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Gateway Microeconomics Exam -- Sample #1

Gateway Microeconomics Exam -- Sample #1

 
Name: 
 

Gateway Microeconomics Exam -- Sample #1



Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

1. 

Suppose the price elasticity of supply for a product is zero.  This means that:
 
a.
There is a shortage.
b.
The firm makes the same amount of product even if the price changes some.
c.
The firm makes the same amount of revenue even if the price changes some.
d.
No one wants to buy the good.
e.
The supply curve is horizontal. 
  
 

2. 

Tony is a wheat farmer, but he spends part of his day teaching guitar lessons. He has more students requesting lessons than he has time to teach and still maintain his farm. Tony charges $25/hr for guitar lessons. One spring day he spends 10 hours in his field planting $130 worth of seeds, which he expects will produce $300 worth of wheat. What will Tony’s economic profit equal?
 
a.
-$80
b.
$130
c.
$170
d.
$300
e.
$140
  
 

3. 

 
Refer to the figure above.  At a price of $9, the dollar value of consumer surplus is:
 
a.
$450
b.
$180
c.
$400
d.
$220
e.
$380
  
 

4. 

Which of the following most resembles a perfectly competitive market?
 
a.
wheat industry
b.
publishing industry
c.
oil industry
d.
automobile industry
e.
electricity industry
  
 

5. 

If supply and demand both shift to the right at the same time, what can we say about equilibrium price and quantity?
 
a.
both will increase
b.
price will increase, quantity may increase or decrease
c.
both will decrease
d.
quantity will increase, price may increase or decrease
e.
price will decrease, and quantity will increase
  
 

6. 

Following the events of 9/11, the airlines have been forced to increase security at a cost of $800 million per year. The number of inspectors and machines does not vary with the number of passengers -- the airlines must have sufficient staff to handle the full-capacity load. These security expenditures will
 
a.
increase MC and ATC.
b.
increase MC and leave ATC unchanged.
c.
increase ATC and leave MC unchanged.
d.
increase MC and AVC.
e.
increase MC and leave AVC unchanged.
  
 

7. 

Suppose it is discovered that drinking cranberry juice prevents the common cold.  What effect do you predict this discovery will have on the price and quantity of cranberry juice sold, other things equal?
 
a.
both price and quantity will increase
b.
both price and quantity will decrease
c.
price will increase while quantity will decrease
d.
price will decrease while quantity will increase
e.
price and quantity will both remain constant
  
 

8. 

Other things remaining the same, as Japanese imports from the U.S. increase, the quantity of
 
a.
U.S. dollars supplied increases.
b.
U.S. dollars demanded increases.
c.
yen supplied decreases.
d.
U.S. dollars demanded decreases.
e.
none of the above.
  
 

9. 

 
 
 
Perfume (bottles)
Cloth (yards)
Nancy
20
15
Roger
24
12
   
 
The table above shows how much each of two people can produce in 40 hours.  (For example, Nancy can produce 20 bottles of perfume in 40 hours.)  For Nancy, what is the opportunity cost of producing 1 bottle of perfume?
 
a.
4/3 yards of cloth
b.
3/4 yards of cloth
c.
1 yard of cloth
d.
1/4 yards of cloth
e.
1/2 yards of cloth
  
 

10. 

 
 
Quantity
TC
MC
75
5000
 
  
X
80
5100
 
   
 
The table above shows a firm's total cost and marginal cost for a range of output.  What is X equal to?
 
a.
66.7
b.
20
c.
63.75
d.
100
e.
68
  
 

11. 

Four consumers, A, B, C, and D, are each willing to pay $9, $8, $7, and $6, respectively, to buy one unit of some good. Four producers, E, F, G, and H, are each able to produce one unit of that good at a cost of $3, $4, $5, and $6, respectively. At a price of $6, what is the combined total of consumer surplus and producer surplus in this market?
 
a.
$8
b.
$9
c.
$10
d.
$11
e.
$12
  
 

12. 

 
 
Q (in units)
AFC (in dollars)
AVC (in dollars)
MC (in dollars)
0
-----
-----
-----
2
2.5
18
10
4
1.25
14
14
6
0.83
18
42
8
0.63
30
94
10
0.50
50
170
    
 
The table above shows the cost schedules of a perfectly competitive firm. If the market price of output is $50, the firm will produce _____ units and earn a profit of _____ . 
(Hint: ATC = AFC + AVC.)
 
a.
6; $187.02
b.
6; $48.00
c.
8; $154.96
d.
8; $245.04
e.
10; $0.00
  
 

13. 

Suppose the world’s iron mines are running out of ore, and new sources of iron are not being discovered.  In a market system, the users of iron (such as auto manufacturers who buy steel) will
 
a.
continue buying the same amount of iron.
b.
be surprised when the world suddenly runs out of iron. 
c.
increase their buying of iron in the long run. 
d.
decrease their use of iron in response to rising iron prices. 
e.
need a government agency to inform them of the impending iron shortage. 
  
 

14. 

 
 
Suppose the graphs above show the airline market. A general strike by American Airline pilots will probably cause changes in the market. Which panel shows these changes?
 
a.
Panel A
b.
Panel B
c.
Panel C
d.
Panel D
e.
all of the above
  
 

15. 

Jane spends an hour studying instead of working at her part time job which pays $5/hour. The opportunity cost to her of studying is
 
a.
the improvement in her grades from studying for the hour.
b.
the difference between the value she places on the improvement in her grades and the $5 she would have earned if she had worked instead of studying.
c.
the $5 she would have earned if she worked for another hour instead of studying.
d.
zero since it costs nothing to study.
e.
the increase in her earning power from getting an education.
  
 

16. 

A lighthouse is typically considered a good example of a public good because
 
a.
the owner of the lighthouse is able to exclude beneficiaries from enjoying the lighthouse.
b.
there is rarely another lighthouse nearby to provide competition.
c.
a nearby port authority cannot avoid paying fees to the lighthouse owner.
d.
all passing ships are able to enjoy the benefits of the lighthouse without paying.
e.
the more ships there are, the less light each ship gets.
  
 


 
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