Answer Key - Exam #1 Section 1675 Fall 1998
Econ2010 – Practice Test #1 - ANSWER KEY
I. Multiple Choice
1)C
2)D
3)B
4)D
5)A
6)A
7)D
8)D
9)B
10)A
11)B
12)A
13)A
14)D
15)B
II. Analytical Problem
a. graphical - points taken off x-axis and y- axis are not properly labeled.
b. Surplus of $4 billion, interest rate should fall
c. 8%
d. graphical - demand curve shifts to the right. New equilibrium interest rate at 10%, new
equilibrium quantity at $8billion
e. In the new homes market, demand should shift to the left, as interest rates rising should lower
the demand for new homes. Equilibrium quantity and price of new homes will fall
f. Equilibrium quantity rises, equilibrium interest rate falls
III. Essay
Outline of acceptable answer: In this situation, the lawyer has an absloute advantage in both
being a lawyer and in typing. She also has a comparative advantage in being a lawyer. However,
the typist has a comparative advantage in typing. Thus, "trade" should take place. The lawyer
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Answer Key - Exam #1 Section 1675 Fall 1998
should hire the typist, and have each "produce" according to their comparative advantages. The
lawyer gives up too much by typing herself.
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