Econ 202 Fall 2008Dr. NelsonExam 1

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Figure C

Figure C shows various points on three different production possibilities frontiers for a nation.

1) Refer to Figure C. A movement from Y to ZA) represents an increase in the demand for plastic products.B) could occur because of general technological advancements.C) is the result of advancements in plastic production technology.D) is the result of advancements in food production technology.

1)

2) Refer to Figure C. A movement from X to YA) is the result of advancements in food production technology only, with no change in the

technology for plastic production.B) could be due to a change in consumers tastes and preferences.C) is the result of advancements in plastic production technology only, with no change in

food production technology.D) could occur because of an influx of immigrant labor.

2)

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Table D

Camera Wheat

China 100 4South Korea 60 3

Table D shows the number of labor hours required to produce a camera and a pound of wheat in China and South Korea.

3) Refer to Table D. Does either China or South Korea have an absolute advantage and if so, in whatproduct?

A) South Korea has an absolute advantage in both products.B) South Korea has an absolute advantage in wheat.C) China has an absolute advantage in digital cameras.D) China has an absolute advantage in wheat.

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4) Refer to TableD.What is China s opportunity cost of producing one camera?A) 4 pounds of wheat B) 0.04 pounds of wheatC) 25 pounds of wheat D) 40 pounds of wheat

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5) During the 1990s positive technological change in the production of chicken caused the price ofchicken to fall. Holding everything else constant, how would this affect the market for pork (asubstitute for chicken)?

A) The demand for pork would decrease and the equilibrium price of pork would increase.B) The supply of pork would increase and the equilibrium price of pork would decrease.C) The demand for pork would increase because consumers could afford to buy more chicken

and pork.D) The demand for pork would decrease and the equilibrium price of pork would decrease.

5)

6) The substitution effect of a price change refers toA) the shift of a demand curve when the price of a substitute good changes.B) the shift in the demand curve due to a change in purchasing power brought about by the

price change.C) the movement along the demand curve due to a change in purchasing power brought about

by the price change.D) the change in quantity demanded that results from a change in price making a good more or

less expensive relative to other goods that are substitutes.

6)

7) The economic analysis of minimum wage involves both normative and positive analysis. Considerthe following consequences of a minimum wage:a. The minimum wage law causes unemployment.b. A minimum wage law benefits some groups and hurts others.c. In some cities such as San Francisco and New York, it would be impossible for low-skilledworkers to live in the city without minimum wage laws.d. The gains to winners of a minimum wage law should be valued more highly than the losses tolosers because the latter primarily comprises businesses.

Which of the consequences above are positive statements and which are normative statements?A) Only a is a positive statement, b, c and d are normative statements.B) A and c are positive statements, b and d are normative statementsC) A and b are positive statements, c and d are normative statement.D) A, b, and c are positive statements and d is a normative statement.

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8) Buyers scrambled to secure stocks of Australian wool following a forecast of an 11 percent declinein wool production. What happens in the Australian wool market as a result of thisannouncement?

A) The supply curve for Australian wool shifts to the left in anticipation of lower quantities inthe future.

B) The demand curve for Australian wool shifts to the right in anticipation of higher prices inthe future.

C) The supply curve for Australian wool shifts to the right in anticipation of higher prices in thefuture.

D) The demand curve for Australian wool shifts to the left in anticipation of higher prices in thefuture.

8)

9) The term property rights refers toA) the ability to exercise control over one s own resources within the confines of the law.B) the physical possession of a house or any other property which the owner legally purchased.C) the government s right to appropriate land from wealthy land owners to redistribute to

peasantsD) the right of a business not to have its assets confiscated by the government in the event that

the business is accused of committing fraud.

9)

Figure E

10) Refer to Figure E. At a price of $5,A) there would be a shortage of 6 units. B) there would be a shortage of 4 units.C) there would be a surplus of 4 units. D) there would be a scarcity of 4 units.

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11) In recent years the cost of producing wines in the U.S. has increased largely due to rising rents forvineyards. At the same time, more and more Americans prefer wine over beer. Which of thefollowing best explains the effect of these events in the wine market?

A) Both the supply and demand curves have shifted to the right. As a result, there has been anincrease in the equilibrium price and an uncertain effect on the equilibrium quantity.

B) The supply curve has shifted to the left and the demand curve has shifted to the right. As aresult there has been an increase in the equilibrium quantity and an uncertain effect on theequilibrium price.

C) The supply curve has shifted to the left and the demand curve has shifted to the right. As aresult, there has been an increase in the equilibrium price and an uncertain effect on theequilibrium quantity.

D) Both the supply and demand curves have shifted to the right. As a result, there has been anincrease in both the equilibrium price and the equilibrium quantity.

11)

Table K

You Your NeighborBlueberries Peaches Blueberries Peaches

Devote all timeto pickingblueberries 72 0 32 0Devote all timeto pickingpeaches 0 12 0 32

Table K depicts how many pounds of blueberries and peaches you and your neighbor can pick in one week.

12) Refer to Table K.What is your opportunity cost of peaches in terms of blueberries? What is yourneighbors opportunity cost of blueberries in terms of peaches?

A) 6; 1 B) 1; 6 C) 1/6; 1 D) 1; 1/6

12)

13) Refer to Table K. Suppose that you are initially producing and consuming 24 pounds ofblueberries and 8 pounds of peaches and your neighbor is producing and consuming 28 poundsof blueberries and 4 pounds of peaches.

If you are your neighbor decide to specialize and trade and agree to trade where the terms of tradeare such that you will trade your neighbor half of your production for half of their production,what are the gains to trade for you in terms of peaches and for your neighbor in terms of peaches?

A) 8; 12 B) 16; 16 C) 32; 16 D) 8; 4

13)

14) Adam Smith s invisible hand refers toA) the government s unobtrusive role in ensuring that the economy functions efficiently.B) the laws of nature that influence economics decisions.C) the process by which individuals acting in their own self-interest bring about a market

outcome that benefits society as a whole.D) property ownership laws and the rule of the court system.

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15) Which of the following statements is true?A) If both demand and supply increase there must be an increase in equilibrium price;

equilibrium quantity may either increase or decrease.B) An increase in demand causes a change in equilibrium price; the change in price does not

cause a further change in demand or supply.C) A decrease in supply causes equilibrium price to rise; the increase in price then results in a

decrease in demand.D) If demand decreases and supply increases one cannot determine if equilibrium price will

increase or decrease without knowing which change is greater.

15)

16) If a decrease in income leads to an increase in the demand for macaroni, then macaroni isA) a normal good. B) a neutral good.C) a necessity. D) an inferior good.

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17) The three fundamental questions that any economy must address areA) What goods and services to produce; how will these goods and services be produced; and

who receives them?B) Who gets jobs; what wages do workers earn; and who owns what property?C) What will be the prices of goods and services; how will these goods and services be

produced; and who will receive them?D) How much will be saved; what will be produced; and how can these goods and services be

fairly distributed?

17)

18) Productive efficiency is achieved whenA) firms add a low profit margin to the goods and services they produce.B) firms produce the goods and services that consumers value most.C) there are no shortages or surpluses in the market.D) firms produce goods and services at the lowest cost.

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19) Consider the following statements:a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price thanother rival gas stations in the area.b. Banks do not take steps to increase security since they believe it is less costly to allow somebank robberies than to install expensive security monitoring equipment.c. Firms produce more of a particular DVD when its selling price rises.

Which of the above statements demonstrates that economic agents respond to incentives?A) a only. B) b only. C) c only. D) a and b. E) a, b, and c.

19)

20) What is the difference between an increase in demand and an increase in quantity demanded ?A) An increase in demand is represented by a movement along a given demand curve, while

an increase in quantity demanded is represented by a rightward shift of the demand curve.B) There is no difference between the two terms; they both refer to a shift of the demand curve.C) There is no difference between the two terms; they both refer to a movement downward

along a given demand curve.D) An increase in demand is represented by a rightward shift of the demand curve while an

increase in quantity demanded is represented by a movement along a given demand curve.

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21) Which of the following best describes an assumption economists make about human behavior?A) They assume that individuals act randomly.B) They assume that rational behavior is useful in explaining choices people make even though

people may not behave rationally all the time.C) They assume that individuals act rationally all the time in all circumstances.D) They assume that people take into account the question of fairness in all decisions they make.

21)

22) Technological advances have resulted in lower prices for digital cameras. What is the impact ofthis on the market for traditional (non-digital) cameras?

A) The demand curve for traditional cameras shifts to the right.B) The supply curve for traditional cameras shifts to the right.C) The supply curve for traditional cameras shifts to the left.D) The demand curve for traditional cameras shifts to the left.

22)

23) Which of the following would cause an increase in the equilibrium price and decrease in theequilibrium quantity of watermelon?

A) A decrease in demand and an increase in supply.B) An increase in demand and an increase in supply.C) A decrease in supply.D) An increase in demand and an increase in supply greater than the increase in demand.

23)

Figure A

Figure A shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods, cottonand cashews.

24) Refer to Figure AWhich country has a comparative advantage in the production of cotton? WhichWhich country has a comparative advantage in the production of cashews?

A) Pakistan has the comparative advantage in cotton, Indonesia has the comparative advantagein cashews

B) Indonesia has the comparative advantage in cotton, Pakistan has the comparative advantagein cashews

C) Neither country has a comparative advantage in cotton; Pakistan has the comparativeadvantage in cashews

D) They have equal productive abilities, neither country has a comparative advantage in eithergood

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25) Last month, the Binders Are Great! Corporation supplied 400 units of three-ring binders at $6 perunit. This month, the company supplied the same quantity of binders at $4 per unit. Based on thisevidence, Binders Are Great! has experienced

A) a decrease in the quantity supplied. B) an increase in the quantity supplied.C) an increase in supply. D) a decrease in supply.

25)

Figure G

26) Refer to Figure G. The figure above represents the market for canvas tote bags. Assume that themarket price is $35. Which of the following statement is true?

A) There is a surplus that will cause the price to decrease; quantity supplied will then increaseand quantity demanded will decrease until the price equals $25.

B) There is a surplus that will cause the price to decrease; quantity demanded will then increaseand quantity supplied will decrease until the price equals $25.

C) There is a surplus that will cause the price to increase; quantity demanded will then decreaseand quantity supplied will increase until the price equals $25.

D) There will be a surplus that will cause the price to decrease; demand will then increase andsupply will decrease until the price equals $25.

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Figure B

27) Refer to Figure B. Carlos grows tomatoes and strawberries on his land. His land is equally suitedfor growing either fruit. Which of the graphs in Figure B represent his production possibilitiesfrontier?

A) Graph AB) Graph BC) Graph CD) Either graph B or Graph CE) Either Graph A or Graph B

27)

Figure F

28) Refer to Figure F. If the current market price is $25, the market will achieve equilibrium byA) a price increase, increasing the supply and decreasing the demand.B) a price increase, increasing the quantity supplied and decreasing the quantity demanded.C) a price decrease, decreasing the supply and increasing the demand.D) a price decrease, decreasing the quantity supplied and increasing the quantity demanded.

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29) Suppose that when the price of hamburgers increases, the Ruiz family increases their purchases ofhot dogs. To the Ruiz family,

A) hamburgers and hot dogs are complements.B) hamburgers and hot dogs are substitutes.C) hamburgers and hot dogs are inferior goods.D) hamburgers and hot dogs are normal goods.

29)

Figure H

30) Refer to Figure H. Assume that the graphs in this figure represent the demand and supply curvesfor almonds. Which panel best describes what happens in this market when there is an increase inthe productivity of almond harvesters?

A) Panel (a) B) Panel (b) C) Panel (c) D) Panel (d)

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31) Refer to Figure H. Assume that the graphs in this figure represent the demand and supply curvesfor potatoes and that steak and potatoes are complements. What panel describes what happens inthis market when the price of steak rises?

A) Panel (a) B) Panel (b) C) Panel (c) D) Panel (d)

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32) Increasing marginal opportunity cost implies thatA) the law of scarcity.B) the more resources already devoted to any activity, the benefits from allocating yet more

resources to that activity decreases by progressively larger amounts.C) the more resources already devoted to any activity, the payoff from allocating yet more

resources to that activity increases by progressively smaller amounts.D) that rising opportunity costs makes it inefficient to produce beyond a certain quantity.

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Figure J

33) Refer to Figure J. The graph in this figure illustrates an initial competitive equilibrium in themarket for apples at the intersection of D1 and S1 (point A). If the price of oranges, a substitute forapples, decreases and the wages of apple workers increase how will the equilibrium point change?

A) The equilibrium will first move from A to B, then return to A.B) The equilibrium point will move from A to B.C) The equilibrium point will move from A to C.D) The equilibrium point will move from A to E.

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34) Bella can produce either a combination of 60 silk roses and 80 silk leaves or a combination of 70silk roses and 55 silk leaves. If she now produces 60 silk roses and 80 silk leaves, what is theopportunity cost of producing an additional 10 silk roses?

A) 55 silk leaves B) 10 silk leaves C) 2.5 silk leaves D) 25 silk leaves

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35) Farmers can plant either corn or soybeans in their fields. Which of the following would cause thesupply of soybeans to increase?

A) An increase in the demand for corn.B) An increase in the price of soybean seeds.C) An increase in the price of soybeans.D) A decrease in the price of corn.

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Answer KeyTestname: ECON 202 EXAM 1 FALL 2008

1) C2) D3) A4) C5) D6) D7) C8) B9) A10) B11) C12) D13) A14) C15) B16) D17) A18) D19) E20) D21) B22) D23) C24) B25) C26) B27) A28) D29) B30) A31) D32) C33) D34) D35) D

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