Question:Question:The percentage of food expenditures spent by The percentage of food expenditures spent by U.S. households away from home has U.S. households away from home has increased over the last 20 years. The current increased over the last 20 years. The current percentage of food expenditures spent away percentage of food expenditures spent away from home is:from home is:

A) 75%A) 75%B) 25%B) 25%C) More than 95%C) More than 95%D) Approximately 50%D) Approximately 50%E) 33%E) 33%

9/13/10 #19/13/10 #1

Question:Question:Many countries tend to specialize in the Many countries tend to specialize in the production of particular commodities. With production of particular commodities. With specialization:specialization:

A) The same amount of commodities will A) The same amount of commodities will be produced be produced

B) Only 1 commodity will be producedB) Only 1 commodity will be producedC) More of at least one commodity will be C) More of at least one commodity will be

producedproducedD) On net, all countries will be better D) On net, all countries will be better

offoffE)E) Both (C) and (D)Both (C) and (D)

9/13/10 #29/13/10 #2

Question:Question:Economics is concerned with how scarce Economics is concerned with how scarce resources are allocated across competing uses. resources are allocated across competing uses. Why can your time be considered a scarce Why can your time be considered a scarce resource?resource?

9/15/10 #19/15/10 #1

A)A) It really can’t be a scarce resource since It really can’t be a scarce resource since everyone has the same amount of timeeveryone has the same amount of time

B)B) Because there is a finite number of hours in a Because there is a finite number of hours in a dayday

C)C) Because time does not have a valueBecause time does not have a valueD)D) It really can’t be a scare resource since it is not It really can’t be a scare resource since it is not

a physical commodity or gooda physical commodity or goodE)E) Both A and DBoth A and D

Question:Question:I have enrolled about 15 acres of my cropland in the I have enrolled about 15 acres of my cropland in the Conservation Reserve Program (CRP). Under CRP I am Conservation Reserve Program (CRP). Under CRP I am not allowed to cultivate or graze covered acreage but I am not allowed to cultivate or graze covered acreage but I am required to maintain native grasses for erosion control. required to maintain native grasses for erosion control. This cropland is zoned only for agricultural use. Which of This cropland is zoned only for agricultural use. Which of the following can be considered the the following can be considered the opportunity costopportunity cost of of enrolling in the CRP?enrolling in the CRP?

A)A) $750 since that was my property tax bill last year$750 since that was my property tax bill last yearB)B) $35,000 since that is the current price of rural $35,000 since that is the current price of rural

residential building lots in the arearesidential building lots in the areaC)C) $1,250 since that is my profit from growing corn$1,250 since that is my profit from growing cornD)D) $2,250 since that is my profit from growing soybeans$2,250 since that is my profit from growing soybeansE)E) $0 since I already own the land$0 since I already own the land

9/15/10 #29/15/10 #2

Question:Question:Suppose you are analyzing the prices received by Suppose you are analyzing the prices received by Florida citrus growers. You collect data Florida citrus growers. You collect data encompassing the 1970-2009 period. You find encompassing the 1970-2009 period. You find the price index received by farmers in 2009 was the price index received by farmers in 2009 was 0.97 with 1990 used as the base year.0.97 with 1990 used as the base year.

9/20/10 #19/20/10 #1

A)A) Relative to 2009, citrus prices were 97% higher in Relative to 2009, citrus prices were 97% higher in 19901990

B)B) Relative to 1990, citrus prices were 3% lower in Relative to 1990, citrus prices were 3% lower in 20092009

C)C) Relative to 2009, citrus prices were 3% lower in Relative to 2009, citrus prices were 3% lower in 19901990

D)D) Relative to 1990, citrus prices were 97% higher in Relative to 1990, citrus prices were 97% higher in 20072007

E)E) None of the aboveNone of the above

Question:Question:Marginal utility (MU) is the change in one’s Marginal utility (MU) is the change in one’s utility obtained from the consumption of an utility obtained from the consumption of an additional unit of a particular good, additional unit of a particular good, ceteris ceteris paribusparibus. This definition implies the following:. This definition implies the following:

9/20/10 #29/20/10 #2

A)A) Your utility is maximized at the consumption Your utility is maximized at the consumption level where your MU has a large positive level where your MU has a large positive

valuevalueB)B) Your utility is maximized at the consumption Your utility is maximized at the consumption

level where your MU is zerolevel where your MU is zeroC)C) MU is the slope of the utility functionMU is the slope of the utility functionD)D) Both (A) and (C)Both (A) and (C)E)E) Both (B) and (C)Both (B) and (C)

Question:Question:Suppose you have Suppose you have the indifference the indifference curve shown to the curve shown to the right. What is theright. What is theMRS of Tacos for MRS of Tacos for Hamburgers whenHamburgers whenmoving from A to moving from A to B?B?

9/22/10 #19/22/10 #1

A)A) – –1.251.25B)B) 0 since they are different goods0 since they are different goodsC)C) 0 since these two good combinations on 0 since these two good combinations on

the same indifference curvethe same indifference curveD)D) 1.251.25E)E) ––5.005.00

1 2 3 4 5 6

1

3

2

4

5

6

7

8

9

Hamburger Consumption per Week

Tac

o C

onsu

mp

tion

per

Wee

k

100 Utils

A

B

Question:Question:Suppose you have a Suppose you have a budget line budget line represented by AB. represented by AB. What causes this What causes this budget line to shift budget line to shift to CB?to CB?

9/22/10 #29/22/10 #2

A)A) Price of Hamburgers DoublingPrice of Hamburgers DoublingB)B) Price of Hamburgers Decreasing by 50%Price of Hamburgers Decreasing by 50%C)C) Price of Tacos DoublingPrice of Tacos DoublingD)D) Price of Tacos Decreasing by 50%Price of Tacos Decreasing by 50%E)E) Both choice (A) and (C) aboveBoth choice (A) and (C) above

1 2 3 4 5 6

1

3

2

4

5

6

7

8

9

Hamburger Consumption per Week

Tac

o C

onsu

mp

tion

per

Wee

k

A

B

C

A)A) 0, since by definition 0, since by definition AA identifies identifies the utility max. combination of the utility max. combination of goodsgoods

B)B) -2-2C)C) Equals the negative of the price ratioEquals the negative of the price ratioD)D) B and CB and CE)E) Not defined since the prices of the Not defined since the prices of the

two goods are unknowntwo goods are unknown

Question:Question:Suppose you have the Suppose you have the indifference curve indifference curve and budget line and budget line shown to the right. shown to the right. At equilibrium pt. At equilibrium pt. AA we know the MRS we know the MRS between Good 1 and between Good 1 and Good 2 is: Good 2 is:

9/27/10 #19/27/10 #1

1 2 3 4 5 6

1

3

2

4

5

67

8

9

Good 2 ConsumptionGood 2 Consumption

Goo

d 1

Con

sum

pti

onG

ood

1 C

onsu

mp

tion

100 Utils

AA

Budget ConstraintBudget Constraint

Indifference CurveIndifference Curve

Question:Question:We use the utility maximizing solution to We use the utility maximizing solution to the allocation of our fixed budget to derive a the allocation of our fixed budget to derive a commodity’s commodity’s demand curvedemand curve. We do this by . We do this by examining how the amount of this good that examining how the amount of this good that is purchased changes as a result of:is purchased changes as a result of:

9/27/10 #29/27/10 #2

A)A) Changes in Changes in availableavailable budget budget B)B) Changes in the Changes in the price of other goodsprice of other goodsC)C) Changes in the Changes in the price of that particular good price of that particular good D)D) Both A and CBoth A and CE)E) Changes in indifference curve shapeChanges in indifference curve shape

A)A) That portion of the demand curve has a That portion of the demand curve has a negative slopenegative slope

B)B) That portion of the demand curve has a That portion of the demand curve has a positive slopepositive slope

C)C) That portion of the Engel curve has a That portion of the Engel curve has a positive slopepositive slope

D)D) That portion of the Engel curve has a That portion of the Engel curve has a negative slopenegative slope

E)E) Both A and CBoth A and C

Question:Question:A good is referred to as an A good is referred to as an inferior good inferior good when:when:

9/29/10 #19/29/10 #1

Question:Question:A A perfectly inelastic perfectly inelastic demand curve will have demand curve will have the following charactistic(s):the following charactistic(s):

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A)A) The demand curve graph will be a The demand curve graph will be a vertical linevertical line

B)B) Quantity demanded will not change Quantity demanded will not change with pricewith price

C)C) Consumer surplus is 0Consumer surplus is 0D)D) A, B and CA, B and CE)E) None of the aboveNone of the above

A.A. Yes, because they are both negatively slopedYes, because they are both negatively slopedB.B. No, because the MRS on the UNo, because the MRS on the U11 indifference curve indifference curve

cannot equal the MRS on the Ucannot equal the MRS on the U22 indifference curve indifference curve

C.C. Yes, because you can have a negative MUYes, because you can have a negative MUD.D. No, because the same bundle cannot make for 2 No, because the same bundle cannot make for 2

different levels of satisfactiondifferent levels of satisfactionE.E. Both B and DBoth B and D

10/4/10 #110/4/10 #1

U1

U2

U1 < U2

Good 2

Good 1

Question:Question: Could we have Could we have two indifference curves two indifference curves that look like those in this that look like those in this indifference map?indifference map?

A.A. It does not make sense as you must decrease It does not make sense as you must decrease your demand for a good when prices increaseyour demand for a good when prices increase

B.B. It makes sense because that portion of the It makes sense because that portion of the demand curve has a positive slopedemand curve has a positive slope

C.C. It does not make sense since goods with It does not make sense since goods with inelastic demand are normal goodsinelastic demand are normal goods

D.D. It does make sense since the % change in It does make sense since the % change in quantity is less than the % change in pricequantity is less than the % change in price

E.E. It does make sense since goods with inelastic It does make sense since goods with inelastic demand are inferior goodsdemand are inferior goods

10/4/10 #210/4/10 #2

Question:Question: Why does it make sense that if you Why does it make sense that if you have a good exhibiting inelastic demand that have a good exhibiting inelastic demand that total expenditures total expenditures on this good will on this good will increaseincrease with a price with a price increaseincrease??

10/6/10 #110/6/10 #1

Question:Question: Suppose I examine the relationship Suppose I examine the relationship between the demand for two goods and find between the demand for two goods and find that they are substitutes. This implies:that they are substitutes. This implies:

A) A) ηηijij > 1.0 > 1.0

B)B) ηηijij < 1 < 1

C)C) ηηijij > 0 > 0

D)D) ηηijij > 0, > 0, ηηijij < 1 < 1

E)E) ηηijij > 0, > 0, ηηiiii < 0 < 0

10/6/10 #210/6/10 #2

Question:Question: APPAPP is calculated as the total amount is calculated as the total amount of output produced divided by the total amount of output produced divided by the total amount of input used. One can identify the input level of input used. One can identify the input level that results in the that results in the maximum APPmaximum APP via one of the via one of the following conditions:following conditions:

A)A)TPP is at a maximumTPP is at a maximumB)B)MPP is < 0MPP is < 0C)C)MPP = 0 MPP = 0 D)D)MPP = TPPMPP = TPPE)E)MPP = APPMPP = APP

A.A. It makes sense as this means the marginal input It makes sense as this means the marginal input is adding more than that added by smaller is adding more than that added by smaller amounts of the inputamounts of the input

B.B. It makes sense because that means the MPP > 0It makes sense because that means the MPP > 0C.C. It does not make sense since this means the APP It does not make sense since this means the APP

would be greater for larger amounts of the inputwould be greater for larger amounts of the inputD.D. It does make sense since this means the APP is It does make sense since this means the APP is

decliningdecliningE.E. It does not make sense since this means the TPP It does not make sense since this means the TPP

is decliningis declining

10/11/10 #110/11/10 #1

Question:Question: Why does it make sense that Why does it make sense that producers will want to use a variable input in the producers will want to use a variable input in the range where range where MPP > APPMPP > APP

A.A. $0 since last year your farm did not earn a profit$0 since last year your farm did not earn a profitB.B. The minimum wage = $7.25/hour x 40 hrs/week The minimum wage = $7.25/hour x 40 hrs/week

x 50 weeks = $14,500x 50 weeks = $14,500C.C. $0 since you own the farm$0 since you own the farmD.D. $45,000 the average salary of a farm manager in $45,000 the average salary of a farm manager in

WIWIE.E. The price of milk x amt. of milk produced/cow The price of milk x amt. of milk produced/cow

x 300 cowsx 300 cows

10/11/10 #110/11/10 #1

Question:Question: Assume you are a dairy farmer in Assume you are a dairy farmer in Fond du Lac county Wisconsin where you milk Fond du Lac county Wisconsin where you milk 300 cows. The opportunity cost of your time is 300 cows. The opportunity cost of your time is

A.A. The MC curve will be U-shapedThe MC curve will be U-shapedB.B. There is a level of input use that maximizes the There is a level of input use that maximizes the

TPPTPPC.C. The AVC curve will always be above the MC The AVC curve will always be above the MC

curvecurveD.D. The AVC curve will decline over all output The AVC curve will decline over all output

levelslevelsE.E. Both A and DBoth A and D

10/11/10 #210/11/10 #2

Question:Question: Assume you have a firm using a Assume you have a firm using a single variable input in a single variable input in a perfectly competitive perfectly competitive industryindustry and exhibits the classic shaped MPP and exhibits the classic shaped MPP curve except that MPP > 0 over all inputs. This curve except that MPP > 0 over all inputs. This means:means:

A.A. Find the output level where MC = 0Find the output level where MC = 0B.B. Use the one input to the point where MPP = Use the one input to the point where MPP =

(Input Price/Output Price)(Input Price/Output Price)C.C. Find the input level where MC = (Input Find the input level where MC = (Input

Price/MPP)Price/MPP)D.D. Find the output level where MC=Output PriceFind the output level where MC=Output PriceE.E. Both B and DBoth B and D

10/13/10 #110/13/10 #1

Question:Question: Assume you are in a Assume you are in a perfectly perfectly competitive industrycompetitive industry, produce an output with a , produce an output with a single input, you know the MPP schedule of this single input, you know the MPP schedule of this input and you know its price. To maximize input and you know its price. To maximize profit you profit you

A.A. Slope of the isoquant = 0Slope of the isoquant = 0B.B. Ratio of the inputs MPP’s = input price ratioRatio of the inputs MPP’s = input price ratioC.C. Each inputs MPP/input price ratio are equalEach inputs MPP/input price ratio are equalD.D. Each input’s MPP = 0Each input’s MPP = 0E.E. Both B and CBoth B and C

10/13/10 #110/13/10 #1

Question:Question: Assume you are in a Assume you are in a perfectly perfectly competitive industry competitive industry andand produce an output with produce an output with two inputs. To minimize the cost of producing two inputs. To minimize the cost of producing Q* amount of output you need to find the input Q* amount of output you need to find the input combination the generates the following:combination the generates the following:

A.A. Farmers would apply less nitrogen fertilizerFarmers would apply less nitrogen fertilizerB.B. Farmers would produce more cornFarmers would produce more cornC.C. With fixed fertilizer prices, we would expect a With fixed fertilizer prices, we would expect a

level of fertilizer use where the MPP is lower level of fertilizer use where the MPP is lower than this yearthan this year

D.D. It is more likely that AFC will be coveredIt is more likely that AFC will be coveredE.E. The MC of production will be greater than the The MC of production will be greater than the

minimum AVCminimum AVC10/13/10 #210/13/10 #2

Question:Question: At the Chicago Mercantile Exchange At the Chicago Mercantile Exchange yesterday, the futures price for corn for Dec. yesterday, the futures price for corn for Dec. delivery ↑ to a record of more than $5.84/bushel. delivery ↑ to a record of more than $5.84/bushel. If these high prices were to continue for next If these high prices were to continue for next year which of the following would year which of the following would not be truenot be true??

Question:Question:It is not surprising that an isoquant should be It is not surprising that an isoquant should be negatively sloped because:negatively sloped because:

A)A)The firm is operating in Stage I of productionThe firm is operating in Stage I of productionB)B)The firm is operating in Stage II of productionThe firm is operating in Stage II of productionC)C)The firm is operating in Stage III of productionThe firm is operating in Stage III of productionD)D)The MVP of both inputs are ↑ with ↑ useThe MVP of both inputs are ↑ with ↑ useE)E)Both A) and B)Both A) and B)

10/18/10 #110/18/10 #1

Q=Q*Q=Q*

I1

I2

A.A. Located on either the vertical or horizontal Located on either the vertical or horizontal axisaxis

B.B. Located at a point below the desired isoquantLocated at a point below the desired isoquantC.C. Not dependent on the price of either inputNot dependent on the price of either inputD.D. At a combination where the MRTS = input At a combination where the MRTS = input

price ratioprice ratioE.E. At a combination where the MPP of one of the At a combination where the MPP of one of the

inputs is 0inputs is 0

10/13/10 #210/13/10 #2

Question:Question: It is not surprising that the input It is not surprising that the input combination that generates the minimum cost of combination that generates the minimum cost of producing a particular output is:producing a particular output is:

A)A) The firm’s demand for capital will increaseThe firm’s demand for capital will increaseB)B) The firm’s demand for labor will increaseThe firm’s demand for labor will increaseC)C) The firm’s demand for labor is not impactedThe firm’s demand for labor is not impactedD)D) The firm’s total variable cost of producing The firm’s total variable cost of producing Q* will decrease Q* will decrease E)E) Both A) and B)Both A) and B)

10/20/10 #110/20/10 #1

Question:Question: Assuming the Assuming the cost minimizing modelcost minimizing model of the firm, if the firm has following short run of the firm, if the firm has following short run production function: Q = f(K, L | Other Inputs) production function: Q = f(K, L | Other Inputs) and the price of capital increases:and the price of capital increases:

A.A. Dependent on the technology available Dependent on the technology available to the firm to transform inputs to to the firm to transform inputs to productsproducts

B.B. Dependent on the relative prices of the Dependent on the relative prices of the two products being producedtwo products being produced

C.C. Dependent on the relative prices of the Dependent on the relative prices of the inputs used to produce the productsinputs used to produce the products

D.D. Both A and BBoth A and BE.E. Both A and CBoth A and C

10/13/10 #210/13/10 #2

Question:Question: The shape and location of the The shape and location of the firm’s production possibilities frontier is:firm’s production possibilities frontier is:

A.A. Dependent on the output prices that exist Dependent on the output prices that exist in the economyin the economy

B.B. Technical in natureTechnical in natureC.C. Always a straight lineAlways a straight lineD.D. Dependent on the input prices that exist Dependent on the input prices that exist

in the economyin the economyE.E. Both A and DBoth A and D

10/25/10 #110/25/10 #1

Question:Question: The firm’s production The firm’s production possibilities frontier is:possibilities frontier is:

10/25/10 #210/25/10 #2

Question:Question: The profit maximizing combination The profit maximizing combination of outputs that will maximize the firm’s profits of outputs that will maximize the firm’s profits are:are:A.A. On the boundary of the PPFOn the boundary of the PPFB.B. Dependent on the relative prices of the Dependent on the relative prices of the

two products being producedtwo products being producedC.C. The combination of outputs where the The combination of outputs where the

change in revenue from one product is change in revenue from one product is just offset by the change in other just offset by the change in other product’s revenueproduct’s revenue

D.D. A, B, and CA, B, and CE.E. Only A and BOnly A and B