Econ 102 exam 1 practice test

Which is a true statement?

efficiency refers to the size of the economic pie; equity refers to how the pie is divided

Ford Motor company announces that it will offer 3,000 rebates on new mustangs starting next month, as a result, what will happen to today's demand curve for mustangs?

shifts to the left (expectations: if the price will be better in the future, quantity of demand will drop until then)

If Barney and Betty both specialize in the good in which they have a comparative advantage, what will total production be?

total production of bread will be 20 and total production of pies will be 14

Rational people make decisions at the margin by?

comparing marginal costs and marginal benefits

The current price of neckties is $30 and the equilibrium price of neckties is $25, what happens as a result?

-the quantity supplied of neckties exceeds the quantity demanded of neckties at $30 -the equilibrium quantity of neckties exceeds the quantity demanded at $30 -there is a surplus of neckties at $30

At what price is excess supply equal to 25?

$8 (quantity supplied= 45, quantity demanded= 20, 45-20= 25)

Suppose Betty must work 2 hours to produce each pie, then how long must she work to produce one loaf of bread?

1.5 hours (15/20= .75 x 2 = 1.5 hours)

The opportunity cost of 1 loaf of bread for Barney is what?

2 pies

If it takes 6 hours to make 1 basket, and 2 hours to make one birdhouse in Montana, what is the opportunity cost of 1 basket?

3 birdhouses

Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 5 bushels of corn or 50 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. If the two countries do not trade, Cornland will produce and consume 400 bushels of corn and 100 bushels of oats, while Oatland will produce and consume 60 bushels of corn and 400 bushels of oats. If each country made the decision to specialize in producing the good for which it has a comparative advantage, then the combined yearly output of the two countries would increase by?

340 bushels of corn and 500 bushels of oats

If the production possibilities frontier is bowed outward, then in place of "?" we might have?

500 legos (40 tree houses= 1000 legos, 42 tree houses = 800 legos, 44 tree houses = ? )

Which space represents an increase in equilibrium quantity and an indeterminate change in equilibrium price?

A (an increase in demand and an increase in supply)

Which space represents a decrease in equilibrium price and an indeterminate change in equilibrium quantity?

C (a decrease in demand and an increase in supply)

An increase in the price of rubber coincides with an advance in the technology of tire production. What happens as a result of these two events?

It is not certain what exactly would happen to the supply and demand

Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation?

New medical evidence has been released that indicates a negative correlation between a person's beef consumption and his or her longevity

What is the law of demand?

an increase in price causes quantity demanded to decrease

What does Montana have a comparative advantage in?

birdhouses and missouri has a comparative advantage in baskets (costs montana 1/3 of a basket to make one more birdhouse and costs Missouri 1/2 of a basket, costs Montana 3 birdhouses to make one more basket and Missouri only costing 2)

economists build economic models by?

making assumptions

it is possible for an economy to increase its production of computers and, at the same time, to increase its production of cars if the economy?

moves from a situation of inefficient production to a situation of efficient production

What does Montana have an absolute advantage in?

neither good, and Missouri has an absolute advantage in both goods (only takes 3 hours to make one basket and it takes Montana 6 hours, only takes 1.5 hours to make one birdhouse and Montana 2 hours)

What does Barney have a comparative advantage in?

pies (7/14= giving up 1/2 loaf of bread to make 1 more pie, while betty is 20/15= giving up 1 1/3 loaves of bread to make one more pie) and betty has a comparative advantage in loaves of bread (15/20 = giving up 3/4 pies to make one more loaf of bread, and Barney is 14/7= giving up 2 pies to make one more loaf of bread)

What would happen to the equilibrium price and quantity of peanut butter if the price of peanuts went up, the price of jelly (a complementary good) fell, fewer firms decided to produce peanut butter, and health officials announced that eating peanut butter was good for you?

price will rise and the effect on quantity is ambiguous

The equilibrium price and quantity, respectively, are what?

price: $6 quantity demanded and quantity supplied: 30

What would cause the demand curve for gasoline to shift to the left (the demand for gasoline to decrease) ?

public service announcements are run on television, encouraging people to walk or ride bicycles instead of driving cars

which of the following is an example of a normative statement?

reducing tax rates on the wealthy would benefit the nation