Temple University
Economics 1102
Exam 1

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

Name______Key____________________
 
MULTIPLE CHOICE (30 points).  Choose the one alternative that best completes the statement or answers the question. 
1) 

Among the factors that would cause supply to decrease is: 

1) 

_______ 
A) 

an increase in productivity. 
B) 

an increase in the wage rate. 
C) 

an decrease in the price of a substitute product. 
D) 

all of the above. 
 
2) 

A firm tries to increase the demand for the product it sells by:  

2) 

_______ 
A) 

using the latest technology to produce the product. 
B) 

lowering its price. 
C) 

convincing buyers that the price will be lower in the future. 
D) 

advertising the product to change buyers tastes in favor of the product.   
 
3) 

Comparative advantage means: 

3) 

_______ 
A) 

a producing unit can produce more of a good or service with the same amount of resources than any other producing unit.  
B) 

compared to anyone else, you are better at what you do.  
C) 

a producing unit can produce a good or service at a lower opportunity cost than any other producing unit. 
D) 

none of the above. 
 
4) 

Who, in a modern mixed economy, decides what goods and services will be produced with the scarce resources available? 

4) 

_______ 
A) 

Producers  

B) 

The government 
C) 

Consumers 

D) 

All of the above 
 
5) 

People make optimal decisions: 

5) 

_______ 
A) 

randomly. 
B) 

in consistently irrational ways. 
C) 

according to their whims and emotions at the moment.  
D) 

at the margin. 
 
6) 

Which of the following is production at the lowest possible cost? 

6) 

_______ 
A) 

Productive efficiency  

B) 

Equity 
C) 

Allocative efficiency 

D) 

Central planning 

7) 

A guild is: 

7) 

_______ 
A) 

a group of nations who agree not to compete with each other. 
B) 

a group of independent producers competing with each other. 
C) 

a nation that is a free market benchmark. 
D) 

an organization of producers that limits the amount of a good produced. 
 
8) 

The term that means the highest valued alternative given up when a person chooses to engage in an activity is: 

8) 

_______ 
A) 

opportunity cost. 

B) 

dollar cost. 
C) 

accounting cost. 

D) 

explicit cost. 
 
9) 

Under a rent control law the quantity supplied of apartments decreases because: 

9) 

_______ 
A) 

landlords sell off some former apartments as condominiums.  
B) 

landlords abandon some former apartments buildings.  
C) 

landlords convert some former apartments into offices.  
D) 

All of these occur under a rent control law. 
 
10) 

Which of the following is when production reflects consumer preferences?  

10) 

______ 
A) 

Central planning 

B) 

Equity 
C) 

Allocative efficiency 

D) 

Productive efficiency 
 
11) 

The important economic concept illustrated by increasing opportunity costs is:  

11) 

______ 
A) 

the law of scarcity. 
B) 

how easy it is to slip into inefficient production.  
C) 

the more resources devoted to any activity, the smaller the payoff of devoting more resources to that activity. 
D) 

the importance of production and exchange. 
 
12) 

When a strike at a major local employer occurs, the demand for television sets in that local market will: 

12) 

______ 
A) 

increase because the striking workers need something to do to pass the time. 
B) 

double because of unemployment benefits and strike pay. 
C) 

likely remain unchanged. 
D) 

decreases because buyers incomes have decreased. 
 
13) 

Specializing in production of a good or service in which one has a comparative advantage leads to:   

13) 

______ 
A) 

a consumption possibilities frontier for the producing unit that is increased beyond its production possibilities frontier. 
B) 

a consumption possibilities frontier that is identical to the production possibilities frontier. 
C) 

a consumption possibilities frontier that is decreased to below its production possibilities frontier. 
D) 

none of the above. 

 
14) 

Which of the following best describes an assumption economists make about human behavior? 

14) 

______ 
A) 

Assuming rational behavior is useful in explaining choices people make even though people may not behave rationally all the time.  
B) 

People weigh religious aspects in all decisions they make.   
C) 

Individuals act rationally all the time in all circumstances. 
D) 

Individuals act randomly. 
 
15) 

A black market is: 

15) 

______ 
A) 

when buying and selling is at prices that violate government price regulations. 
B) 

when quantity demanded is greater than quantity supplied.  
C) 

when economic surplus is very low. 
D) 

when quantity supplied is greater than quantity demanded.

ESSAY (30 points).  Write your answer in the space provided. You will be graded for spelling, grammar and syntax as well as the content of your concise answer.

In late November the price per pound for turkey is at its lowest for the entire year and the quantity of turkey sold is at its highest for the year.  In spring the price per pound of jelly beans is at its highest and the quantity consumed is also at its highest.  Use supply and demand analysis to explain this apparent anomaly.

In the fall there is an increase in supply, relative to other times of the year.  The result is that price falls and quantity exchanged increases.

In the spring there is an increase in demand for Jelly Beans, relative to other periods of the year.  The result is that both equilibrium price and quantity increase.

Problem (40 points). Show your work.  A diagram may help you understand the problem. 
17) 

The market for action movies is described by the following pair of equations

P = 10 + (1/2)Q ______Supply_______________________

Q = 200 - (2)P _______Demand_____________________________

a. On the above lines indicate which is the demand curve and which is the supply curve.

b. What are the equilibrium price and quantity?

P = 10 +(1/2)(200-2P) = 10 +100 - P

2P = 110

P = 55

Q = 200 - 2(55) = 90

c. What is consumer surplus for this example?

CS = (1/2)(100-55)(90) = 2025

d.  What is producer surplus in this example?

PS = (1/2)(55-10)(90) = 2025

e. Suppose that there is a price ceiling of 40 put in place.  Find the new level of consumer surplus.  

CS = (1/2)(100-70)(60)+(70-40)(60)

CS = 900+1800 = 2700

 
1) 

B 
2) 

D 
3) 

C 
4) 

D 
5) 

D 
6) 

A 
7) 

D 
8) 

A 
9) 

D 
10) 

C 
11) 

C 
12) 

D 
13) 

A 
14) 

A 
15) 

A 
16) 

17)