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The law of demand tells us that

The law of demand tells us that

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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

  1. 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
    1. You should speed up, because otherwise you might run out of time
    2. You should slow down because otherwise you might get tired before the end of the exam
    3. No other speed will yield higher net benefits
    4. You should go faster because you have nothing to lose by doing so
    5. Both (b) and (d) are correct
  1. 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

  1. 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:

  1. 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

  1. 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

  1. 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

  1. 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

  1. Given the information in the table above, what are the total costs of my trip if I average 30 mph?
    1. 250
    2. 450
    3. 650
    4. 2400
    5. None of the above
  1. 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

  1. 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

  1. 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.

  1. The result of this increase in the price of barley will be:
    1. a reduction in the supply of beer
    2. an increase in the supply of beer
    3. an increase in the demand for beer
    4. a reduction in the demand for beer
    5. both (a) and (d) are correct
  1. 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

  1. 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.

  1. 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.

  1. 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

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