Temple University
Department of Economics
Principles of Microeconomics
1st Exam

Name ___________________________________

Directions:  You have 1 hour and 20 minutes to complete this exam. You must do all of the questions. Put your answers on the exam. Your answers must be your own work; you may neither give nor receive help. This is a closed book exam. Point values are shown.

Multiple Choice ( 45 Points)

Use the following to answer questions 1-4:

	1.	Total donations raised by three employees are 
	A)	$43,899. 
	B)	$45,000. 
	C)	$57,721. 
	D)	$51,963. 
	E)	$48,911. 

	2.	The President of  What'sAMatterU decides to hire fundraisers as long as the average benefit exceeds the average cost, resulting in __________ employees being hired and a net benefit (total donations minus total labor costs) of __________. 
	A)	4; $60,000 
	B)	5; $38,000 
	C)	5; $67,082 
	D)	4; $22,000 
	E)	5; $17,082 

	3.	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; $8,000 
	B)	1; $36,000 
	C)	1; $22,000 
	D)	2; $8,500 
	E)	2; $21,213 
	4.	The Chairman of the Economics Department at What'sAMatterU says that fundraisers should be hired as long as their marginal donations exceed their marginal labor costs.  Following this criteria, __________ employees are hired and net benefits are __________. 
	A)	2; $3,476 
	B)	2; $25,426 
	C)	2; $42,426 
	D)	3; $25,426 
	E)	1; $22,000 

Use the following to answer questions 5-7:

	5.	Bobby Jo's opportunity cost of an extra bale of hemp is __________ and Mary Lou's is __________. 
	A)	.33 fewer jugs; .29 fewer jugs 
	B)	27 fewer jugs; 14 fewer jugs 
	C)	.33 fewer jugs; 3.5 fewer jugs 
	D)	3 fewer jugs; 3.5 fewer jugs 
	E)	3 fewer jugs; .29 fewer jugs 

	6.	Because Bobby Jo and Mary Lou have __________ opportunity costs, they can experience __________ from specialization. 
	A)	dissimilar; a loss 
	B)	identical; a gain 
	C)	similar; no gain 
	D)	dissimilar; no gain 
	E)	dissimilar; a gain 

	7.	If the international market exchanges one jug of moonshine for one bale of hemp, the maximum amounts of moonshine and hemp Bobby Jo and Mary Lou can enjoy if they can trade internationally are __________, respectively. 
	A)	16 and 16. 
	B)	9 and 7. 
	C)	2 and 3. 
	D)	10 and 11. 
	E)	11 and 10. 

Use the following to answer questions 8-10:

Figure 1.1

	8.	The best number of shirts to own is 
	A)	15. 
	B)	20. 
	C)	5. 
	D)	10. 
	E)	12. 

	9.	The marginal cost of adding the 10th shirt to one's wardrobe is 
	A)	$45. 
	B)	0. 
	C)	$75. 
	D)	$10. 
	E)	$30. 

	10.	The marginal benefit of adding the 10th shirt to one's wardrobe is 
	A)	0. 
	B)	$10. 
	C)	$45. 
	D)	$30. 
	E)	$75. 
Use the following to answer questions 11-12:

Figure 4.7

	11.	Assume that in this market a discrepancy exists between the private costs and the social costs of production; that production generates a large amount of noise pollution.  Supply curve _____ accounts for the private cost while supply curve ______ measures the full cost of production (both private and social). 
	A)	S2; S2 
	B)	S2; S1 
	C)	insufficient information to make a judgment. 
	D)	S1; S2 
	E)	S1; S1 

	12.	The socially optimal price and output combination is 
	A)	P2 and Q1. 
	B)	insufficient information to make a judgment. 
	C)	P1 and Q2. 
	D)	P1 and Q1. 
	E)	P2 and Q2. 

	13.	Suppose the price of gasoline increases.  One would expect 
	A)	the quantity of gasoline demanded to increase. 
	B)	the demand for gasoline to decrease. 
	C)	the demand for sport utility vehicles to decrease. 
	D)	the quantity of sport utility vehicles demanded to decrease. 
	E)	the demand for sport utility vehicles to increase. 

	14.	Suppose bad weather destroys the coca crop in Columbia.  This means that the 
	A)	number of property crimes will fall. 
	B)	demand for cocaine will decrease. 
	C)	quantity of cocaine supplied decreases. 
	D)	price of cocaine will remain unchanged. 
	E)	supply of cocaine will decrease. 

	15.	A country's production possibilities curve is concave to the origin (i.e., bowed outward) because: 
	A)	the production of a good is expanded by first employing those resources with the lowest opportunity cost. 
	B)	the production of a good is expanded by first employing those resources with an absolute advantage. 
	C)	of the principle of scarcity. 
	D)	of the principle of absolute advantage 
	E)	there is a trade off that requires a decrease in the production of one good in order to increase the production of another good. 

Essay (25 points) You will be graded on content, spelling, grammar and syntax. 

You are responsible for writing the international trade plank and position paper for the campaign platform for the Democratic Presidential nominee, Sandy Beach.    Relying on economic arguments, expound on the party’s position on trade.  You may use a simple example to illustrate the position you espouse.

Problem (30 Points) 

In the southeastern U.S. they use pine straw as garden mulch.  Woody Ash has determined that the following equations describe the market for pine straw in his state.  Q is tons per week and P is price per ton.

Q = 125 – 5 P                  ________________________________

Q = 25 + 5 P                    ________________________________

A.  On the line beside each equation identify one as the supply curve and one as the demand curve.

B.  Sketch the demand curve and the supply curve.  In your sketch include labels on the axes, vertical and horizontal intercepts, and indicate the equilibrium.

C.  What are the equilibrium price and quantity?

P = __________________________               Q = _______________________________

D.  How much is consumer surplus? _____________________

E.  How much is producer surplus? ____________________

F.  Barb Wire, the Governor, has decided that an excise tax on pine straw would be a good, new source of revenue. Toward this end she imposes a tax of $5 per ton to be collected from sellers of pine straw.  With the imposition of the tax, what will be the new equilibrium quantity, the price paid by consumers and the net price received by sellers?

Q = _________________________

Price paid = _____________________________   Price received = ______________________

G.  Calculate consumer surplus when there is a tax:

H.  Calculate producer surplus when there is a tax:

I.  How much deadweight loss can be attributed to the tax?

Answer Key

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