Study Questions for Econ 101 Midterm Exam I – Fall 2015-2016 Multiple Choice Questions 1. Economics is the study of choice under conditions of a. Demand b. Supply c. Scarcity d. Abundance 2. Opportunity cost is a. the additional cost of buying an additional unit of a product. b. a cost that cannot be avoided, regardless of what is done in the future. c. the additional cost of producing an additional unit of output. d. that which we forgo, or give up, when we make a choice or a decision. 3. Economists use the phrase "ceteris paribus" to express the assumption, a. "all else equal." b. "everything affects everything else." c. "scarcity is a fact of life." d. "there is no such thing as a free lunch." 4. Which of the following is a normative statement? a. Galatasaray won its 8th games this year after the match against Trabzonspor. b. The Consumer Price Index rose three- tenths of one percent in May. c. In January, the average temperature in Çeşme exceeds the average temperature in Bodrum. d. Fenerbahçe needs a better manager even though they scored 6 goals in the last match. e. Turkey’s trade deficit reached an all-time high last year. 5. Şenay is considering attending a movie with a ticket price of $35. She estimates that the cost of driving to the movie and parking there will be an additional $20. In order to attend the movie, Şenay will have to take time off from his part-time job. She estimates that she will lose 5 hours at work, at a wage of $6 per hour. Şenay’s total cost of attending the movie equals: a. 35 b. 55 c. 85 d. 90 e. 105 6. Indicate whether each of the following statements applies to microeconomics or macroeconomics: a. The unemployment rate in Germany was 4.2 percent in January 2001. Macroeconomics b. Vestel laid off 15 workers last month. Microeconomics c. An unexpected freeze in İzmir reduced the citrus crop and caused the price of cotton to rise. Microeconomics d. Turkey’s output, adjusted for inflation, grew by 5 percent in 2003. Macroeconomics Refer to the information provided in Figure 1 below to answer the questions that follow. 7. According to Figure 1, the point where only cars are produced is a. A b. B c. D d. E 8. According to Figure 1, which point cannot be obtained with the current resources and state of technology? a. C b. A c. D d. F 9. Since Becky plays basketball well, therefore the other members of her team must also play basketball well. This statement is an example of the a. b. c. d. inductive reasoning. ceteris paribus post hoc, ergo propter hoc. fallacy of composition. 10. The inputs that are used in the production process are labeled as factors of production. Which of the following below is a factor of production? a. Land b. Labor c. Capital d. All of the above 11. The law of demand states that a. Goods that are more scarce tend to be more expensive. b. When a good or service is less available, people don't consume as much of it; therefore, the price will fall. c. There is an inverse relationship between the price and the quantity demanded of a good or service. d. When demand for a good increases, beyond some point, the price will necessarily begin to increase. 12. Refer to the graph below. Assume that TVs and VCRs are two complement goods and that the diagram below represents the demand for VCRs. Which move best describes the impact of a decrease in the price of TVs? a. The move from A to C. b. The move from A to B. c. Both moves. Demand first moves from A to B, then from B to C. d. None of the above. Since this is the demand for VCRs, changes in the price of other goods would have no impact on it. 13. Refer to the graphs below. Which one shows the impact of a decrease in income, assuming that the good in question is a normal good? a. A b. B c. C d. D 14. According to the law of supply, there is a a. negative relationship between price and the quantity of a good supplied. b. positive relationship between price and the quantity of a good supplied. c. negative relationship between price and the change in supply. d. positive relationship between price and the change in supply. Refer to the figure above to answer the questions 15 and 16. 15. A decrease in the wage rate of pizza makers will cause a movement from Point B on supply curve S2 to a. Point A on supply curve S2. b. Point B on supply curve S2. c. supply curve S3. d. supply curve S1. 16. An increase in the price of pizza sauce will cause a movement from Point B on supply curve S2 to a. supply curve S3. b. supply curve S1. c. Point A on supply curve S2. d. Point C on supply curve S2. 17. Refer to the figure below. The market for blue jeans is in equilibrium at a price of __________ and a quantity of __________ blue jeans. a. $20; 1,000 b. $20; 200 c. $30; 175 d. $40; 100 18. Which of the following situations certainly leads to a lower equilibrium price? a. An increase in demand accompanied by an increase in supply. b. A decrease in demand accompanied by an increase in supply. c. A decrease in supply accompanied by an increase in demand. d. An increase in demand, without a change in supply. 19. Assume the market equilibrium price of rice is $5.00 per pound. If the government does not allow rice farmers to charge more than $1.00 per pound of rice, a. there will be a rice surplus. b. there will be a rice shortage. c. quantity demanded will equal quantity supplied. d. the market equilibrium price will move from $5.00 to $1.00. 20. The difference between the maximum amount a person is willing to pay for a good and its current market price is known as a. producer surplus. b. profits. c. revealed preferences. d. consumer surplus. 21. The difference between the minimum amount a firm is willing to accept for a good and its current market price is known as a. the paradox of value. b. profits. c. producer surplus. d. consumer surplus. Refer to the information provided in Figure 1 below to answer the questions that follow. Figure 1 22. Refer to Figure 1, which of the following areas represents consumer surplus? a. A b. B c. C d. E 23. Refer to Figure 1, which of the following areas represents producer surplus? a. A b. B c. C d. E 24. Which of the following could lead to a rightward shift of the demand curve for a good? a. a decrease in the price of a substitute good b. an increase in the price of a complementary good c. an increase in income assuming that the good is an inferior good d. expectations that the price of the good will rise in the future. Refer to the information provided in Table 1 below to answer the questions that follow. Price per Pizza $4 $6 $8 $10 $12 Quantitiy Demanded 1000 900 800 700 600 Quantity Supplied 700 750 800 850 900 25. Refer to Table 1. This market will be in equilibrium if the price per pizza is a. 6 b. 8 c.10 d. 12 26. Refer to Table 1. If the price per pizza is $6, there is an excess _________ pizzas. a. demand of 150 b. demand of 50 c. supply of 200 d. supply of 50 27. When the price of fresh fish increases 5%, quantity demanded decreases 10%. The price elasticity of demand for fresh fish is a. Perfectly inelastic b. elastic c. inelastic d. unitary elastic 28. Cross-price elasticity of demand measures the response in the a. Price of a good to a change in the quantity of another good demanded. b. Income of consumers to the change in the price of goods. c. Quantity of one good demanded when the quantity demanded of another good changes. d. Quantity of one good demanded to a change in the price of another good. 29. When income increases from $20,000 to $30,000 the quantity of inter-city bus trips taken per year decreases from 10 to 8. Hence a. b. c. d. the income elasticity of demand for inter-city bus trips is 1.25 the income elasticity of demand for inter-city bus trips is -1.8. the income elasticity of demand for inter-city bus trips is 0.56. the income elasticity of demand for inter-city bus trips is -0.4. 30. Which of the following would increase the amount of an inferior good that buyers would like to purchase? a. an increase in buyers' incomes b. an increase in the price of a complement c. a decrease in the price of a substitute d. a decrease in buyers' incomes Essay Questions 1. Answer following questions referring to the table below. Company/Product Corn Wheat A 8 10 B 4 12 a) Determine which company has absolute advantage for each product Company A has absolute advantage in CORN production, whereas Company B has in WHEAT production. b) Determine which company has comparative advantage for each product Company A: 1 C = 1.25 W Company B: 1 C = 3 W Since company A has a lower opportunity cost, has a comparative advantage on CORN production, whereas with a higher opportunity cost company B has comparative advantage on WHEAT production as well. 2. Consider the table below and answer the following questions Price of A Quantity Demanded for A Quantity Supplied of A 10 32 4 20 28 7 30 24 10 40 20 13 50 16 16 60 13 19 70 8 22 a. Draw the supply and demand curves b. Why does supply curve have an upward slope and demand curve have a downward slope? Explain. Price and quantity supplied have positively related, whereas Price and quantity demanded has negatively related. c. Determine Equilibrium Price and Quantity for Good A P=50 Q=16 d. Determine the amount of surpluses and shortages at P=30 and P=60 If P=30 then there is an excess demand (shortage) with an amount of 24-10=14. If P=60 then there is an excess supply (surplus) with an amount of 19-13=6. 3. The graph below illustrates the market for shoes. a. What is the equilibrium price and quantity? P*=1,5 Q*=70 b. Is there excess demand or excess supply when price is 2? How much? Does price tend to increase or decrease? Excess Supply, 80-50=30 unit, Price tend to decrease c. Is there excess demand or excess supply when price is 0.5? How much? Does price tend to increase or decrease? Excess Demand, 90-30= 60 unit, Price tend to increase 4. Fill in the blanks in the table below. Price Quantity Demanded Total Revenue Percent Change in Price Percent Change in Quantity Elasticity (Absolute Value) 1 12 12 - - - 3 8 24 200 -33.33333333 0.1666 5 4 20 66.66666667 -50 0.75 7 0 0 40 -100 2.5 a. When the elasticity εp > 1: if the price increases, does the total revenue increase, decrease, or remain unchanged? __Decrease_______. b. When the elasticity εp < 1: if the price increases, does the total revenue increase, decrease, or remain unchanged? __Increase_______.