Economics 1102
Sample Exam with Answers (on Chs. 1-3)
Holmes
Multiple choice questions with answers: (After the essays)
Essay answers (Questions in bold. Note: Although there are 3 essays, the Fall quizzes will have only two
essays. You are to answer either the multiple choice questions and one essay or two essays. In the Spring, there
are 3 essays and one set of multiple-choice questions and you are to answer 3 of the 4 things.)
1.
Using a production possibility curve (frontier), explain why there is always a cost associated with
producing more of one good or service. Don't forget to explain how cost is measured. (See Graph
1 at the end of the essay questions.) The PPF is defined as the maximum combinations of outputs that a
country (or person) can produce given that its resources are limited. Since resources are limited and are
fully employed if a country is on the PPF, which it assumed to be, the country faces a downward sloping
(=negative slope) PPF. The slope of any curve indicates how much the Y-value changes when the Xvalue increases by one unit. So, here, the slope measures how much of the other good,QY, a country has
to give up (since the slope is negative) to produce one more unit of QX, which is, by definition, the
opportunity (marginal) cost of producing QX.
2.
Using the MB and MC graph, explain why it does not usually pay to get as much medical care as
one can afford. Make your answer specific to the medical-care case. (I.e., Give a specific benefit
and a specific cost of more medical care.) (See graph 2 at the end.) The rational choice story says that
a person will do more of something if the MB>MC, less if the MB<MC, and stay at the same level if
MB=MC. So the equilibrium quantity they choose of a commodity, Q, will be where its MB is equal to
its MC—the efficient choice. As we get more medical care, the MB (e.g., the value of getting more shots
or medicine) decreases and the MC (including the opportunity cost of the time you could spend studying
instead of going to the doctor) rises. So there will usually be some level of medical care (e.g. Q1, the
efficient choice, in the graph below) beyond which the MB < MC, and the added care would not pay,
even if you have the income to buy it.
3.
Using a Demand and Supply graph for Natural Gas (NG) and one for Coal,
a. Explain what effect fracking, a new technology which lowers the costs of getting NG out of
the ground, has on the equilibrium price and quantity produced and sold of NG. (See Graph
3a at the end of the essay question.) Since fracking lowers the cost of getting NG out of the
ground, it lowers the price of delivering NG to the companies which sell NG to the users, which
reduces their costs. So, they are willing to sell a given amount of NG for a lower price, or,
conversely, the quantity they are willing to sell at each price rises; i.e., the supply curve, SNG,
shifts to the right. This causes a surplus at the initial equilibrium price, PE, so the price falls to
PE’ and the equilibrium quantity sold rises to QE’ along the Demand curve, DNG.
Economics 1102
Sample Multiple Choice Questions (Chs. 1-3. See MyEconLab for additional ones for all chapters.)
For each question, select the best answer and indicate it by filling in the appropriate space on the Quiz paper
with the letter you have chosen. (Answers at the end of the questions on the following page.)
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.
1) Jane produces only corn and cloth. Taking account of her preferences for corn and cloth
A. makes her production possibilities frontier flatter.
B. makes her production possibilities frontier steeper.
C. makes her production possibilities frontier straighter.
D. does not affect her production possibilities frontier.
2) Which of the following is NOT a factor of production?
A. the wages paid to workers.
B. the water used to cool a nuclear power plant.
C. the management skill of a small business owner.
D. the effort of farmers raising cattle.
3) On Saturday morning, you rank your choices for activities in the following order (most preferred to
least): go to the library, work out at the gym, have breakfast with friends, and sleep late. Suppose
you decide to go to the library. Your opportunity cost is
A. working out at the gym.
B. zero because you do not have to pay money to use the library.
C. working out at the gym, having breakfast with friends, and sleeping late.
D. not clear because not enough information is given.
4) Which of the following is an example of a positive statement?
A. We should cut back on our use of carbon-based fuels such as coal and oil.
B. The Federal Reserve ought to cut the interest rate.
C. Every American should have equal access to health care.
D. Increasing the minimum wage results in more unemployment.
5) There are 72,922 seats in Lambeau Field where the Green Bay Packers play football. The Packers
have sold out their season tickets since 1960. There are about 80,000 people on the waiting list to
buy season tickets in 2010. If the Packers raised ticket prices, the
A. demand curve for Packers tickets shifts rightward.
B. demand for Packers tickets decreases.
C. demand curve for Packers tickets shifts leftward.
D. the quantity demanded of Packers tickets decreases.
6) Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2
units of X or 4 units of Y in an hour. There can be gains from exchange
A. only if Brenda becomes faster at producing X or Y.
B. only if Agnes becomes faster at producing X.
C. if Agnes specializes in the production of Y and Brenda in X.
D. if Agnes specializes in the production of X and Brenda in Y.
7) If good A is a normal good and income increases, the equilibrium price of A
A. will rise and the equilibrium quantity will decrease.
B. and the equilibrium quantity will decrease.
C. and the equilibrium quantity will increase.
D. will fall and the equilibrium quantity will increase.
8) In the figure above, if 4 million computers are produced per year then the
A. marginal cost of a computer exceeds the marginal benefit of a computer, so more computers
should be produced.
B. marginal benefit of a computer exceeds the marginal cost of a computer, so more computers
should be produced.
C. marginal cost of a computer exceeds the marginal benefit of a computer, so fewer computers
should be produced.
D. marginal benefit of a computer exceeds the marginal cost of a computer, so fewer computers
should be produced.
9) In the figure above, moving from production at point d to production at point a requires
A. decreasing the output of consumer goods in order to boost the output of capital goods.
B. a decrease in unemployment.
C. technological change.
D. both capital accumulation and a decrease in unemployment.
10) The above figure represents the market for bicycles. When there is a physical fitness craze the
A. supply curve of bicycles shifts from S1 to S2.
B. demand curve and the supply curve of bicycles do not shift.
C. demand curve for bicycles shifts from D1 to D2.
D.
D) demand curve for bicycles shifts from D2 to D1.
Multiple-choice answers:
1 _D_; 2 _A__; 3_A__; 4_D__; 5_D__; 6_D__; 7_C__ ; 8_C__; 9_A__; 10_C__
Rev: 8/14/2015