EC 110 Practice Exam 1

Which of the following is not a characteristic of a perfectly competitive market? A. Sellers set the price of the product. B. There are many sellers. C. Buyers must accept the price the market determines. D. All of the above are characteristics of a perfectly competitive market.

A. Sellers set the price of the product.

Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 1000 units of food and 47 machines. This year, it is producing 1050 units of food and 52 machines. Which of the following events could not explain the increase in output? A. a reduction in unemployment B. an increase in available labor C. an improvement in technology D. Any of these events could explain the increase in output.

A. a reduction in unemployment

Refer to Figure 4-15. Which of the following would cause the supply curve to shift from Supply B to Supply A in the market for beer? A. an expectation by firms that the price of beer will increase in the very near future B. a decrease in the price of hops C. an improvement in technology that allows firms to use less labor in the production of beer D. a decrease in the price of beer

A. an expectation by firms that the price of beer will increase in the very near future

Which of the following events would unambiguously cause an increase in the equilibrium price of cotton shirts? A. an increase in the price of wool shirts and an increase in the price of raw cotton B. a decrease in the price of wool shirts and a decrease in the price of raw cotton C. an increase in the price of wool shirts and a decrease in the price of raw cotton D. a decrease in the price of wool shirts and an increase in the price of raw cotton

A. an increase in the price of wool shirts and an increase in the price of raw cotton.

If the price elasticity of demand for a good is 1.2, then a 3 percent decrease in price results in a A. 6 percent increase in the quantity demanded. B. 3.6 percent increase in the quantity demanded. C. 0.4 percent increase in the quantity demanded. D. 2.5 percent increase in the quantity demanded

B. 3.6 percent increase in the quantity demanded.

Refer to Table 4-6. If these are the only four sellers in the market, then the market quantity supplied at a price of $4 is A. 10 units. B. 30 units. C. 4 units. D. 7.5 units.

B. 30 units.

Refer to Table 4-3. If these are the only four buyers in the market, then the market quantity demanded at a price of $1 is A. 7.75 units. B. 31 units. C. 4 units. D. 14 units.

B. 31 units.

Refer to Figure 4-20. If price is $25, then quantity demanded and quantity supplied, respectively, are A. 500 units and 500 units. B. 500 units and 800 units. C. 800 units and 500 units. D.600 units and 600 units.

B. 500 units and 800 units.

Table 3-1 Assume that John and Jane can switch between producing bread and wine at a constant rate. Refer to Table 3-1. Assume that John and Jane each work 24 hours. What happens to total production if instead of each person spending 12 hours producing each good, Jane spends 21 hours producing wine and 3 hours producing bread and John spends 3 hours producing wine and 21 hours producing bread? A. The total production of bread rises and the total production of wine falls. B. The total production of bread and wine each rise. C. The total production of bread and wine each fall. D. The total production of bread falls and the total production of wine rises.

B. The total production of bread and wine each rise.

An early frost in the vineyards of Napa Valley would cause a(n) A. increase in the demand for wine, increasing price. B. decrease in the supply of wine, increasing price. C. decrease in the demand for wine, decreasing price. D. increase in the supply of wine, decreasing price.

B. decrease in the supply of wine, increasing price.

Refer to Figure 5-9. If the price falls from point A to point B, total revenue A. decreases, and demand is price elastic. B. increases, and demand is price elastic. C. increases, and demand is price inelastic. D. decreases, and demand is price inelastic.

B. increases, and demand is price elastic

Suppose after graduating from college you get a job working at a bank earning $30,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calculation of your opportunity cost? A. the value of insurance coverage and other employee benefits you would have received if you retained your job at the bank B. the $45,000 salary that you will be able to earn after having completed your graduate program C. the cost of tuition and books to attend the graduate program D. the $30,000 salary that you could have earned if you retained your job at the bank

B. the $45,000 salary that you will be able to earn after having completed your graduate program

Barb's aunt gave her $100 for her birthday with the condition that Barb buy herself something. In deciding how to spend the money, Barb narrows her options down to four choices: Option A, Option B, Option C, and Option D. Each option costs $100. Finally she decides on Option B. The opportunity cost of this decision is A. the value to Barb of Options A, C and D combined. B. the value to Barb of the option she would have chosen had Option B not been available. C. the average of the values to Barb of Options A, C, and D. D. $100.

B. the value to Barb of the option she would have chosen had Option B not been available.

Refer to Figure 4-2. Suppose Phil and Miss Kay are the only consumers in the market. If the price is $12, then the market quantity demanded is A. 4 units. B. 0 units. C. 2 units. D. 6 units.

C. 2 units.

Refer to Table 3-34. At which of the following prices, if any, can India and Indonesia both gain from trade? A. 1/5 units of bananas per unit of rice. B. 1/3 units of bananas per unit of rice. C. 3/5 units of bananas per unit of rice. D. None of the above.

C. 3/5 units of bananas per unit of rice.

The following table contains some production possibilities for an economy for a given month. Refer to Table 3-18. If the production possibilities frontier is bowed outward, then "?" could be A. 150. B. 300. C. 375. D. 225.

C. 375.

Table 3-26 Assume that Japan and Korea can switch between producing cars and producing airplanes at a constant rate. Refer to Table 3-26. Suppose Korea decides to increase its production of cars by 18. What is the opportunity cost of this decision? A. 16 airplanes B. 150 airplanes C. 6 airplanes D. 3 airplanes

C. 6 airplanes

Suppose the price elasticity of supply for soccer balls is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for soccer balls causes the price of soccer balls to increase by 20%, then the quantity supplied of soccer balls will increase by about A. 3% in the short run and 1.2% in the long run. B. 0.67% in the short run and 0.17% in the long run. C. 6% in the short run and 24% in the long run. D. 66.7% in the short run and 16.7% in the long run.

C. 6% in the short run and 24% in the long run.

Refer to Figure 2-1. Which arrow represents the flow of income payments? A. B B. A C. D D. C

C. D

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good? A. The quantity of the good demanded decreases from 200 to 100. B. The quantity of the good demanded decreases by 0.05 percent. C. The quantity of the good demanded decreases by 0.2 percent. D. The quantity of the good demanded decreases from 250 to 150.

C. The quantity of the good demanded decreases by 0.2 percent.

Rational people make decisions "at the margin" by comparing A. opportunity costs and benefits. B. total costs and benefits. C. additional costs and benefits. D. average costs and benefits.

C. additional costs and benefits.

When the price of a good is lower than the equilibrium price, A. quantity supplied exceeds quantity demanded. B. a surplus will exist. C. buyers desire to purchase more than is produced. D. sellers desire to produce and sell more than buyers wish to purchase.

C. buyers desire to purchase more than is produced.

Table 3-32 US and French Production Opportunities Refer to Table 3-32 France has an absolute advantage in the production of A. wine. B. both wine and cheese. C. neither wine nor cheese. D. cheese.

C. neither wine or cheese.

In the simple circular-flow diagram, A. households own the factors of production. B. households buy all the goods and services that firms produce. C. land, labor, and capital flow from households to firms. D. All of the above are correct.

D. All of the above are correct

Which of the following events must result in a lower price in the market for Snickers? A. Demand for Snickers increases, and supply of Snickers decreases. B. Demand for Snickers and supply of Snickers both increase C. Demand for Snickers and supply of Snickers both decrease. D. Demand for Snickers decreases, and supply of Snickers increases.

D. Demand for Snickers decreases, and supply of Snickers increases.

Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for Ramen noodles of a decrease in the incomes of young adults, assuming that Ramen noodles are an inferior good? A. Point C to Point D B. Point C to Point B C. Point A to Point B D. Point A to Point D

D. Point A to Point D

Economists speaking like policy advisers make A. positive statements. B. claims about how the world is. C. descriptive statements. D. claims about how the world should be.

D. claims about how the world should be.

The bowed shape of the production possibilities frontier can be explained by the fact that A. all resources are scarce. B. economic growth is always occurring. C. the only way to get more of one good is to get less of the other. D. the opportunity cost of one good in terms of the other depends on how much of each good the economy is producing.

D. the opportunity cost of one good in terms of the other depends on how much of each good the economy is producing

Assume the market for pork is perfectly competitive. When one pork buyer exits the market, A. the price of pork decreases. B. the price of pork increases. C. there is no longer a market for pork. D. the price of pork does not change.

D. the price of pork does not change

Approximately what percentage of the world's economies experience scarcity? A. 10% B. 85% C. 40% D. 100%

D. 100%

Refer to Figure 5-8. When the price is $15, total revenue is A. $4,500. B. $2,500. C. $3,500. D. $1,500.

A. $4,500.

Refer to Figure 3-14. If Arturo and Dina switch from each person dividing their time equally between the production of tacos and burritos to each person spending all of their time producing the good in which they have a comparative advantage, then total production of burritos will increase by A. 50. B. 100. C. 150. D. 300.

A. 50.

Abby bakes brownies and Liam grows flowers. In which of the following cases is it impossible for both Abby and Liam to benefit from trade? A. Abby does not like flowers and Liam does not like brownies. B. Abby is better than Liam at baking brownies and Liam is better than Abby at growing flowers. C. Liam is better than Abby at baking brownies and at growing flowers. D. Both Abby and Liam can benefit from trade in all of the above cases.

A. Abby does not like flowers and Liam does not like brownies.

Refer to Table 4-2. Whose demand does not obey the law of demand? A. Carrie's B. DeeDee's C. Abby's D. Brandi's

A. Carrie's

Refer to Table 5-11. Which scenario describes the market for oil in the long run? A. a B. b C. c D. d

A. a

Refer to Table 4-6. If these are the only four sellers in the market, then when the price decreases from $4 to $2, the market quantity supplied A. decreases by 10 units. B. increases by 10 units. C. decreases by 20 units. D. decreases by 30 units.

A. decreases by 10 units

Refer to Figure 5-17. Using the midpoint method, what is the price elasticity of supply between point B and point C? A. 0.69 B. 1.44 C. 1.29 D. 0.96

B. 1.44

Table 3-25 Assume that Maya and Miguel can switch between producing mixers and producing toasters at a constant rate. Refer to Table 3-25. The opportunity cost of 1 mixer for Maya is A. 5 hours of labor. B. 1.6 toasters. C. 0.625 toasters. D. 20 hours of labor.

B. 1.6 toasters.

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. Refer to Table 5-7. Using the midpoint method, when income equals $7,500, what is the price elasticity of demand between $16 and $20? A. 0.56 B. 1.80 C. 1.33 D. 0.75

B. 1.80

In a competitive market, the quantity of a product produced and the price of the product are determined by A. a single seller. B. all buyers and all sellers. C. one buyer and one seller working together. D. a single buyer.

B. all buyers and all sellers.

Refer to Figure 2-7. What is the opportunity cost of moving from point M to point L? A. 20 engines B. zero C. 15 tvs D. 20 engines and 15 tvs

C. 15 TVs

The law of demand states that, other things equal, an increase in A. quantity demanded causes price to decrease. B. quantity demanded causes price to increase. C. price causes quantity demanded to decrease. D. price causes quantity demanded to increase.

C. price causes quantity demanded to decrease.

When economists are trying to explain the world, they are A. in the realm of normative economics rather than positive economics. B. in the realm of microeconomics rather than macroeconomics. C. scientists. D. policy advisers.

C. scientists.

The opportunity cost of an item is A. the number of hours that one must work in order to buy one unit of the item. B. always less than the dollar value of the item. C. what you give up to get that item. D. always greater than the cost of producing the item.

C. what you give up to get that item.

Refer to Figure 2-6. The opportunity cost of this economy moving from point I to point F is A. 360 blankets. B. zero. C. 40 blankets. D. 120 pillows.

D. 120 pillows.

Normative statements are A. pessimistic interpretations of the economy. B. claims about how variables in the economy normally behave. C. not usually made by economists. D. claims about how the world should be.

D. claims about how the world should be.

A movement downward and to the right along a demand curve is called a(n) A. decrease in demand. B. decrease in quantity demanded. C.increase in demand. D. increase in quantity demanded.

D. increase in quantity demanded.

If suppliers expect the price of their product to fall in the future, then they will A. decrease supply in the future but not now. B. decrease supply now. C. increase supply in the future but not now. D. increase supply now.

D. increase supply now

The field of economics is traditionally divided into two broad subfields, A. private sector economics and public sector economics. B. national economics and international economics. C. consumer economics and producer economics. D. microeconomics and macroeconomics.

D. microeconomics and macroeconomics.