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) Answers at the end.

	1.	Macroeconomics is distinguished by its concentration on 
	A)	choices. 
	B)	individual markets. 
	C)	the level of prices in specific markets. 
	D)	abstract models. 
	E)	the performance of national economies and ways to improve upon the performance. 

	2.	If the marginal costs of 1, 2, and 3 hours of talking on the phone are $50, $75, and $105, then the total costs are 
	A)	$50, 125, and $230. 
	B)	$50, $150, and $315. 
	C)	impossible to calculate with information given. 
	D)	$50, $175, and $405. 
	E)	$50, $41.67, $115. 

	3.	Amy is thinking about going to the movies tonight to see Nutty Professor 2.  A ticket costs $7 and she will have to cancel her dog-sitting job that pays $30.  The cost of seeing the movie is 
	A)	$7. 
	B)	$30. 
	C)	indeterminate. 
	D)	$37 minus the benefit of seeing the movie. 
	E)	$37. 

4.	  The average benefit of an activity is the 
	A)	total benefit of the activity times the number of units. 
	B)	number of units times the total benefit of the activity. 
	C)	reciprocal of the total benefits of the activity. 
	D)	number of units divided by the total benefit of the activity. 
		E)   total benefit of the activity divided by the number of units.

Use the following to answer question 5:

	5.	The Dean of Finance at What'sAMatterU argues that the best number of fundraisers to hire is where average labor costs are the lowest.  This would mean __________ employee(s) and a net benefit of __________. 
	A)	1; $36,000 
	B)	1; $22,000 
	C)	2; $21,213 
	D)	1; $8,000 
	E)	2; $8,500 

Use the following to answer question 6:

Sharon, a marketing major, has an economics test and a finance test to take tomorrow and she has four hours tonight to allocate to studying the two subjects.  The data below show her scores on the two tests based on the time spend studying. (Hint: Studying economics for 0 hours means studying finance for 4 hours.)

                               4         3         2        1         0
                             Hours Spent Studying Finance
	6.	To efficiently allocate her 4 hours of study time, Sharon should seek to maximize the 
	A)	economics test score first and then the finance test score. 
	B)	difference in the two test scores. 
	C)	finance test score. 
	D)	combined test scores. 
	E)	economics test score. 

7.  	If Jane can produce 3 pairs of shoes hourly, while Bob can produce 2, then one can infer the __________ advantage belongs to __________. 
	A)	comparative; either, neither, or both; insufficient information to say 
	B)	absolute; Bob 
	C)	comparative; Jane 
	D)	comparative; both of them 
		E)   comparative; Bob

Use the following to answer question 8:
Smith and Jones comprise a two-person economy.  Their hourly rates of production are shown below.

	8.	By coordinating their production decisions, the maximum number of computers Smith and Jones can produce is 
	A)	6. 
	B)	100. 
	C)	10. 
	D)	16. 
	E)	120. 

	9.	Increased specialization in the production of goods: 
	A)	never increases net benefits. 
	B)	has benefits, but no costs. 
	C)	has costs, but no benefits. 
	D)	has costs and benefits. 
	E)	always increases net benefits. 

	10.	Assume both the demand and the supply of Athlon 700 Mhz processors increase. Which of the following outcomes is certain to occur? 
	A)	The equilibrium price of Athlon 700 Mhz processors will rise. 
	B)	Neither the equilibrium price nor the equilibrium quantity of Athlon 700 Mhz processors can be predicted. 
	C)	The equilibrium price of Athlon 700 Mhz processors will fall. 
	D)	The equilibrium quantity of Athlon 700 Mhz processors will fall. 
	E)	The equilibrium quantity of Athlon 700 Mhz processors will rise. 

	11.	A shift to either the left or right of a demand curve is called 
	A)	a movement along a demand curve. 
	B)	a change in quantity supplied. 
	C)	a change in quantity demanded. 
	D)	a change in supply. 
	E)	a change in demand. 

	12.	Assume both the demand and the supply of 128 MB memory chips decrease. Which of the following outcomes is certain to occur? 
	A)	The equilibrium price of 128 MB memory chips will fall. 
	B)	The equilibrium price of 128 MB memory chips will rise. 
	C)	The equilibrium quantity of 128 MB memory chips will fall. 
	D)	Neither the equilibrium price nor the equilibrium quantity of 128 MB memory chips can be predicted. 
	E)	The equilibrium quantity of 128 MB memory chips will rise. 
	13.	Based on the discussion in the textbook, electricity would be classified as a 
	A)	requirement. 
	B)	luxury. 
	C)	want. 
	D)	necessity. 
	E)	need. 

	14.	According to the textbook, the distinction among necessities, wants, and luxuries is 
	A)	true; it is easy to reach agreement on how to classify items. 
	B)	clear for necessities versus wants. 
	C)	clear and objective. 
	D)	clear for necessities versus luxuries. 
	E)	false; the vast majority of goods and services are wants. 

	15.	If the absolute value of the percent change in quantity demanded is larger than the absolute value of the percent change in price, demand is classified as 
	A)	elastic. 
	B)	perfectly inelastic. 
	C)	perfectly elastic. 
	D)	unit elastic. 
	E)	inelastic. 

Problem (45 Points)
Althought the numbers are different, this problem is solved in the same manner as that in version C.  Look at that exam and use this one for practice.
The demand and supply curves for magic swords in Carvahall are given by the following equations 

P = 10 + 1/5 Q      _____________________________

Q = 100 – 5/2 P    _____________________________

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 magic swords?

     P = ________________________      Q = _________________________

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

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

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

f. The mayor of Carvahall, Eragon, imposes an excise tax of $5 on magic swords. What are the new equilibrium price and 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.

Explain the case for the U.S. to sign the Central American Free Trade Agreement (CAFTA).  

As a result of free trade the US can specialize in those goods in which it has a comparative advantage.  It will then be able to trade with the other members of CAFTA and attain a point outside its production possibilities curve.
Answer Key

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