Final Exam Practice Test
Supplemental Instruction
Iowa State University / Leader: / Veronica
Course: / Econ 101
Instructor: / Kreider
Date: / 12-12-14

1.  Which of the following is NOT an example of an accounting/explicit cost?

  1. The opportunity cost of your time
  2. The monetary cost of buying a building
  3. The wages you pay to employees
  4. The rent you pay for farm land

2.  The government is thinking about placing a tax on airplane tickets to generate revenue. What tax value provides the largest revenue?

  1. $100
  2. $200
  3. $300
  4. $400

3.  Calculate the Marginal Product of Labor when going from 3 workers to 4 workers:

L / Q
1 / 1000
2 / 1800
3 / 2400
4 / 2800

a.  400

b.  600

c.  800

d.  1000

4.  When should a firm decide to shut down in the short run?

  1. TR<TVC
  2. TR>TVC
  3. TR<TC
  4. TR>TC

5.  When should a firm decide to exit the market?

  1. P < SRATC
  2. P < SRAVC
  3. P<LRATC
  4. P<LRAV

6.  Which of these is true about the following curves in a perfectly competitive market?

  1. MR=MC, S=D
  2. MR=S, MC=D
  3. MR=D, MC=S

7.  What is the key difference between perfect competition and monopolies?

  1. Monopolies make higher profits than perfectly competitive firms
  2. Monopolies have market power
  3. Only perfectly competitive markets face government regulation
  4. Only perfectly competitive firms can shut down or exit a market

8.  David and Gary are working together to collect food. It takes David 1 hour to collect berries and 2 hours to catch fish. It takes Gary 2 hours to collect berries and 6 hours to catch fish. Who has the absolute advantage in each good?

  1. Gary fish and David berries
  2. Gary berries and David fish
  3. Gary in both
  4. David in both

9.  Who has the comparative advantage in each good?

  1. Gary fish and David Berries
  2. Gary berries and David Fish
  3. Gary in both
  4. David in both

10.  The United States had a set PPF for oil and corn. The government decides to allow more offshore drilling than before, how does this affect the PPF?

  1. Both axis of the PPF decrease
  2. Both axis of the PPF increase
  3. Only the corn axis increases
  4. Only the Oil axis increases

11.  There is a shortage of potato chips in the U.S. What will happen to the demand and the price of corn chips in the market?

  1. Demand for corn chips decreases and price decreases
  2. Demand for corn chips increases and price decreases
  3. Demand for corn chip decreases and price increases
  4. Demand for corn chips increases and price increases

12.  A firm wants to know what will happen if their competitor, who offers a substitute good, decreases the price of their good. To do this, what should the firm calculate?

  1. Price elasticity
  2. Income elasticity
  3. Cross-price elasticity
  4. Law of demand

13.  The government decides to put a price floor on fatty fast food. What will this price floor create?

  1. Increase price and a surplus
  2. Increased price and a shortage
  3. Decreased price and a surplus
  4. Decreased price and a shortage

14.  Suppose the economy in Iowa improves and everyone in the state becomes a millionaire. What will happen to the demand for diamond rings

  1. It will increase because it is a normal good
  2. It will decrease because it is a normal good
  3. It will increase because it is an inferior good
  4. It will decrease because it is an inferior good

15.  What is the marginal utility from adding the third unit?

Utility / Quantity
0 / 0
50 / 1
110 / 2
160 / 3
200 / 4
  1. 160
  2. 540
  3. 50
  4. 40

16.  A firm, in a perfectly competitive market, is trying to decide how much output they should produce. Which should they use to determine where to produce at?

  1. TR=P*Q
  2. MR=MC
  3. MUa/Pa=MUb/Pb
  4. MC=ATC

17.  Why is the Demand Curve in a perfectly competitive market horizontal?

  1. Any increase in the quantity will lead to a price change to price 0
  2. Any increase in the price will lead to a quantity change to quantity 0
  3. Any increase in Marginal Cost will lead to a price of 0
  4. Any increase in ATC will lead to a price change of 0

18.  Which of the following are not required for a monopolist competition?

  1. Many buyers and sellers
  2. No significant barriers to entry
  3. Nobody is allowed to have market power
  4. A differentiated product

19.  Which of the following does not produce where MR=MC

  1. Monopolistic competition
  2. Oligopoly
  3. Monopoly
  4. Perfectly Competitive Market

20.  How do cartels make above normal profits?

  1. They behave like a monopoly
  2. They shift their marginal cost curve
  3. They ignore MR=MC
  4. They use violence and force to change their prices

21.  In a Brazilian TV show, two contestants compete against each other. They have two options to submit to the judges, Win and Share. If one person chooses win and the other chooses share, the winner collects $30,000, if they both choose share, they each collect $20,000, and if they both choose win they each collect $10,000.

Which of the following is the dominant strategy of this game?

  1. One Win, One Share
  2. Both Win
  3. Both Share
  4. They both decided not to play

22.  What is the socially preferred outcome in this game?

  1. One Win, One Share
  2. Both Win
  3. Both Share
  4. They both decided not to play

23.  If any number of people can consume a good simultaneously, it is considered what?

  1. Non excludability
  2. Non rival
  3. Non functional
  4. Non frequent

24.  Which of the following would not be a public good?

  1. The view of a mountain
  2. The water in the ocean
  3. Public roads
  4. A new pair of shoes

25.  What was the present value last year of an amount that is now worth 1,110 at a 11% interest rate?

  1. 1,100
  2. 1,200
  3. 11,000
  4. 1000

26.  Economics can be defined as the study of

  1. Business firms and how they can increase their profits
  2. Choice under conditions of scarcity
  3. How households allocate their income to different uses
  4. They buying and selling between two parties

27.  Use the following table for problems 27-28, which give the number of hours it takes a worker in each given country to produce one unit of the indicated goods.

1 Sweater / 1 Fish
Norway / 2 hours / 4 hours
Sweden / 6 hours / 2 hours

From the data, we can see that opportunity cost of producing a fish in Sweden is

  1. 3 sweater(s)
  2. 1/3 sweater(s)
  3. 2 sweater(s)
  4. ½ sweaters(s)

28.  We can conclude that Sweden has a comparative advantage in producing

  1. Sweaters
  2. Fish
  3. Both goods
  4. Neither goods

29.  As we move rightward along a production possibilities frontier, we also move

  1. Downward, and the frontier become steeper
  2. Upward, and the frontier becomes steeper
  3. Downward, and the frontier becomes flatter
  4. Upwards an the frontier becomes flatter

30.  Use the following table for problems 30-31, which give the number of hours it takes to produce a ton of each given product in each country.

1 Ton of Corn / 1 Ton of Wheat
U.S / 10 hours / 5 hours
Mexico / 15 hours / 10 hours

In Mexico, the opportunity cost of a ton of wheat is

  1. 2/3 ton of corn
  2. 1 ton of corn
  3. 1.5 tons of corn
  4. .5 tons of corn

31.  If trade opens up between the U.S. and Mexico, and these are the only two goods traded, then

  1. The U.S. will export both corn and wheat to Mexico
  2. Mexico will export corn and the U.S. will export wheat
  3. Mexico will export wheat and the U.S. will export corn
  4. The US and Mexico will decide not to trade

32.  If the U.S. imposes a tariff on imported bicycles, then,

  1. The price of the U.S. produced bicycles will rise
  2. The price of the imported bicycles purchased in the U.S will rise
  3. The quantity of bicycles produced in the U.S. will rise
  4. All of the above

33.  One key difference between a quota and a tariff is that

  1. Tariffs reduce the volume of trade, while quotas do not
  2. Tariffs generate revenue for the government, while quotas generally do not
  3. Quotas benefit domestic producers of the protected good, while tariffs do not
  4. Quotas reduce the volume of trade, while tarriffs do not

34.  A price ceiling imposed on an otherwise well functioning, perfectly competitive market will always cause

  1. A decrease in a market consumer surplus
  2. Either a gain in market consumer surplus or a gain in market producer surplus or both
  3. A deadweight loss
  4. An decrease in market producer surplus

35.  When an excise tax is imposed on a market with a perfectly inelastic supply curve, there is no deadweight loss

  1. As long as the tax is imposed on buyers
  2. This statement is false; A deadweight loss will always occur
  3. As long as the tax is imposed on sellers
  4. Regardless of whether the tax is imposed on buyers or sellers

36.  If the interest rate is 12%, then the present value of $100 to be received two years in the future is

  1. $144
  2. $112
  3. $89.29
  4. $79.72

37.  In a competitive labor market, a higher minimum wage can be expected to cause

  1. Higher wages for skilled workers
  2. Higher employment for skilled workers
  3. Lower wages for unskilled workers not covered by minimum wage
  4. All of the above

38.  Which of the following is not true for monopolistically competitive firms in the long run?

  1. Economic profit equals zero
  2. Average total cost is minimized
  3. Price exceeds marginal revenue
  4. All are true for monopolistically competitive firms

39.  A key feature of oligopoly is

  1. Differentiated output
  2. Standardized output
  3. No barriers to entry
  4. None of the above

40.  A natural oligopoly is a oligopoly that can be explained by

  1. Economics of scale
  2. The reputation of existing firms
  3. All of the above
  4. None of the above

41.  Both monopoly and monopolistic competition share the following feature?

  1. No significant barriers to entry
  2. Zero economic profit in the long run
  3. Downward sloping demand curve
  4. A and C

42.  Which of the following is true in the short run when a perfectly competitive firm is producing the profit maximizing output level?

  1. TR=TC
  2. MC = MR = AVC
  3. P=MC
  4. P=AVC

43.  Which of the following statements about perfect competition is false?

  1. In the short run, the number of firms in the industry is fixed
  2. Each firm chooses the price at which it will sell its output
  3. For each firm, marginal revenue is the same as market price
  4. There are not significant barrier to entry or exit

44.  In a perfectly competitive, increasing-cost industry, an increase in demand will, in the long run cause

  1. An increase in price
  2. An increase in market output
  3. An increase in the number of firms
  4. All of the above

45.  In a competitive industry, a rightward shift of the demand curve will cause

  1. Economic profit for each firm in the long run
  2. Economic loss for each firm in the long run
  3. Zero Economic profit
  4. Economic profit for each firm in the short run, and entry in the long run

46.  For problems 46 -48, refer the following data.

P / Q / TC
$100 / 4 / $350
$90 / 5 / $375
$80 / 6 / $425
$70 / 7 / $500

For this firm, the marginal revenue when price is lowered from $100 to $90 is

  1. $50
  2. $90
  3. $100
  4. $450

47.  At which output level or levels could this firm make a positive economic profit?

  1. 4
  2. 5
  3. 6
  4. All of the above
  5. None of the above

48.  For this firm the profit maximizing output level is

  1. 4
  2. 5
  3. 6
  4. 7
  5. None of the above—the firm should shut down

49.  Economic profit is

  1. The same as accounting profit
  2. The difference in the firm’s total revenue and it’s explicit costs
  3. The difference in the firm’s marginal revenue and marginal cost
  4. None of the above

50.  When a firm increases its employment from four to five workers, with no other change, its total output rises from 1,000 to 1,500. For this change in employment, the marginal product of labor is

  1. 100
  2. 250
  3. 500
  4. 550

51.  Which of the following statements about the budget line is true?

  1. The consumer can afford every combination of goods on the budget line
  2. The consumer can afford every combination of goods below the budget line, but no those on the line.
  3. The consumer can afford every combination of goods on the upper half of the budget line.
  4. None of the above

52.  A rise in income will

  1. Shift the budget line rightward and increase its slope
  2. Shift the budget line leftward and decrease its slope
  3. Shift the budget line rightward, with no change in slope
  4. None of the above

53.  The cross-price elasticity between good X and good Y is -2. This tells us that goods X and Y are

  1. Inferior
  2. Complements
  3. Substitutes
  4. None of the above

54.  The price elasticity of demand for a good is greater than one, we say that demand for the good is

  1. Inelastic
  2. Elastic
  3. Perfectly elastic
  4. Perfectly inelastic

55.  If there is an excess supply of a good, we can generally expect

  1. The price of the good to rise
  2. The price of the good to fall
  3. The supply curve to shift leftward
  4. The demand curve to shift rightward

Good luck on the final!

Question / Answer / Question / Answer
1 / A / 29 / A
2 / C / 30 / A
3 / A / 31 / B
4 / A / 32 / D
5 / C / 33 / B
6 / C / 34 / B
7 / B / 35 / D
8 / D / 36 / A
9 / B / 37 / D
10 / D / 38 / B
11 / D / 39 / D
12 / C / 40 / A
13 / A / 41 / C
14 / A / 42 / C
15 / C / 43 / B
16 / B / 44 / B
17 / B / 45 / D
18 / C / 46 / A
19 / B / 47 / D
20 / A / 48 / B
21 / B / 49 / D
22 / C / 50 / C
23 / B / 51 / A
24 / D / 52 / C
25 / D / 53 / B
26 / B / 54 / B
27 / B / 55 / B
28 / B