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| 1 | |
If the government put a tax on shelter and then lowered the income tax, how would that be shown using a budget line model? Put shelter on the horizontal axis and the composite good on the vertical axis. |
| | A) | The budget line would shift parallel to the right because of the tax on X and then rotate counterclockwise because of the income tax reduction. |
| | B) | The budget line would shift parallel to the left because of the tax on X and then rotate clockwise because of the income tax reduction. |
| | C) | The budget line would rotate counterclockwise because of the tax on X and then shift parallel to the right because of the income tax reduction. |
| | D) | The budget line will rotate clockwise because of the tax on X and then shift parallel to the right because of the income tax reduction. |
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| 2 | |
If Scott's demand curve for theater tickets is P = 100 – 5Q and the price of the ticket is 40, how much consumer surplus does Scott receive from buying theater tickets? |
| | A) | 360 |
| | B) | 480 |
| | C) | 40 |
| | D) | 1000 |
| | E) | None of the above. |
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| 3 | |
In question 5-2 above, If the theater was giving away tickets on a first come first serve basis instead of charging admission, and if Scott's time was worth 100 units of consumer surplus pleasure per hour, how many hours would Scott be willing to wait in line for free tickets if he was assured of getting the number he wanted from the wait. Assume there is no limit on the amount of tickets he can have when he gets to the ticket window. |
| | A) | 3.6 hours |
| | B) | 4 hours |
| | C) | 10 hours |
| | D) | no hours |
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| 4 | |
The upward bias of the consumer price index would not exist if |
| | A) | people consumed the same market basket no matter what the relative prices of the goods. |
| | B) | All consumers made market choices as rational choice optimizers. |
| | C) | The second year market basket rather than the first year market basket was used as the base. |
| | D) | All goods were used in the market basket instead of just a limited selection of consumer items. |
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| 5 | |
(For simplicity the passenger numbers in the following story are reduced by five zeros.) On May 13, 1999 the US government accused American Airlines of cutthroat competition. On May 14 the Chicago Tribune listed rates and passenger numbers for three cities. Before the low-cost carriers entered the Dallas-Colorado Springs route, American charged $156 and had 37 passengers. When the competition came into the market, the fare was $88 and 199 passengers traveled the route on all carriers. After the small carriers went bankrupt the rates went back to $133 and 92 people bought tickets. Given this information we can say that the elasticity of demand for air travel between Dallas and Colorado Springs is very nearly a straight line with a vertical intercept of approximately _____ and a slope of approximately ______. |
| | A) | 156, 3.7 |
| | B) | 200, .16 |
| | C) | 140, .25 |
| | D) | 171, .4 |
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| 6 | |
From the information given in question 5-5 above, the elasticity over the entire specified range of the demand function is |
| | A) | elastic. |
| | B) | inelastic. |
| | C) | unitary |
| | D) | not possible to discern from the information given. |
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| 7 | |
From the information given in question 5-5 above, which of the three alternative prices would be the best for American Airlines if it were the only airline flying the route? |
| | A) | $156 |
| | B) | $88 |
| | C) | $133 |
| | D) | The answer cannot be determined from the information given. |
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| 8 | |
The intertemporal tradeoff function drawn below shows two years with the incomes of those years given. Borrowing and saving is possible. Sam and Joe have identical incomes shown as 100 in year one and 110 in year 2. The following two questions relate to the graph.  <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0078021693/236468/chap05_1.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (4.0K)</a>]]>
From the information given, what should be the numerical value of X rounded to the nearest whole number? |
| | A) | 200 |
| | B) | 210 |
| | C) | 221 |
| | D) | 199 |
| | E) | 190 |
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| 9 | |
Given the intertemporal preferences of Joe and Sam in question 5-8, we can say that |
| | A) | Joe is more patient than Sam and Joe would not seek to borrow. |
| | B) | Sam would like to borrow but Joe does not want to lend money. |
| | C) | Neither Joe nor Sam is willing to save. |
| | D) | The interest rate in this community of two people is likely to go up. |
| | E) | All of the above are true. |
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| 10 | |
Studies in the price elasticity of alcohol indicate that |
| | A) | Addictive products are very price inelastic. |
| | B) | The income effect of a price increase does reduce alcohol consumption. |
| | C) | There is no substitution effect when the alcohol price changes. |
| | D) | Price elasticity is positive because the income effect discourages people making them more alcohol dependent. |
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| 11 | |
Which product is likely to have the most elastic demand? |
| | A) | toothpicks |
| | B) | the cholesterol lowering drug Lipitor |
| | C) | your textbook |
| | D) | Ford Focus sedan |
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| 12 | |
What is the amount of consumer surplus reaped by the consumer in the graph below when the consumer faces the price of 6? <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0078021693/236468/chap05_2.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (3.0K)</a>]]>
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| | A) | 90 |
| | B) | 120 |
| | C) | 60 |
| | D) | 30 |
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| 13 | |
Jill optimizes her utility with a given income level as she faces a given set of relative prices for goods X and Y in year 1. Then in year 2 the price of good X rises and the price of good Y falls. However, she is still able to purchase the exact same bundle of goods that she purchased in year 1 after which her money is gone. Which of the following statements is definitely true? |
| | A) | Jill cannot be made better off in year 2 but she could not be worse off either. |
| | B) | Jill could be better off in year two if she adjusted her market basket somewhat. |
| | C) | Jill will be worse off in year 2 if she picks any other market basket but the one from year 1. |
| | D) | It is impossible to answer this question unless the amount of the price changes is known. |
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| 14 | |
You run a health club and all your customers have the demand curve P = 100 – 2Q. If your marginal costs of providing the club benefits are 50 and you price at marginal cost, what would be the maximum club membership fee you could charge to extract all the welfare you could possibly get. |
| | A) | 625 |
| | B) | 1250 |
| | C) | 2500 |
| | D) | 3750 |
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| 15 | |
In the case of the Cornell faculty educational benefit described in the text, the administration did not take into account the fact that |
| | A) | faculty children see the Cornell education as an normal good. |
| | B) | Faculty children have an inelastic demand for an education at other colleges. |
| | C) | Faculty children have an elastic demand for an education at other colleges. |
| | D) | There is no consumer surplus generated for faculty children if they pay the full tuition at a college different from Cornell. |
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| 16 | |
If a person earns M1 this year and M2 next year and the interest rate is denoted by the letter i, what is the formula for the present value of both incomes? |
| | A) | M1(1 + i)/M2 |
| | B) | (M1 + M2)/i |
| | C) | M1(i) + M2(i) |
| | D) | M1 + M2/(1 + i) |
| | E) | None of the above |
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| 17 | |
A person willing to forego 100 dollars today in order to receive 100 next year is said to have a |
| | A) | negative time preference. |
| | B) | positive time preference. |
| | C) | neutral time preference. |
| | D) | irrational time preference. |
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| 18 | |
Which statement is false? |
| | A) | The September 11 tragedy would most likely cause the time preference of Americans to become more positive or less negative if it were originally negative. |
| | B) | If I increasingly seek to keep up with my neighbors, the Jones', my time preference will likely become more positive or less negative if it were originally negative. |
| | C) | A persuasive preacher who preaches against materialism regularly will likely cause the time preference of his parishioners to become more positive or less negative if it were originally negative. |
| | D) | None of the above statements are false. |
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| 19 | |
A graph has current income on the horizontal axis and future income on the vertical axis. Which statement is true from the graphical perspective? |
| | A) | If the budget line is relatively steep and the indifference curve of the consumer is relatively flat, then the consumer is patient and the interest rate is relatively high. |
| | B) | If the budget line is relatively flat and the indifference curve of the consumer is relatively steep, then the consumer is patient and the interest rate is relatively high. |
| | C) | A steep indifference curve will tend to lead to less current consumption. |
| | D) | None of above is true. |
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| 20 | |
Milton Friedman's concept of permanent income refers to |
| | A) | the future value of all present income. |
| | B) | the economic position of a person in the community. |
| | C) | the present value of all future income. |
| | D) | the amount of one's present income that is transferred to the future via savings. |
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