Econ 2010-200/Spring 1997 Midterm 1 Vijaya Sharma
Answer the following questions. GOOD LUCK!
MULTIPLE CHOICE
1. (I) A pound of fertilizer is a scarce good.
(II) A public education is not a scarce good.
a. I is true, II false.
b. I is false, II true.
c. Both are true.
d. Both are false.
2. On a concave production possibilities frontier of a farming business,
the opportunity cost of one more bushel of wheat is
a. higher at 10 bushels than at 20 bushels of wheat.
b. lower at 10 bushels than at 20 bushels of wheat.
c. equal at 10 bushels and 20 bushels of wheat.
d. impossible to determine from the information given.
3. What is the opportunity cost of economic growth?
a. Investment in the current time period.
b. Improved technology in the current time period.
c. Capital goods in the current time period.
d. Consumption in the current time period.
4. The Russian government has restricted sugar availability to reduce the supply of illegal liquor (sugar is used to increase alcohol content). Russians also like to sweeten their tea with jam, another sugar product. This action of the government has resulted in
a. the leftward shifts of both the demand and supply curves in
the tea market.
b. the leftward shift of the supply of tea and consequently
an increase in price of tea in the tea market.
c. the leftward shift of the demand for tea and consequently a
decrease in price of tea in the tea market.
d. the rightward shift of the demand for tea and consequently an
increase in price of tea in the tea market.
5. There are two diseases. Disease A kills 1,000 people a year and
disease B kills 30 people a year. It so happens that it costs $100 to save one person from disease A and $50 to save that person from
disease B. The Department of Health has $10,000 for disease control. How should it be spent? (Hint: use rule of rational behavior.)
a. Spend all money on disease A, because it kills more than 30 times
as many people as disease B.
b. Spend the budget on the diseases in proportion to their mortality
rates i.e., $300 on disease B and $9,700 on disease A.
c. Spend $1,500 to eradicate disease B and the remaining $8,500 on
disease A.
d. It does not matter how the budget is allocated, as a life saved
from disease A is as good as life saved from disease B.
Table 3-2
Combination Cotton Corn
A 12 16
B 17 15
C 21 13
D 23 9
E 24 5
6. From the data given in Table 3-2, the opportunity cost of one unit of corn in moving from C to B is
a. 4 units of cotton.
b. 21 units of cotton.
c. 17 unit of cotton.
d. 2 units of cotton.
7. The U.S. government banned cigarette advertising on radio and
television after January 1971. You would expect to find that, after
the ban took effect,
a. the price of magazine ads for all goods fell.
b. the price of magazine ads for only cigarettes fell.
c. the price of magazine ads for all goods rose.
d. the price of magazine ads for only cigarettes rose.
8. If the prices of both goods increase by 10 percent, the budget line
a. shifts to the right in a parallel fashion.
b. shifts to the left in a parallel fashion.
c. is unaffected since only relative price changes matter.
d. pivots on the axis of the more expensive good.
9. A bottle of wine costs $8 and a quiche, $5. At Robert's present
levels of consumption, he spends all his income and receives marginal utility of $10 from the last bottle of wine consumed presently and marginal utility of $4 from the last quiche. To maximize his total utility, Robert should
a. buy less wine and more quiche.
b. buy more wine and less quiche.
c. spend all of his money on wine.
d. change his spending pattern until he buys 8/5ths as much wine
as quiche.
10. As price rises, what happens to the supply for a product?
a. It increases.
b. It decreases.
c. It does not change.
d. Uncertain--economic theory has no answer to this question.
11. A shift in the supply curve of bicycles resulting from higher steel prices will lead to
a. higher prices of bicycles.
b. lower prices of bicycles.
c. a shift in the demand curve for bicycles.
d. larger output of bicycles.
e. no change in the price of bicycles.
12. To discourage caffeine consumption, the government imposes a sales tax of $4 on every pound of coffee sold, raising the price of coffee from $4 per pound to $7 per pound in the market.
a. In this market, the consumers bear a larger burden of the tax.
b. In this market, the producers bear a larger burden of the tax.
c. In this market, the tax burden is equally divided between the
consumers and the producers.
d. There is no sufficient information to know the relative tax
incidences on the consumers and the producers.
13. Along a straight-line demand curve (dropping all minus signs),
a. the price elasticity of demand gets larger as quantity demanded
gets larger.
b. the price elasticity of demand gets smaller as quantity
demanded gets larger.
c. the price elasticity of demand always equals one.
d. the price elasticity of demand is constant (though not
necessarily equal to one).
14. A rational decision is one that
a. satisfies all desires.
b. avoids the intentional allocation of resources.
c. assigns available resources in the manner that maximizes the
net benefit to the decision maker.
d. assigns available resources to the uses with the lowest
opportunity costs.
15. If production involves constant opportunity cost, the production possibilities curve
a. is "bowed inward."
b. is a straight line.
c. is "bowed outward."
d. has an unpredictable shape.
16. As a general rule, technological progress
a. shifts the production possibilities frontier outward, away from
the origin.
b. increases the slope of the production possibilities frontier,
making it steeper.
c. shifts the production possibilities frontier inward, toward the
origin.
d. makes the production possibilities frontier more bowed out.
17. An individual's demand schedule
a. provides information about what quantity a consumer is willing
and able to buy at each price.
b. tells a buyer how many other buyers will try to purchase an
item.
c. is a schedule that regulates monthly sales of scarce goods and
services.
d. is of no use without its accompanying supply schedule.
18. As price rises, what happens to quantity demanded for a product?
a. It increases.
b. It decreases.
c. It does not change.
d. Uncertain--economic theory has no answer to this question.
19. A severe freeze has once again damaged the Florida orange crop. The impact on the market for oranges will be a leftward shift in
a. demand as consumers try to economize because of the shortage.
b. both the supply and demand curves.
c. the supply curve.
d. the supply and a rightward shift in the demand, which will
result in a higher price.
20. An inferior good is one
a. produced by American industries.
b. whose quantity demanded falls when the purchaser's income rises.
c. ordinarily bought by college students from college-town
merchants.
d. whose quantity demanded increases when the purchaser's income
rises.
21. Market demand curves are found by
a. vertically summing individual demand curves.
b. horizontally summing individual demand curves.
c. summing individual demand curves in a parallel fashion.
d. adding the slopes of individual demand curves.
22. The marginal utility of a unit of good X
a. is always greater than the total utility of X.
b. is always less than the average utility of X.
c. generally declines as more units of X is consumed.
d. is always equal to the price of X.
23. The law of diminishing marginal utility explains
a. why most individual demand curves are straight lines.
b. why consumers differ with each other in their preference.
c. why most individual demand curves slope downward.
d. why marginal utility falls when total utility falls.
Table 5-1
Number of coconuts 0 1 2 3 4
Robinson's marginal utility -- $2.00 $1.88 $1.60 $1.30
24. According to Table 5-1, Robinson's total utility from having two coconuts is _______.
a. $1.87
b. $1.66
c. $3.88
d. this is not determinable from the information in the table.
25. A consumer maximizes his total utility (measured in dollars) by
choosing a quantity of a good such that
a. marginal utility equals zero.
b. marginal utility divided by price equals zero.
c. marginal utility equals price.
d. marginal utility equals total utility.
26. A budget line is a straight line designed to show
a. how income is related to hours worked.
b. all combinations of two goods that can be purchased with a
given income.
c. the way a homemaker should divide money among several
commodities.
d. preferences for goods and services.
27. The price elasticity coefficient of a vertical demand curve is always
a. infinitely large.
b. zero.
c. one.
d. increasing as price increases.
28. The elasticity of supply is calculated by
a. determining the slope of the supply curve.
b. dividing the absolute change in quantity supplied by the
absolute change in revenue.
c. dividing the percentage change in quantity supplied by the
percentage change in price.
d. dividing the percentage change in price by the percentage chnge
in quantity demanded.
29. Big Alice Ice Cream Parlor reduced the price of an ice cream cone from $1 to 90 cents. Sales consequently increased from 1,000 cones per week to 1,050. The approximate price elasticity is equal to
a. 10.
b. 2.
c. 1/2.
d. 1.
30. If two goods are complements, their cross price elasticity of demand will normally be
a. zero.
b. a negative number.
c. a positive number.
d. infinity.
31. Demand for a good is usually more elastic (i) the greater the number of close substitutes and (ii) the longer the passage of time from the price change. Which of the following is correct?
a. i and ii
b. i not ii
c. ii not i
d. neither i nor ii
32. In a production possibilities frontier,
a. a point inside the frontier is attainable but inefficient.
b. a point on the frontier is not attainable though efficient.
c. a point outside the frontier is both attainable and efficient.
d. a point inside the frontier is both attainable and efficient.
33. Opportunity cost can best be defined as:
a. the value of the value of the best alternative that must be
given up in order to acquire an item.
b. the money cost to the buyer to acquire a good or service.
c. the cost to the seller to produce an item.
d. the time cost to obtain money to buy an item.
34. To an economist, the cost of a college education
a. includes the lost earnings a student has during college years.
b. can be measured by the dollar cost of tuition, books, and other
fees.
c. includes only the cost of schooling, not the cost of housing
and food.
d. excludes financial aid in computation of cost of schooling.
USE THIS TABLE FOR THE FOLLOWING QUESTIONS
PRICE QUANTITY DEMANDED QUANTITY SUPPLIED
$10 1,000 5,500
9 2,000 5,000
8 3,000 4,500
7 4,000 4,000
6 5,000 3,500
5 6,000 3,000
4 7,000 2,500
3 8,000 2,000
2 9,000 1,500
1 10,000 1,000
35. What is the equilibrium price in the example above?
a. $9
b. $8
c. $7
d. $6
36. At $10, what is the surplus?
a. 4,500
b. 3,000
c. 1,500
d. 0
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Econ 2010-200/Spring 1997 Midterm 1 Vijaya Sharma
ANSWER KEY FOR TEST
1. a
2. b
3. d.
4. c
5. c
6. d.
7. c.
8. b. shifts to the left in parallel fashion.
9. b. buy more wine and less quiche.
10. c. It does not change.
11. a. higher prices of bicycles.
12. a
13. b. the price elasticity of demand gets smaller as quantity
demanded gets larger.
14. c. assigns available resources in the manner most preferred by
decision makers.
15. b. is a straight line.
16. a. shifts the production possibilities frontier outward, away from the origin.
17. a. provides information about what quantity a consumer is willing and able to buy at each price.
18. b. It decreases.
19. c. the supply curve.
20. b. whose quantity demanded falls when the purchaser's income rises.
21. b. horizontally summing individual demand curves.
22. c. generally declines as more units of X is consumed.
23. c. why most individual demand curves slope downward.
24. c. $3.88
25. c. marginal utility equals price.
26. b. all combinations of two goods that can be purchased with a
given income.
27. b. zero.
28. c. dividing the percentage change in quantity supplied by the
percentage change in price.
29. c. 1/2.
30. b. a negative number.
31. a. i and ii
32. a
33. a. the value of what must be given up in order to acquire an item.
34. a. includes the lost earnings a student has during college years.
35. c. $7
36. a. 4,500