First Midterm - II

1. If you are commissioned to compare different countries' standard of living in 2012, what type of data is more appropriate?

a. Time-series data

b. Cross-sectional data

2. Determine if the following sentence is positive or normative: "countries can never benefit from trade."

a. Positive

b. Normative

3. Consider the market for coffee. Imagine that a recent study shows that drinking coffee will reduce the risk of having stroke, and at the same time the Brazilian government institutes a law to increase the wages of all workers in the coffee industry. What will happen to the equilibrium price and quantity of coffee?

a. Both price and quantity will increase.

b. Price will increase while quantity will decrease.

c. Price will remain the same while quantity will decrease.

d. Price will increase while the change in quantity cannot be determined.

For the next two questions, consider the following PPF with a "bowed-out" shape.

4. The shape of this PPF indicates _______ opportunity costs.

a. increasing

b. decreasing

5. This shape is likely due to

a. Diminishing returns to resources in the production of meat and beans.

b. Differing preferences for meat and beans within the economy.

c. Specialization of resources within the economy.

d. Economies of scale in the production of each good.

6. Initially the market demand for applesauce is Q_D = 20 - P and the supply for applesauce is Q_S = P - 12. Suppose the price of apples then increases. As a result of this price increase, suppliers will produce 2 fewer jars of applesauce at every price. What is the total surplus in the market for applesauce at the new equilibrium?

a. $4

b. $8

c. $12

d. $9

Use the following information to answer the following two questions.

A market has only two groups of firms. One group employs innovative technologies while the other still uses a conventional means of production. The group with conventional technology has the supply curve: ??_??1 = ?? - 180. The group with innovative technology has the supply curve: ??_??2 = ?? - 150. There is only one group of consumers and they have the demand curve: ??= 750 - 2??.

7. If initially only the firm with the innovative technology is producing, what will be the market equilibrium quantity?

a. Q = 200

b. Q = 350

8. Now suppose both groups are producing. If you are asked to graph the market supply curve, which of the following will be the kink point (Q,P) for this market supply curve?

a. (-30,150)

b. (0,120)

c. (30,180)

d. (0,150)

Use the following information to answer the next three questions:

Keynesland is a small open economy that produces fish. Its domestic demand is given by ?? = 200 - 2?? and its domestic supply is given by ?? = 2?? - 40. The world price of fish is $40 per unit of fish.

9. Suppose the government implements an import quota of 16 units. What will be the domestic price?

a. $44

b. $48

c. $56

d. $50

10. Suppose that, instead of the quota described in the previous problem, the government implements an import tariff that will increase the price of each unit of fish by $10. Relative to this tariff of $10, if the government were to increase the tariff by an additional $1, this would ______ government tariff revenue and _______ consumer surplus.

a. decrease; decrease

b. decrease; increase

c. increase; decrease

d. increase; increase

11. If the government implements an import tariff that increases the price of each unit of fish by $10, then what is the deadweight loss?

a. $100

b. $160

c. $200

d. $240

Use the following information to answer the next two questions.

Ahmed and Bernard produce oranges and lemons. When their production is combined, it yields the following joint PPF:

12. Suppose Ahmed could produce up to 4 oranges if he spent all his time producing oranges. Given this information and the above PPF, Ahmed must therefore have the comparative advantage in producing:

a. oranges

b. lemons

13. Suppose Ahmed can produce up to 4 oranges or 5 lemons in the given time period. What must be Bernard's opportunity cost of producing one lemon?

a. 4/5 Oranges

b. 4/3 Oranges

c. 1 Orange

d. 3/2 Oranges

Use the following information for the next two questions.

Jimmy has a Mexican Restaurant and his two staple dishes are Tacos and Fajitas. We know that Jimmy has constant opportunity cost. He can produce at most 20 Fajitas or 50 Tacos. Jimmy has the opportunity to trade with a Taco Ring, a bigger company. The Opportunity Cost for Taco Ring is constant, and it can exchange 1 Taco for 1/5 of Fajita.

14. Who has the comparative advantage in producing tacos?

a. Jimmy

b. Taco Ring

15. Which of the following terms of trade would generate gains for both companies?

a. 1 fajita for 2.5 tacos

b. 1 taco for 0.5 fajitas

c. 1 fajita for 6 tacos

d. 1 taco for 0.3 fajitas

Use the following information for the next three questions.

Kenzaburo and Yasunari are writers. The table below shows the amount of time it takes them to produce articles and short stories.

16. Who has the comparative advantage in producing articles?

a. Yasunari

b. Kenzaburo

17. Who has the absolute advantage in producing short stories?

a. Kenzaburo

b. Yasunari

18. What is the equation for Yasunari's PPF over a 12 hour time period? Assume articles are on the horizontal axis.

a. S=3-(2/3)A

b. S=2-(3/2)A

c. S=4-(4/3)A

d. S=3-(3/4)A

Use the following information for the next four questions.

In the small country of krugmanstan domestic demand for barrels of oil is P = 100 - Q and  domestic supply is P =  10 + 2Q. The world price of oil is $40.

19. Suppose (for this question only) that, because of a new technology, domestic supply suddenly increases by 2 barrels of oil at every price. The new supply curve is given by:

20. Use the original supply and demand curves to answer this question. Suppose the country opens its oil market to trade. What will be the increase in total surplus due to this change in policy?

a. $675

b. $400

c. $325

d. $200

21. Use the original supply and demand curves to answer this question. Suppose the country opens its oil market to trade, but simultaneously the government imposes a tariff that increases the price of oil by $10. How many barrels of oil will be imported?

a. 15

b. 30

c. 40

d. 50

22. Given the original demand and supply curves in this oil market, what tariff is equivalent to a 15 barrel import quota? (i.e. will lead to the same market price and quantities traded?) A tariff that raises the price of a barrel of oil by

a. $15.

b. $25.

c. $12.

d. $20.

 23. Which of the following statements correctly describes free-market equilibrium?

a. When there is a surplus in the market, the price will increase to restore the market equilibrium

b. When there is a shortage in the market, the quantity demanded will increase to restore the market equilibrium.

c. Total surplus is maximized when the market is a free market.

d. The price and quantity can still change even if the market is at equilibrium.

24. A survey that calls people on land-line phones to study the purchasing habits of US adults would likely incur a problem of ________ in the data.

a. Measurement error

b. Sampling Bias

25. To study fluctuations in GDP, economists would most likely rely on _______ data.

a.Time-series

b. Cross-sectional