EC 202 Midterms

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and the price index was 180 in 2006, then what is the price of the 1970 bag of groceries in 2006 dollars? A. $37.11 B. $29.11 C. $25.00 D. $5.39

A. $37.11

In 2014, a farmer grows and sells $3 million worth of corn to Big Flakes Cereal Company. Big Flakes Cereal Company produces $8 million worth of cereal in 2014, with sales to households during the year of $7 million. The unsold $1 million worth of cereal remains in Big Flake Cereal Company's inventory at the end of 2014. The transactions just described contribute how much to GDP for 2014? A. $8 million B. $7 million C. $3 million D. $11 million

A. $8 million

The market for gluten-free bread is represented in the graph. When the market is in equilibrium, consumer surplus is A. $80. B. $160. C. $240. D. $320.

A. $80.

The fixed basket of goods contains 200 cans of soda and 100 pizzas. The base year is 2014, and the prices for soda and pizza are given below. Refer to the table above. What is the inflation rate for 2016? A. 17.6% B. 16.25% C. 8.75% D. 7.5%

A. 17.6%

Refer to the same figure. If the per-unit tax is placed on the good in the market, the consumer surplus is the area _____ and the producer surplus is the area ____, respectively. A. A; D. B. A + B + C; D + E + F. C. D; C. D. E; F.

A. A; D.

Pens are normal goods. What will happen to the equilibrium price of pens if the price of pencils rises, consumers experience an increase in income, writing in ink becomes fashionable, people expect the price of pens to rise in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-makers increase? A. Price will rise. B. Price will fall. C. Price will stay exactly the same. D. The price change will be ambiguous.

A. Price will rise.

In mathematics, we have log(1+x) ≈ x, when x is close to zero. If GDP2 and GDP1 represent this year's GDP and last year's GDP. What is the economic interpretation of log(GDP2) - log(GDP1)? (log is the natural logarithm, and log(a) - log(b) = log(a/b)) A. The growth rate of GDP B. The GDP deflator C. Inflation rate of GDP deflator D. None of above

A. The growth rate of GDP

A German citizen buys an automobile produced in the United States by a Japanese company. As a result, A. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected. B. U.S. net exports and GDP are unaffected, Japanese GNP increases, and German net exports, GNP, and GDP decrease. C. U.S. net exports increase, U.S. GDP is unaffected, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected. D. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, German GNP is unaffected, and German GDP decreases.

A. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected.

An advance in technology would shift the A. supply curve to the right. B. supply curve to the left. C. demand curve to the right. D. demand curve to the left.

A. supply curve to the right.

Refer to Figure. Note that the lines labeled "Demand" and "Social Value"are parallel. Also, the slopes of the lines on the graph reflect the following facts: (1) Private value and social value decrease by $1.00 with each additional unit of the good that is consumed, and (2) private cost increases by $1.40 with each additional unit of the good that is produced. Thus, when the 59th unit of the good is produced and consumed, social wellbeing increases by A. $36.00. B. $33.60. C. $31.40. D. $28.00.

B. $33.60.

Ronnie operates a lawn-care service. On each day, the cost of mowing the first lawn is $15, the cost of mowing the second lawn is $25, and the cost of mowing the third lawn is $40. His producer surplus on the first three lawns of the day is $100. If Ronnie charges all customers the same price for lawn mowing, that price is A. $20. B. $60. C. $80. D. $180.

B. $60.

AA Appliances sells refrigerators. In 2015 it added $100,000 to its inventory. $10,000 of this addition was from used refrigerators, and the remaining $90,000 was from their purchases of newly manufactured refrigerators. How much of AA's inventory is included in 2015 GDP? A. $100,000 B. $90,000 C. $10,000 D. $0

B. $90,000

Which of the following is not an example of the free rider problem? A. A student working on a group project puts forth minimal effort because the team will receive a team grade rather than individual grades. B. A park ranger takes a nap in his car because his boss is working hundreds of miles away and will never know about the nap. C. Tim attends a neighborhood party with live music; the other neighbors have paid $5 each to give to the local band members, but Tim does not pay. D. Shannon catches a ride to a volleyball game with her friends but does not offer to pay for gas.

B. A park ranger takes a nap in his car because his boss is working hundreds of miles away and will never know about the nap.

A stairwell in a certain office building is always congested at 12:00 p.m. and 1:00 p.m. The congestion is so bad that people have been complaining to the building's owner. Which of the following methods would be the most efficient way of reducing congestion? A. Assign each person in the building a time when they are allowed to use the stairwell. B. Charge everyone who uses the stairwell when it is congested the same fee. People who value the use of the stairs the most will be the ones who use the stairwell at peak times. C. Encourage people to voluntarily keep off the stairwell during peak times. D. Hold a lottery to determine who wins the right to use the stairwell at peak times.

B. Charge everyone who uses the stairwell when it is congested the same fee. People who value the use of the stairs the most will be the ones who use the stairwell at peak times.

The diagram below pertains to the demand for turkey in the United States. All else equal, buyers expecting turkey to be more expensive in the future would cause a current move from A. DA to DB. B. DB to DA. C. x to y. D. y to x.

B. DB to DA.

For an imaginary economy, the consumer price index was 80 in 2014, 100 in 2015, and 140 in 2016. Which of the following statements is correct? A. If the basket of goods that is used to calculate the CPI cost $40 in 2014, then that basket of goods cost $60 in 2015. B. If the basket of goods that is used to calculate the CPI cost $25 in 2015, then that basket of goods cost $35 in 2016. C. The overall level of prices increased by 60 percent between 2014 and 2016. D. All of the above are correct.

B. If the basket of goods that is used to calculate the CPI cost $25 in 2015, then that basket of goods cost $35 in 2016.

Refer to the graph. If the price falls from P2 to P1, area B represents the A. total increase in consumer surplus. B. additional consumer surplus to initial consumers. C. consumer surplus to new consumers. D. additional producer surplus to initial producers.

B. additional consumer surplus to initial consumers.

Consider the market for portable air conditioners in equilibrium. When a heat wave strikes the equilibrium price A. and quantity both decrease. B. and quantity both increase. C. increases, and the equilibrium quantity decreases. D. decreases, and the equilibrium quantity increases.

B. and quantity both increase.

In the 1960s, the lobstering community of Port Lincoln on Australia's southern coast set a limit on the number of traps that could be set and then sold licenses for those traps. Since then, any newcomer could enter the business only by buying a license from another lobsterman. This government intervention in the lobster market caused an A. increase in economic efficiency because of the existence of a positive externality. B. increase in economic efficiency because of the existence of a common-resource problem. C. decrease in economic efficiency because of the existence of a free-rider problem. D. decrease in economic efficiency because of the existence of a common-resource problem.

B. increase in economic efficiency because of the existence of a common-resource problem.

This graph illustrates the market for gluten free chocolate cake. If the current price is $30 per cake (price on graph at equilibrium is $40), we expect the A. price to decrease due to the surplus of cake. B. price to increase due to the shortage of cake. C. supply to shift right until the equilibrium price is $30. D. demand to shift left until the equilibrium price is $30.

B. price to increase due to the shortage of cake.

Refer to the graph. If the government imposes a price ceiling of $55 in this market, then total surplus will be A. $187.50. B. $125.00. C. $250.00. D. $266.67.

C. $250.00.

Suppose you inherit an antique doll from your Great Aunt Sadie. The doll has a sentimental value of $100 to you. Jane is a collector who is willing to pay $800 for your doll. If you sell the doll to Jane for $600, your producer surplus is ___ and Jane's consumer surplus is _____, respectively: A. $800, $800. B. $700, $900. C. $500, $200. D. $200, $700.

C. $500, $200.

Refer to Table 1. If the market price of an apple is $1.40, then the market quantity of apples demanded per day is A. 1. B. 2. C. 3. D. 4.

C. 3.

In July 1988 the price of postage stamps was 32 cents and the CPI was 118.5. In July 2015 the price of postage stamps was 44 cents and the CPI was 237.7. What was the real value in 2015 prices of postage stamps in 1988? A. 79.6 cents B. 68.6 cents C. 64.2 cents D. 37.9 cents

C. 64.2 cents

The consumer price index was 200 in 2008 and 190 in 2009. The nominal interest rate during this period was 4.5 percent. What was the real interest rate during this period? A. - 0.75 percent B. - 0.5 percent C. 9.5 percent D. 9.75 percent

C. 9.5 percent

Suppose a tax of $2 per unit is imposed on this market. Which of the following is correct? A. One-fourth of the burden of the tax will fall on buyers, and three-fourths of the burden of the tax will fall on sellers. B. One-third of the burden of the tax will fall on buyers, and two-thirds of the burden of the tax will fall on sellers. C. One-half of the burden of the tax will fall on buyers, and one-half of the burden of the tax will fall on sellers. D. Two-thirds of the burden of the tax will fall on buyers, and one-third of the burden of the tax will fall on sellers.

C. One-half of the burden of the tax will fall on buyers, and one-half of the burden of the tax will fall on sellers.

Which of the following statements is correct? A. Environmental degradation is an example of a free rider problem.. B. The division between public goods and common resources is clear-cut. C. Some goods, such as lighthouses, may be either private or public goods. D. The free-rider problem prevents governments from supplying public goods.

C. Some goods, such as lighthouses, may be either private or public goods.

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct? A. The equilibrium quantity of MBAs will be greater than the socially optimal quantity of MBAs. B. The equilibrium quantity of MBAs will be less than the socially optimal quantity of MBAs. C. The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs. D. There is not enough information to answer the question.

C. The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs.

Refer to Figure. The social optimum can be reached if A. a tax of $23 is applied to each unit of the good. B. a tax of $15 is applied to each unit of the good. C. a subsidy of $36 is applied to each unit of the good. D. a subsidy of $23 is applied to each unit of the good.

C. a subsidy of $36 is applied to each unit of the good.

Refer to the figure. Which of the following would improve economic efficiency in the market? A. a subsidy equal to P1 - P3, the size of the marginal external benefit B. a subsidy equal to P0 - P4, the size of the marginal external benefit C. a tax equal to P1 - P3, the size of the marginal external cost D. a tax equal to P0 - P4, the size of the marginal external cost

C. a tax equal to P1 - P3, the size of the marginal external cost

The market for gluten-free breakfast cereal is shown in the graph above. Suppose the government enacts a $2 tax per unit, imposed on the sellers. The policy will cause: A. the equilibrium price of gluten-free breakfast cereals to rise by $2. B. buyers to bear a higher burden of the tax than sellers. C. buyers and sellers to each bear a $1 burden of the tax. D. a shortage of gluten-free breakfast cereals.

C. buyers and sellers to each bear a $1 burden of the tax.

Refer to Table 1. If the market price of an apple increases from $1.40 to $1.60, then consumer surplus A. decreases by $0.15. B. decreases by $0.30. C. decreases by $0.45. D. increases by $0.15.

C. decreases by $0.45.

A market is a A. series of equilibrium prices for a particular good or service. B. series of equilibrium quantities for a particular good or service. C. group of buyers and sellers of a particular good or service. D. graph of the relationship between the price and quantity of a particular good or service.

C. group of buyers and sellers of a particular good or service.

The deadweight loss from a tax A. reflects the fact that paying taxes reduces the purchasing power of income. B. measures the revenue raised by the tax plus the administrative costs of the tax. C. reflects the inefficiency in resource allocation because the tax distorts incentives. D. measures the administrative costs of collecting taxes, such as the salaries of tax collectors.

C. reflects the inefficiency in resource allocation because the tax distorts incentives.

Other prices the same, an increase in the price of French wine would increase A. both the GDP deflator and the CPI. B. the GDP deflator but not the CPI. C. the CPI but not the GDP deflator. D. neither the GDP deflator nor the CPI.

C. the CPI but not the GDP deflator.

The market for gluten-free breakfast cereal is shown in the graph. The after-tax price paid by buyers and price received by sellers are, respectively, A. $4.00 $6.00 B. $5.00 $6.00 C. $6.00 $5.00 D. $6.00 $4.00

D. $6.00 $4.00

Refer to the same graph. If the government imposes a price floor of $55 in this market, then total surplus will be A. $100.00 higher than it would be without the price floor. B. $50.00 lower than it would be without the price floor. C. $125.00 lower than it would be without the price floor. D. $62.50 lower than it would be without the price floor.

D. $62.50 lower than it would be without the price floor.

In the class, we talked about continuous compounding, that is suppose the nominal interest rate is i, if you deposit $100 into a bank account, you will receive $100*(e^i)after one year, $100*(e^2i ) after two year. And this is the reason that Fisher equation is an exact equality. Inflation rate is 𝜋, after two years, suppose inflation rate is also continuous. What is the real balance on your account? A. 100*e^(i- 𝜋) B. 100*e^(2i- 𝜋) C. 100*e^(i- 2𝜋) D. 100*e^(2i- 2𝜋)

D. 100*e^(2i- 2𝜋)

In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 70 in 1980, and 130 in 1990, then in real terms, Professor Plum's salary was highest in A. 1970 and lowest in 1980. B. 1970 and lowest in 1990. C. 1980 and lowest in 1970. D. 1980 and lowest in 1990.

D. 1980 and lowest in 1990.

Kristi and Rebecca sell lemonade on the corner for $0.50 per cup. It costs them $0.10 to make each cup. On a certain day, their producer surplus is $20. How many cups did Kristi and Rebecca sell? A. 40. B. 200. C. 8. D. 50.

D. 50.

Suppose buyers of vodka are required to send $5.00 to the government for every bottle of vodka they buy. Further, suppose this tax causes the effective price received by sellers of vodka to fall by $3.00 per bottle. Which of the following statements is correct? A. This tax causes the demand curve for vodka to shift downward by $5.00 at each quantity of vodka. B. The price paid by buyers is $2.00 per bottle more than it was before the tax. C. Sixty percent of the burden of the tax falls on sellers. D. All of the above are correct.

D. All of the above are correct.

Refer to the figure. If the per-unit tax is placed on the good in the market, the deadweight loss is the area A. B + C B. B + C + E + F C. A + B + C + D D. E + F

D. E + F

Wally owns a dog whose barking annoys Wally's neighbor, Corrine. Suppose that the benefit of owning the dog is worth $700 to Wally and that Corrine bears a cost of $500 from the barking. Assuming Wally has the legal right to keep the dog, a possible private solution to this problem is that A. Wally pays Corrine $600 for her inconvenience. B. Corrine pays Wally $400 to give the dog to his parents who live on an isolated farm. C. Corrine pays Wally $550 to give the dog to his parents who live on an isolated farm. D. The current situation is efficient.

D. The current situation is efficient.

What will happen to the equilibrium price of new textbooks if more students attend college, paper becomes cheaper, textbook authors accept lower royalties, and fewer used textbooks are sold? A. Price will rise. B. Price will fall. C. Price will stay exactly the same. D. The price change will be ambiguous.

D. The price change will be ambiguous.

GA wind farm in Iowa buys a large turbine generator from a Swedish-owned factory located in Connecticut that uses workers who live in Connecticut. As a result, A. U.S. investment, GDP, and GNP all increase by the same amount. B. U.S. investment increases, but GDP and GNP are unaffected by the purchase. C. U.S. investment and GNP increase by the same amount, but U.S. GDP increases by a smaller amount. D. U.S. investment and GDP increase by the same amount, but U.S. GNP increases by a smaller amount.

D. U.S. investment and GDP increase by the same amount, but U.S. GNP increases by a smaller amount.

Which of the following is an example of the law of demand? A. A technological innovation enables ABC Medical Company to produce more bloodsugar meters at every price. B. When the price of bagels rises, Bloomington Bagel Company is willing to sell more bagels. C. As the temperature rises, consumers purchase more lemonade. D. When tuition at State U rises, fewer students enroll in courses at State U.

D. When tuition at State U rises, fewer students enroll in courses at State U

The CPI overstates the increase in the cost of living because: A. it doesn't take into account that consumers substitute toward goods that become relatively cheaper. B. it doesn't take into account the introduction of new goods that allow consumers access to a greater variety of goods . C. it doesn't take into account improvements in the quality of goods in the market basket. D. all of the above are correct.

D. all of the above are correct.

Rent controls cause A. shortages of apartments in both the short run and long run of similar magnitudes. B. surpluses of apartments in both the short run and long run of similar magnitudes. C. shortages of apartments which are larger in the short run than in the long run. D. shortages of apartments which are larger in the long run than in the short run.

D. shortages of apartments which are larger in the long run than in the short run.

The most efficient pollution control system would ensure that A. regulators decide how much each polluter must reduce its pollution. B. no new pollution of the environment be allowed. C. each polluter reduce its pollution an equal amount. D. those polluters with lowest cost of pollution abatement reduce their pollution most.

D. those polluters with lowest cost of pollution abatement reduce their pollution most.

Suppose you know the value of the consumer price index (CPI) in year 1 as well as the inflation rate in year 2. Which of the following equations is valid for the CPI in year 2?

Look at test for this one. Could not copy and paste it.