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IL Chapter 1,2
1, In 1977 a Seventh Day Adventist congregation in Manhattan purchased a former
synagogue for $400,000. Several years later the congregation decided to sell it because
the maintenance costs were running $100,000 per year, too much for the congregation to
pay. In 1982, a developer paid the congregation $2.4 million for the property. Based on
this information, the cost to the congregation of continuing to use the building would
have been: cost “pps! dy COS & AKbeai COOP
(a) $100,000 per year ia + neo ge? sinters
(b) $400,000
(c) $2.4 million plus the $100,000 per year maintenance costs.
{d) $2.4 million plus the $400,000 initial investment
2. Suppose you own a building and are considering operating a business out of that
building. You narrow down your choices to opening either: a restaurant, a bike shop, or a
bookstore. The restaurant has expected profits of $30,000/year, the bike shop has
expected profits of $20,000/year, and the bookstore has expected profits of $15,000/year.
Considering only the monetary benefits given here, the opportunity cost of using the
building for a restaurant would be:
(a) $35,000/year eared Hie bag attwrnct vt Beapp bent toch
(b) $10,000/year ‘
=(c) $20,000/year
(d) $15,000/year
3. Suppose you have attended 3 years of college. Before senior year, you are offered a
full-time job at a salary of $20,000/year. You are trying to decide whether to take the job
or finish college. Suppose yearly tuition is (and has been for the last 3 years) $5000.
From the limited information you have been given, the opportunity cost of attending
college this year instead of taking the job is:
(a),$5,000
b)$20,000
(c) $25,000
(d) $35,000
4. In an effort to “support” the price of some agricultural goods, the Department of
Agriculture pays farmers a subsidy in cash for every acre of their land that they leave
unplanted. This policy has the effect :
(a)of decreasing a farmer’s opportunity cost of planting a crop because farmers are
receiving subsidies from the government
— (b) of increasing a farmer’s opportunity cost of planting a crop because farmers now
forego the cash payment from the government
(c) of changing the benefits farmers receive from farming but the policy does not affect
the opportunity cost of planting a crop
(d) the same as if a regular input price for the farmer (seed price, fertilizer price, etc) had
decreased.
5. Consider the following production possibilities frontier (PPF) for an economy, The
table shows the maximum combinations of bread and guns that can be produced when all
resources in the economy are fully employed. (Draw the PPF)
a b c d e f bifea d bas
Guns 0 100 200 300 400 500
Bread 1000 900 750 550 300 0
We can conclude that: oa Soares
) the opportunity cost of producing 300 units of bread instead of 750 units of bread is
400 guns.
(b) the opportunity cost of producing 500 guns instead of 300 guns is zero since we don’t
give up any bread.
¢) the opportunity cost of producing 200 guns instead of 100 guns is 750 units of bread.
d) the opportunity cost of producing 400 guns instead of 100 guns is 600 units of bread
6. In the diagram of that (Question 5) production possibility frontier, opportunity cost is
represented by:
(a) the unattainable points outside the boundary
(b) the area under the frontier
(©)Ahe negative slope of the boundary
{d) the distance from the origin to the boundary
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) en eee)
17. Suppose that both the supply and demand for a good increases. The effect of this / a SX »
increase would be a i 4
(a) decrease in the equilibrium price and an increase in the equilibrium quantity.
(b)'increase in the equilibrium quantity and an effect that we cannot determine on the
equilibrium price.
(c) increase in both the equilibrium price and the equilibrium quantity.
(d) decrease in both the equilibrium price and the equilibrium quantity.
18. (See figure below) The current price of a bag of pretzels is $1.10. You accurately
predict that in this market
{@) price tends to remain constant and quantity supplied increases.
) price, quantity demanded, and quantity supplied decrease.
g)-price and quantity demanded increase and quantity supplied decreases.
@ price and quantity supplied decrease and quantity demanded increases.
r
-
So
Price per bag of pretzels
0 75 100 Q
Number of bags of pretzels
per week
19. Stationary exercise bicycles and stair-stepper machines are substitutes. An increase in
the price of exercise bicycles will
(a) shift the demand for stair-stepper machines to the left
~ (b) increase the equilibrium price of stair-stepper machines
(c) decrease the equilibrium quantity of stair-stepper machines
{d) all of the above
20. The following statement contains an error. Identify and explain (briefly):
Demand increases, This causes prices to rise. Higher _ prices
Therefore prices fall back to their original level.
HL. Chapter 4:
Wy 21, In a free market, 2000 patients each purchase an operation to receive an artificial ead by
? heart at a price of $500,000 per operation. Without the artificial heart, each patient would sod
a die. The government decides that this price is too high and imposes a maximum price of
$200,000. Everything else equal, it is likely
2
. pete! Ji
{ay more patients will now die. t >< i
(b) fewer patients will now die. [ /
(c) more patients will now die only if the demand curve is vertical an
(d) more patients will now die only if the demand curve is horizontal
22. Every morning students and faculty who arrive at Virginia Tech after 10:00 a.m. are
seen driving around and around the parking lots near Pamplin and Derring halls looking
for an open parking space. What does this indicate about the parking space market at
Virginia Tech?
(a) the price of parking has no effect on demand
~ (b) the parking fee is set below the equilibrium price, and non-ptice methods are used to
ration the available spaces
(c) no matter what the parking fee is, there would be excess demand
(d) the parking fee is set above the equilibrium price, and non-price methods are used to
ration the available spaces.
fey
b
Qus My
023. See graph below. If the government will not allow landlords to charge more than
$400 for an apartment, which of the following will happen?
(a) demand must eventually decrease so that the market will come into equilibirum at a
price of $400
(b) supply must eventually increase so that the market will come into equilibirum at a
price of $400
(c)-a nonprice rationing system such as having people sign a waiting list to get an
apartment will be used to ration the available supply of apartments
@ the market will be in equilibrium at a price of $400
Price
$600
$500
24. Suppose a market is such that the equilibrium price is $6. Suppose no trade had been
allowed to take place at a price below $8. Which of the following would be predicted by
the model of supply and demand ?
(answer true, false, or uncertain for each. Provide a BRIEF explanation)
(a)The quantity transacted would have been the same as without the price floor.
(b)AU sellers are better off under this system e
(c)The quantity demanded would have been greater than the quantity supplied.