ECON 201 Exam questions and
answers graded A+
Which of the following statements is associated with normative analysis, rather than positive
analysis? - ANS✅✅The tax system should be progressive.
Alan's opportunity cost of producing good A is lower than Bob's opportunity cost of producing good
A. Bob's opportunity cost of producing good B is lower than Alan's opportunity cost of producing
good B. This means that - ANS✅✅Alan has comparative advantage in the production of good A.
Alan should specialize in the production of good A.
Which of the following is an example of a condition for an optimal decision by some kind of
economic agent? - ANS✅✅For the consumer: Marginal utility is equal to price.
Which of the following would push the production-possibilities frontier outward? -
ANS✅✅Technological improvements.
Increases in the size of the labor force.
Capital investments.
Which of the following is necessary for a firm to increase its profits by engaging in price
discrimination? - ANS✅✅- The firm must have some way of distinguishing among its customers, to
tell which ones have demand that is more elastic and which ones have demand that is less elastic
- it must be difficult or impossible for customers to re-sell to other customers
The supply curve for tarfsnods is perfectly inelastic. The demand curve shifts to the right. What will
happen as a result? - ANS✅✅Equilibrium price will rise; equilibrium quantity will stay the same.
The income elasticity of demand for commodity J is 0.6. On the basis of this information, we would
say that J is - ANS✅✅normal
Which of the following would be expected to shift the supply curve
,for tomatoes to the left? - ANS✅✅An increase in the prices of inputs used in production of
tomatoes
Flooding in tomato-growing regions, which leads to crop damage.
Which of the following is an example of the "Tragedy of the Commons"? - ANS✅✅When there is
free access to a fishing ground, the stock of fish will be depleted.
The elasticity of demand for thingamabobs is 1.0. The
quantity demanded goes up from 30 per day to 50 per day.
Assume that a change in price was the only reason for the change
in quantity demanded. What must have happened to the price, in
order to have caused quantity demanded to change in this way? - ANS✅✅Price went down by
50%.
The payroll tax is a flat rate of labor earnings, but only up to a ceiling, above which the rate drops
substantially. Also, the payroll tax does not apply to capital income. As a result,
the payroll tax is - ANS✅✅about proportional over much of the income range,
but regressive at high incomes.
The firms in a monopolistically competitive industry are
earning positive economic profits. What would we expect to
happen as a result? - ANS✅✅New firms will enter the industry until zero economic
profits are being earned.
Because of good growing conditions, there is an increase in the supply of asparagus. What will
happen to the equilibrium price and quantity of asparagus? - ANS✅✅Equilibrium price will fall;
equilibrium quantity will rise
Which of the following is/are a reason why the earnings of college-educated workers tend to be
higher than the earnings of workers with less than a college education? - ANS✅✅College-educated
workers have higher marginal revenue product, so that the demand curve for their services is farther
to the right than it would otherwise be.
,A college education is costly to acquire, so that the supply curve of college-educated workers is
farther to the left than it would otherwise be.
When the price of champagne goes up, the demand curve for zabaglione shifts to the left. This
means that - ANS✅✅champagne and zabaglione are complements.
An import quota is instituted. As a result, consumers in the importing country are harmed, because
they consume a smaller quantity, and they pay a higher price for the units they do consume. What is
our best measure of the dollar value of the harm done to consumers by the import quota? -
ANS✅✅The change in consumer surplus.
Which of the following is a graph of the relationship between the cumulative proportion of the
population and the cumulative proportion of income? - ANS✅✅A Lorenz curve
Investment projects tend to have a large portion of their costs early in the life of the project, with
the revenues coming later. Because of this, and because of the need to discount future costs and
revenues, we would be more likely to approve a project if - ANS✅✅the interest rate is lower.
the project can be completed quickly, so the revenues can
begin to be realized sooner rather than later.
The Gini coefficient for annual income is _____ than the Gini coefficient for wealth, and the Gini
coefficient for annual income is ________ the Gini coefficient for lifetime income. - ANS✅✅smaller
than, larger than
annual income < wealth
annual income > lifetime income
If a natural monopoly were to charge a price equal to marginal cost, P = MC - ANS✅✅the firm
would suffer economic losses.
The price of a cotton handkerchief increases from $1.80 to $2.20. As a result, the quantity
demanded decreases from 1100 per day to 900 per day. What is the own-price elasticity of demand?
- ANS✅✅1.0
, e = (ΔQd/Qd) / (ΔP/P)
(1100 - 900) = 200
Avg: 1000
200/1000 = 0.2
$(2.20 - 1.80) = $0.40
Avg: $2.00
$0.40/$2.00 = 0.2
0..2 = 1.0
In the Empire of Lumpiness, every person pays $1000 per year of tax, regardless of his or her
income. This tax system is - ANS✅✅regressive
Which of the following is believed to be the most important force leading to the recent trend in
income inequality in the United States? - ANS✅✅Increases in the demand for skilled workers.
The supply curve for good X is given by Qs = P. The demand curve is given by
Qd = 20 - 3P. What is the equilibrium price of good X? - ANS✅✅5
P = 20 - 3P
4P = 20
P=5
What will be the effect of a price ceiling that is enforced above the equilibrium price? -
ANS✅✅there will be no effect
price ceiling > equilibrium price
In an attempt to raise its revenues, Emily's Bar & Grill increases the price of its onion soup. What
does this imply about Emily's beliefs regarding the elasticity of demand for its onion soup? -
ANS✅✅demand is inelastic
answers graded A+
Which of the following statements is associated with normative analysis, rather than positive
analysis? - ANS✅✅The tax system should be progressive.
Alan's opportunity cost of producing good A is lower than Bob's opportunity cost of producing good
A. Bob's opportunity cost of producing good B is lower than Alan's opportunity cost of producing
good B. This means that - ANS✅✅Alan has comparative advantage in the production of good A.
Alan should specialize in the production of good A.
Which of the following is an example of a condition for an optimal decision by some kind of
economic agent? - ANS✅✅For the consumer: Marginal utility is equal to price.
Which of the following would push the production-possibilities frontier outward? -
ANS✅✅Technological improvements.
Increases in the size of the labor force.
Capital investments.
Which of the following is necessary for a firm to increase its profits by engaging in price
discrimination? - ANS✅✅- The firm must have some way of distinguishing among its customers, to
tell which ones have demand that is more elastic and which ones have demand that is less elastic
- it must be difficult or impossible for customers to re-sell to other customers
The supply curve for tarfsnods is perfectly inelastic. The demand curve shifts to the right. What will
happen as a result? - ANS✅✅Equilibrium price will rise; equilibrium quantity will stay the same.
The income elasticity of demand for commodity J is 0.6. On the basis of this information, we would
say that J is - ANS✅✅normal
Which of the following would be expected to shift the supply curve
,for tomatoes to the left? - ANS✅✅An increase in the prices of inputs used in production of
tomatoes
Flooding in tomato-growing regions, which leads to crop damage.
Which of the following is an example of the "Tragedy of the Commons"? - ANS✅✅When there is
free access to a fishing ground, the stock of fish will be depleted.
The elasticity of demand for thingamabobs is 1.0. The
quantity demanded goes up from 30 per day to 50 per day.
Assume that a change in price was the only reason for the change
in quantity demanded. What must have happened to the price, in
order to have caused quantity demanded to change in this way? - ANS✅✅Price went down by
50%.
The payroll tax is a flat rate of labor earnings, but only up to a ceiling, above which the rate drops
substantially. Also, the payroll tax does not apply to capital income. As a result,
the payroll tax is - ANS✅✅about proportional over much of the income range,
but regressive at high incomes.
The firms in a monopolistically competitive industry are
earning positive economic profits. What would we expect to
happen as a result? - ANS✅✅New firms will enter the industry until zero economic
profits are being earned.
Because of good growing conditions, there is an increase in the supply of asparagus. What will
happen to the equilibrium price and quantity of asparagus? - ANS✅✅Equilibrium price will fall;
equilibrium quantity will rise
Which of the following is/are a reason why the earnings of college-educated workers tend to be
higher than the earnings of workers with less than a college education? - ANS✅✅College-educated
workers have higher marginal revenue product, so that the demand curve for their services is farther
to the right than it would otherwise be.
,A college education is costly to acquire, so that the supply curve of college-educated workers is
farther to the left than it would otherwise be.
When the price of champagne goes up, the demand curve for zabaglione shifts to the left. This
means that - ANS✅✅champagne and zabaglione are complements.
An import quota is instituted. As a result, consumers in the importing country are harmed, because
they consume a smaller quantity, and they pay a higher price for the units they do consume. What is
our best measure of the dollar value of the harm done to consumers by the import quota? -
ANS✅✅The change in consumer surplus.
Which of the following is a graph of the relationship between the cumulative proportion of the
population and the cumulative proportion of income? - ANS✅✅A Lorenz curve
Investment projects tend to have a large portion of their costs early in the life of the project, with
the revenues coming later. Because of this, and because of the need to discount future costs and
revenues, we would be more likely to approve a project if - ANS✅✅the interest rate is lower.
the project can be completed quickly, so the revenues can
begin to be realized sooner rather than later.
The Gini coefficient for annual income is _____ than the Gini coefficient for wealth, and the Gini
coefficient for annual income is ________ the Gini coefficient for lifetime income. - ANS✅✅smaller
than, larger than
annual income < wealth
annual income > lifetime income
If a natural monopoly were to charge a price equal to marginal cost, P = MC - ANS✅✅the firm
would suffer economic losses.
The price of a cotton handkerchief increases from $1.80 to $2.20. As a result, the quantity
demanded decreases from 1100 per day to 900 per day. What is the own-price elasticity of demand?
- ANS✅✅1.0
, e = (ΔQd/Qd) / (ΔP/P)
(1100 - 900) = 200
Avg: 1000
200/1000 = 0.2
$(2.20 - 1.80) = $0.40
Avg: $2.00
$0.40/$2.00 = 0.2
0..2 = 1.0
In the Empire of Lumpiness, every person pays $1000 per year of tax, regardless of his or her
income. This tax system is - ANS✅✅regressive
Which of the following is believed to be the most important force leading to the recent trend in
income inequality in the United States? - ANS✅✅Increases in the demand for skilled workers.
The supply curve for good X is given by Qs = P. The demand curve is given by
Qd = 20 - 3P. What is the equilibrium price of good X? - ANS✅✅5
P = 20 - 3P
4P = 20
P=5
What will be the effect of a price ceiling that is enforced above the equilibrium price? -
ANS✅✅there will be no effect
price ceiling > equilibrium price
In an attempt to raise its revenues, Emily's Bar & Grill increases the price of its onion soup. What
does this imply about Emily's beliefs regarding the elasticity of demand for its onion soup? -
ANS✅✅demand is inelastic
