Principles of Microeconomics (Econ 2) Signature:
Drake University, Summer 2008
William M. Boal Printed name:
QUIZ #4 VERSION A
“Applications of Supply and Demand”
July 29, 2008
INSTRUCTIONS: This quiz is closed-book, closed-notes. Simple calculators are permitted, but graphing calculators or
calculators with alphabetical keyboards are NOT permitted. Numerical answers, if rounded, must be correct to at least 3
significant digits. Point values for each question are noted in brackets. Maximum total points are 100.
I. Multiple choice: Circle the one best answer to each question. [3 pts each: 39 pts total]
(1) If the government wants to raise the price of corn it
should try to shift
a. the demand for corn to the right.
b. the supply of corn to the right.
c. either (a) and (b).
d. neither (a) nor (b) will raise the price of corn.
(2) Suppose a change in security procedures increases
the time that travelers must spend in airports. By itself,
this would shift
a. down the supply of air travel.
b. up the supply of air travel.
c. down the demand for air travel.
d. up the demand for air travel.
(3) Suppose it is illegal to sell a certain good. If caught,
the seller must pay a $500 fine. The probability of being
caught is 2%. The expected punishment cost is therefore
a. $2.
b. $10.
c. $50.
d. $500.
e. $1000.
(4) Currently, the price of sugar in the U.S. is much
higher than in other countries, but the U.S. restricts
international trade in sugar. If free international trade
were permitted, the U.S. would
a. export sugar.
b. import sugar.
c. be self-sufficient in sugar.
d. cannot be determined from the information given.
(5) Recently, the demand for petroleum in Asia has
shifted right. Since petroleum is traded internationally,
this should cause the price of petroleum in the U.S. to
a. rise.
b. fall.
c. remain constant.
d. cannot be determined from the information given.
(6) The price of rice in some Asian countries is higher
than the price of rice in the United States. If these
countries end their restrictions on international trade in
rice, this change will benefit
a. Asian rice producers and U.S. consumers.
b. U.S. rice producers and Asian consumers.
c. U.S. rice producers and U.S. consumers.
d. Asian rice producers and Asian consumers.
(7) Arbitrageurs buy low and sell high because they are
trying to
a. ensure that all consumers face a fair price.
b. make money.
c. enforce the Law of One Price.
d. keep markets orderly.
(8) Arbitrage will not guarantee that people in Des
Moines and Seattle pay similar prices for
a. Euro currency.
b. government or corporate bonds.
c. gold.
d. houses.
(9) Suppose the price of potatoes in Des Moines is $1.20
per pound and the cost of shipping potatoes between Des
Moines and Detroit is $0.30 per pound. The market is in
equilibrium if the price of potatoes in Detroit is
a. $0.30 per pound.
b. $0.70 per pound.
c. $1.40 per pound.
d. $2.00 per pound.
(10) Suppose the supply of a good is plentiful today but
is expected to be scarce in the future. Speculation
through buying and holding inventories will tend to
a. raise the price of a good today and lower it in the
future.
b. reduce the quantity demanded in the future.
c. encourage greater consumption today.
d. all of the above.
e. none of the above.
