Practice exam 2012 questions and answers PDF

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The University of Alberta DEPARTMENT OF ECONOMICS

Economics 101

Practice Final Exam 1 1 2 3 4 5 6 7 8 9 10

e b d c d b c c c b

11 12 13 14 15 16 17 18 19 20

b c a c d d d b a d

21 22 23 24 25 26 27 28 29 30

b d d b b b d b d a

31 32 33 34 35 36 37 38 39 40

d a b c b c a a d c

41 42 43 44 45 46 47 48 49 50

51 52 53 54 55 56 57 58 59 60

a c a b c c d b b b

61 62 63 64 65 66 67 68 69 70

b c d b c c c b c b

71 72 73 74 75 76 77 78 79 80

d b c b d d a c a e

81 82 83 84 85 86 87 88 89 90

c d b c a e a b b c

91 92 93 94 95 96 97 98 99 100



a b c b c a d c d d  b d a c c b d d c b

Practice Final Exam 1 1.

For a given question to be considered an economic question, it would need to involve: a. b. c. d. e.

2.

The use of economic models, like the cost-benefit principle, means economists believe that: a. b. c. d. e.

3.

this is how people explicitly choose between alternatives. this is a reasonable abstraction of how people choose between alternatives. those who explicitly make decisions this way are smarter. with enough education, all people will start to explicitly make decisions this way. this is the way the world ought to explicitly make decisions.

The distinguishing feature of microeconomics is studying: a. b. c. d. e.

4.

explicit prices. making a choice. a graph. limited resources. limited resources and making a choice.

choices. the performance of national economics. the overall price level. choices made by individuals or groups in the context of individual markets. how to improve the performance of national economics.

Joe has decided to purchase his textbooks for the semester. His options are to purchase the books via the Internet with next day delivery to his home at a cost of $250, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $245. Last week he drove to campus to buy a concert ticket because they offered 20 percent off the regular price of $20. a. b. c. d. e.

It would not be rational for Joe to drive to campus to purchase the books because the $5 saving is only two percent of the cost of books, and that is much less than the 20 percent he saved on the concert ticket. It would be rational for Joe to drive to campus because it costs less to buy the books there than via the internet. It would be rational for Joe to drive to campus because the $5 saving is more than he saved by driving there to buy the concert ticket. It would not be rational for Joe to drive to campus to purchase the books because the cost of gas and his time must certainly be more than the $5 he would save. There is insufficient information to determine whether it would be rational or not for Joe to purchase the books via the Internet or on campus.

Practice Final Exam 1 5.

The Smithville Elementary School Teachers Association petitions the Smithville School Board to provide a computer lab for their school. To support their argument the Association presents data from national studies that show when students are provided with computer training they earn an average of $5,000 of additional income during their lives. In order for the School Board to make a rational choice, it should: a. b. c. d. e.

6.

determine if other elementary schools have computer labs. build the computer lab because the children will be able to earn a higher income during their lives. not build the computer lab because the study was not based on a study of the Smithville area. build the computer lab if the additional cost per student is less than or equal to the additional income. build the computer lab if the additional cost per student is greater than or equal to the additional income.

Meredith had only $16 to spend this last weekend. Initially, she was uncertain about whether to go to two movies she had been wanting to see or to buy a new CD she had recently heard. In the end she went to the movies. Which of the following statements is correct? a. b. c. d.

The choice of the two movies and not the CD is an example of increasing costs. The opportunity cost of the two movies is one CD. The opportunity cost of the two movies is $16. None of the above.

Practice Final Exam 1 REFER TO THE DIAGRAM BELOW WHEN ANSWERING THE NEXT 4 QUESTIONS. The graph is Mendork’s production possibility curve for the only two goods that it produces – quirks and quarks.

7.

Refer to the above diagram. What is the opportunity cost of producing the first 600 quarks? a. b. c. d.

8.

Refer to the above diagram. If Mendork’s production is currently that indicated by point A, what is the (approximate) cost of producing one or more quirk(s)? a. b. c. d. e.

9.

100 quarks 50 quarks 25 quarks 200 quarks one more quark

Refer to the above diagram. If new technology increased the output of quirks by 50%, how many quirks could be produced if 600 quarks were produced? a. b. c. d. e.

10.

it is 4 quirks it is 8 quirks it is 10 quirks the answer cannot be determined from the information above

18 quirks 20 quirks 15 quirks 10 quirks no quirks

Refer to the above diagram. Which of the following statements is correct if Mendork is currently producing 500 quarks and 8 quirks? a. b. c. d. e.

This society is using competition to coordinate its economic activities. This society is experiencing either unemployment or inefficiency. This economy is experiencing full time employment. This society is not adequately answering the question: “What to produce”. This economy is growing quickly.

Practice Final Exam 1 11.

All of the following statements, except one, are normative statements. Which is the exception? a. b. c. d.

12.

A production possibilities curve is bowed out because: a. b. c. d.

13.

c. d.

An economic model is evaluated based on the realism of its assumptions. An economic model should not generate predictions about actual events in the real world, since it discusses only abstract events. An economic model will be discarded if its predictions are often in conflict with the facts. Economic models are all false.

Anytime one purchases a ticket in advance of an event, if the ticket is non-refundable and non-transferable then on the day of the event: a. b. c. d. e.

16.

How much will my chances of a job improve if I raise my GPA from a C to a C+? What is the average cost of a college education? How many students borrow money in order to attend college? What is the average income of a college graduate?

Select the best statement about economic models. a. b.

15.

society has fixed amounts of productive resources. the curve is negatively sloped. resources are not perfectly adaptable to different uses. it becomes less and less costly to produce each additional unit of output.

Which of the following is an example of a marginal question? a. b. c. d.

14.

The taxes on gasoline should be lower. Lowering the taxes on gasoline would decrease the price at the pump. It is wrong for the government to tax gasoline. The government is trying to mislead people about the tax on gasoline.

the ticket is part of the cost of going. the ticket is a variable cost. the ticket is part of the cost of going if it was expensive. the ticket is a sunk cost and should pay no role in the decision to go or not. the ticket is a fixed cost but not a sunk cost.

Specialization of labor not only results in the ability to produce a larger amount of goods due to innate differences in people’s skills, but also by: a. b. c. d.

rigidly segmenting work. switching back and forth among numerous tasks. breaking a task down into mind-numbing repetitive tasks. deepening

Practice Final Exam 1 REFER TO THE FOLLOWING TABLE WHEN ANSWERING THE NEXT 4 QUESTIONS.

Jenny Craig

17.

1 pair of shoes. 1.5 pairs of shoes. 2 pairs of shoes. 2.5 pairs of shoes. 3 pairs of shoes.

Refer to the above table. Craig’s opportunity cost of producing an extra pair of shoes is: a. b. c. d. e.

20.

the production of shoes. neither shoe nor pant production. the production of pants. both shoe and pants production. pants and possibly shoe production.

Refer to the above table. Jenny’s opportunity cost of producing an extra pair of pants is: a. b. c. d. e.

19.

Pants Per Hour 2 3

Refer to the above table. Craig possesses an absolute advantage in: a. b. c. d. e.

18.

Shoes Per Hour 3 4

.75 pairs of pants. .90 pairs of pants, 1 pair of pants. 1.25 pairs of pants 1.33 pairs of pants.

Refer to the above table. Based on their comparative advantages, Craig should specialize in producing ________ while Jenny should specialize in producing ________. a. b. c. d. e.

shoes; pants both; neither neither; both pants; shoes pants; pants

Practice Final Exam 1 ANSWER THE NEXT 2 QUESTIONS BASED ON THE DIAGRAM BELOW:

D2

A D1 B D0

21.

Refer to the above diagram, illustrating the demand for guitars. An increase in price of guitars would bring about a movement from: a. b. c. d.

22.

C

Point B to Point C. Point B to Point A. Point D1 to Point D0. Point D1 to Point D2.

Refer to the above diagram, illustrating the demand for guitars. A successful advertising campaign to sell guitars would bring about a movement from: a. b. c. d.

Point B to Point C. Point B to Point A. Point D1 to Point D0. Point D1 to Point D2.

Practice Final Exam 1 REFER TO THE FOLLOWING DIAGRAM WHEN ANSWERING THE NEXT 2 QUESTIONS.

23.

Refer to the above diagram, illustrating the supply of guitars. An increase in the price of rosewood, which is used to make guitars, would most likely cause a movement from: a. b. c. d.

24.

Refer to the above diagram, illustrating the supply of guitars. A decrease in the quantity supplied of guitars is represented by a movement from: a. b. c. d.

25.

Point B to Point C. Point B to Point A. Point S1 to Point S0. Point S1 to Point S2.

Point B to Point C. Point B to Point A. Point S1 to Point S0. Point S1 to Point S2.

Suppose that in October the price of a cup of café latte was $1.50 and 400 lattes were consumed. In November the price of a latte was $2.00 and 600 lattes were consumed. What might have caused this change? a. b. c. d.

The price of tea (a substitute for café lattes) fell. The price of tea (a substitute for café lattes) rose. The price of coffee beans (an input of production of café lattes) rose. The price of coffee beans (an input of production of café lattes) fell.

Practice Final Exam 1 26.

Suppose that the price of fertilizer, an input in the production of corn, falls. We would predict that the equilibrium quantity of corn will ________ and the equilibrium price of corn will ________. a. b. c. d.

rise; rise rise; fall fall; rise fall; fall

REFER TO THE FOLLOWING TABLE WHEN ANSWERING THE NEXT 2 QUESTIONS. The table represents the market for mushrooms. Quantities are in thousands of kilos per month. Price ($) Quantity Demanded Quantity Supplied

27.

3.50

4.00

4.50

5.00

5.50

6.00

64

62

60

58

56

54

52

50

40

44

48

52

56

60

64

68

$3 and 52 $3 and 62 $4 and 58 $4.50 and 56 cannot be determined

Refer to the above table. What will happen if the price is $3? a. b. c. d. e.

29.

3.00

Refer to the above table. What are the values of equilibrium price and quantity traded? a. b. c. d. e.

28.

2.50

A surplus of 18 which would lead to a decrease in price. A shortage of 18 which would lead to an increase in price. A shortage of 18 which would lead to a decrease in price. A surplus of 18 which would lead to an increase in price. Supply exceeds demand.

Bananas and apples are substitutes. In the market for apples, when the price of bananas falls, and technological advance in apple production occurs at the same time: a. b. c. d.

the equilibrium price of apples rises and the equilibrium quantity of apples falls. the equilibrium price of apples rises and the equilibrium quantity of apples rises. the equilibrium price of apples rises and the equilibrium quantity of apples might rise or fall. the equilibrium price of apples falls and the equilibrium quantity of apples might rise or fall.

Practice Final Exam 1 30.

“Improvements in personal computer technology and its widespread adoption in the workplace have served to increase productivity.” Assuming the statement is true, one would expect this to cause: a. b. c. d. e.

31.

an increase in supply. an increase in quantity supplied. a decrease in supply. a decrease in quantity supplied. no change in the marketplace.

When a market is not in equilibrium: a. b. c. d. e.

government intervention is required to achieve equilibrium. consumers will organize into special interest groups to promote their agenda. firms will increase contributions to political action committees. the economic motives of sellers and buyers will move the market to its equilibrium. it will simply stay in a state of disequilibrium.

Practice Final Exam 1 REFER TO THE FOLLOWING DIAGRAM WHEN ANSWERING THE NEXT 2 QUESTIONS.

32.

Refer to the diagram above. What would be the result if a price floor is set which is $2 different from the equilibrium price? a. b. c. d.

33.

Refer to the diagram above. What would be the result if a price ceiling is set which is $2 different from the equilibrium price? a. b. c. d.

34.

The price would be above equilibrium and a surplus of 60 would be produced. The price would be below equilibrium and a shortage of 60 would be produced. The price would be above equilibrium and a shortage of 60 would be produced. The price would be below equilibrium and a surplus of 60 would be produced.

The price would be above equilibrium and a surplus of 60 would be produced. The price would be below equilibrium and a shortage of 60 would be produced. The price would be above equilibrium and a shortage of 60 would be produced. The price would be below equilibrium and a surplus of 60 would be produced.

Why is the market’s allocation of products preferable to that of either the producers or of the government? a. b. c. d. e.

Because it ensures that even the poor will be able to afford to buy everything. Because it ensures that only people who really need certain products will be able to afford them. Because it ensures that both demand and supply factors are taken into consideration. Because it will mean that scarce resources are available at low prices Because it ensures that the income distribution of the population is ignored.

Practice Final Exam 1 35.

What is meant by an illegal market? a. b. c. d.

36.

Suppose that the price of a product decreased from $6.50 to $5.50, and the quantity demanded increased from 55 to 65. What is the value of the price elasticity of demand? a. b. c. d. e.

37.

0.5 9.85 1.0 1.18 2.0

A local transit authority has just applied to its regulatory board for a fare increase on its railtransit system arguing that the increase is needed to cover costs. A citizens committee is opposed to the proposed increase arguing that the company could increase its revenue by decreasing fares. Which of the statements below is correct? a. b. c. d. e.

38.

An allocation system where sellers are allowed to determine the method of allocation on the basis of their own preferences. A market where products are bought and sold at a rice above a government imposed price ceiling. The effect which a price change has on real income and therefore on the quantity demanded of a product. A mechanism to keep buyers and sellers apart.

The company thinks that its demand is inelastic while the committee thinks it is elastic. The company thinks that its demand is elastic while the committee thinks it is elastic. Both the company and committee think that the elasticity coefficient is unity. It is possible that both the company and the committee think that the elastic coefficient is unity. Price elasticity of demand is not relevant to whether the company or the committee is right.

Which of the following products has the most elastic demand? a. b. c. d.

Coca Cola in 12 oz. cans all cola drinks all carbonated beverages all beverages

Practice Final Exam 1 39.

Suppose that the value of the price elasticity of demand for a product is 2 and its price increases by 16%. What will happen to the quantity demanded? a. b. c. d. e.

40.

it will increase by 8% it will increase by 32% it will decrease by 8% it will decrease by 32% it cannot be determined without further information

If the price of Moonlight massage oil decreases from $3 to $2.50 and, as a result, total revenue of $6,000 does not change, what is the elasticity of demand? a. b. c. d. e.

0.22 0.55 1 1.2 1.67

REFER TO THE TABLE ELOW WHEN ANSWERING THE NEXT 3 QUESTIONS.

Units 1 2 3 4

41.

Total Total Utility Utility of Good A of Good B 20 40 36 73 48 97 56 113

Refer to the above table. The price of Good A is $1, the price of Good B is $3, and $13 can be spent. The rational spending rule predicts ________ units of Good A and ________ units of Good B will be purchased. a. b. c. d. e.

4; 3; 4; 3; 1;

3 4 4 3 2

Practice Final Exam 1 42.

Refer to the above table. The price of Good A is $2, the price of Good B remains at $3, and $13 can be spent. The rational spending rule predicts ________ units of Good A and ________ units of Good B will be purchased. a. b. c. d. e.

43.

44.

1; 2; 4; 3; 4;

1 3 2 2 3

Refer to the above table. The “demand” for Good A is represented by: a.

b.

c.

d.

PA$1: QA2 PA$2: QA4

PA$1: QA4 PA$2: QA3

PA$1: QA4 PA$2: QA2

PA$1: QA3 PA$2: QA4

Why does the demand curve slope downward? a. b. c. d.

Since the marginal utility increases with increased consumption, people will be eager to buy more at lower prices. Since the marginal utility decreases with increased consumption, the price must fall in order to induce people to buy more. Since total utility increases with increased consumption, a lower price is necessary to encourage increased production. Lower prices mean a lower consumer surplus which will encourage increased consumption.

Practice Final Exam 1 REFER TO THE TABLE BELOW WHEN ANSWERING...