Exam 1: Analyzing Economic Problems

Suppose that we illustrate demand and supply with quantity on the horizontal axis and income on the vertical axis. Let demand be a function of price and income, Qd (P, I). Price and income together must change in order to create a shift in the demand curve.

Which of the following statements about normative analysis is correct?

Positive analysis prescribes the best solution to an economic problem.

Which of the following is an example of a constraint?

A manager cares about the number of workers under her command. She can choose between two projects: Project A allows her to hire workers who must be paid WA each, Project B allows her to hire workers who must be paid WB each. She is allocated a budget of $100 that she can allocate to either project. Which of the following accurately represents the manager's problem?

Which of the following statements is true?

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. Changes in exogenous variables are represented by shifts in the demand and/or supply curves.

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. Let demand be a function of price and income, Qd (P, I). Which of the following statements is true?

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. Changes in endogenous variables are represented by movements along the supply and/or demand curves.

Exogenous changes can sometimes affect both the demand and supply curves.

Currently, 75,000 units of a good are traded on a market. The government imposes a limit of a maximum of 50,000 units that may be traded on the market. This will raise price.

Suppose that we illustrate demand and supply with quantity on the horizontal axis and income on the vertical axis. Let demand be a function of price and income, Qd (P, I). A change in income level is represented by a movement along the demand curve.

An equilibrium:

Suppose the equilibrium price in a market is $5, and the government imposes a $4.50 price ceiling. This will:

Which of the following statements has neither positive nor normative aspects to it?

Comparative statics:

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. Which of the following statements is false?

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. The equilibrium remains unchanged unless an exogenous variable changes.

Movement along a demand curve means that only an endogenous factor is changing.