Sample/practice Exam July 2015, Questions and Answers - Practice Midterm PDF

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Economics 201 Sample Midterm Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. When a society cannot produce all the goods and services people wish to have it is said that the economy is experiencing a. scarcity. b. communism. c. externalities. d. market failure.

2. Daniel decides to spend the last two hours of the night before his economics exam studying instead of sleeping. For Daniel, his tradeoff would be a. nothing, since no dollar value can be put on sleep. b. nothing, since studying would be more beneficial than sleep. c. the six hours of sleep he could have had if he had gone to bed before midnight. d. the two hours of rest he would have gotten.

3. Which of the following best defines efficiency? a. absolute fairness b. equal distribution c. minimum waste d. consumer sovereignty

4. When government policies such as the welfare system try to help the most needy members of society, it a. increases equity and reduces efficiency. b. reduces charitable contributions in an economy. c. increases the productivity of the needy in the society. d. causes market failure to occur.

5. The decisions of firms and households are guided by profit and self-interest in a a. command economy. b. traditional economy. c. market economy. d. All of the above are correct.

6. Prior to its collapse, communist countries worked on the premise that economic well-being could be organized only through/by a. a market economy. b. government central planners. c. government-imposed private monopolies. d. increased competition.

7. The term market failure refers to a. a situation in which the market on its own fails to allocate resources efficiently. b. an unsuccessful advertising campaign which reduces buyer demand. c. a situation in which competition among firms becomes ruthless. d. a firm which is forced out of business because of losses.

8. The self-interest of the participants in an economy is guided into promoting general economic self-interest by a. the invisible hand. b. market power. c. government intervention. d. property rights.

9. Factors of production are a. the mathematical calculations firms make to determine production. b. weather and social and political conditions that affect production. c. the physical relationships between economic inputs and outputs. d. inputs into the production process.

Figure 2-1

10. Refer to Figure 2-1. Which arrow shows the flow of income payments? a. A b. B c. C d. D

Figure 2-3

11. Refer to Figure 2-3. The economy CANNOT produce at which point or points? a. A b. C c. A, C d. A, C, D,

12. Refer to Figure 2-3. Which point or points are efficient? a. B, E b. A, B, E c. D d. C

Figure 2-4

13. Refer to Figure 2-4. The opportunity cost to the economy of getting 30 additional toothbrushes by moving from point A to point D is a. 10 toasters. b. 15 toasters. c. 20 toasters. d. 25 toasters.

Figure 2-5

14. Refer to Figure 2-5. The shift of the frontier from A to B was most likely caused by which of the following? a. technological improvement in the production of batteries b. more labour available in the economy c. a general technological breakthrough d. more capital available in the economy

15. Microeconomics is the study of a. the behaviour of consumers. b. how individual households and firms make decisions. c. how government affects the economy. d. how the economy as a whole works.

Figure 2-9

16. Refer to Figure 2-9. Cups of coffee per day and the hours that someone can go without sleep ha ve a. a positive correlation. b. a negative correlation.

c. a random correlation. d. no correlation.

Table 3-3

Montana Missouri

Labor Hours Needed to Make One Unit of: Baskets Birdhouses 6 2 3 4

Amount Produced in 24 Hours: Baskets Birdhouses 4 12 8 6

17. Refer to Table 3-3. The opportunity cost of 1 birdhouse for Montana is a. 1/3 basket. b. 1 basket. c. 4/3 baskets. d. 3 baskets.

18. Refer to Table 3-3. Montana has an absolute advantage in a. birdhouses and Missouri has an absolute advantage in baskets. b. baskets and Missouri has an absolute advantage in birdhouses. c. neither good and Missouri has an absolute advantage in both goods. d. both goods and Missouri has an absolute advantage in neither good.

19. Refer to Table 3-3. Montana has a comparative advantage in a. baskets and Missouri has a comparative advantage in birdhouses. b. birdhouses and Missouri has a comparative advantage in baskets. c. neither good and Missouri has a comparative advantage in both goods. d. both goods and Missouri has a comparative advantage in neither good.

20. Refer to Table 3-3. If Montana and Missouri trade based on the principle of comparative advantage, Montana will export a. baskets and Missouri will export birdhouses. b. birdhouses and Missouri will export baskets. c. neither good and Missouri will export both goods. d. both goods and Missouri will export neither good.

21. A market is a a. group of demanders and suppliers of a particular good or service. b. group of people with common desires. c. place where only sellers meet. d. place where only buyers come together.

22. You lose your job and as a result, you buy fewer mystery books. This shows that you consider mystery books to be a/an a. normal good. b. inferior good. c. luxury good. d. complementary good.

23. If goods A and B are complements, an increase in the price of A will result in a. more of good A sold. b. more of good B sold. c. less of good B sold. d. no difference in the quantity sold of either good.

Table 4-1 The table shows individual demand schedules for a market. Price of the Good Aaron Angela $0.00 20 16 0.50 18 12 1.00 14 10 1.50 12 8 2.00 6 6 2.50 0 4

Austin 10 6 2 0 0 0

Alyssa 8 6 5 4 2 0

24. Refer to Table 4-1. When the price of the good is $1.00, the quantity demanded in this market would be a. 42 units. b. 31 units. c. 24 units. d. 14 units.

25. A very hot summer in Atlanta will cause the demand for lemonade to a. shift to the left. b. shift to the right. c. remain stable but we would move down the curve. d. remain stable but we would move up the curve.

26. Fewer sellers in the market causes a. the supply curve to shift to the left. b. the supply curve to shift to the right. c. a movement up a stationary supply curve. d. a movement down a stationary supply curve.

27. An advance in production technology will a. increase a firm's costs.

b. allow firms to raise the price of their product. c. shift the supply curve to the right. d. Both a and b are correct.

28. Workers at a bicycle assembly plant currently make minimum wage. If the federal government increases the minimum wage by $1.00 an hour it is likely that the a. demand for bicycle assembly workers will increase. b. supply of bicycles will shift to the right. c. supply of bicycles will shift to the left. d. firm must increase output to maintain profit levels.

29. An increase in the price of oranges would lead to a. an increased supply of oranges. b. a reduction in the prices of inputs used in orange production. c. an increased demand for oranges. d. a movement up the supply curve for oranges.

Table 4-2 PRICE $10 $8 $6 $4 $2

QUANTITY DEMANDED 10 20 30 40 50

QUANTITY SUPPLIED 60 45 30 15 0

30. Refer to Table 4-2. The equilibrium price and quantity would be a. $4.40. b. $6.30. c. $8.30. d. $10.35.

31. Refer to Table 4-2. If the price were $8, a a. surplus of 50 units would exist and price would tend to fall. b. surplus of 10 units would exist and price would tend to fall. c. surplus of 25 units would exist and price would tend to fall. d. shortage of 25 units would exist and price would tend to rise.

32. If the supply of a product decreases, we would expect equilibrium price a. to increase and equilibrium quantity to decrease. b. to decrease and equilibrium quantity to increase. c. and equilibrium quantity to both increase. d. and equilibrium quantity to both decrease.

33. Suppose that the incomes of buyers in a particular market for a normal good decline and there is also a reduction in input prices. What would we expect to occur in this market? a. The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous. b. The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous. c. Both equilibrium price and equilibrium quantity would increase. d. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

34. The price elasticity of demand measures how responsive a. buyers are to a change in income. b. sellers are to a change in price. c. buyers are to a change in price. d. sellers are to a change in buyers' incomes.

35. Demand is said to be inelastic if a. the quantity demanded changes only slightly when the price of the good changes. b. demand shifts only slightly when the price of the good changes. c. buyers respond substantially to changes in the price of the good. d. the price of the good responds only slightly to changes in demand.

36. There are very few, if any, good substitutes for motor oil. Therefore, a. the supply of motor oil would tend to be price elastic. b. the demand for motor oil would tend to be price elastic. c. the demand for motor oil would tend to be price inelastic. d. the demand for motor oil would tend to be income elastic.

37. If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price would result in a a. 4.0 percent decrease in the quantity demanded. b. 10 percent decrease in the quantity demanded. c. 40 percent decrease in the quantity demanded. d. 400 percent decrease in the quantity demanded.

Figure 5-4

38. Refer to Figure 5-4. As price falls from PA to PB, which demand curve is least elastic? a. D1 b. D2 c. D3 d. All of the above are equally elastic.

Figure 5-7

39. Refer to Figure 5-7. Total revenue at P2 would be represented by area(s) a. B + D b. A + B c. C + D d. D

40. The local pizza restaurant makes such great bread sticks that consumers do not respond much to a change in the price. If the owner is only interested in increasing revenue, he should a. lower the price of the bread sticks. b. leave the price of the bread sticks alone. c. raise the price of the bread sticks. d. reduce costs.

41. Assume that a 4 percent increase in income results in a 6 percent decrease in the quantity demanded of a good. The income elasticity of demand for the good is a. negative and therefore the good is an inferior good. b. negative and therefore the good is a normal good. c. positive and therefore the good is an inferior good. d. positive and therefore the good is a normal good.

42. Suppose that an increase in the price of carrots from $1.20 to $1.40 per pound raises the amount of carrots that carrot farmers produce from 1.2 million pounds to 1.6 million pounds. Using the midpoint method, what would be the elasticity of supply? a. 2.00 b. 1.86 c. 0.54 d. 0.50

43. If the quantity supplied is the same regardless of price, then the supply curve would be a. elastic. b. perfectly elastic. c. perfectly inelastic. d. inelastic.

44. Price controls a. always produce an equitable outcome. b. always produce an efficient outcome. c. can generate inequities of their own. d. produce revenue for the government.

45. A government-imposed maximum price at which a good can be sold is called a price a. floor. b. ceiling. c. support. d. equilibrium.

46. If a binding price ceiling is imposed in a market a. there will be a surplus in the market. b. the price will be legally forced toward equilibrium price. c. there will be a shortage in the market. d. market forces will guarantee that the price will be at equilibrium.

Figure 6-2

47. Refer to Figure 6-2. A binding price floor would exist at a. a price of $10.00. b. a price of $8.00. c. any price above $10.00. d. any price below $10.00.

48. Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because a. with shortages and waiting lists, they have no incentive to maintain and improve their property. b. they know they can never please their tenants. c. the law no longer requires them to maintain their buildings. d. it becomes the government's responsibility.

49. The minimum wage is an example of a. a price ceiling. b. a price floor. c. a free-market process. d. an efficient labor allocation mechanism.

50. If the minimum wage is above the equilibrium wage, a. the quantity demanded of labor will be greater than the quantity supplied. b. the quantity demanded of labor will equal the quantity supplied. c. the quantity demanded of labor will be less than the quantity supplied. d. anyone who wants a job at the minimum wage can find one.

51. Which of the following is the most correct statement about price controls? a. Price controls always help those they are designed to help. b. Price controls never help those they are designed to help. c. Price controls often hurt those they are designed to help. d. Price controls always hurt those they are designed to help.

52. A tax of $0.10 per bar on the sellers of Snickers will cause the a. supply curve of Snickers to shift down by $0.10. b. supply curve of Snickers to shift up by $0.10. c. supply curve of Snickers to shift down by $0.05. d. demand curve of Snickers to shift up by $0.10.

53. What is true about the burden of a tax imposed on candles? a. Buyers bear the entire burden of the tax. b. Sellers bear the entire burden of the tax. c. Buyers and sellers share the burden of the tax. d. The government bears the entire burden of the tax.

54. Buyers of a product will pay the majority of a tax placed on a product when a. supply is more elastic than demand. b. the demand in more elastic than supply. c. the tax is placed on the seller of the product. d. the tax is placed on the buyer of the product.

55. Consumer surplus is a. a buyer's willingness to pay minus the price. b. a buyer's willingness to pay plus the price. c. the price of the product minus the buyer's willingness to pay. d. when the buyer's willingness to pay and the price of the product are equal.

56. If Brock is willing to pay $400 for a new suit, but is able to buy the suit for $350, his consumer surplus is a. $50 b. $150 c. $350 d. $400

57. Producer surplus is the area a. under the supply curve. b. between the supply and demand curves. c. below the price and above the supply curve. d. under the demand curve, and above the price.

Figure 8-5

58. Refer to Figure 8-5. Without a tax, consumer surplus in this market would be a. $1500. b. $2400. c. $3000. d. $3600.

59. Refer to Figure 8-5. If a tax is imposed in this market, consumer surplus would be a. $600. b. $900. c. $1500. d. $3000.

60. Refer to Figure 8-5. If a tax is imposed in this market, producer surplus would be a. $600. b. $900. c. $1500. d. $3000.

Economics 201(09) Midterm Exam Answer Section MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41.

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A D C A C B A A D D C A C A B A A A B B A A C B B A C C D B C A B C A C C C B C A

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Easy Average Easy Average Easy Average Average Easy Easy Average Challenging Challenging Average Average Easy Average Challenging Challenging Challenging Challenging Easy Average Average Average Average Average Average Average Average Average Average Average Challenging Easy Average Average Challenging Challenging Average Average Average

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4 4 5 5 9 9 12 9 25 25 27 27 27 27 28 40 53 53 53 53 66 70 71 69 70 76 76 76 73 79 79 81 82 92 92 92 94 95 97 97 102

42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60.

ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS:

B C C B C C A B C C B C A A A C D B A

DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF:

Challenging Easy Average Easy Average Challenging Average Easy Average Average Challenging Average Average Average Easy Easy Challenging Challenging Challenging

REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF:

103 104 116 117 117 122 119 123-125 123-125 116 128 128 132 141 141 145 165 165 165...