Temple University
Department of Economics
Economics 52
Fall 2006
2nd  Exam

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

Name___________________________________
 
MULTIPLE CHOICE (32 points).  Choose the one alternative that best completes the statement or answers the question. 
Use the figure for the question(s) below.

1) 

The figure above represents 

1) 

_______ 
A) 

a change in neither the slope nor the intercepts. 
B) 

a change in the Y-intercept only. 
C) 

a change in the slope only. 
D) 

a change in both the X- and Y-intercepts. 
E) 

a change in the Y-intercept and the slope. 

 
2) 

An economy which has been moving from a centrally planned to a market economy is called a(n) 

2) 

_______ 
A) 

communist economy. 
B) 

churn economy. 
C) 

transition economy. 
D) 

mobile economy. 
E) 

market-based economy. 

 
3) 

Economics is the study of 

3) 

_______ 
A) 

how to make money. 
B) 

banks and interest rates. 
C) 

how scarce resources are allocated among competing uses. 
D) 

allocating unlimited resources among limited uses. 
E) 

how to find the highest-paying job. 

 
4) 

Where are you most likely to find normative statements? 

4) 

_______ 
A) 

An almanac 
B) 

The front page of a major daily newspaper 
C) 

A dictionary 
D) 

An encyclopedia 
E) 

The editorial page of a major daily newspaper 

 
5) 

In analyzing the sales of a retail store, which are plausible dependent and independent variable combination? 

5) 

_______ 
A) 

Last month's sales are independent and store square footage is dependent. 
B) 

Customer traffic is independent and advertising is dependent. 
C) 

Distance from a major highway is independent and utility expense is dependent. 
D) 

Advertising expense is independent and quantity demanded is dependent. 
E) 

Quantity demanded is independent and advertising expense is dependent. 

 
6) 

Applied economists 

6) 

_______ 
A) 

have a better reputation than theoretical economists. 
B) 

do not work for governments. 
C) 

do not rely on the work of theoretical economists. 
D) 

often work for large businesses and government. 
E) 

use different assumptions than theoretical economists.  

 
7) 

The three major topics macroeconomics analyzes are 

7) 

_______ 
A) 

stocks, bonds, and bank interest rates. 
B) 

overall employment, inflation, and economic growth. 
C) 

mutual funds, government debt obligations, and Treasury bills. 
D) 

the federal budget, taxes, and government spending. 
E) 

international trade, inflation, and consumption. 

 
8) 

Which is an example of a question economics analyzes? 

8) 

_______ 
A) 

Should the government use its funding to build a new highway or purchase more military airplanes? 
B) 

Why do resources exist? 
C) 

Should I spend my morning watching TV or taking a math class? 
D) 

A and C are both correct. 
E) 

None of the above is correct. 

 
9) 

The general process employed by the scientific method is 

9) 

_______ 
A) 

making assumptions, formulating a hypothesis, and testing the hypothesis. 
B) 

formulating a hypothesis, finding assumptions consistent with the hypothesis, and then testing the hypothesis. 
C) 

finding data, developing a hypothesis consistent with the data, and then testing the hypothesis. 
D) 

making assumptions, testing the hypothesis, and then testing the assumptions. 
E) 

making assumptions, testing the assumptions, and then testing the hypothesis. 

 
10) 

A centrally planned economy is one in which 

10) 

______ 
A) 

the government, rather than the market, allocates resources. 
B) 

the market, rather than government, allocates resources. 
C) 

the central marketplace, usually in the capital city, is used to allocate resources. 
D) 

the central boards of major corporations plan the economy. 
E) 

tradition, rather than the market, guides resource allocation. 

 
11) 

Normative economic analysis 

11) 

______ 
A) 

requires that the observer examine all possible aspects of the issue. 
B) 

requires that the observer make moral or ethical judgments. 
C) 

is irrelevant to good decision-making. 
D) 

is often at odds with positive analysis. 
E) 

has nothing to do with ethics. 

 
12) 

Many economic consultants work 

12) 

______ 
A) 

with the government or large corporations. 
B) 

for consulting companies. 
C) 

for organizations that do not have a staff of full-time economists. 
D) 

on projects on an as-needed basis. 
E) 

All of the above are correct. 

 
13) 

Macroeconomics differs from microeconomics in that 

13) 

______ 
A) 

macroeconomics focuses on the national level, microeconomics focuses on the individual level, and midieconomics focuses on the intermediate level. 
B) 

macroeconomics looks at the national economy and microeconomics looks at individual parts of the national economy 
C) 

microeconomics looks at overall unemployment, production, and inflation. 
D) 

macroeconomics studies international trade. 
E) 

microeconomics is more relevant to current issues than macroeconomics. 

 
14) 

Ashley was painting her house when her friends came over and asked if she wanted to see a movie with them. She decided to finish painting. If Ashley were rational, then we can conclude that  

14) 

______ 
A) 

she does not like watching movies with friends. 
B) 

she prefers spending time with friends to painting. 
C) 

she does not really like her friends. 
D) 

she does not like movies. 
E) 

the benefit of finishing the painting compared to the cost outweighed the benefit of watching the movie compared to its cost. 

 
15) 

Economics majors can find employment in 

15) 

______ 
A) 

government. 
B) 

business. 
C) 

educational institutions. 
D) 

consulting firms. 
E) 

All of the above. 

 
16) 

An economy where most goods and services are allocated using markets but government plays some role is called a 

16) 

______ 
A) 

centrally planned economy. 
B) 

semi-socialist economy. 
C) 

transition economy. 
D) 

mixed economy. 
E) 

government-enhanced economy. 

Essay ( 20 points): You will be graded on spelling, grammar and syntax as well as content. Be concise and to the point.

Carefully explain how perfect price discrimination solves the deadweight loss problem usually associated with the existence of a monopoly.  From society’s perspective what is the drawback of allowing perfect price discrimination?

Perfect price discrimination is the circumstance of a seller charging each buyer his/her reservation  price.  For this to occur each buyer must have a different elasticity of demand and there can be no arbitrage between buyers.  Under this circumstance the seller sets price where her marginal cost curve crosses the demand curve.  The price to the marginal consumer is equal to society’s opportunity cost of producing the last unit sold.  Economic surplus is maximized.

The drawback, from society’s perspective is that all of the economic surplus accrues to the seller.

Problem ( 48 points)

Taxes are sometimes imposed in order to alter behavior.  In Wonkaland it is determined that the citzenry is overweight. To get people to alter their behavior and slim down it is determined that an excise tax will be imposed on chocolate.  The demand curve for chocolate is P = 50 – ½ Q and the supply curve is P = 5 + 2Q.  For your own benefit you might draw a graph so that you  can keep things straight.

a.	Before the tax what is the equilibrium quantity?

50 – ½ Q = 5 + 2 Q

45 = 5/2 Q

Q = 18

b.	Before the tax what is the equilibrium price?

P = 5 + 2(18) = 41

c.	The tax to be imposed is $15.  After the tax what is the equilibrium quantity?

50 - ½ Q = (5+15) + 2Q = 20 + 2 Q

30 = 5/2 Q

Q = 12

d.	After the tax what will be the gross price paid by consumers?

P = 50 – ½ (12) = 44

e.	Net of the tax, what price is received by sellers?

Pnet = 44 – 15 = 29

f.	What is the deadweight loss resulting from the tax?

DWL = ½(44-29)(18-12) = 45
 
1) 

D 

2) 

C 

3) 

C 

4) 

E 

5) 

D 

6) 

D 

7) 

B 

8) 

D 

9) 

A 

10) 

A 

11) 

B 

12) 

E 

13) 

B 

14) 

E 

15) 

E 

16) 

D