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									    California State University Fullerton                           Form A                                                 Economics 315
    Department of Economics                                                                                                Spring 2012
    Dr. Morteza Rahmatian                                                                                                  First Quiz

    Name: _________________________________                                  ID: _______________________________

    Part I:   Choose the one alternative that best completes the statement or answers the question. (1 Point each)

1. It has been observed that people surveyed shortly after major air crashes estimate higher probabilities that a given flight will crash
   than people surveyed during intervals without any. The error in reasoning observed in this experiment results from:
   a. availability heuristics.
   b. representative heuristics.
   c. population heuristics.
   d. selection bias.

2. Which of the following is NOT an underlying characteristic of a smart group?
   a. Aggregation
   b. Diversity of opinion
   c. Interdependence
   d. Decentralization

3. The economic value which can be created by a transaction between two people, Ed (seller) and Luis (buyer), is $50 as Ed’s
   opportunity cost of selling is $135 and Luis’ valuation of the good is $185. Suppose Ed and Luis do not speak the same language and
   Ed hires an interpreter who charges $2 per hour. Ed and Luis finally agree to a price of $160. This implies:
   a. Luis’ valuation of the good will increase.
   b. Ed’s opportunity cost will decline.
   c. economic value from the transaction will decline.
   d. Ed will receive to a lower benefit than Luis.

4. If you have a comparative advantage in producing a good, it implies:
   a. you have a lower opportunity cost of producing that good.
   b. you have a higher marginal cost of producing that good.
   c. you have a lower total cost of producing that good.
   d. you have a higher total cost of producing that good.

5. Suppose the adoption of a new software reduces the marginal cost of publishing books. For a given demand curve for books, this will
   be represented by:
   a. an upward movement along the supply curve of books.
   b. a downward movement along the supply curve of books.
   c. an upward shift in the supply curve of books.
   d. a downward shift in the supply curve of books.

6. A demand curve is said to be inelastic if:
   a. ED = 1
   b. ED = 0
   c. ED > 1
   d. ED < 1

7. Suppose Betty spends her monthly allowance on buying computer games, watching movies, and parasailing. If an increase in her
   monthly allowance increases her expenditure on parasailing activities we can say that:
   a. parasailing is an inferior good.
   b. computer games are inferior goods.
   c. parasailing is a normal good.
   d. computer games are normal goods.

8. In the market for potatoes, where price level reaches its low in October and its peak in June, speculators help to:
   a. keep the equilibrium price uniform over the year.
   b. lower the level of consumption in June.
   c. lower the level of consumption in October.
   d. keep the equilibrium price level low over the year.
    Answer Key:      1.__________      2.__________     3.__________      4._____________

                     5.__________      6.__________     7.__________      8._____________

    Short Answer:

1. Identify the difference between change in demand and change in quantity demanded. List and explain four factors leads to cange in
   demand for a good? (2 Points)

1. ANS: A                   PTS:    1               DIF:    Easy            NAT: Analytic

2. ANS: C                   PTS:    1               DIF:    Easy            NAT: Analytic

3. ANS: D                   PTS:    1               DIF:    Difficult       NAT: Reflective Thinking

4. ANS: A                   PTS:    1               DIF:    Easy            NAT: Analytic

5. ANS: D                   PTS:    1               DIF:    Easy            NAT: Analytic

6. ANS: D                   PTS:    1               DIF:    Easy            NAT: Analytic

7. ANS: C                   PTS:    1               DIF:    Medium          NAT: Reflective Thinking

8. ANS: A                   PTS:    1               DIF:    Easy            NAT: Analytic


1. ANS:
   There is an important distinction between quantity demanded and demand. A movement between two points on a given demand curve
   is called a change in quantity demanded. It can only occur in response to a change in the good’s own price. Figure 3-4a shows my
   daily demand curve for coconut macaroons. An increase in price from $4 to $6 lowers my quantity demanded from 12 to 7 macaroons
   per day. The adjustment comes because I can substitute among various goods to create well-being (“utility”) for myself. The rise in
   the price of macaroons makes other sources of enjoyment (whose prices are held constant) cheaper relative to macaroons, and my best
   response is to substitute against macaroons and in favor of other goods.
   Figure 3-4a

    In contrast, a change in demand is a shift of the entire demand curve, as depicted by Figure 3-4b. That shift occurs when some change
    in my economic environment changes my desired purchases at any price.
    Figure 3-4b
Factors that cause such changes can include the information available to me, my income or wealth, the price of a substitute for
macaroons (say, doughnuts), or the price of a complement to them (coffee). For instance, let us consider the role of information in
affecting demand. In Figure 3-4b, my demand curve (D) for macaroons is originally D 1. One day I learn about medical research that
reliably links macaroon consumption to increased risk of a heart attack. This information shifts my demand inward to D 2. At the
current price of $12, I formerly wished to consume 15 macaroons per day, but now I only want 6. At a market price of $9, I originally
purchased 18 macaroons a day, but after learning about the risk I only buy 10.

PTS:   1                DIF:    Easy            NAT: Analytic

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