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Intro_to_Economics_MidtermExam

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Intro_to_Economics_MidtermExam Powered By Docstoc
					Part I:
1) Economic scarcity arises from
 A) inefficient production.
 B) exploration.
 C) limited resources and limitless wants.
 D) limited wants and limitless resources.
Answer: C

2)    When a farmer decides to harvest oranges by huge machines instead of by migrant workers, the farmer is
      answering the ____ question.
 A)    “how”
 B)    “when”
 C)    “why”
 D)    “what”
Answer: A

3) Fred and Ann are both given free tickets to see a movie. Both decide to see the same movie. We know that
 A) both bear an opportunity cost of seeing the movie because they could have done other things instead of
    see the movie.
 B) both bear the same opportunity cost of seeing the movie because they are doing the same thing.
 C) it is not possible to calculate the opportunity cost of seeing the movie because the tickets were free.
 D) it is possible to calculate the opportunity cost of seeing the movie and it is zero because the tickets were
    free.
Answer: A

4) Markets are ____ because they ____.
 A) efficient; allow consumers to gain at the expense of producers
 B) efficient; allocate resources to where they are most highly valued
 C) inefficient; raise opportunity costs
 D) inefficient; require complex planning systems
Answer: B

5) To overcome market failure, governments
 A) pass antitrust laws.
 B) enact environmental protection laws.
 C) subsidize the production of some goods.
 D) all of the above.
Answer: D

6) A production possibility frontier does NOT illustrate
 A) the limits on production imposed by our limited resources and technology.
 B) the exchange of one good or service for another.
 C) opportunity cost.
 D) attainable and unattainable points.
Answer: B

7)    A situation in which some resources are NOT fully utilized is represented in a production possibility
      frontier diagram by
 A)     any point on either the horizontal or the vertical axis.
 B)     the midpoint of the production possibility frontier.
 C)     a point outside the production possibility frontier.
 D)     a point inside the production possibility frontier.
Answer: D
8) A tradeoff is
 A) represented by a point inside a PPF.
 B) represented by a point outside a PPF.
 C) a constraint that requires giving up one thing to get another.
 D) a transaction at a price either above or below the equilibrium price.
Answer: C

9) The fact that individual productive resources are NOT equally useful in all activities
 A) implies that a production possibility frontier will be bowed outward.
 B) implies that gain from specialization and trade is unlikely.
 C) follows from the law of demand.
 D) implies a linear production possibility frontier.
Answer: A

10) Generally, opportunity costs increase and the production possibility frontier bows outward. Why?
 A) Unemployment is inevitable.
 B) Resources are not equally useful in all activities.
 C) Technology is slow to change.
 D) Labor is scarcer than capital.
Answer: B

11. The marginal benefit from a good is the maximum amount a person is willing to pay for
 A) all of the good the person consumes.
 B) one more unit of the good.
 C) all of the units of the good the person consumes divided by the number of units he or she purchases.
 D) one more unit of the good divided by the number of units purchased.
Answer: B

12. Individual economic decisions are coordinated by
 A) markets through adjustments in sales levels.
 B) markets through adjustments in prices.
 C) government through adjustments in sales taxes.
 D) government through adjustments in income taxes.
Answer: B

13. The opportunity cost of good A in terms of good B is equal to the
 A) price of good A minus the price of good B.
 B) price of good B minus the price of good A.
 C) ratio of the price of good A to the price of good B.
 D) ratio of the price of good B to the price of good A.
Answer: C

14. Scarcity guarantees that
 A) demands will exceed wants.
 B) wants will exceed demands.
 C) demands will be equal to wants.
 D) most demands will be satisfied.
Answer: B

15. The law of demand states that the quantity of a good demanded varies
 A) inversely with its price.
 B) inversely with the price of substitute goods.
 C) directly with income.
 D) directly with population.
Answer: A
16. Which of the following influences people’s buying plans and varies moving along a demand curve?
 A) The price of the good.
 B) The prices of related goods.
 C) Income.
 D) Preferences.
Answer: A

17. Which of the following pairs of goods are substitutes?
 A) Compact discs and compact disc players.
 B) Cola and lemon lime soda.
 C) Lettuce and salad dressing.
 D) Peanut butter and gasoline.
Answer: B

18. A drop in the price of a compact disc shifts the demand curve for prerecorded tapes leftward. From that you
     know compact discs and prerecorded tapes are
 A) complements.
 B) substitutes.
 C) inferior goods.
 D) normal goods.
Answer: B

19. The demand for a good increases when the price of a substitute ____ and also increases when the price of a
     complement ____.
 A) rises; rises
 B) rises; falls
 C) falls; rises
 D) falls; falls
Answer: B

20. Normal goods are those for which demand decreases as
 A) the price of a complement falls.
 B) the price of a substitute falls.
 C) income decreases.
 D) the good’s own price rises.
Answer: C

21. By definition, an inferior good is a
 A) want that is not expressed by demand.
 B) normal substitute good.
 C) good for which demand decreases when its price rises.
 D) good for which demand decreases when income increases.
Answer: D

22. A decrease in quantity demanded caused by an increase in price is represented by a
 A) rightward shift of the demand curve.
 B) leftward shift of the demand curve.
 C) movement up and to the left along the demand curve.
 D) movement down and to the right along the demand curve.
Answer: C

23. A supply curve shows the relation between the quantity of a good supplied and
 A) income. Usually a supply curve has negative slope.
 B) income. Usually a supply curve has positive slope.
 C) the price of the good. Usually a supply curve has negative slope.
 D) the price of the good. Usually a supply curve has positive slope.
Answer: D
24. The quantity supplied of a good is
 A) the same thing as the quantity demanded at each price.
 B) the amount that the producers are planning to sell at a particular price during a given time period.
 C) equal to the difference between the quantity available and the quantity desired by all consumers and
      producers.
 D) the amount the firm would sell if it faced no resource constraints.
Answer: B

25. Good A and good B are substitutes in production. The demand for good A increases so that the price of good
     A rises. The increase in the price of good A shifts the
 A) demand curve for good B leftward.
 B) demand curve for good B rightward.
 C) supply curve of good B leftward.
 D) supply curve of good B rightward.
Answer: C

26. If the price of a good changes but everything else influencing suppliers’ planned sales remains constant,
      there is a
 A) new supply curve that is to the right of the initial supply curve.
 B) new supply curve that is to the left of the initial supply curve.
 C) movement along the supply curve.
 D) rotation of the initial supply curve around the initial price.
Answer: C

27. An increase in demand combined with no change in supply causes
 A) the equilibrium price to rise.
 B) the equilibrium price to fall.
 C) a movement rightward along the demand curve.
 D) a decrease in demand because the supply curve does not shift.
Answer: A

28. You observe that the price of a good rises and the quantity decreases. These observations can be the result of
 A) the demand curve shifting rightward.
 B) the demand curve shifting leftward.
 C) the supply curve shifting rightward.
 D) the supply curve shifting leftward.
Answer: D

29. The equilibrium quantity of a good will increase and its equilibrium price may rise, fall, or stay the same
     when
 A) its demand and supply both increase.
 B) its demand increases and supply decreases.
 C) its demand decreases and supply increases.
 D) its demand and supply both decrease.
Answer: A

30. Assume that beef and pork are substitutes for consumers. There is a drought in the cattle grazing areas. The
     drought will cause the
 A) supply curve for pork to shift rightward.
 B) supply curve for pork to shift leftward.
 C) demand curve for pork to shift rightward.
 D) demand curve for pork to shift leftward.
Answer: C

Part II:
1) Which of the following is a non-price factor that influences demand?
A) Number of sellers.
B) Technology.
C) Price expectations.
D) Quantity supplied.

2) Which of the following would not cause the supply curve for gasoline to shift?
A) A change in the number of gas stations.
B) A change in the incomes of drivers.
C) A significant war in the Middle East.
D) A change in the wages paid to gas station attendants.

3) Which of the following statements is correct?
A) A change in demand or supply can only be caused by a change in price.
B) An increase in supply invariably leads to a shortage in the affected market.
C) A simultaneous decrease in demand and increase in supply will result in an increase in
equilibrium price and uncertain effect on quantity.
D) If price is currently above equilibrium, market adjustments will result in a decrease in
price and quantity supplied.

4) Assume the supply function for good X can be written as Qs = -100 + 27Px - 5Py - 1.8W,
where Px = the price of X, Py = the price of good Y, and W = Wage index for workers in
industry X. According to this equation:
A) X and Y are substitutes.
B) a decrease in wages would cause a decrease in the quantity supplied at each price.
C) X and Y are complements.
D) each one unit increase in price causes quantity supplied to increase by 73 units.

5) Assume consumers expect a recession to begin in the next few months. They might react
by trying to save more in case they are laid-off or have to work reduced hours. Under these
circumstances, what would happen to the equilibrium prices and quantities of the goods the
consumers usually buy?
A) Equilibrium price would increase and equilibrium quantity would decrease.
B) Equilibrium price and quantity would both decrease.
C) Equilibrium price and quantity would both increase.
D) Equilibrium price would decrease and equilibrium quantity would increase.

6) Assume the income of consumers of good X (a normal good) increases. What occurs at the
initial equilibrium price for X that signals market participants that the equilibrium price must
change?
A) A shortage is created by an increase in demand.
B) A shortage is created by a decrease in supply.
C) A surplus is created by an increase in supply.
D) A surplus is created by a decrease in demand.

7) All else constant, what is the ultimate market reaction of suppliers to an increase in the
incomes of consumers?
A) The supply curve shifts to the right.
B) Suppliers do not react, because a change in income shifts the demand curve, not the supply
curve.
C) The supply curve shifts to the left.
D) Quantity supplied increases.
8) Assume there is an improvement in the technology used to produce video disk players.
What could be expected to happen to the equilibrium price and quantity in the market for
video disk players?
A) Equilibrium price would decrease and equilibrium quantity would increase.
B) Equilibrium price and quantity would both decrease.
C) Equilibrium price would increase and equilibrium quantity would decrease.
D) Equilibrium price and quantity would both increase.

9) Assume wages paid by a firm to its workers decrease. What would reasonably be expected
to happen to the equilibrium price and equilibrium quantity of the firm's output?
A) Equilibrium price would decrease and equilibrium quantity would increase.
B) Equilibrium price and quantity would both decrease.
C) Equilibrium price would increase and equilibrium quantity would decrease.
D) Equilibrium price and quantity would both increase.

10) Which of the following best describes the influence of successful advertising on the
market for aspirin?
A) The market supply curve for aspirin shifts to the right, causing equilibrium price to
decrease.
B) The market supply curve shifts to the right, creating a surplus at the original equilibrium
price.
C) Individuals' demand curves shift to the right, but the market demand curve remains at its
original position.
D) The market demand curve shifts to the right, creating a shortage at the original equilibrium
price.

11) File-sharing programs such as Napster, uTorrent, and Data.bg make it possible for
individuals to exchange music files over the Internet for free. To counter-react to this trend of
online sharing, on September 3, 2003, Universal Music Group announced plans to increase
the supply of music CDs it distributes by an average of 25-30 percent. Which of the
following statements is correct regarding the combined effects of the development of file-
sharing programs and Universal Music Group's supply decision in the market for new legal
music CDs?
A) The equilibrium price of CDs would increase; the effect on equilibrium quantity is
uncertain.
B) The equilibrium quantity of CDs would increase; the effect on equilibrium price is
uncertain.
C) The equilibrium quantity of CDs would decrease; the effect on equilibrium price is
uncertain.
D) The equilibrium price of CDs would decrease; the effect on equilibrium quantity is
uncertain.

12) For a particular product, a demand elasticity is a quantitative measure that shows:
A) the percentage change in quantity demanded relative to the percentage change in any of
the other variables included in the demand function for that product.
B) the absolute change in quantity demanded relative to the absolute change in any of the
other variables included in the demand function for that product.
C) the percentage change in quantity demanded relative to the absolute change in any of the
other variables included in the demand function for that product.
D) the absolute change in quantity demanded relative to the percentage change in any of the
other variables included in the demand function for that product.

13) According to the text, the price elasticity of demand for bath tissue has been estimated to
be -2.42. This implies that a 10 percent decrease in the price of bath tissue would cause the
quantity demanded of bath tissue to:
A) increase by 2.4 percent.
B) decrease by 2.4 percent.
C) increase by 24.2 percent.
D) decrease by 24.2 percent.

14) A decrease in price will result in an increase in total revenue if:
A) the consumer is operating along a linear demand curve at a point at which the price is very
low and the quantity demanded is very high.
B) the percentage change in quantity demanded is greater than the percentage change in
price.
C) demand is inelastic.
D) the percentage change in quantity demanded is less than the percentage change in price.

15) At a price of $5, consumers buy 200 units of good X. When the price falls to $4, quantity
demanded increases to 250 units. We can conclude that over this range, demand is:
A) unit elastic.
B) inelastic.
C) elastic.
D) perfectly inelastic.

16) Aglets are the plastic tips on shoelaces that make it easier to lace your shoes. They are
also very cheap and occupy a negligible share of your income. The own-price elasticity of
demand for aglets is probably
a. between (0;1)
b. =1
c. >1
d. close to infinity.

17) Which of the following correctly describes how price adjustment eliminates a shortage?
A. As the price rises, the quantity demanded decreases while the quantity supplied increases.
B. As the price rises, the quantity demanded increases while the quantity supplied decreases.
C. As the price falls, the quantity demanded decreases while the quantity supplied increases.
D. As the price falls, the quantity increases while the quantity supplied decreases.

18) Which one is NOT a factor of production:
A) the services that Dr. Stankov is selling to the UNWE
B) the markers that Dr. Stankov uses while teaching
C) the building of the UNWE
D) the wage that Dr. Stankov gets for his services

19) In the goods markets, households are ________, and on the labor markets, households are
________ .
A) demanders; suppliers
B) suppliers; demanders
C) suppliers; suppliers
D) demanders; demanders
E) none of the above

20) If the owner of a shoe store in Serdika Center Mall charges BGN 120 for a pair of shoes
her total revenue is BGN 1560 per day. If she lowers the price to BGN 100, total revenue
increases to BGN 1600 per day. The quantity demanded for shoes in Serdica Center Mall is:
a. inelastic
b. elastic.
c. unitary elastic.
d. neither elastic nor inelastic because this situation violates the law of demand.

1) C

2) B

3) D

4) A or C (depending on how you define Y)

5) B

6) A

7) D

8) A

9) D

10) D

11) D

12) A

13) C

14) B

15) A

16) A

17) A

18) D

19) A

20) B

				
DOCUMENT INFO
Description: Introduction to Economics