ECO 2003 Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. A surplus results when a a. nonbinding price floor is imposed on a market. b. nonbinding price floor is removed from a market. c. binding price floor is imposed on a market. d. binding price floor is removed from a market. Figure 6-3 Panel (a)Panel (b) quantity quantity ____ 2. Refer to Figure 6-3. A nonbinding price floor is shown in a. both panel (a) and panel (b). b. panel (a) only. c. panel (b) only. d. neither panel (a) nor panel (b). Figure 6-6 ____ 3. Refer to Figure 6-6. If the government imposes a price ceiling of $12 on this market, then there will be a. no shortage. b. a shortage of 10 units. c. a shortage of 20 units. d. a shortage of 40 units. Figure 6-9 ____ 4. Refer to Figure 6-9. At which price would a price ceiling be binding? a. $4 b. $5 c. $6 d. $7 Figure 6-11 ____ 5. Refer to Figure 6-11. Which of the following statements is not correct? a. A government-imposed price of $9 would be a binding price floor if market demand is Demand A and a binding price ceiling if market demand is Demand B. b. A government-imposed price of $15 would be a binding price ceiling if market demand is either Demand A or Demand B. c. A government-imposed price of $3 would be a binding price ceiling if market demand is either Demand A or Demand B. d. A government-imposed price of $12 would be a binding price floor if market demand is Demand A and a non-binding price ceiling if market demand is Demand B. ____ 6. When a tax is imposed on the sellers of a good, the supply curve shifts a. upward by the amount of the tax. b. downward by the amount of the tax. c. upward by less than the amount of the tax. d. downward by less than the amount of the tax. Figure 6-25 Panel (a)Panel (b) quantity quantity Panel (c) ____ 7. Refer to Figure 6-25. In which market will the majority of the tax burden fall on buyers? a. market (a) b. market (b) c. market (c) d. All of the above are correct. Table 7-6 Buyer Willingness to Pay Michael $500 Earvin $400 Larry $350 Charles $300 ____ 8. Refer to Table 7-6. You have four essentially identical extra tickets to the Midwest Regional Sweet 16 game in the men’s NCAA basketball tournament. The table shows the willingness to pay of the four potential buyers in the market for a ticket to the game. You offer to sell the tickets for $400. How many tickets do you sell, and what is the total consumer surplus in the market? a. one ticket; $100 b. two tickets; $100 c. two tickets; $0 d. three tickets; $0 ____ 9. Suppose there is an early freeze in California that reduces the size of the lemon crop. What happens to consumer surplus in the market for lemons? a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus is not affected by this change in market forces. d. We would have to know whether the demand for lemons is ela ...

1. ECO 2003
Multiple Choice
Identify the choice that best completes the statement or answers
the question.
____
1. A surplus results when a
a. nonbinding price floor is imposed on a market.
b. nonbinding price floor is removed from a market.
c. binding price floor is imposed on a market.
d. binding price floor is removed from a market.
Figure 6-3
Panel (a)Panel (b)
quantity
quantity
____
2. Refer to Figure 6-3. A nonbinding price floor is shown in
a. both panel (a) and panel (b).
b. panel (a) only.
c. panel (b) only.
d. neither panel (a) nor panel (b).
Figure 6-6
____
3. Refer to Figure 6-6. If the government imposes a price
ceiling of $12 on this market, then there will be a. no shortage.
b. a shortage of 10 units.
c. a shortage of 20 units.
d. a shortage of 40 units.
Figure 6-9

2. ____
4. Refer to Figure 6-9. At which price would a price ceiling be
binding? a. $4
b. $5
c. $6
d. $7
Figure 6-11
____
5. Refer to Figure 6-11. Which of the following statements is
not correct?
a. A government-imposed price of $9 would be a binding price
floor if market demand is Demand A and a binding price ceiling
if market demand is Demand B.
b. A government-imposed price of $15 would be a binding price
ceiling if market demand is either Demand A or Demand B.
c. A government-imposed price of $3 would be a binding price
ceiling if market demand is either Demand A or Demand B.
d. A government-imposed price of $12 would be a binding price
floor if market demand is Demand A and a non-binding price
ceiling if market demand is Demand B.
____
6. When a tax is imposed on the sellers of a good, the supply
curve shifts
a. upward by the amount of the tax.
b. downward by the amount of the tax.
c. upward by less than the amount of the tax.
d. downward by less than the amount of the tax.
Figure 6-25
Panel (a)Panel (b)
quantity
quantity
Panel (c)

3. ____
7. Refer to Figure 6-25. In which market will the majority of
the tax burden fall on buyers? a. market (a)
b. market (b)
c. market (c)
d. All of the above are correct.
Table 7-6
Buyer
Willingness to Pay
Michael
$500
Earvin
$400
Larry
$350
Charles
$300
____
8. Refer to Table 7-6. You have four essentially identical extra
tickets to the Midwest Regional Sweet 16 game in the men’s
NCAA basketball tournament. The table shows the willingness
to pay of the four potential buyers in the market for a ticket to
the game. You offer to sell the tickets for $400. How many
tickets do you sell, and what is the total consumer surplus in the
market? a. one ticket; $100
b. two tickets; $100
c. two tickets; $0
d. three tickets; $0
____
9. Suppose there is an early freeze in California that reduces the
size of the lemon crop. What happens to consumer surplus in the
market for lemons? a. Consumer surplus increases.
b. Consumer surplus decreases.

4. c. Consumer surplus is not affected by this change in market
forces.
d. We would have to know whether the demand for lemons is
elastic or inelastic to make this determination.
____ 10. All else equal, what happens to consumer surplus if
the price of a good increases?
a. Consumer surplus increases.
b. Consumer surplus decreases.
c. Consumer surplus is unchanged.
d. Consumer surplus may increase, decrease, or remain
unchanged.
Figure 7-5
____
11. Refer to Figure 7-5. If the government imposes a price
floor of $120 in this market, then consumer surplus will
decrease by (Remember, area of a triangle is 1/2 * b * h) a. $75.
b. $125.
c. $225.
d. $300.
____
12. Producer surplus is
a. measured using the demand curve for a good.
b. always a negative number for sellers in a competitive market.
c. the amount a seller is paid minus the cost of production.
d. the opportunity cost of production minus the cost of
producing goods that go unsold.
____
13. If Gina sells a shirt for $40, and her producer surplus from
the sale is $32, her cost must have been
a. $72.
b. $32.
c. $8.

5. d. We would have to know the consumer surplus in order to
make this determination.
Table 7-10
Seller
Cost
LeBron
$700
Kobe
$600
Kevin
$450
Steve
$400
____ 14. Refer to Table 7-10. You want to hire a professional
photographer to take pictures of your family. The table shows
the costs of the four potential sellers in the local photography
market. You take bids from the sellers. Who offers the
winning bid, and what does he offer to charge for the
photography session? a. Steve; more than $400 but less than
$450
b. Steve; $399
c. LeBron; more than $700
d. LeBron; more than $600 but less than $700
Figure 7-15
____
15. Refer to Figure 7-15. If the government imposes a price
floor of $60 in this market, then total surplus will be a.
$110.50.
b. $125.00.
c. $187.50.
d. $225.25..
____

6. 16. A tax on a good
a. raises the price that buyers effectively pay and raises the
price that sellers effectively receive.
b. raises the price that buyers effectively pay and lowers the
price that sellers effectively receive.
c. lowers the price that buyers effectively pay and raises the
price that sellers effectively receive.
d. lowers the price that buyers effectively pay and lowers the
price that sellers effectively
receive.
____ 17. Suppose a tax is imposed on the sellers of fast-food
French fries. The burden of the tax will
a. fall entirely on the buyers of fast-food French fries.
b. fall entirely on the sellers of fast-food French fries.
c. be shared equally by the buyers and sellers of fast-food
French fries.
d. be shared by the buyers and sellers of fast-food French fries
but not necessarily equally.
Figure 8-6
The vertical distance between points A and B represents a tax in
the market.
____ 18. Refer to Figure 8-6. When the tax is imposed in this
market, producer surplus is a. $450.
b. $600.
c. $900.
d. $1,500.
Figure 8-7
The vertical distance between points A and B represents a tax in
the market.
____ 19. Refer to Figure 8-7. The deadweight loss associated
with this tax amounts to
a. $60, and this figure represents the amount by which tax
revenue to the government exceeds the combined loss of
producer and consumer surpluses.

7. b. $60, and this figure represents the surplus that is lost because
the tax discourages mutually advantageous trades between
buyers and sellers.
c. $40, and this figure represents the amount by which tax
revenue to the government exceeds the combined loss of
producer and consumer surpluses.
d. $40, and this figure represents the surplus that is lost because
the tax discourages mutually advantageous trades between
buyers and sellers.
____ 20. The deadweight loss from a tax of $8 per unit will be
smallest in a market with
a. elastic demand and elastic supply.
b. elastic demand and inelastic supply.
c. inelastic demand and elastic supply.
d. inelastic demand and inelastic supply.
____ 21. For any country, if the world price of zinc is higher
than the domestic price of zinc without trade, that country
should
a. export zinc, since that country has a comparative advantage
in zinc.
b. import zinc, since that country has a comparative advantage
in zinc.
c. neither export nor import zinc, since that country cannot gain
from trade.
d. neither export nor import zinc, since that country already
produces zinc at a low cost compared to other countries.
Figure 9-1
The figure illustrates the market for wool in Scotland.
____ 22. Refer to Figure 9-1. With trade, Scotland will
a. export 11 units of wool.
b. export 5 units of wool.
c. import 15 units of wool.
d. import 6 units of wool.
Figure 9-4. The domestic country is Nicaragua.

8. ____ 23. Refer to Figure 9-4. Consumer surplus in Nicaragua
without trade is
a. $375.
b. $2,000.
c. $2,250.
d. $8,700.
Figure 9-9
____ 24. Refer to Figure 9-9. Consumer surplus in this market
before trade is
a. A.
b. A + B.
c. A + B + D.
d. C.
Figure 9-10. The figure applies to Mexico and the good is rifles.
____ 25. Refer to Figure 9-10. The price and quantity of rifles
in Mexico before trade is
a. P0 and Q0.
b. P1 and Q1.
c. P2 and Q2.
d. P1 and Q0.
Figure 9-11
____ 26. Refer to Figure 9-11. Consumer surplus in this market
after trade is
a. A.
b. C + B.
c. A + B + D.
d. B + C + D.
____ 27. Refer to Figure 9-11. Producer surplus in this market
before trade is
a. C.
b. B + C.
c. A + B + D.
d. B + C + D.

9. Figure 9-17
4
8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88
92 96 100 Quantity
____
28. Refer to Figure 9-17. Without trade, total surplus is
a. $600.
b. $1,200.
c. $1,800.
d. $2,250.
____
29. When a country allows trade and becomes an importer of a
good,
a. domestic producers become better off, and domestic
consumers become worse off.
b. domestic producers become worse off, and domestic
consumers become better off.
c. domestic consumers become better off, but the effect on the
well-being of domestic producers is ambiguous.
d. domestic producers become worse off, but the effect on the
well-being of domestic consumers is ambiguous.
____
30. Which of the following is an example of an implicit cost?
(i) the owner of a firm forgoing an opportunity to earn a large
salary working for a Wall Street brokerage firm
(ii) interest paid on the firm's debt
(iii) rent paid by the firm to lease office space
a. (ii) and (iii) only
b. (i) and (iii) only
c. (i) only
d. (iii) only
____ 31. When the marginal product of an input declines as the

10. quantity of that input increases, the production function exhibits
a. increasing marginal product.
b. diminishing marginal product.
c. diminishing total product.
d. Both b and c are correct.
____ 32. Variable cost divided by the change in quantity
produced is
a. average variable cost.
b. marginal cost.
c. average total cost.
d. None of the above is correct.
Table 13-10
Eileen’s Elegant Earrings produces pairs of earrings for its mail
order catalogue business. Each pair is shipped in a separate
box. She rents a small room for $150 a week in the downtown
business district that serves as her factory. She can hire workers
for $275 a week. There are no implicit costs.
Number of
Workers
Boxes of
Earrings
Produced per Week
Marginal
Product of Labor
Cost of
Factory
Cost of
Workers
Total Cost of
Inputs
0
0

11. 1
330
$150
$275
$425
2
630
3
150
$825
$975
4
890
5
950
60
$1,375
6
10
$1,800

12. ____ 33. Refer to Table 13-10. What is the total cost associated
with making 890 boxes of earrings per week? a. $1,250
b. $1,325
c. $1,400
d. $1,575
____ 34. When average cost is greater than marginal cost,
marginal cost must be a. rising.
b. falling.
c. constant.
d. The direction of change in marginal cost cannot be
determined from this information.
Figure 13-9
The figure below depicts average total cost functions for a firm
that produces automobiles.
____ 35. Refer to Figure 13-9. The firm experiences economies
of scale at which output levels? a. output levels less than M
b. output levels between M and N
c. output levels greater than N
d. All of the above are correct as long as the firm is operating in
the long run.
QUESTION 37 - EXTRA CREDIT (WORTH 1 POINT)
Starting in fall 2014, an introductory economics (ECO 2003,
2013, or 2023) will no longer be a required Core course for all
students. Instead it will be one choice among several social and
behavioral science courses. Suppose that choice had been given
to you this year before you signed up for ECO 2003. What
would your choice likely have been?
A. I would likely have chosen another course.
B. I would likely still have taken this economics class.
C. It would greatly depend on the other course choices.
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.
PART I

13. Table 3
Assume that Aruba and Iceland can switch between producing
coolers and producing radios at a constant rate.
Labor Hours Needed to Make 1
Cooler
Radio
Aruba
2
5
Iceland
1
4
Refer to Table 3-2
1. Draw Aruba's production possibilities frontier when 100
labor hours are available.
2. Draw Iceland's production possibilities frontier when 100
labor hours are available.
3. What is the slope of Aruba’s PPF? Of Iceland’s?
4. Assuming that Aruba and Iceland each has 80 labor hours
available, if each country divides its time equally between the
production of coolers and radios, then total production is how
many coolers and radios?
PART II
The only two countries in the world, Alpha and Omega, face the
following production possibilities.
Alpha’s Production Possibilities FrontierOmega’s Production
Possibilities Frontier
25 50 75 100 125 150 175 200 225 250 peanuts

14. 25 50 75 100 125 150 175 200 225
peanuts
1. Assume that each country decides to use half of its resources
in the production of each good. Show these points on the graphs
for each country as point A.
2. If these countries choose not to trade, what would be the total
world production of popcorn and peanuts?
3. Now suppose that each country decides to specialize in the
good in which each has a comparative advantage. By
specializing, what is the total world production of each product
now?
4. If each country decides to trade 100 units of popcorn for 100
units of peanuts, show on the graphs the gain each country
would receive from trade. Label these points B.
PART III
1.
Explain the difference between absolute advantage and
comparative advantage. Which is more important in determining
trade patterns, absolute advantage or comparative advantage?
Why?
D
S
price floor

15. price of wheat
D
S
price floor
price of wheat
D
S
10
20

16. 30
40
50
60
70
80
quantity
2
4

17. 6
8
10
12
14
16
18
20
price

18. D
S
3
6
9
12
15
18
21

19. 24
27
30
quantity
1
2
3
4
5

20. 6
7
8
9
10
11
12
price
DemandB

21. DemandA
Supply
3
6
9
12
15
18
21

22. 24
27
30
Quantity
3
6
9
12
15

23. 18
21
24
27
30
Price
D
S
price

24. D
S
price
D
S
quantity
price
5
Supply

25. Demand
25
2
4
6
8
10
12
14

26. 16
18
20
22
24
26
28
Quantity
10

27. 20
30
40
50
60
70
80
90
100

28. 110
120
130
140
150
160
170
Price
Supply

29. Demand
1
2
3
4
5
6
7
8

30. 9
10
11
12
13
14
15
16
17

31. 18
19
20
21
22
23
24
25
Quantity

32. 5
10
15
20
25
30
35
40
45

33. 50
55
60
65
70
75
80
85
Price

34. A
B
Demand
Supply
100
200
300
400
500

35. 600
700
800
900
1000
Quantity
2
4
6

36. 8
10
12
14
16
18
20
22
Price

37. Demand
Supply
B
A
5
10
15
20
25

38. 30
35
40
45
50
55
60
Quantity
2

39. 4
6
8
10
12
14
16
18
20

40. 22
24
Price
Domestic supply
Domestic demand
World
price
A
B

41. C
D
F
G
H
1
2
3
4

42. 5
6
7
8
9
10
11
12
13

43. 14
15
16
17
18
19
20
21
22

44. 23
24
25
26
Quantity
5
10
15
20

45. 25
30
35
40
45
50
55
60
65

46. 70
75
Price
Domestic Supply
Domestic Demand
World price + tariff
World Price
4
8

47. 12
16
20
24
28
32
36
40
44

48. 48
52
56
60
64
68
72
76
Price

49. 25
50
75
100
125
150
175
200
225

50. 250
275
300
popcorn
25
50
75
100
125

51. 150
175
200
225
250
275
300
popcorn