Economics 101
Spring 2002
Section 5 – Alley
Practice Exam I
1. Which of the following is a reasonable method to construct the production possibility set, which is the set of all output combinations that are producible for a given set of inputs.
a. Pick a level of the two outputs and then find all levels of inputs that are able to produce this specific output combination.
b. Set a level for all inputs, pick a level of one of the two outputs, find the maximum level of the other output for this level of the first output, and then repeat for the other levels of the first output.
c. Set a level for all inputs, pick a level of one of the two outputs, find all feasible levels of the other output for this level of the first output, then repeat for other levels of the first output.
d. Pick a level of the two outputs and hold this fixed, pick a level of one of the two inputs and then find the minimum level of the other input that is required to produce the chosen output combination given the fixed level of the first input, and then repeat for other levels of the first input.
2. Consider the following supply and demand curves.
D = 40 – P, S = 4P – 10
The equilibrium price and quantity are given by
a. P = 8, Q = 32
b. P = 12.5, Q = 27.5
c. P = 6, Q = 14
d. P = 10, Q = 30
e. P = 8, Q = 22
3. Demand now decreases to D = 30 – P. The equilibrium price and quantity are given by
a. P = 8, Q = 22
b. P = 12.5, Q = 27.5
c. P = 6, Q = 14
d. P = 10, Q = 30
e. P = 12, Q = 28
Huck Finn and his friend Jim live on a raft in the middle of the river. The following table represents their output in a day of work.
Fish Crawdads
Huck 20 60
Jim 25 100
4. Which individual has the absolute advantage in crawdad production?
a. Jim
b. Huck
5. Which of the following statements is true?
a. Jim has an absolute advantage in both products and a comparative advantage in fishing.
b. Jim has an absolute advantage in both products and a comparative advantage in crawdads.
c. Jim has an absolute advantage in fishing while Huck has an absolute advantage in crawdads.
d. Mark Twain has a comparative disadvantage in both products.
e. Huck has an absolute advantage in both products and a comparative advantage in fishing.
6. A professional basketball players’ union negotiates a contract that dramatically increases all players’ salaries. How would this influence the opportunity cost for a player who was considering giving up basketball to pursue a career in broadcasting?
a. It would not affect the opportunity cost of playing basketball or broadcasting.
b. It would increase the opportunity cost of continuing to play professional basketball.
c. It would cause the production possibility frontier to become convex.
d. It would increase the opportunity cost of becoming a broadcaster.
e. It would have no bearing on the player’s decision from an economic point of view.
Consider the following data on pizza and lasagna production.
Pizzas / Large bowls of lasagna90 / 0
88 / 13
83 / 24
75 / 32
65 / 39
50 / 44
30 / 47
0 / 49
7. What is the opportunity cost of 10 more pizzas when the firm is already producing 65?
a. 3 bowls of lasagna
b. 7 bowls of lasagna
c. 8 bowls of lasagna
d. 11 bowls of lasagna
e. 6 bowls of lasagna
8. What is the opportunity cost of 2 more bowls of lasagna when the firm is already producing 47?
a. 8 pizzas
b. 20 pizzas
c. 15 pizzas
d. 30 pizzas
e. 56 pizzas
9. An Iowa farmer has 1000 acres of land. He currently plants 500 acres to corn and 500 acres to soybeans. He also buys feeder pigs and feeds them his own corn and other purchased ingredients before selling them to slaughter. A research scientist at ISU discovers a new way to make ethanol from corn so that it is much cheaper to produce the ethanol, increasing demand for corn. This has a permanent impact on the price of corn. How would this influence the opportunity cost of the farmer?
a. The opportunity cost of growing soybeans would rise.
b. The opportunity cost of growing corn would rise.
c. The opportunity cost of feeding pigs would rise.
d. Both a and c are correct.
e. It would have no bearing on the farmer’s opportunity cost because he feeds the corn to the pigs.
10. What is a technology in economics?
a. A description of the set of outputs that can be produced by a given set of factors of production using a given method or process.
b. A major at DMACC.
c. A method of achieving a practical purpose.
d. A description of the way a firm makes decisions.
e. A description of the set of inputs used by the firm.
11. When is a market purely competitive?
a. When buyers or sellers in a market are not able to affect the price of a product.
b. When there are many buyers and sellers in the market.
c. When there are few barriers to entry in the market.
d. When buyers or sellers in a market are able to affect the price of a product.
e. When there are few firms in the market.
12. Economics is the study of
a. how to make money in financial markets.
b. how business firms make their choices.
c. how to allocate limited resources to satisfy unlimited wants.
d. how to allocate unlimited resources to satisfy unlimited wants.
e. how to minimize the use of money.
13. Which of the following could cause the market demand curve for hot dogs to shift to the left?
a. an increase in the price of hot dogs.
b. a decrease in the price of hamburgers.
c. an increase in the size of the population.
d. an increase in the price of hot dog buns or rolls
14. Which of the following could lead to an increase in the equilibrium quantity of a good.
a. a decrease in supply and a decrease in demand.
b. a fall in the equilibrium price of the good.
c. an increase in demand and an increase in supply.
d. a decrease in demand regardless of supply.
e. a rise in the equilibrium price of the good.
15. Which of the following statements is true?
a. Exports tend to decrease economic efficiency.
b. A nation should specialize in producing a good in which it has an absolute advantage.
c. A nation should specialize in producing a good only when it has both an absolute and a comparative advantage.
d. A nation should specialize in producing a good in which it has a comparative advantage.
e. International trade does not utilize the benefits of specialization.
16. In a Mexican factory, one worker can produce 1/8 of a vase or 1/16 of a statue per hour. If there are 400 workers at the factory, the opportunity cost of one vase is
a. 2 statues
b. 8 statues
c. ½ statue
d. 16 statues
e. 1/16 statue
17. Bill can cook dinner in 45 minutes and mow the lawn in 1.5 hours. Eileen can cook dinner in 1.5 hours and mow the lawn in 2 hours. Bill’s opportunity cost of mowing the lawn is
a. ½ of a dinner
b. 2 dinners
c. ¾ dinners
d. 1 1/3 dinners
e. 2 2/3 dinners
18. The statement that “at 10%, the interest rate is too high for families to buy a home,” is a(n)
a. positive statement
b. normative statement
c. morally ambiguous philosophical position
d. affront to the American dream
e. value judgment
19. Which of the following is assumed constant along the demand curve for gasoline?
a. the price of gasoline and the prices of related goods
b. the price of gasoline, buyers’ incomes, and tastes
c. all variables affecting demand other than the price of gasoline
d. all variables affecting demand other than the supply of gasoline
e. buyers’ incomes and tastes, but not the prices of related goods
20. When demand increases,
a. consumers are willing and able to purchase more of the good at every price.
b. consumers are willing and able to purchase less of the good at every price.
c. there is a movement to the right along the demand curve.
d. this is referred to as a change in quantity demanded.
e. price will tend to fall.
21. Holding all else constant, if butter and margarine are substitute goods, then as the price of butter rises,
a. the demand for margarine will fall
b. the quantity of butter demanded will fall
c. the demand for butter will fall
d. the demand for butter will rise
e. butter and margarine will become complementary goods, provided that butter is a normal good
22. In a competitive market, when price is below the equilibrium level, the price will be driven upward due to
a. excess supply
b. government intervention
c. competition among suppliers
d. excess demand
e. technical inefficiency
Consider the market for socks. Use the following table to answer questions 23, 24, and 25.
Price
/ Quantity Demanded / Quantity Supplied2 / 18 / 3
4 / 14 / 4
6 / 10 / 5
8 / 6 / 6
10 / 2 / 8
23. The equilibrium price of socks is
a. 4
b. 8
c. 6
d. 2
e. 10
24. A price of 10 results in
a. equilibrium
b. excess demand of 6 units
c. excess supply of 14 units
d. excess supply of 6 units
e. excess demand of 14 units
25. If a price ceiling of 6 is imposed by the government, the quantity of socks actually purchased will be
a. 10 units
b. 5 units
c. 6 units
d. 15 units
e. the quantity determined by the government.
Answer Key
1 / C / 14 / C2 / D / 15 / D
3 / A / 16 / C
4 / A / 17 / B
5 / B / 18 / B
6 / D / 19 / C
7 / B / 20 / A
8 / D / 21 / B
9 / D / 22 / D
10 / A / 23 / B
11 / A / 24 / D
12 / C / 25 / B
13 / D