Temple University
Department of Economics
Economics 52: Principles of Microeconomics
Name ________________________________________
Directions: This is a closed book exam and it is to be your own work. You may neither give nor receive help on this exam. You must complete all parts and questions. You have 50 minutes to complete the exam.
Multiple Choice (40 points)
1. A profit maximizing perfectly competitive firm must decide
A) both what price to charge and how much to produce.
B) only on how much revenue it wishes to collect.
C) only on which industry to join, taking price and output as fixed.
D) only on what price to charge, taking output as fixed.
E) only on how much to produce, taking price as fixed.
2. The efficient-markets hypothesis states that
A) all markets produce an efficient outcome.
B) it is efficient to buy low and sell high.
C) most of the relevant information about a company's current and future earnings prospects is embodied in its stock price.
D) production is always technically efficient.
E) all relevant information about a company's current and future earnings prospects is embodied in its stock price.
3. Marginal utility is defined as the
A) total utility gained by consuming an extra unit of a good.
B) change in quantity divided by the change in utility.
C) average utility gained by consuming an average amount of the good.
D) total utility from all units consumed of a good.
E) extra utility gained by consuming an extra unit of a good.
4. Economic profit is the
A) difference between total revenues and total explicit and implicit costs.
B) ratio of total revenues to total costs.
C) goal of only large firms.
D) difference between total revenues and total explicit costs.
E) difference between total costs and total revenues.
5. The law of diminishing marginal returns
A) applies only to large firms.
B) applies only to small and medium sized firms.
C) is a long run concept.
D) is a short run concept.
E) is a short and long run concept.
Use the following to answer questions 6-8:
|
|
||
| Tot Quantity | Revenue | |
| 35 | 105 | |
| 26 | 104 | |
| 19 | 95 | |
| 14 | 84 | |
| 11 | 77 |
6. Market demand for coffee at a price of $5 is
A) 19 units.
B) 35 units.
C) 26 units.
D) 11 units.
E) 14 units.
7. If the price of coffee increases from $6 to $7, total revenues _________, suggesting market demand is ________.
A) remain constant; unit elastic
B) increase; elastic
C) decrease; inelastic
D) increase; inelastic
E) decrease; elastic
8. If the price of coffee increases from $5 to $6,
A) total expenditures for coffee rise.
B) consumers purchase more coffee.
C) total revenues to coffee producers fall.
D) total expenditures on coffee do not change.
E) producers will sell more.
Use the following to answer questions 9-11:
Figure 7.4
9. Assume that the market is initially unregulated. The efficient outcome is represented by the distances ______ for quantity and ______ for price.
A) 0Qb; 0M
B) 0Qa; 0X
C) 0Qc; 0V
D) 0Qa; 0Z
E) 0Qb; 0V
10. The deadweight loss due to the price floor is represented by the points
A) XMN.
B) NLW.
C) WRP.
D) LTW.
E) VYT.
11. Assume that a price floor is imposed at point V, i.e., the price is now represented by the distance 0V. The distance ______ measures the extent of the __________.
A) QbQc; surplus
B) ZW; deadweight loss
C) VR; surplus
D) TR; shortage
E) MN; shortage
12. Economic profits
A) are always greater than accounting profits.
B) serve to motivate entry or exit.
C) equal accounting profits plus implicit costs.
D) have no relationship to accounting profits.
E) include only explicit costs.
13. Suppose one knows two facts: the market for automobile tires experiences chronic shortages and the government sets the price of automobile tires. One can infer
A) government has established a price floor for tires.
B) government has established a price ceiling for tires.
C) the quantity of tires supplied exceeds the quantity of tires demanded.
D) government is trying to protect the incomes of tire manufacturers.
E) demand for tires exceeds the supply of tires.
14. When either the costs of production or the benefits of consumption to individuals differ from those of society,
A) government regulation is the only solution.
B) the invisible had had completely failed.
C) the equilibrium is not efficient.
D) the allocation of resources remains correct.
E) the equilibrium is still efficient.
Use the following to answer questions 15-16:
|
||
| 240-50-9*14 = 64 | ||
15. The firm earns a ___________ of __________ when it produces 120 units of output.
A) profit; $54
B) loss; -$64
C) profit; $114
D) profit; $64
E) loss; -$114
16. The firm earns a ___________ of __________ when it produces 200 units of output.
A) profit; $10
B) loss; -$28
C) loss; -$78
D) profit; $78
E) profit; $28
17. A share of IBM stock is a(n)
A) asset to IBM.
B) riskless asset.
C) liability to the stockholder.
D) claim to a fraction of the current and future economic profits of IBM.
E) claim to a fraction of the current and future accounting profits of IBM.
Use the following to answer questions 18-19:
Figure 7.2
18. Based on demand curve D1 and supply curve S, the dollar value of the total economic surplus is
A) $643.50.
B) $700.
C) $600.
D) $607.50
E) $630.
19. Based on demand curve D and supply curve S, the dollar value of the consumer surplus is
A) $200.
B) $180.
C) $120.
D) $160.
E) $240.
20. For two goods, A and B, the rational spending rule is expressed as
A) PA = PB.
B) (MUA / PA) = (MUB / PB).
C) (MUA / MUB) = (PB / PA).
D) MUA = MUB.
E) (MUA / PB) = (MUB / PA).
Problem (30 points)
Julie Yard has determined that the market demand and supply curves for her firm’s plastic patio furniture are given by
P = 50 and P = 10+0.2Q
a. Write the demand curve here: ____P=50_________________
b. What is the equilibrium price: ____50_______________________
c. What is the equilibrium quantity? ____200_________________
d. At the equilibrium price and quantity, what is consumer surplus?____0___________________
e. At the equilibrium price and quantity, what is producer surplus? ________(1/2)(50-10)(200) = 4000________________
f. Suppose that an excise tax of $10 is collected from buyers. What are the new equilibrium price and quantity? The consumer WAS willing to pay $50. With a $10 tax they now are willing to pay the vendor only $40.
P = _________$40___________________ Q = __________150_______________
g. After the tax what is producer surplus? ___(1/2)(40-10)(150) = 2250___________
h. How much tax revenue is collected?
150*10 = 1500
i. What is deadweight loss attributable to the tax?
4000 - 2250 - 1500 = 250
Essay (30 points)
Define and illustrate the allocative and rationing functions of price. After reading your answer the reader should be able to distinguish the two functions of price.
Price serves as a rationing mechanism by distributing goods to those who value them most highly. Those whose reservation price is below the market price will not buy; those whose reservation price is above the market price will buy. If for some reason price were too low then rationing would have to occur by some mechanism other than price. Examples you might use, with some elaboration: baseball trading cards, exotic cars, 3 folks at a garage sale bidding for a clock.
The allocative role of price is to induce economic agents to redistribute resources from over-served to underserved markets. Examples, after elaboration: A new video display technology, butchers and bakers, absence of City Blue urban wear stores in Wyoming.