Microeconomics Exam 1: Auburn, Bannerjee

1. In 30 minutes, Mike can make 10 pancakes while Jill can make 4 pancakes. In the same amount of time, Jill can make 6 hash browns while Mike can make 3 hash browns. When we plot their production possibility frontiers, what is the slope of Jill's PPF if we graph pancakes on the x axis? P1
a. -1.33
b. 0.75
c. -1.5
d. -0.75

2. Based on Mike and Jill's production possibilities, which of the following is true? P1
a. Mike has comparative and absolute advantage in producing pancakes
b. Jill has comparative and absolute advantage in producing hash browns
c. Mike has comparative advantage in making pancakes but absolute advantage in making hash browns
d. Both a and b are true

3. An economy produces only beer and pizza. If the economy adopts a new technology that decreases the cost of production of both goods, this will result in the economy's P1
a. production possibilities frontier shifting out from the origin
b. production possibilities frontier shifting in toward the origin
c. production possibilities frontier becoming steeper
d. production possibilities frontier becoming linear

4. Peter decides to attend the one-hour review session for microeconomics instead of working at his job. His job pays him $10 per hour. Peter's opportunity cost of attending the review session is P1
a. the value of the session minus the $10 he could have earned at his job
b. nothing, because the review session does not cost anything
c. equal to the benefit he gets from the review session
d. the $10 he could have earned at his job

Possibility A B C D E F
Pizza 0 1 2 3 4 5
Pasta Salads 15 14 12 9 5 0
5. In the above table, the production of 3 million pizzas and 11 million pasta salads in a month is P1
a. Unattainable unless more resources become available or technology improves
b. Feasible, but would not satisfy production efficiency
c. Feasible and would satisfy production efficiency
d. Feasible, but only if marginal costs are constant

6. Sam's production possibilities frontier has good A on the horizontal axis and good B on the vertical axis. If Sam is producing at a point inside his frontier, then he P1
a. can increase production of both goods with no increase in resources
b. is fully using all his resources
c. values good A more than good B
d. values good B more than good A

7. Consider the PPF for office buildings and housing shown in the figure above. Which point in the diagram shows that resources to produce office buildings and housing are being misallocated, unused, or both? P1
a. Point F
b. Point G
c. Point H
d. Point I

8. While producing on the production possibilities frontier, if additional units of a good could be produced at a constant opportunity cost, the production possibilities frontier would be P1
a. bowed outward
b. bowed inward
c. positively sloped
d. a straight line

9. As output moves from point a to point b to point c along the PPF in the above figure, the opportunity cost of one more unit of good X P1
a. rises. The opportunity cost of one more unit of good Y also rises
b. rises. The opportunity cost of one more unit of good Y falls
c. falls. The opportunity cost of one more unit of good Y rises
d. falls. The opportunity cost of one more unit of good Y also falls

10. In the figure above, if the quantity of yogurt produced increases from 2 gallons an hour to 3 gallons an hour, the opportunity cost of gallon of yogurt in terms of ice cream is P1
a. half a gallon
b. 1 gallon
c. 3 gallons
d. 4 gallons

Quantity of pizza 5 6 7 8
Marginal benefit 25 20 15 10
Marginal cost 11 13 15 17
11. The table above represents the marginal cost and marginal benefit associated with pizza (in terms of movies). What quantity of pizza should be produced if resources are to be used efficiently? P1
a. 5 pizzas
b. 6 pizzas
c. 7 pizzas
d. 8 pizzas

12. According to the diagram in the above figure, what is the marginal benefit of consuming the 3 millionth gallon of gasoline per month? P1
a. 5 pounds of shrimp per gallon of gasoline
b. 3 pounds of shrimp per gallon of gasoline
c. 2 pounds of shrimp per gallon of gasoline
d. 1 pounds of shrimp per gallon of gasoline

13. In the above figure, if 2 million computers are produced per year then the ___ should be produced to achieve the allocatively efficient use of resources P1
a. marginal cost of a computer exceeds the marginal benefit of a computer, so more computers
b. marginal cost of a computer exceeds the marginal benefit of a computer, so fewer computers
c. marginal benefit of a computer exceeds the marginal cost of a computer, so more computers
d. marginal benefit of a computer exceeds the marginal cost of a computer, so fewer computers

14. In March a factory used new technology to produce its output. Then in August a fire destroys half the factory. The new technology shifted the factory's PPF ___ and the fire shifted it ___. P1
a. inward: outward
b. outward; inward
c. outward; outward
d. inward; inward

#15 P1

Consider demand and supply functions in sofa market given below
Demand: P=800-2Qd
Supply: P=200+Qs
1. What is the marginal cost of 100th sofa produced? P2
a. $300
b. $400
c. $500
d. $600

2. Find the equilibrium quantity and price in the sofa market P2
a. P=100; Q=200
b. P=400; Q=200
c. P=100; Q=400
d. P=200; Q=200

3. The market for Spam, and inferior good, is in equilibrium. Other things unchanged, an increase in consumers' income will ___ P2
a. decrease the equilibrium price of Spam and increase the equilibrium quantity of Spam
b. increase the equilibrium price of Spam but the equilibrium quantity of Spam will not change
c. decrease both the equilibrium price and the equilibrium quantity of Spam
d. increase both the equilibrium price and the equilibrium quantity of Spam

4. Which of the following events would lead to an increase in the price of cars, assuming cars and gasoline are complementary goods in consumption? P2
a. an increase in the demand for gasoline
b. an increase in the supply of gasoline
c. an increase in the supply of cars
d. a decrease in the demand for cars

5. Hand cream and body cream are substitutes in production. If there is an increase in price of hand cream, then what can we conclude will happen in the market for body cream? P2
a. The demand for body cream will decrease
b. The supply of body cream will decrease
c. The quantity demanded of body cream will decrease
d. The quantity supplied of body cream will increase

6. Calzones and pizza are substitutes in production, while pizza and beer are complements in consumption. The price of calzones decreases AND the price of beer increases. What happens to the equilibrium price and quantity in the pizza market as a result of these changes? P2
a. both equilibrium price and quantity increase
b. equilibrium price decreases, but equilibrium quantity cannot be determined
c. equilibrium price decreases, but equilibrium quantity increases
d. equilibrium price cannot be determined, but equilibrium quantity increases

7. In the market for chocolate bars, which of the following decreases the supply of chocolate bars? P2
a. a decrease in the demand for chocolate bars
b. an increase in the price of chocolate bars
c. an increase in the price of cocoa used in the production of chocolate bars
d. a decrease in the price of sugar used in the production of chocolate bars

8. Sarah is willing to pay $4 for the first cup of coffee a day, $3.50 for the second cup, and $2 for the third cup, after which she won't buy any coffee. The price of a cup of coffee is $2.90. How many cups of coffee per day will Sarah buy? P2
a. 1
b. 2
c. 3
d. 4

9. Leslie's demand curve for burritos P2
a. lies above her marginal benefit curve for burritos
b. has one point in common with her marginal benefit curve for burritos
c. lies below her marginal benefit curve for burritos
d. is the same as her marginal benefit curve for burritos

10. Consider the market for toothpaste. The price of toothpaste increased from $2.30 to $2.70. The corresponding quantity fell from 100 to 60. Calculate the price elasticity of demand P2
a. 0.32
b. 0.5
c. 1.85
d. 3.13

11. Mark can produce 3 salads or 5 desserts per hour, while Susi can produce 7 salads or 7 desserts per hour. Which of the following is true? P2
a. Mark has the comparative advantage in producing salads and desserts
b. Susi has the comparative advantage in producing salads and desserts
c. Mark has the comparative advantage in producing desserts, while Susi has the comparative advantage in producing salads
d. Mark has the comparative advantage in producing salads, while Susi has the comparative advantage in producing desserts

1. There has been an improvement in the technology used to produce orange juice which makes orange juice production less costly to produce. Also, there has been an increase in the price of breakfast cereal, a complement in consumption to orange juice. How will this affect the equilibrium price and quantity for orange juice? P3
a. The equilibrium price will increase, and the effect on the equilibrium quantity cannot be determined without more information
b. The equilibrium price will decrease, and the effect on the equilibrium quantity cannot be determined without more information
c. The effect on the equilibrium quantity cannot be determined without more information, and the equilibrium quantity will decrease
d. The effect on the equilibrium quantity cannot be determined without more information, and the equilibrium quantity will increase

2. Pizza and burgers are substitutes in consumption, so when the price of a burger rises P3
a. The equilibrium price of pizza rises
b. The equilibrium quantity of pizza rises
c. The demand for pizza increases
d. All of the above will occur

3. Which of the following would you expect to decrease the demand for chocolate? P3
a. An increase in the price of chocolate
b. An increase in the price of milk, a complement in consumption of chocolate
c. An increase in income, assuming that chocolate is a normal good
d. An increase in the supply of chocolate

4. When the price of a case of coke increased from $4 to $6, the quantity demanded of Pepsi increased from 30 cases to 50 cases. The cross-price elasticity between the two goods is ______, implying that Coke and Pepsi are ______. P3
a. 0.125=1/8; substitutes in consumption
b. 0.8=4/5; complements in consumption
c. 1.25=5/4; substitutes in consumption
d. -10; complements in consumption

5. Fries and ketchup have a cross-price elasticity of -3. If the price of fries falls, we expect to see P3
a. an increase in the demand for fries
b. an increase in the supply of fries
c. an increase in the demand for ketchup
d. a decrease in the demand for ketchup

Consider the market for desks, where demand and supply are estimated by the following equations:
Demand: Qd= -2P+120
Supply: Qs= P-30

6. At what level of desk production would allocative efficiency be satisfied? P3
a. 20
b. 50
c. 120
d. 30

7. A local pizzeria raised its price from $9 to $11 for each pizza and the sales of its pizza decreased from 150 to 100 per day. What is the price elasticity of demand in this case? P3
a. 1/2
b. -2
c. -1/2
d. 2

8. Suppose that the quantity of root beer demanded declines from 103,000 gallons per week to 97,000 gallons per week as a consequence of a 10 percent increase in the price of root beer. The price elasticity of demand is P3
a. 0.60
b. 1.40
c. 1.66
d. 6.00

A B C D E
Price (dollars per bushel) 10 8 6 4 2
Quantity demanded (bushels) 0 4 8 12 16

9. The table above gives the demand schedule for peas. Between point A and point B, the price elasticity of demand equals P3
a. 0.11
b. 0.50
c. 0.22
d. 9.09

10. When the price of a CD is $13 per CD, 39,000,000 CDs per year are supplied. When the price is $15 per CD, 41,000,000 CDs per year are supplied. What is the elasticity of supply for CDs? P3
a. 2.86
b. 0.35
c. 0.14
d. 0.05