ECON 101
Spring 2004
Practice Questions for Exam I
These practice questions are not intended to represent the actual length of the in-class exam, nor
do they necessarily cover all material that could appear on the exam. Use other resources for
studying in addition to these questions (student website for textbook, study guide, problem sets).
Multiple choice questions:
1. When resources are limited, but wants are unlimited, individuals must
A. make choices among available alternatives.
B. put the public interest before self-interest.
C. become less greedy.
D. reduce their expectations.
E. become more self-sufficient.
2. Markets
A. allow buyers and seller to communicate their desire to make exchanges.
B. will not resolve the question of how much of each good is produced.
C. are the only mechanism that can answer all four basic economic questions.
D. will not resolve the economic question of for whom goods are produced.
E. eliminate scarcity and the problems associated with limited resources.
Figure 2.2
3. Figure 2.2 shows Christopher's budget constraint. Which of the following statements about
the budget constraint is correct?
A. Points A and B are attainable; points X and Z are unattainable.
B. Point X is attainable; points A, B, and Z are unattainable.
C. Points A, B, and X are unattainable; point Z is attainable.
D. Points A, B, and X are attainable; point Z is unattainable.
E. Points A, B, X, and Z are all attainable.
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4. If a country's possibilities curve bows outward, this indicates that
A. to produce more of one good, the country must sacrifice increasingly larger amounts of
the other good.
B. scarcity is less of a problem the more the country produces.
C. the country faces fixed trade-offs.
D. the country cannot produce more of all goods simultaneously.
E. to produce more of one good, the country must sacrifice smaller and smaller amounts of
the other good.
5. The law of diminishing marginal returns refers to the observation that
A. resources are scarce, but some resources are more scarce than others.
B. the more people have of something, the lower the value they place on having more of it.
C. as more units of any input are used, output rises, but by smaller and smaller amounts.
D. as more units of any input are used, output eventually falls.
E. resources are equally well equipped for the production of any good.
Figure 2.4
6. Figure 2.4 shows a country's production possibilities curve defined over hamburgers and
machines. Which of the statements about point C is correct?
A. It represents a combination of hamburger and machine production that is less desirable
than point E.
B. It reflects inefficient production.
C. It represents an unattainable combination of machines and hamburgers.
D. It represents an unattainable combination of machines and hamburgers, but one that
would be attainable if machines and hamburgers were less expensive.
E. It reflects idle resources.
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7. Figure 2.4 shows a country's production possibilities curve defined over hamburgers and
machines. Which of the following statements about point D is correct?
A. It represents a combination of hamburger and machine production that is more
desirable than point E.
B. It reflects inefficient production.
C. It represents an unattainable combination of machines and hamburgers.
D. It represents a combination of hamburger and machine production that is more
desirable than point A.
E. It reflects a combination of machines and hamburgers at which all resources must be
fully employed.
8. Figure 2.4 shows a country's production possibilities curve defined over hamburgers and
machines. To reach point C the country needs to
A. reallocate resources.
B. increase total resources.
C. employ idle resources.
D. use existing resources more efficiently.
E. allocate all resources to the production of hamburgers.
9. Along a country's production possibilities curve
A. there are no idle resources.
B. the prices of the goods that are produced are identical.
C. the costs of production of the goods that are produced are identical.
D. resources are equally well equipped for the production of any good.
E. there is only one efficient point.
10. The opportunity cost of an activity is
A. the amount of money spent on the activity.
B. the value of the time spent on that activity.
C. zero if you do not have to pay to undertake the activity.
D. infinite if you cannot really spare the time to undertake the activity.
E. the next best alternative use of all the resources put to use in that activity.
11. Jayne has just begun attending college. Which of the following should not be included in
the opportunity cost of this activity?
A. tuition fees
B. the value of meals she consumes
C. the value of books she purchases for courses
D. the wages she could have earned if she had not gone to college
E. the value of any equipment she is required to buy for her courses
12. An increase in consumers' income will normally cause
A. a movement along the demand curve such that quantity demanded declines.
B. the demand curve to shift to the left.
C. an individual to decrease consumption of any goods she purchases.
D. the demand curve to shift to the right.
E. a movement along the demand curve such that quantity demanded increases.
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13. An increase in the price of a substitute product will normally cause
A. a movement along the demand curve such that quantity demanded declines.
B. the demand curve to shift to the right.
C. an individual to decrease consumption of any goods she purchases.
D. the demand curve to shift to the left.
E. a movement along the demand curve such that quantity demanded increases.
14. An increase in the price of a complement will normally cause
A. the demand curve to shift to the right.
B. a movement along the demand curve such that quantity demanded declines.
C. an individual to increase consumption of any goods she purchases.
D. a movement along the demand curve such that quantity demanded increases.
E. the demand curve to shift to the left.
15. An increase in the price of butter is likely to result in
A. a movement along the demand curve for butter such that quantity demanded increases.
B. a rightward shift in the demand curve for margarine.
C. an increase in the quantity of butter demanded.
D. a leftward shift in the demand curve for margarine.
E. a movement along the demand curve for margarine such that quantity demanded
increases.
16. A successful advertising program for a product will
A. shift the demand curve for that product leftward.
B. cause a movement down the demand curve for the product.
C. shift the demand curve for that product rightward.
D. cause a movement up the demand curve for the product.
E. have no effect on demand for the product.
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Figure 4.2
17. Figure 4.2 shows two demand curves for a normal good. If the demand curve for the
product was D1 and is now D2, this shift could be the result of
A. an increase in the price of a substitute for the product.
B. a reduction in the price of the product.
C. an increase in the price of a complement for the product.
D. a reduction in consumers' incomes.
E. a reduction in the price of a substitute for the product.
18. All of the following, except one, are sources of a rightward shift in the market demand
curve for coffee. Which is not?
A. an increase in the price of tea bags
B. an increase in the price of coffee cream
C. an increase in consumers' incomes
D. a large increase in the size of the population
E. reduced concern about the effects of caffeine
19. If the quantity demanded exceeds the quantity supplied at the existing price,
A. the quantity demanded rises, but there is no change in the quantity supplied.
B. the quantity supplied rises, but there is no change in the quantity demanded.
C. the price of the good tends to increase.
D. the price of the good tends to decline.
E. sellers leave the market.
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20. If the market price of a good is such that consumers wish to buy less of the good than firms
are offering for sale, the excess _____ will cause price to _____.
A. demand; fall
B. supply; rise
C. price; fall
D. supply; fall
E. demand; rise
Use the following information to answer questions 21-22.
21. Table 4.1 shows the quantities demanded and supplied at different prices. If the price were
$1.80,
A. the excess demanded would cause the price to fall.
B. the excess demanded would cause the price to rise.
C. the excess supply would cause the price to fall.
D. the excess supply would cause the price to rise.
E. the market would be in equilibrium.
22. Table 4.1 shows the quantities demanded and supplied at different prices. At a price of
$1.40,
A. there is an excess demand of 2,400 units.
B. there is an excess supply of 2,400 units.
C. the market is in equilibrium.
D. there is an excess supply of 4,000 units.
E. there is an excess demand of 4,000 units.
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Figure 4.6 (a) (b)
23. Figure 4.6 shows the effect of shifts in the supply curve for butter on the equilibrium price
and quantity of butter. If there were a fall in the price of milk (an input used in the
production of butter), the appropriate graph would be _____, which shows a _____ in the
equilibrium quantity and a _____ in the equilibrium price.
A. graph b; fall; rise
B. graph a; rise; fall
C. graph b; fall; fall
D. graph a; fall; rise
E. graph b; rise; fall
24. If there were a rise in the price of sugar (an input used in the production of candy bars), the
supply curve for candy bars would shift to the _____, the equilibrium quantity would
_____, and the equilibrium price would _____.
A. left; fall; rise
B. left; fall; fall
C. left; rise; fall
D. right; fall; rise
E. right; rise; fall
25. If the price of a substitute for candy bars were to rise, the demand curve for candy bars
would shift ____, the equilibrium quantity would____, and the equilibrium price
would____.
A. left; fall; rise
B. right; rise; rise
C. left; rise; fall
D. right; fall; rise
E. left; fall; fall
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26. If the price elasticity of demand for a product is .5, a price increase from $1.00 to $1.04
will cause quantity demanded to
A. rise by 4 percent.
B. fall by 2 percent.
C. fall by 4 percent.
D. rise by 2 percent.
E. fall by $.02.
27. If a firm lowers the price of its product and finds that total revenue has fallen, this indicates
that
A. demand for the product is price-inelastic.
B. demand for the product is price-elastic.
C. demand for the product has unit price elasticity.
D. the demand curve for the product is downward sloping.
E. the price elasticity is greater than 1.
28. If a firm raises the price of its product and finds that total revenue has fallen, this indicates
that
A. demand for the product is price-inelastic.
B. demand for the product has unit price elasticity (e = 1).
C. the demand curve for the product is downward sloping.
D. the price elasticity is less than 1.
E. demand for the product is price-elastic.
29. If the supply of a product is perfectly price-inelastic and the price of a substitute product
rises, equilibrium quantity will ____ and equilibrium price will ____.
A. remain constant; increase
B. remain constant; decrease
C. decrease; remain constant
D. increase; remain constant
E. increase; increase
30. If the quantity demanded of a product increases at every price (shifting the demand curve
rightward) and the supply curve of the product is relatively inelastic, equilibrium quantity
will ____ and equilibrium price will ____, but equilibrium ____ will change
proportionately more.
A. decrease; increase; price
B. increase; increase; price
C. increase; decrease; price
D. increase; increase; quantity
E. increase; decrease; quantity
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31. If the demand curve of a good is relatively elastic and the price of an input to the
production of that good rises, equilibrium quantity will ____ and equilibrium price will
____, but equilibrium ____ will change proportionately more.
A. decrease; decrease; price
B. increase; decrease; price
C. decrease; increase; quantity
D. increase; decrease; quantity
E. increase; increase; price
32. Demand and supply curves are ____ in the long run than in the short run, which means that
shifts in demand and supply curves will be reflected more in ____ changes in the short run,
and more in ____ changes in the long run.
A. more price-elastic; quantity; price
B. less price-elastic; price; quantity
C. more price-inelastic; quantity; price
D. more price-elastic; price; quantity
E. less price-elastic; quantity; price
33. A tax has been levied on a product. The more price-elastic the demand for that product is,
A. the more likely it is that the tax is borne equally by consumers and sellers.
B. the greater is the proportion of the tax borne by producers.
C. the greater is the revenue that is raised by the tax.
D. the greater is the proportion of the tax borne by consumers.
E. the more likely it is that the tax will be reflected in a change in price rather than a
change in quantity.
34. When a tax is levied on a product, its burden is usually shared between consumers and
producers. In which of the following cases will this not be the case?
A. Demand for the product is relatively price-inelastic.
B. The demand curve for the product is downward sloping.
C. Demand for the product is perfectly price-elastic.
D. Demand for the product has unit price elasticity.
E. Demand for the product is relatively price-elastic.
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Figure 5.5
35. Figure 5.5 shows a shift of the supply curve for a product from S1 to S2, as a result of a tax
levied on the product. The amount of the tax is ____ and the amount of the tax the
consumers bear is ____.
A. P2 - P1; P3 - P2
B. P3 -P1; P3 - P2
C. P3 - P1; P2 - P1
D. P3 - P2; P2 - P1
E. P2 - P1; P3 - P1
36. Price ceilings, which are legally established prices ____ the equilibrium price, result in
____.
A. below; shortages
B. above; shortages
C. below surpluses
D. above surpluses
E. equal to; market clearing
37. Price floors, which are legally established prices ____ the equilibrium price, result in ____.
A. below; shortages
B. above; shortages
C. below; surpluses
D. above; surpluses
E. equal to; market clearing
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38. Bob buys only bottles of beer and pizza. A bottle of beer costs $2 and pizzas are $8 each.
The relative price of a pizza is ____ beers.
A. .25
B. 2
C. 4
D. 8
E. 16
Use the following information to answer questions 39-40.
Figure 6.1
39. Figure 6.1 shows Arthur's budget constraint. If Arthur's income is $90, the price of beer is
A. $30.
B. $15.
C. $6.
D. $3.
E. $2.
40. Figure 6.1 shows Arthur's budget constraint. If Arthur's income is $90, the price of pizza is
A. $30.
B. $15.
C. $6.
D. $3.
E. $2.
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41. One way to measure marginal utility is the amount willingly paid for
A. all units except the last one purchased.
B. all units purchased.
C. the last unit purchased.
D. the first unit purchased.
E. all units except the first and last ones purchased.
42. Katy is willing to pay $20 for the first T-shirt she buys and $35 for the first two T-shirts.
The marginal utility of the second T-shirt is
A. 55.
B. 35.
C. 20.
D. 15.
E. 7.5.
43. Demand curves slope downward, which means
A. the last unit purchased is valued more highly than previous units.
B. marginal utility is increasing as more units are purchased.
C. the last unit purchased is valued less highly than previous units.
D. willingness to pay for an additional unit increases with the number of units purchased.
E. marginal utility exceeds total utility.
44. Fran buys only CDs and candy bars. Her marginal rate of substitution measures
A. how many candy bars she must give up to have enough money to buy one more CD.
B. the price of a CD in terms of candy bars.
C. how many candy bars she is willing to give up in return for one more CD.
D. how total utility changes as she changes the combination of CDs and candy bars she
buys.
E. how marginal utility changes as she changes the combination of CDs and candy bars
she buys.
45. Fran buys only CDs and candy bars. The relative price of a CD measures
A. how many candy bars she must give up to have enough money to buy one more CD.
B. the price of a candy bar in terms of CDs.
C. how many candy bars she is willing to give up in return for one more CD.
D. how total utility changes as she changes the combination of CDs and candy bars she
buys.
E. how marginal utility changes as she changes the combination of CDs and candy bars
she buys.
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46. Fran buys only CDs and candy bars. For a given level of utility, the number of candy bars
Fran is willing to give up to obtain another CD is smaller, the higher the number of CDs
she already has. When Fran's indifference curves are drawn with CDs on the horizontal
axis, this means that, along one of her indifference curves, as she increases her
consumption of CDs, the indifference curve
A. becomes flatter.
B. eventually intersects another of Fran's indifference curves.
C. becomes vertical.
D. begins to slope upward.
E. becomes steeper.
47. Fran buys only CDs and candy bars. The law of diminishing marginal rate of substitution
means that, along an indifference curve, as she increases her consumption of CDs,
A. her valuation of an extra CD, measured in candy bars, falls.
B. her valuation of an extra candy bar, measured in candy bars, falls.
C. her valuation of an extra CD, measured in candy bars, rises.
D. the number of candy bars she must give up to buy another CD falls.
E. the number of CDs she must give up to buy another candy bar falls.
Figure 6.3
48. Jan spends all her income on CDs and candy bars. Figure 6.3 shows Jan's budget constraint
and her indifference curves. At point E, her valuation of a CD, in terms of candy bars, is
____ the relative price of a CD, measured in candy bars. Jan therefore ____ her
consumption of CDs.
A. higher than; reduces
B. higher than; increases
C. lower than; increases
D. lower than; reduces
E. equal to; does not change
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Figure 6.4
49. Figure 6.4 shows an increase in income for Bill, who buys only meat and potatoes. Which
of the following is correct?
A. The income elasticity of demand for meat is positive; the income elasticity of demand
for potatoes is negative.
B. The income elasticity of demand for meat is negative; the income elasticity of demand
for potatoes is positive.
C. The income elasticity of demand for meat and the income elasticity of demand for
potatoes are both positive.
D. The income elasticity of demand for meat and the income elasticity of demand for
potatoes are both negative.
E. Whether either the income elasticity of demand for meat or the income elasticity of
demand for potatoes is negative is indeterminate.
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50.
Figure 6.5
Bill buys only meat and potatoes. Figure 6.5 shows a change in the budget constraint Bill
faces. Which of the following describes the move indicated by the arrow?
A. The price of meat has fallen and the price of potatoes is unchanged.
B. The price of meat has risen and the price of potatoes is unchanged.
C. The price of potatoes has fallen and the price of meat is unchanged.
D. The price of potatoes has risen and the price of meat is unchanged.
E. The price of potatoes has risen and the price of meat has fallen.
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Short-Answer questions:
1. Consider the market for hot chocolate. Show graphically and explain in words what
happens to the equilibrium price and quantity in each of the following five cases. State,
where relevant, whether you are assuming the goods in question to be complements,
substitutes, normal or inferior goods. Be sure to discuss the specific role of excess supply
or excess demand in the process of equilibrium adjustment. Label your graphs
completely.
a. the price of coffee falls
b. the price of whipped cream falls
c. the price of cocoa beans increases
d. consumer income falls because of a recession
e. cocoa bean harvesting technology improves
2. Megan loves shoes. The table shown reflects the value she places on each pair of shoes
she buys:
Value of first pair $75.00
Value of second pair $60.00
Value of third pair $50.00
Value of fourth pair $35.00
Value of fifth pair $20.00
Value of sixth pair $10.00
a. Use this information to construct Megan’s demand curve for shoes.
b. If the price of shoes is $35.00, how many pairs of shoes will Megan buy?
c. Show Megan’s consumer surplus on your graph. Calculate her consumer surplus
at a price of $35.00 (show work).
d. If the price of shoes rose to $40.00, how many pairs would she purchase? Show
Megan’s new consumer surplus on a separate graph.
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Answer Key
Multiple choice:
No. on Correct
Test Answer
1 A
2 A
3 D
4 A
5 B
6 C
7 B
8 B
9 A
10 E
11 B
12 D
13 B
14 E
15 B
16 C
17 A
18 B
19 C
20 D
21 C
22 A
23 E
24 A
25 B
26 B
27 A
28 E
29 A
30 B
31 C
32 D
33 B
34 C
35 B
36 A
37 D
38 C
39 D
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40 C
41 C
42 D
43 C
44 C
45 A
46 A
47 A
48 D
49 A
50 D
Short-Answer:
1. a. Substitutes
Demand curve shifts left
Now surplus at orig. eqm. price
P falls, Q falls
b. Complements
Demand curve shifts right
Now shortage at orig. eqm. price
P rises, Q rises
c. Input
Supply curve shifts left
Now shortage at orig. eqm. price
P rises, Q falls
d. If normal good,
Demand curve shifts left
Now surplus at orig. eqm. price
P falls, Q falls
(opposite if assume inferior good)
e. Input
Supply curve shifts right
Now surplus at orig. eqm. price
P falls, Q rises
2. a. See chapter 6 in textbook for example of graph (note: “value” = MU)
b. 4 pairs (MU = P)
c. CS = (75-35) + (60-35) + (50-35) = $80
d. 3 pairs (she would no longer buy the fourth pair because MU < P)
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