Principles of Microeconomics Quiz 1 Version A - Summer 2008, Drake University - Prof. Will, Quizzes of Microeconomics

Download Principles of Microeconomics Quiz 1 Version A - Summer 2008, Drake University - Prof. Will and more Quizzes Microeconomics in PDF only on Docsity! Principles of Microeconomics (Econ 2) Signature: Drake University, Summer 2008 William M. Boal Printed name: QUIZ #1 VERSION A “Introduction, Math Review, Production and Trade” July 17, 2008 INSTRUCTIONS: This quiz is closed-book, closed-notes. Simple calculators are permitted, but graphing calculators or calculators with alphabetical keyboards are NOT permitted. Numerical answers, if rounded, must be correct to at least 3 significant digits. Point values for each question are noted in brackets. Maximum total points are 100. I. Multiple choice: Circle the one best answer to each question. [2 pts each: 20 pts total] (1) In economics, the idea that people behave rationally means that people a. are happy to make sacrifices today for a better future. b. work together for the common good. c. maximize their incomes. d. do the best they can with what they have. e. use math to make decisions carefully. (2) Rational choice implies pursuing an activity up to the point where the opportunity cost of the last unit is a. about to fall below its benefit. b. about to exceed its benefit. c. much less than its benefit. d. much more than its benefit. (3) Which of the following is a normative statement? a. “The interest rate should be raised if inflation exceeds 4 percent.” b. “If present trends continue, the planet will be 2 degrees warmer by 2030.” c. "An increase in the gasoline tax would reduce gasoline consumption." d. “Government-sponsored health insurance would be very expensive.” (4) In the graph below, variables X and Y have a. a positive relationship. b. a negative relationship. c. no relationship. d. a positive relationship or a negative relationship, depending on the value of X. (5) Economic or physical capital includes a. machinery, buildings, and computers. b. savings in bank accounts. c. corporate bonds. d. all of the above. (6) The operation of markets and the determination of prices are the primary focus of a. microeconomics. b. macroeconomics. c. sociology. d. none of the above. Y X Principles of Microeconomics (Econ 2) Drake University, Summer 2008 Quiz 1 Version A Page 2 of 7 (7) Is the production function below characterized by diminishing returns to labor input? a. Yes, for all levels of labor input. b. No, not for any levels of labor input. c. Yes, but only after 100 hours of labor. d. Yes, but only before 100 hours of labor. (8) Consider the production possibility curve shown below. As more of either good is produced, its opportunity cost a. decreases. b. increases. c. first increases, then decreases. d. remains constant. 100 Hours of labor C oo ke s ba ke d H ig h- te ch g oo ds Low-tech goods Principles of Microeconomics (Econ 2) Drake University, Summer 2008 Quiz 1 Version A Page 5 of 7 (7) [Production functions: 14 pts] A work crew repairs roofs, with the following monthly production function. Number of workers Number of roofs repaired Average Product Marginal Product 0 workers 0 roofs roofs per worker 2 workers 6 roofs roofs per worker roofs per worker 4 workers 16 roofs roofs per worker roofs per worker 6 workers 30 roofs roofs per worker a. [6 pts] Compute the work crew’s average product (AP) with 2, 4, or 6 workers, and place your answers in the unshaded cells of the third column above. b. [6 pts] Compute the work crew’s marginal product (MP) when labor input increases from 0 to 2 workers, from 2 to 4 workers, or from 4 to 6 workers and place your answers in the unshaded cells of the fourth column above. c. [2 pts] Is the work crew's production function characterized by diminishing returns to their labor input? Answer “yes” or “no.” (8) [Production possibility curves: 12 pts] The graph below shows a country’s production possibility curve. Currently, the country is at point A, where the slope of the production possibility curve is -5. a. Suppose this country wants to produce 20 more units of energy. Will this require the country to increase or decrease production of other goods? b. By how much? units of other goods c. Alternatively, suppose this country wants to produce 20 more units of other goods. Will this require the country to increase or decrease production of energy? d. By how much? units of energy e. What is this country’s opportunity cost of a unit of energy? units of other goods f. What is this country’s opportunity cost of a unit of other goods? units of energy Energy Other goods A Principles of Microeconomics (Econ 2) Drake University, Summer 2008 Quiz 1 Version A Page 6 of 7 (9) [Production possibility curves, opportunity costs, comparative advantage: 20 pts] Country A and Country B can both produce manufactured products and agricultural products. They each face a tradeoff between these two kinds of products because they have limited resources. Their production possibility curves are shown below. 0 1 2 3 4 5 6 7 8 9 10 11 12 0 1 2 3 4 5 6 7 8 9 10 11 12 Agricultural products M an u fa ct u re d p ro d u ct s Country A Country B a. [2 pts] What is Country A's opportunity cost of producing a unit of manufactured products? units of agricultural products b. [2 pts] What is Country B’s opportunity cost of producing a unit of manufactured products? units of agricultural products c. [2 pts] What is Country A's opportunity cost of producing a unit of agricultural products? units of manufactured products d. [2 pts] What is Country B’s opportunity cost of producing a unit of agricultural products? units of manufactured products e. [2 pts] Which country has a comparative advantage in producing manufactured products? f. [2 pts] Which country has a comparative advantage in producing agricultural products? g. [6 pts] Fill in the blanks: Both countries can consume combinations of manufactured products and agricultural products outside their individual production possibility curves if ___________________________ produces three units of manufactured products for ___________________________, which produces ______________ unit(s) of agricultural products in return. h. [2 pts] Plot the trade that you propose in part (g) on the graph above. Principles of Microeconomics (Econ 2) Drake University, Summer 2008 Quiz 1 Version A Page 7 of 7 III. Critical thinking: Write a one-paragraph essay answering one question below (your choice). [4 pts] (1) Consider the campus dining hall as a production process. What is the output of this production process? What are the labor inputs? What are the economic (or physical) capital inputs? What are the materials inputs (or intermediate inputs)? (2) Consider the following statement. "The American worker is the most productive in the world. As such, the United States gains nothing from trading with other, less productive countries except goodwill." Assume for this question that the first sentence is correct. Do you agree or disagree with the second sentence? Justify your answer. Which question are you answering, (1) or (2)? _________ . Please write your answer below. Full credit requires correct economic reasoning, legible writing, good grammar including complete sentences, and accurate spelling. [end of quiz]