Temple University
Department of Economics

Economics 52: Principles of Microeconomics

Name _________________________________

Directions: You have 50 minutes to complete all parts of this exam.  This is a closed book exam.  All work must be your own.  You may neither give nor receive help. You may not use your cell phone as a calculator.

Multiple Choice (30 points)

	1.	Joe has decided to purchase his textbooks for the semester. His options are to purchase the books via the Internet with next day delivery to his home at a cost of $250, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $245. Last week he drove to campus to buy a concert ticket because they offered 20 percent off the regular price of $20. 
	A)	It would not be rational for Joe to drive to campus to purchase the books because the $5 saving is only two percent of the cost of the books, and that is much less than the 20 percent he saved on the concert ticket. 
	B)	It would not be rational for Joe to drive to campus to purchase the books because the cost of gas and his time must certainly be more than the $5 he would save. 
	C)	It would be rational for Joe to drive to campus because the $5 saving is more than he saved by driving there to buy the concert ticket. 
	D)	There is insufficient information to determine whether it would be rational or not for Joe to purchase the books via the Internet or on campus. 
	E)	It would be rational for Joe to drive to campus because it costs less to buy the books there than via the Internet. 

2. 	If the total benefits of watching 1,2, and 3 baseball games on TV are 100, 120, and 125 then the marginal benefits are 
	A)	100, 240, and 375. 
	B)	100, 609, and 41.67. 
	C)	100,120, and 125. 
	D)	100, 10, and -30. 
	E)	100, 20, and 5. 

3. 	In general, it is true that 
	A)	specialization imposes costs as well as benefits. 
	B)	more specialization is always better. 
	C)	less specialization is always better. 
	D)	less specialization is always worse. 
		E)	more specialization is always worse.

Use the following to answer question 4:
Figure 1.1

	4.	The marginal benefit of adding the 10th shirt to one's wardrobe is 
	A)	0. 
	B)	$30. 
	C)	$45. 
	D)	$10. 
	E)	$75. 
	
Use the following to answer questions 5-6:
David finds he has one hour of time in the evening to allocate on the first day of the new semester.  He can do one of two things.  He can watch TV for one hour or he can open his economics textbook and read for an hour.  The benefit of watching TV is 30; the benefit of reading about economics is 20. 

	5.	The net benefit of reading about economics is 
	A)	20. 
	B)	30. 
	C)	0. 
	D)	-10. 
	E)	10. 

	6.	The net benefit of watching TV is 
	A)	30. 
	B)	-10. 
	C)	20. 
	D)	0. 
	E)	10. 
Use the following to answer question 7:

In many cities, discount clubs are popular.  For a fixed annual fee, one can purchase goods at 95% of their listed price; otherwise, one pays the list price.  Suppose that the fee is $100 and the interest rate is 10%.  Finally, assume the discount club's list prices are the same as any other store. 

	7.	Suppose the Jones family plans to spend $1000.  They __________ purchase the membership because __________. 
	A)	will; it seems like a good deal. 
	B)	will; the net benefit of membership is $60. 
	C)	will not; the net benefit of membership is -$50. 
	D)	will; the net benefit of membership is $50. 
	E)	will not; the net benefit of membership is -$60. 

	8.	At the individual level, comparative advantage results from: 
	A)	language differences. 
	B)	amount of resources available. 
	C)	differences in education or training. 
	D)	cultural differences. 
	E)	differences in natural resources. 

Use the following to answer question 9:

	9.	Based on their comparative advantages, Craig should specialize in producing __________ while Jenny should specialize in producing __________. 
	A)	neither; both 
	B)	both; neither 
	C)	pants; shoes 
	D)	pants; pants 
	E)	shoes; pants 

10.  	Which of the following will not cause a shift in the demand curve for Athlon processors? 
	A)	A decrease in the price of Athlon processors. 
	B)	An increase in the price of memory. 
	C)	A decrease in the price of motherboards. 
	D)	An increase in consumers' incomes. 
		E)   A decrease in the price of Pentium III processors.

Use the following to answer question 11:
Figure 4.4

	11.	Assume supply and demand both shift to the right so that D2 and S2 are now the relevant curves.  The new equilibrium occurs at a price of _______ and ______ units exchanged. 
	A)	$30; 70 
	B)	$30; 30 
	C)	$60; 20 
	D)	$60; 40 
	E)	$90; 50 

	12.	Nineteenth century economist Stanley Jevons argued the price of a good was determined by 
	A)	government decree. 
	B)	custom and tradition. 
	C)	the expense involved in producing it. 
	D)	its value to the supplier. 
	E)	its value to the consumer. 

	13.	Which of the following statements about total utility is false? 
	A)	Total utility can't be measured. 
	B)	At some point, the increase in total utility from consuming an extra unit begins to get smaller. 
	C)	The increase in total utility from the first unit consumed exceeds the increase from the second unit consumed. 
	D)	The increase in total utility from the second unit consumed exceeds the increase from the first unit consumed. 
	E)	Total utility increases as more units of a good are consumed. 

	14.	Which of the following statements is not an example of the law of demand? 
	A)	"The Internet has increased the amount of information I collect before making a purchase." 
	B)	"I think I'll wait to leave for work at 9:30 a.m. so that traffic is not so heavy." 
	C)	"The increase in apartment rents is causing me to consider renting out our spare bedroom." 
	D)	"The local record store has all their CD's on sale; I'm going to buy some right now." 
	E)	"With unemployment so high, I can't find a job.  I think I'll enroll at the local college." 

	15.	A university observes that when it raises the price of football tickets, total revenue from football games increases and when they lower ticket prices, total revenue falls. This suggests 
	A)	there are many good substitutes for college football games 
	B)	football fans act irrationally. 
	C)	the demand for tickets to football games must be elastic. 
	D)	the demand for tickets to football games is unit elastic. 
	E)	the demand for tickets to football games must be inelastic. 

Problem (45 Points)
The solution to this problem is just like that used in version C of the exam.  Go there and read that answer then use this one for practice.
Bermuda’s principal industry is tourism.  The island nation ‘exports’ sun, sand and surf to foreign countries by allowing foreigners to come to Bermuda for short stays.  The equations describing the demand for and supply of visits to Bermuda are

P = 20 + 2Q          __________________________________

Q = 100 – (3/2)Q  __________________________________

a. On the lines above indicate which equation is the demand curve and which is the supply curve.

b. What are the equilibrium price and quantity for visits to Bermuda?

P _______________________________   Q ______________________________

c.  What is the own price elasticity of demand at the equilibrium?

d.  Is the demand for trips ⁯ elastic or ⁯ inelastic (check one)?

e.  Calculate consumer surplus at the equilibrium price and quanity.

f.  An excise tax of $10 per visit is imposed on those coming to the island.  What are the new equilibrium price and quantity?

Price ____________________________   Quantity _________________________

g.  As a result of the tax, what do you expect to happen to consumer surplus? 

Essay (25 Points)  In addition to the content of your answer you will also be graded on spelling, grammar and syntax.  Also, if your writing is illegible then your answer will be considered non-responsive and you will receive no credit.

One of the authors of your textbook worked in Nepal with the Peace Corps. By any standard Nepal is a very poor country. He observed that the least skilled villager could perform a wide range of services that most Americans hire others to perform.  Are the Nepalese poor because they perform all of their own services, or do they perform all of their own services because they are poor?

The authors of your text might argue that the Nepalese are poor because they do not take advantage of the opportunities and benefits afforded by specialization.  If everyone tries to be a jack-of-all-trades then no specialization can occur and aggregate output will be below that which can be achieved through specialization along the lines of comparative advantage.

There is, however, a consideration of the size and complexity of the market.  In a small mountain village there might not be sufficient demand for certain commodities to make it worth specializing in their production.   
Answer Key

	1.	C	
	2.	E	
	3.	A
	4.	E
	5.	D	
	6.	E	
	7.	A	
	8.	C	
	9.	C	
	10.	A
	11.	E
	12.	E	
	13.	D	
	14.	C	
	15.	E