Econ 150 Name______
Exam 1
Mrs. Claudia Strow
Fall 2002
There are 100 possible points on this exam.
I. Multiple Choice
Each multiple choice is worth three points. Please place answers to multiple choice questions on your scantrons. Your scantron answer will be the only answer graded for this portion of the exam.
1. The fundamental problem of economics is:
a. The law of increasing opportunity costs
b. How to get government to operate efficiently.
c. How to create employment for everyone
d. The scarcity of resources relative to human wants.
2. Microeconomics is concerned with issues like:
a. Maintaining a strong level of economic growth
b. The level of inflation in the economy
c. The demand for CD players by individuals.
d. All of the above.
3. Which of the following is not a factor of production?
a. money.
b. A ballpoint pen.
c. A teacher.
d. Ten acres of forest.
e. all of the above are factors of production.
4. According to the “law” of increasing opportunity costs:
a. The more one is willing to pay for resources, the larger will be the possible level of production.
b. In order to produce additional units of a particular good, it is necessary for society to sacrifice increasingly larger amounts of alternative goods.
c. Increasing the production of a particular good will cause the price of the good to rise.
d. Only by keeping production constant can rising prices be avoided.
5. A technological advance would best be represented by:
a. A shift inward of the production possibilities curve
b. A shift outward of the production possibilities curve.
c. A movement from inside the production possibilities curve to a point on the production possibilities curve
d. A movement from the production possibilities curve to a point inside the production possibilities curve
6. Which of the following events would cause the production-possibilities curve to shift outward?
a. All of the below
b. The economy's capital stock increases.
c. A new, strong plastic is developed for use in building houses.
d. The population of 18-65 year olds increases in the country.
7. The slope of the production-possibilities curve provides information about:
a. The growth of the economy.
b. Opportunity costs in the economy.
c. Technological change in the economy.
d. None of the above.
8. Which of the following events would cause the production-possibilities curve to shift inward?
a. The labor supply grows
b. A technological breakthrough occurs.
c. New factories are built.
d. An unexpected freeze destroys many U.S. crops.
e. None of the above would shift the production-possibilities frontier inward
9. Teddy received $20 from his grandmother for his birthday. His first choice is to use the money to buy 3 packs of golf balls. His second choice is to use the money towards a new baseball glove. His third choice is to use the money to take a friend to the movies. He prefers these choices in the order they are given and all choices cost $20. The opportunity cost of purchasing 3 packs of golf balls is
a. $20
b. a baseball glove
c. $20 and a baseball glove
d. a baseball glove and a movie with his friend
e. none of the above correctly depict Teddy’s opportunity cost of purchasing golf
balls
10. Which of the following would be an advocate of a laissez faire economic policy?
a. Adam Smith.
b. Karl Marx
c. John Maynard Keynes
d. President Franklin Roosevelt.
e. all of the above
Use the following production possibilities for bombers to answer the following two questions.
Stealth Bombers B-1 Bombers
10 0
9 1
7 2
4 3
11. On the basis of your calculations from the above table, you may infer that the law of increasing opportunity costs:
a. Applies to Stealth bombers but not to B-1 bombers.
b. Applies to B-1 bombers but not to Stealth bombers
c. Applies to both B-1 bombers and Stealth bombers
d. Applies to neither B-1 bombers nor Stealth bombers
12. In the production range of 7 to 9 Stealths, the opportunity cost of producing 1 more Stealth bomber in terms of B-1s is:
a. 0
b. 0.5
c. 3
d. 2
13. If the equilibrium wage in Bowling Green is $6.50 an hour and minimum wage is set at $5.15 what will be the effect on the number of people hired and the wage paid?
a. the quantity hired will increase and the wage paid will fall to $5.15
b. the quantity hired will decrease and the wage paid will fall to $5.15
c. the quantity hired will not change but the wage paid will fall to $5.15
d. the quantity hired and wage paid will not change from the equilibrium
14. Given the law of demand is satisfied for cassette tapes, if the price of cassette tapes are reduced from $10 to $8, then, ceteris paribus:
a. Demand for tapes will increase.
b. Demand for tapes will decrease.
c. The quantity demanded of tapes will increase.
d. The quantity demanded of tapes will decrease.
15. Ceteris paribus, which of the following would generally cause an increase in the demand for automobiles?
a. A decrease in the price of automobiles.
b. The new models are perceived as ugly compared with old models.
c. Consumer expectations that the price of automobiles will be lower next year.
d. None of the above.
16. An increase in the price of one good can cause a decrease in the demand for another good if the goods are
a. Complements.
b. Substitutes.
c. Unrelated to each other.
d. Both inferior.
17. Which of the following provides an example of the law of demand?
a. Changing tastes cause an increase in demand.
b. Price falls and the quantity demanded increases.
c. Increased population shifts the demand curve to the right.
d. Incomes fall and the demand curve shifts to the left.
18. Which of the following is a determinant of supply?
a. Consumer tastes or preferences.
b. Income.
c. The number of buyers.
d. The prices of the factors of production.
e. None of the above
19. If corn and wheat are alternative pursuits for a farmer, an increase in the supply of corn will take place:
a. When the demand for corn changes.
b. When the price of corn falls.
c. When the price of wheat falls.
d. When the price of corn rises.
e. When the price of wheat rises.
20. A leftward shift in a demand curve and a leftward shift in a supply curve both result in a :
a. Lower equilibrium price.
b. Higher equilibrium price.
c. Lower equilibrium quantity.
d. Higher equilibrium quantity.
e. both a and c
f. both b and d
21. When effective price ceilings are set for a market:
a. Quantity supplied will be less than the equilibrium quantity, and price will be greater than the equilibrium price.
b. Quantity supplied will be greater than the equilibrium quantity, and price will be less than the equilibrium price.
c. Quantity supplied will be greater than the equilibrium quantity, and price will be greater than the equilibrium price.
d. Quantity supplied will be less than the equilibrium quantity, and price will be less than the equilibrium price.
22. If the price elasticity of demand for peanuts is 3.2, then the demand for peanuts is
a. inelastic
b. elastic
c. unit elastic
d. inferior
e. normal
23. If the price of tuition increases by 10% then 5% fewer students will attend WKU. Which of the following is correct?
a. The price elasticity of demand is 2 and so total revenue at Western will increase as the price increases
b. The price elasticity of demand is 2 and so total revenue at Western will decrease as the price increases
c. The price elasticity of demand is ½ and so total revenue at Western will increase as the price increases
d. The price elasticity of demand is ½ and so total revenue at Western will decrease as the price increases
e. None of the above statements are correct
II. Short Answer, Fill in the Blank, and Problems
24. (11 points) Suppose that in one hour Gilligan can gather either 10 coconuts or 20 bunches of berries, no matter how many hours he spends gathering each good. He has 8 hours in the day to gather food items.
a. Draw Gilligan’s production possibilities frontier for one day and label each axis and the endpoints (where the PPF hits the axis).
Hint: to get possible combinations think about what happens if Gilligan spends 1 hour on coconuts and 7 hours on berries, 2 hours on coconuts and 6 hours on berries, etc.
b. What is the opportunity cost of 1 coconut?
______
c. What can we say about the point on the graph where Gilligan gathers 80 coconuts and 10 bunches of berries?
This point is ______
d. Is the “law” of increasing opportunity costs demonstrated by Gilligan’s production possibilities? Answer yes or no
______
25. (10 points) Suppose that the quantity demanded and the quantity supplied of DVD players at different prices are given below.
Price Quantity Supplied Quantity Demanded
$50 1,000 25,000
100 2,000 16,000
150 4,000 11,000
200 7,000 7,000
250 11,000 4,000
300 17,000 2,000
a. What is the equilibrium quantity and price of DVD players exchanged without any government intervention?
p*=______
q*=______
b. Suppose the government has established a price ceiling of $100. What will the price and quantity of DVD players demanded and supplied be? What is happening as a result of this price ceiling?
The Quantity demanded is ______
The Quantity supplied is ______
(circle one below)
As a result there is a shortage / surplus of ______DVD’s
26. (10 points) Identify the effect on equilibrium price (P) and quantity (Q) of coffee beans sold in each of the following situations with one of the following symbols: either ¯ (decrease) (increase) or ? (cannot tell). You may wish to draw a graph to help you determine the direction price and quantity move.
P Q
a. producers expect the price of coffee beans to rise next month ______
b. Wages of coffee bean packagers rise ______
c. New technology makes harvesting coffee beans cheaper, ______
and at the same time the income levels rise
(assume coffee beans are a normal good)
d. The US experiences a heat wave ______
e. the price of donuts (a complement to coffee) falls ______
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