1.
The law
of demand tells us that
a.
the
lower the price of a good, the lower will be the demand for that good.
b.
the
higher the price of a good, the lower will be the quantity demanded of that
good.
c.
the
lower the price of a good, the higher will be the quantity demanded of that good.
d.
both b.
and c.
e.
none of
the above

If you are currently answering questions at a
speed such that the marginal benefits of speed are equal to the marginal
costs of speed, then
You should speed up, because otherwise you might
run out of timeYou should slow down because otherwise you might
get tired before the end of the examNo other speed will yield higher net benefitsYou should go faster because you have nothing to
lose by doing soBoth (b) and (d) are correct

Ceteris paribus, an decrease in the your income
will cause
a.
Demand for a
normal good to fall
b.
Demand for a
normal good to rise
c.
Demand for an
inferior good to rise
d.
The price of a
good to rise
e.
Both a. and c.
are correct

The area under an individual consumer’s demand curve, from Q =
0 to Q = Q* = the last unit being
consumed, measures
a. marginal cost of the last unit being consumed
b. marginal benefit of the last unit being consumed
c.
total cost of
consuming Q* units
d. total benefits of consuming Q* units
e.
net benefits of
consuming Q* units

Questions 5 – 8 are based on the following graph:
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Assume this graph shows a market equilibrium that maximizes gains
from trade. What is the price and
quantity if this is true?
a. P3, Q1
b. P2, Q2
c.
P1, Q3
d. P1, Q1
e.
P3, Q3
Again, assume the graph shows a market in a gains from trade
maximizing equilibrium. What area
represents consumer surplus?
a. A + B + C + D + E
+ F
b. A + B + C + D + E
c.
A + B + C
d. D + E + F
e.
None of the above
Now, suppose the government imposes a price ceiling and this price
ceiling changes price, quantity demanded, and quantity supplied. The price ceiling is shown on the graph
(hint: based on the info given in the question, you must figure if the
price ceiling is P1, P2, or P3).
What is the consumer surplus when the price ceiling is
instated (assume the price ceiling is strictly enforced)?
a. A + B + C + D + E
+ F
b. A + B + C + D + E
c.
A + B + D
d. B + D + F
e.
F
Using the graph above, what is the dead-weight-loss when the price
ceiling from above is in effect?
a. A + B + C
b. D + E + F
c.
C + E
d. N
e.
A + B + D + F

Questions 9 – 12 are based on the following
information. Every Thanksgiving, I drive
halfway across the country to visit my family.
When I do so, I must choose the average speed at which I drive; the
table below shows the marginal benefits and marginal costs of driving at
various speeds. All benefits and costs are measured in dollars, for
convenience, but all of the relevant costs and benefits are taken into account.
Also, for convenience in computing, assume average speeds come only in
10-mile-per-hour (mph) increments; thus, I can average 50 mph or 60 mph, but
not 57 mph.
Average speed (mph) Marginal
benefits
Marginal costs
10
$1000 $
50
20 950 150
30 900 250
40 850 350
50
800 450
60 750 550
70 700 650
80 650 750
90 600 850

Given the information in the table above, what are the total costs
of my trip if I average 30 mph?
2504506502400None of the above

Given the information in the table above, at what average speed
should I drive?
a. 40
b. 60
c.
70
d. 80
e.
90 or more,
because benefits are still positive at 90

Given the information in the table above, what must be true about
the net benefits of averaging 100 mph, compared to not taking the trip at
all (i.e., averaging 0 mph)?
a. Greater than 0
b. Greater than $3150
c.
Less than 0
d. Less than $3150
e.
None of the above

Suppose that I must choose between an average speed of 50mph and
an average speed of 90 mph, and these are the only two options. Which
speed should I pick?
a. 50 mph
b. 90 mph
c.
I would be
exactly indifferent between these two options
d. Depending on my preferences, I might sensibly select
either
e.
None of the above

Questions 13 – 15 are based on the following
information:
(i) Barley is an important input used in the
production of beer.
(ii) The demand for beer is inelastic
(iii) The supply of beer is elastic
Beginning from an initial equilibrium, suddenly the
price of barley rises.

The result of this increase in the price of barley will be:a reduction in the supply of beeran increase in the supply of beeran increase in the demand for beera reduction in the demand for beerboth (a) and (d) are correct

Thus, as a result of the increase in the price of barley, we can
expect that
a. total consumer spending on beer will rise
b. total consumer spending on
beer will fall
c.
total revenues of
beer makers will rise
d. both (a) and (c) are correct
e.
none of the above

Moreover, we can also expect that this rise in the price of barley
will cause
a. consumer surplus (in the beer market) to rise
b. gains from trade (in the beer market) to rise
c.
gains from trade
(in the beer market) to fall
d. both (a) and (b) are correct
e.
more drunks on
Clemson’s campus after their economics finals are over

The following three questions
are based on this information:

Consider the nations of England and Ireland. Each is
capable of producing fish and chips. If Ireland spends all of its time on fish
it can produce a maximum of 10 units a day, leaving it no time for chip
production. Or, if it spends all of its time on chips, it can produce 5 of them
in a day, leaving no time for fish production. Ireland is also capable of
producing any linear combination of these.
England is capable of daily production of at most 20
fish (and no chips) if it specializes completely in fish, or a maximum of 20
chips (and no fish) if it produces only chips. As with Ireland, it is able to
produce any linear combination of these extremes.
For simplicity, assume that Ireland and England can
use their time only for producing these two goods.

Who is the low cost producer of chips?
a.
Ireland, because
it can produce the least of them
b.
England, because
it can produce the most of them
c.
England, because
it must sacrifice only one fish to make a chip.
d.
Ireland, because
it must sacrifice only 0.5 chips to make a fish.
e.
Neither, because
they both have the same cost of producing chips.

Who has a comparative advantage in producing
fish?
a.
Ireland, because
it can produce the most of them
b.
England, because
it can produce the most of them
c.
Ireland, because
it must sacrifice only 0.5 chips to make a fish
d.
England, because
it is the low cost producer of fish.
e.
none of the above

Suppose the world price of fish is $10 each and
the world price of chips is $15 each. If each nation’s objective is to
collect as much revenue as possible, how will they each organize
production?
a.
Ireland will
specialize completely in chips and England will specialize completely in fish
b.
Ireland will
specialize completely in fish and England will specialize completely in chips
c.
both will produce
only chips
d.
both will each
make 5 fish and England will spend the rest of is time making chips
e.
each nation will
divide its time in the ratio 1.5 to 1 in favor of chips, because this is the
ratio of the prices.

If
the cross price elasticity of demand between widgets and kumquats is -2.0,
one can conclude that
a. widgets and kumquats are substitutes and a rise in the price of
one will cause an increase in the demand for the other
b. widgets and kumquats are complements and a rise in the price of
one will cause an increase in the demand for the other
c.
widgets and kumquats are substitutes and a
rise in the price of one will cause a decrease in the demand for the other
d. widgets and kumquats are complements and a rise in the price of
one will cause a decrease in the demand for the other
e.
none of the above

When we say that Poland has a comparative advantage in producing
sausages, we mean that Italy
a. can produce more sausages than beer, the
only other commodity produced there
b. is the low cost producer of
sausages
c. can produce more sausages than can any
other country
d. can produce nothing but sausages
e. both (b) and (c) are correct

If
the income elasticity of demand for kumquats is 0 (yes, “zero”), a rise in
the incomes of kumquat consumers will lead to
a
rise in the equilibrium price and quantity of kumquatsa
fall in the equilibrium price and quantity of kumquatsa
rise in the equilibrium price of kumquats, but a fall in the equilibrium
quantitya
fall in the equilibrium price of kumquats, but a rise in the equilibrium
quantityno
change in the equilibrium price or quantity of kumquats

If
the demand for corn is elastic, a reduction in the supply of corn will
cause
a.
a reduction in expenditures on corn
b.
a reduction in expenditures on corn only if
the supply of corn is elastic
c.
a change in expenditures on corn that may
be positive or negative, depending on the elasticity of supply of corn
d.
an increase in expenditures on corn only if
the supply of corn is inelastic
e.
an increase in expenditures on corn

Questions 23-25 are based on the following information:
All flimflams are made in either Japan or Korea. Americans are
the sole purchasers of these flimflams, and
they do not care whether they buy flimflams made in Korea or
those made in Japan. Assume an outbreak of
Japanese flu kills many of the highly skilled Japanese workers
who produce flimflams. Korean workers are
unaffected, because no workers ever move or travel between Korea
and Japan. (Hint: What effect will this flu have on wages, and thus production
costs, in Japan?)

Let the price of flimflams be P and the total quantity of them
be Q; let the amount produced in Korea be Qk
and the amount produced in Japan be Qj. Suppose you observe the
followingchangesas a result of this episode:
%?Q = -40%
%?Qk = +25%
%?Qj =
-50%
%?P =
+20%

Given
these observations, what is the elasticity of the demand for flimflams?
a. -1.5
b. -2
c. -1
d. -0.5
e. It cannot be determined, because the
demand for flimflams shifts in this problem

Given
these observations, what is the elasticity of the Japanese supply of
flimflams?
a. -1
b. +1
c. +0.5
d. +2
e. It cannot be determined, because the
Japanese supply curve shifts in this problem

Given
these observations, what is the elasticity of the Korean supply of flimflams.
a. +1.25
b. +2.5
c. -2.0
d. +0.8
e. It cannot be determined, because the
Korean supply curve shifts in this problem.

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26.
The figure above shows the situation facing
Smart Digit, Inc., a firm in monopolistic competition that produces
calculators. What is the firm’s economic profit in the long run is2) _______
a.
$900.
b.
$600.
c.
zero.
d.
$2,400.
e.
$1,200

27.
For a firm in perfect competition, the marginal
cost curve intersects the average total cost curve

a.
at no point.
b.
at the minimum average total cost.
c.
to the left of the minimum average total cost.
d.
to the right of the minimum average total cost.
e.
above the average
total cost curve

.jpg”>

In the above graph, the intersection of curve A and curve C is the
a. Shutdown point
b. Long-run equilibrium price and quantity
c.
Point where the
producer is indifferent between producing and shutting down
d. profit-maximizing price and quantity
e.
Both (A) and (C)
are correct

In the above graph, the average fixed cost curve is:
a. Labeled B
b. Labeled C
c.
Not shown
d. Responsible for the distance between curves B and C
getting smaller as quantity increases
e.
Both C and D

An example of a negative consumption externality is:
a. Honey production and orange production
b. Flu vaccinations
c.
Pollution
d. Loud parties
e.
Beautiful
architecture that was privately funded

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31.
In the figure above, if the market is
unregulated, the price will be
a.
$250 per unit.
b.
$150 per unit.
c.
$200 per unit.
d.
$100 per unit.
e.
Depends on if the
producer is a price taker or a price searcher

32.
Total cost is the sum of fixed costs and
a.
implicit costs.
b.
explicit costs.
c.
accounting costs.

d. variable costs.
e.
marginal costs

33.
A
period of time in which the quantity of at least one resource used by a firm is
fixed is called
a. the market period.
b. the intermediate run.
c.
the
short run.
d. the long run.
e.
the
chicken run

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34.
Consider the perfectly competitive firm in the
above figure. If price equals 10, what will the firm choose to do in the short
run and why?
a. Shut
down because the firm incurs an economic loss.
b. Stay
in business because the firm is making an economic profit.
c.
Stay in
business because the firm’s economic loss is less than fixed costs.
d. Stay
in business because it is earning a normal profit (that is, zero economic
profit or loss).
e.
Shut down because the price is below the firms
shutdown point.

35.
A firm in perfect competition maximizes its
profit by producing the output at which its marginal cost equals its
a.
marginal revenue.

b.
average fixed cost.

c.
average variable cost.

d.
price.
e.
Both a.
and d. are correct.

.jpg”>

36.
In the above figure, the total fixed cost curve
is curve
a.
A.
b.
B.
c.
C.
d. D.
e.
not shown.

37.
In the above figure, curve D slopes
downward because
a.
there are diminishing returns to capital and
labor.
b. average fixed cost decreases as output
increases.
c.
marginal cost decreases as output increases.
d.
all costs decrease as output increases.
e.
demand is downward sloping.

38.
Suppose demand for a product produced in a
perfectly competitive market permanently decreases. In the long run, the price
a.
does not change because entry increases the
supply of the product.
b.
does not change because price cannot exceed
average total cost in perfect competition.
c.
does not change because exit decreases the
supply of the product.
d. rises and each firm produces more output.
e.
falls and each firm produces less output.

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39.
The above figure shows the demand and supply
curves for housing in City A. As a result of a rent ceiling at $500, the
deadweight loss is represented by the area
a.
triangle gfe.

b.
rectangle feag.

c.
triangle acb.
d.
triangle eca.
e.
none of the above

40.
The minimum wage is an example of a
a.
price floor.
b.
price ceiling.
c.
quota.
d.
tax.
e.
subsidy.

41.
The government imposes a sales tax on hot dogs.
The tax would be paid entirely by hot dog sellers if the
a.
demand is perfectly inelastic.
b.
supply is perfectly elastic.
c.
demand is perfectly elastic.
d.
supply is perfectly inelastic.
e.
both c. and d. are correct

42.
It is easier for a monopolist to price
discriminate between groups for a service than for a tangible product because
a.
it is easier to calculate average willingness to
pay for services.
b.
it is easier for consumers to resell products
than services.
c.
it is easier to distinguish between groups of
customers for services than customers for products.
d.
people care less about services than products
e.
customers for products usually do not differ
with respect to their average willingness to pay.

43.
Monopolies earn an economic profit in the long
run because there are
a.
free entry and exit.

b.
barriers to entry.

c.
inelastic consumers.

d.
close substitutes for the product.
e.
a large number of competing firms.

44.
Which of the following is true regarding the
long run for a firm in monopolistic competition?

a.
ATC = MC = MR
b.
P = MC = ATC
c.
P = MC = MR
d.
AVC = MC = MR

e.
P = ATC

45.
If two duopolists can collude successfully, then
both will
a.
price at marginal cost.

b.
earn greater profits than if they did not
collude.
c.
price below average total cost.
d.
set price equal to marginal revenue
e.
lower their economic profits.

46.
Which of the following statements is FALSE
concerning monopolistic competition?
a.
There are no barriers to entry.
b.
Firms sell a differentiated product.
c.
There are many firms.

d.
Firms do not
produce at the minimum of their average total cost.
e.
Monopolistically competitive firms are price
takers because of product differentiation.
Player
A

Confess

Don’t
confess

Player B

Confess

A: 3 years
B: 3 years

A: 10 years
B: 1 year

Don’t confess

A: 1 year
B: 10 years

A: 2 years
B: 2 years