Exam 1 Review
Supplemental Instruction
Iowa State University
1. Which of the following is one of the main
characteristics of a market economy?
a) The objective of individuals is to
maximize society’s well-being.
b) Firms must meet production quotas
c) Sellers can sell all they want to,
regardless of price
d) Private property
e) People ignore financial incentives
2. The fundamental problem of economics is,
in short,
a) too many poor people
b) finding jobs for all
c) scarcity of resources relative to wants
d) constantly rising prices
e) none of the above
Leader: Maddie
Course: Econ 101
Instructor: Kreider
Date: September 20, 2015
6. Which of the following causes an outward
shift in the production possibilities
boundary?
a) An increase in unemployment
b) A loss in the productive capacity of
agricultural acreage caused by a
prolonged drought
c) An increase in the productivity of all
factors of production
d) Shifting resources away from the
production of the good toward another
e) all of the above
7. Specialization of labor leads to a more
efficient allocation resources because of
a) more self-sufficiency
b) the use of barter
c) the principle of comparative advantage
d) a decrease in scarcity
e) all of above
3. Scarcity is a problem that
a) more efficient production would
eliminate
b) is nonexistent in wealthy economics
8. Normative statements
c) exists due to finite amounts of resources
a) concern an individual’s beliefs about
and unlimited human wants
what should be
d) arises when productivity growth slow
b) are based on value judgments
down
c) cannot be tested
e) exists in command economies but not
d) cannot be deduced from positive
market economies
statements
e) all of the above
4. If a DVD costs $20 and VHS cost $10, then
the opportunity cost of five DVDs is
9. The term quantity demanded refers to the
a) 50 VHSs
a) amount of a good that consumers are
b) 10 VHSs
willing to purchase at some price during
c) 5 VHSs
some given time period
d) 2 VHSs
b) amount of some good that consumers
e) $25
would purchase if they only had the
5. Assuming that the alternative is
income to afford it
employment, the opportunity cost of a
c) amount of a good that is actually
university education is
purchased during a given time period
a) tuition cost only
d) minimum amount of a good that
b) tuition and book costs only
consumers require and demand for
c) forgone salary only
survival
d) tuition costs plus book costs plus
e) amount of a good that consumers are
forgone salary
willing to purchase regardless of price
e) all items in d plus university residence
fees and the cost of cafeteria meals
Supplemental Instruction
1060 Hixson-Lied Student Success Center  294-6624  www.si.iastate.edu
10. Which of the following demonstrates the
16. A country had a/an
law of demand?
_____________________ in a good when
a) Fred buys more gum at $1 each since he
it can produce the good with fewer
got a $2 raise at work.
resources than some other country.
b) Sarah buys fewer pencils at $1 each
a) Absolute advantage
than at $2 each
b) Comparative advantage
c) Chris buys more Snickers bars at $1
c) Complete advantage
each than at $2 each
17. Give the following information answer
d) Sally buys fewer Pepsis at $2 each
questions below (a-h):
since the price of Cokes fell to $1 each
11. An increase in demand means that
a) at each price, consumers desire a
greater quantity
b) consumers’ tastes haven’t necessarily
changed
c) price has decreased
d) all of the above
12. A shift in the supply curve may be caused
by any of the following except
a) an improvement in technology
b) an increase in the wage paid to labor
c) an increase in average consumer
income
d) an increase in the number of firms in
the industry
e) both b and c are correct
13. The law of supply is:
a) The higher the price, the higher the
quantity supplied
b) The lower the price, the higher the
quantity supplied
c) The higher the price, the lower the
quantity supplied
14. The law of demand is
a) The lower the price, the lower the
quantity demanded
b) The higher the price, the lower the
quantity demanded
c) The higher the price, the higher the
quantity demanded
15. A nation has a comparative advantage in
producing some good if
a) Its workers have a lower wage than
workers in other countries
b) It can produce the good with less
resources than other countries
c) It can produce the good with a lower
opportunity cost than other countries
Production (in thousands)
Coconuts
Fish
Country T
30
40
Country H
20
10
a) What is the opportunity cost of one
fish in Country T?
i. ¾ coconut
ii. 4 coconuts
iii. 4/3 coconuts
b) What is the opportunity cost of one
fish in Country H?
i. ½ coconut
ii. 2 coconuts
iii. 1 coconut
c) Which country has the comparative
advantage in fish?
i. Country T
ii. Country H
iii. Neither country
d) What is the opportunity cost of one
coconut in Country T?
i. ¾ fish
ii. 4 fish
iii. 4/3 fish
e) What is the opportunity cost of one
coconut in Country H?
i. ½ coconut
ii. 2 coconuts
iii. 1 coconut
f) Which country has the comparative
advantage in coconuts?
i. Country T
ii. Country H
iii. Neither country
g) The country specializing in
coconuts would produce how
many?
i. 20
ii. 30
iii. 40
h) The country specializing in fish
would produce how many?
i. 40
ii. 30
iii. 20
18. Refer to the graph below to for the
following questions (a-d):
B
C
A
a) What does this graph represent?
i. Supply and Demand
ii. Production Possibility
Frontier
iii. Production Potential
Frontier
b) Which area of this graph is
unfeasible?
i. A
ii. B
iii. C
c) Which area of the graph is feasible
and efficient?
i. A
ii. B
iii. C
d) Which area of the graph is feasible
and not efficient?
i. A
ii. B
iii. C
19. Refer to the graph below to answer the
following questions (a-e):
D
B
A
C
a. What does this graph represent?
i. Supply and Demand
ii. Production Possibility
Frontier
iii. Neither
b. Which of the following represents
supply?
i. A
ii. B
iii. C
iv. D
c. Which of the following represents
demand?
i. A
ii. B
iii. C
iv. D
d. Which of the following represents
quantity?
i. A
ii. B
iii. C
iv. D
e. Which of the following represents
price?
i. A
ii. B
iii. C
iv. D
20. What affects the supply curve? How does
each affect the curve (does it move along or
shift the curve)?
a) Change in Input Prices (Shift)
b) Change in number of firms (Shift)
c) Change in Price of good (Movement)
d) Change in Technology (Shift)
e) Change in Natural Events (Shift)
21. What affects the demand curve? How does
each affect the curve (does it move along or
shift the curve)?
a) Change in Price of good (Movement)
b) Change in Price of Substitute or
Compliment (Shift)
c) Change in Population (shift)
d) Change in Income or Wealth (Shift)
e) Change in Consumer Tastes (Shift)
22. Which of the following would cause a
rightward shift of the demand curve in the
market for fresh eggs in St. Louis?
a) An increase in the price of powdered
eggs, a substitute for fresh eggs
b) An increase in the number or firms in
the egg-producing industry
c) CNN comes out with an article saying
that scientists have found that fresh
eggs cause lung cancer
d) A terrible tornado in St. Louis causes
major destruction and causes many
consumers to leave the area
e) None of the above
23. Which of the following would shift the
supply curve for a good leftward?
a) A rise in the price of a complement
b) A rise in the price of an input used in
producing the good
One Hour
McDonald’s
Burger King
Burgers
4
5
c) All of the above
24. If there is excess supply of a good, we can
generally expect
a) The demand curve to shift leftward
b) A surplus
c) A shortage
d) The demand curve to shift rightward
25. If used books are an inferior good, then a
decrease in income will cause a
a) Rightward shift of the demand curve for
used books
b) Leftward shift of the demand curve for
used books
c) Shift in both the demand and supply
curves for used books
d) Rightward shift in the supply curve for
used books
Fries
16
15
26. Who has the absolute advantage for making burgers, fries?
McDonald’s - Fries & Burger King - Burgers
27. Who has the comparative advantage for each output?
McDonald’s – Fries & Burger King - Burgers
28. Match the term with the best answer: Traditional Economy, Command Economy, Market
Economy, Capitalism, Socialism, Mixed Economy
a) People are largely free to do what they want with the resources at their disposal
Market Economy
b) A system in which most of the resources are owned by the state
Socialism
c) Resources are allocated mostly by explicit instructions from some higher authority
Command Economy
d) A system in which most of the resources are owned by private citizens
Capitalism
e) Resources are allocated according to the long-lived practices of the past
Traditional Economy
f) A mixed economic system allows a level of private economic freedom in the use of
capital, but also allows for governments to interfere in economic activities in order to
achieve social aims.
Mixed Economy