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California State University Fullerton Form B Economics 315
Department of Economics Fall 2010
Dr. Morteza Rahmatian First Exam
Student’s name_______________________________ Student’s ID________/________/________
Part I: Multiple Choices. Choose the best possible answer. Good luck! (2.5 Points each)
- Economic profits are:
a. total revenue minus total cost.
b. marginal revenue minus marginal cost.
c. total revenue minus total opportunity cost.
d. total profits of the economy as a whole.
- Which of the following is an implicit cost of going to college?
a. tuition.
b. cost of books and supplies.
c. room and board.
d. foregone wages.
- If marginal benefits exceed marginal costs, it is profitable:
a. to increase Q.
b. to decrease Q.
c. to stay at that level of Q.
d. all of the above.
- If the interest rate is 10% and cash flows are $1,000 at the end of year one and $2,000 at the end of
year two, then the present value of these cash flows is
a. $2,562.
b. $3,200.
c. $439.
d. $3,000.
- The introduction of an effective price ceiling:
a. reduces the quantity of output sold.
b. has no effect on the quantity of output sold.
c. lowers the price of the commodity.
d. (a) and (c).
- Coke and Pepsi are substitute goods. This means that a reduction in the price of Coke would:
a. increase the demand for Coke
b. decrease the demand for Pepsi
c. increase the demand for Pepsi
d. decrease the demand for Coke
- In order to maximize net benefits, firms should produce where:
a. total benefits equal total costs.
b. profits are zero.
c. marginal cost is minimized.
d. marginal benefits equal marginal costs.
- Which of the following is not held constant along a demand curve?
a. the price of the good.
b. income.
c. prices of related goods.
d. all of the above are held constant.
e. none of the above are held constant.
- You are the newly appointed sales manager of the Rock Record Company and have been charged
with the task of increasing revenues. Your economics consultants have informed you that at
present price and output levels, price elasticity of demand for your product is less than one. You
should
a. decrease prices
b. increase prices
c. hold prices constant and increase supply
d. cut advertising expenditures to decrease the demand for records
- Suppose total benefits and total costs are given by B(Y) = 100Y - 8Y
2
and C(Y) = 4.5Y
2
. What
level of Y will yield the maximum net benefits?
a. 1. c. 2.
b. 3. d. 4.
- Which of the following factors would not affect the own-price elasticity of demand?
a. time.
b. price of an input.
c. available substitutes.
d. expenditure share.
- Negotiations between the buyer and seller of a new house is an example of:
a. consumer-consumer rivalry.
b. consumer-producer rivalry.
c. producer-producer rivalry.
d. monopoly.
- Graphically, an increase in supply can be shown as:
a. a rightward shift of the supply curve.
b. a leftward shift of the supply curve.
c. a leftward and upward movement along the supply curve.
d. a rightward and downward movement along the supply curve.
Part II: Short Answers. Please answer all of the following questions. Use graphs where they aid
the discussion but remember that an unlabeled graph is useless.
Do not write your answers on the Exam!!
- List five determinants of Supply and with use of a diagram please show how change in any of
them affects the supply curve? (10 Point)
Input prices
Technology or government regulations
Number of firms
Taxes
- Excise tax
- Ad valorem tax
Producer expectations
- What is Producers’ surplus? Please use diagram in your presentation and please explain fully.
(10 Point)
The amount producers receive in excess of the amount necessary to induce them to produce the
good.
Please also read slide 2-20 in chapter two.
- The U.S. Department of Agriculture is interested in analyzing the domestic market for corn. The
USDA's staff economists estimate the following equations for the demand and supply curves:
(15 Points)
Q
d
= 1,600 - 125P
Q
s
= 440 + 165P
Quantities are measured in millions of bushels; prices are measured in dollars per bushel.
a. Calculate the equilibrium price and quantity that will prevail under a completely free market.
Qd = Q s
1,600 - 125P = 440 + 165P
P = 4 and Q = 1100.
b. Calculate the price elasticities of demand at the equilibrium values.
Price elasticities of demand is - 0.
c. The government currently has a $4.50 bushel price floor in place. What impact will this support
price have on the market? Shortage or surplus? How much?
Qd = 1037.
Q
s
Shortage = 145 units.
- The demand for good X is given by (15 Points)
Research shows that the pries of related goods are given by Py = $5,900 and Pz = $90, while the
average income of individuals consuming this product is M = $55,000.
a) Indicate whether goods Y and Z are substitutes or complements for good X. Why?
b) Is X an inferior or normal good? Why?
c) How many units of goods X will be purchased when Px = $4,910?
d) Determine the demand function and inverse demand function for good X.
e) Graph the demand curve for good X.
a) Good Y is a substitute and good Z is a complement.
b) Good X is a normal good.
c) Qx = 5,
d) Px = 29,820 - 4QX
e) Please place the price on the vertical axis and quantity on the horizontal axis.
