9 0 1 0 0 -6 5 2 5 5 0

15. Refer to the above data sets. The vertical intercept is negative for: A) none of the data sets. B) data sets 1 and 3 only. C) data sets 2 and 4 only. D) data sets 1 and 5 only.

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16.

The equation for the demand curve in the above diagram: A) is P = 70 - Q. B) is P = 35 - 2Q. C) is P = 35 - .5Q. D) cannot be determined from the information given.

17. Which of the following will not cause the demand for product K to change? A) a change in the price of close-substitute product J B) an increase in consumer incomes C) a change in the price of K D) a change in consumer tastes

18. A rightward shift in the demand curve for product C might be caused by: A) an increase in income if C is an inferior good. B) a decrease in income if C is a normal good. C) a decrease in the price of a product that is a close substitute for C. D) a decrease in the price of a product that is complementary to C.

19. The income and substitution effects account for:A) the upward sloping supply curve.B) the downward sloping demand curve.C) movements along a given supply curve.D) the "other things equal" assumption.

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20. "In 1994 Ford sold 500,000 Escorts at an average price of $7,200 per car; in 1995, 600,000 Escorts were sold at an average price of $7,500 per car." These statements: A) suggest that the demand for Escorts decreased between 1994 and 1995. B) imply that Escorts are an inferior good. C) suggest that the demand for Escorts increased between 1994 and 1995. D) constitute an exception to the law of demand in that they suggest an upsloping

demand curve.

21. The term "quantity demanded": A) refers to the entire series of prices and quantities that comprise the demand schedule. B) refers to a situation in which the income and substitution effects do not apply. C) refers to the amount of a product that will be purchased at some specific price. D) means the same thing as "demand."

22. The law of supply indicates that: A) producers will offer more of a product at high prices than they will at low prices. B) the product supply curve is downsloping. C) consumers will purchase less of a good at high prices than they will at low prices. D) producers will offer more of a product at low prices than they will at high prices.

23. Assume product A is an input in the production of product B. In turn product B is a complement to product C. We can expect a decrease in the price of A to: A) increase the supply of B and increase the demand for C. B) decrease the supply of B and increase the demand for C. C) decrease the supply of B and decrease the demand for C. D) increase the supply of B and decrease the demand for C.

Use the following to answer question 24:

(1 ) (2 ) (3 ) (4 ) (5 ) Q d Q d P r ice Q s Q s

7 0 6 0 $ 1 0 7 0 8 0 6 0 5 0 9 6 0 7 0 8 0 6 0 8 5 0 6 0 9 0 7 0 7 4 0 5 0 1 0 0 8 0 6 3 0 4 0

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24. Refer to the above table. If demand is represented by columns (3) and (1) and supply is represented by columns (3) and (4), equilibrium price and quantity will be:A) $10 and 60 units.B) $9 and 60 units.C) $8 and 80 units.D) $7 and 30 units.

Use the following to answer question 25:

25. Refer to the above diagram. A shortage of 160 units would be encountered if price was: A) $1.10, that is, $1.60 minus $.50. B) $1.60. C) $1.00. D) $.50.

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Short Questions (Total 25 Points)If a question requires calculation, then show all your work for full credit. If you just simply write down an answer and it happens to be wrong, then no partial credit will be given.

1.

Price is $10, quantity supplied is 50 units, and quantity demanded is 100 units. For every $1 rise in price, quantity supplied rises by 5 units and quantity demanded falls by 5 units. What is the equilibrium price and quantity? (10 points)

2.

Explain how each event affects production possibilities. (15 points)

a) The population becomes more educated over time as the number of high school dropouts falls and the number of college graduates rises.

b) The unemployment rate declines from 7.3 to 4.5 percent of the labor force.

c) Businesses and government are unable to solve a major computer problem, thus reducing economic efficiency and national output.

***** The End *****

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Suggested Answers

Part I. Multiple Choice Questions

1. B2. B3. A4. C5. A6. C7. B8. D9. D

10. A11. A12. A13. A14. B15. C16. C17. C18. D19. B20. C21. C22. A23. A24. B25. D

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Part II. Short Questions

1.

Price 10 11 12 13 14 15 16QS 50 55 60 65 70 75 80

QD 100 95 90 85 80 75 70

At equilibrium:

Price = P* = $15#

QS = QD = Q* = 75#

2.

a) Improvements in the basic education of the labor force typically contribute to an increase in productivity. The production possibilities curve should move outward.

b) Unemployment means that there is inefficient use of existing resources. Production moves from a point inside the production possibilities curve toward the frontier.

c) The most likely answer is that there is movement from the frontier of the production possibilities curve to an interior point. It would also be possible that the production possibilities curve shifts inward. Both answers indicate that there is less economic

inefficiency in the economy.

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