interest rate

Quiz 1 Part I Chapters 1 , 2 & 3 Monroe CollegeInstructions; Answer all questions
Discussion/ Problem

1. If the interest rate is 6.5% and cash flows are $500 at
the end of year one and $1,000 at the end of year two, then the present value
of these cash flows is
a. $2,562.0
b. $1351.0
c. $439.0
d. $44384.0
e. None of
the above

Show all work. The use of the time line is useful in
explaining your answer.

2. If the interest rate is 3%, what is the future value of
$300 received in 5 year?
a. $347.78
b. $ 258.78.
c. $176.41.
d. $132.62.
e. None of
the above
Show all work. The use of the time line is useful in
explaining your answer.

3. Consider the market for two goods that are
complements, ink and printer. If a technological breakthrough reduced the cost
of producing printer:
Show all work! Graphs, in your addition to your explanation
is useful
a. What would happen to the supply of printer?

b. What would happen to the price of printer and the
quantity exchanged?

c. What effect would this change in the price of printer
have on the market for ink?

4. Suppose the supply
curve for a product is given by Qx
s = -110 + 20Px + 2Pz and Px = 10, Pz = 5 .
Show your work!

a. How much X is produced?

b. What is the inverse supply curve for X given the above
information?

c. Graph this supply curve.

d. Show what happens to this supply curve if the price of Z
goes up by $15.

5. When Iraq invaded Kuwait, the market price of crude
petroleum jumped from $21.54 per barrel to $30.50 per barrel – an increase of
almost 42 percent. Your boss is puzzled, because the price increase actually
occurred before there was a physical reduction in the current amount of oil
available for sale.

Show your work using the tools of demand and supply curves!

a. Explain why the price of oil increased so rapidly.

b. One year after the invasion, the price of oil fell to
$21.32 per barrel, its prewar level. Explain why.

6. American
Tennishoe, Inc., is concerned because Congress has proposed an excise tax of $1
on each pair of tennis shoes sold in the United States. They are lobbying
against the tax through an advertising campaign that says the tax will raise
the price of tennis shoes by $1. Use supply and demand graphs to show how much
of the tax will actually be passed on to consumers.

Show your work!

7. a) What is scarcity? Can it be eliminated?
Explain

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b) Why does
scarcity exist? How can it be resolved? Explain

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c) IS there
such a thing as a free lunch? If yes, explain and offer examples. If No,
explain and give examples.

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8. What is
market equilibrium? Does the market always achieve equilibrium? If so, why? If
not, why? Explain. Illustrate with examples and graphs where necessary
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9. The
movement along a given demand curve is the same as a shift in the demand curve.

True False. Explain
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10. If economists
estimated that the income elasticity for designer jeans as 1.5, then a 10%
increase in income will lead to a
a. 15% rise
in demand for designer jeans.
b. 0.15%
drop in the demand for designer jeans.
c. 0.15%
rise in demand for designer jeans.
Show your work

11. Which of the following decreases the potential for
sustainable long-run industry profits?

a. Exit.
b. The
availability of few substitutes.
c. Absence
of complements.

d. Presence
of complements

Explain your choice

12. If firms in the pizza industry are earning positive
economic profits, which of the following will most likely occur in the future?
a. Some
firms will enter the market.
b. The
economic profits of the firms in the industry will decline.
c. The
market price for pizza will fall.
d. All of
the responses are correct.
Explain your choice

13. You are the manager of a popular hand bag company. You
know that the advertising elasticity of demand for your product is 2.5. How
much will you have to increase spending on advertising in order to increase
demand by 4%?
a. 0.16%.
b. 1.6%.
c. 2%.
d. 10%.
Show your work

14. a) What is meant by price elasticity of demand. List and
explain three factors of price elasticity of demand.

b) Why managers are interested in the concept of price
elasticity of demand? Illustrate with examples

c) Why are managers interested in the concept of consumer
surplus? Illustrate with examples.

15. Several
years ago the National Association of Broadcasters imposed restrictions on the
amount of nonprogram material (commercials) that could be aired during
children’s television shows, effectively reducing the quantity of advertising
allowed during children’s viewing hours by 33 percent. Within four months, the
price of a minute of advertising on network television increased by roughly 14
percent.

a) What is
the own price elasticity of demand, based on the information given above?
Show your work!

b) IS the
market demand for advertising elastic or inelastic? Explain

c) What
impact do you think this will have on the revenues of the networks?