PRINT YOUR NAME Exam 1 Submit your scantron and questions sheet Version A 1. Scarcity means that A) what we can produce with our resources is greater than our material wants B) resources are unlimited C) our wants are greater than what we can produce with our resources D) governments must make up for shortages in resources 2. Economics is the social science that studies A) the real reasons people buy goods and services B) the psychology of individuals and businesses C) whether a nation has enough natural resources D) how people make choices to cope with scarcity 3. Ali decides to attend the one hour review session for microeconomics instead of working at his job. His job pays him $10 per hour. Ali s opportunity cost of attending the review session A) the $10 he could have earned at his job B) the value of the session minus the $10 he could have earned at his job C) nothing, because the review session does not cost anything D) equal to the benefit he gets from the review session 4. In 2006 Sara bought a condo for $250,000. In 2009 she got a new job that required her to relocate to a different state, and she realized that because of the real estate market downturn she would not be able to get more than $180,000 for her condo. What is her sunk cost in this situation? A) $50,000 B) $70,000 C) $180,000 D) $250,000 5. Decision making on the margin involves A) comparing the marginal cost and marginal benefits when making a decision B) comparing the total cost and the total benefit when making a decision C) eliminating the additional cost when making a decision D) determining the total benefits of a decision 6. Based on the marginal analysis, a rational individual knows that he or she should do more of something if for this activity: A) MC > MB B) MC = MB C) MC < MB D) Sunk Cost > MB Version A 1
7. The concept of increasing opportunity cost means that the opportunity cost of an additional increase in the output of a good goes up A) as time passes by B) as the output of this good goes down C) as resources used to produce this good become more abundant D) as the output of this good goes up 8. The figure above shows the production possibilities frontier for a country. The opportunity cost of a gallon of milk when moving from point A to point B is A) 4 gallons of ice cream B) 3 gallons of milk C) 1 gallon of ice cream D) 1/3 of a gallon of ice cream 9. The PPF shows economic growth when the PPF A) shifts outward, away from the origin B) shifts inward, towards the origin showing lower costs C) changes from a bowed out PPF to a flatter PPF D) changes from a bowed out PPF to a bowed in PPF Version A 2
10. Suppose that Robinson Crusoe can produce only two goods, X and Y. The graph below illustrate a change in his PPF from PPF 0 to PPF 1 that is likely to occur because Robinson A) got more skillful in producing both goods B) got more skillful in producing good X C) got more skillful in producing good Y D) built a device that makes him more productive in making good Y 11. All points inside the production possibilities frontier represent: A) inefficient production points. B) the opportunity cost C) efficient production points. D) non-feasible production points. 12. A bowed out (nonlinear) production possibilities frontier indicates A) inefficient production B) increasing opportunity cost C) changing technology D) constant opportunity cost 13. The ability to produce a good at a lower opportunity cost than others is known as A) marginal cost production B) absolute advantage C) specialization D) comparative advantage Version A 3
Questions 14-18. The following diagrams represent Tom s and Jerry s production possibility frontiers. Answer the following questions: 14. Who has absolute advantage in producing wheat? A) Tom B) Jerry C) Neither Tom nor Jerry D) Both Tom and Jerry 15. What is the opportunity cost of increasing his output of wheat by one bushel for Tom? A) 0.25 bushels of wheat B) 0.5 bushels of corn C) 2 bushels of corn D) 4 bushels of wheat 16. What is the opportunity cost of increasing his output of wheat by one bushel for Jerry? A) 0.25 bushels of corn B) 0.5 bushels of corn C) 2 bushels of corn D) 4 bushels of corn Version A 4
17. What is the opportunity cost of increasing his output of corn by one bushel for Jerry? A) 0.25 bushels of wheat B) 0.5 bushels of wheat C) 2 bushels of wheat D) 4 bushels of wheat 18. Who has comparative advantage in producing corn? A) Tom B) Jerry C) Neither Tom nor Jerry D) Both Tom and Jerry 19. If consumers expect a good to become more expensive sometime soon, then presently A) the good's demand curve shifts rightward B) the good's demand curve shifts leftward C) there is a rightward movement down along the good's demand curve D) there is a leftward movement up along the good's demand curve 20. An increase in price of steel used in the production of automobiles will: A) increase the demand for automobiles. B) increase the supply of automobiles. C) decrease the demand for automobiles. D) decrease the supply of automobiles. 21. A good is inferior if: A) when income increases, demand for this good increases. B) when income increases, demand for this good remains unchanged. C) when income increases, demand for this good decreases. D) none of the above. 22. When considering the supply curve of sweaters only (i.e. ignoring interaction between supply and demand), which of the following events will increase the quantity supplied of sweaters? A) a rise in the price of a sweater B) a rise in the wage rate paid to the workers who make sweaters C) a rise in the expected future price of a sweater by sellers D) an increase in the number of sellers of sweaters 23. If sellers expect a good to become more expensive sometime soon, then presently A) the good's supply curve shifts rightward B) the good's supply curve shifts leftward C) there is a leftward movement down along the good's supply curve D) there is a rightward movement up along the good's supply curve Version A 5
24. In the figure above, a price of $35 per dozen roses results in A) a shortage B) equilibrium C) a surplus D) an eventual rightward shift of the demand curve and/or leftward shift of the supply curve 25. When the demand curve shifts rightward and the market moves to a new equilibrium, then the A) supply increases B) supply decreases C) quantity supplied increases D) Equilibrium price falls 26. If people's incomes rise, then the demand curve for a normal good will and the equilibrium quantity of this good will. A) shift to the right; increase B) shift upward; increase C) not shift; increase D) shift to the left; decrease 27. If supply and demand both increase, the equilibrium price and the equilibrium quantity. A) rises, increases B) rises, might go either way C) might go either way, increases D) falls, increase 28. Which of the following is likely to occur if the price of coffee has decreased? A) The demand for cream increases and the price of cream goes down. B) The demand for cream increases and the price of cream goes up. C) The supply of cream decreases and the price of cream goes up. D) The supply of cream increases and the price of cream goes down. Version A 6
29. Assume that orange juice and apple juice are substitutes in consumption, but not related in production. What would you expect to happen with the equilibrium price and quantity of orange juice if the price of apple juice decreases, and oranges become more expensive? A) the price and quantity will definitely go up B) the price will definitely go up and quantity might go up or down C) the price might go up or down, and quantity will definitely go up D) the price might go up or down, and quantity will definitely go down 30. If a company is operating on the inelastic section of demand curve, then an increase in the price will result in: A) An increase in total revenues B) No change in total revenues C) A decrease in total revenues D) Either increase or decrease in total revenues 31. In the figure below, what is the price elasticity of demand between points A and B? A) 0.05 B) 0.13 C) 0.43 D) 0.67 32. Demand for which of the following categories of goods you would expect to be least elastic? A) Food B) Bread C) Wheat Bread D) Sara Lee Whole Wheat Version A 7
33. After long hair for men became popular, barbers in a small town found that their incomes fell. In an attempt to boost their revenues, they decided to raise the price of a haircut and yet their total revenue fell even more. What can explain this result? A) Barbers were operating on the elastic section of the demand curve for haircuts. B) The demand for haircuts by barbers became inelastic after the increase in price C) Haircuts are inferior products D) The demand for haircuts by barbers is inelastic because most people need haircuts 34. As we move downward along a linear (straight-line) downward-sloping demand curve, the A) price elasticity of demand does not change B) total revenue stays the same C) demand becomes more elastic D) demand becomes less elastic 35. If two goods are complements in consumption, then their cross price elasticity is A) zero B) positive C) negative D) either positive or negative 36. If two goods are substitutes in production, then their cross price elasticity is A) zero B) positive C) negative D) either positive or negative 37. If income increases from $50,000 to $60,000 while the demand for a good increases from 100 units to 125 units, what is the income elasticity of demand? A) 1.25 B) 1.22 C) 0.83 D) 0.80 38. Based on your answer to the previous question, the good is A) inferior B) superior C) normal D) abnormal 39. When the price of going to a movie rises 5 percent, the quantity of DVDs demanded increases 10 percent. The cross elasticity of demand equals A) 10.0 B) 0.50 C) -2.0 D) 2.0 Version A 8
40. In the figure below, at the point where the price is $60 per bunch, the price elasticity of supply is A) 1.8 B) 0.56 C) 1.0 D) 1.5 Version A 9