Name______________________________
Framingham State College
Department of Economics and Business
Principles of Microeconomics
1st Midterm Practice Exam – Fall 2006
This exam provides questions that are representative of those contained on your exam. This test
should in no way be considered a facsimile of your exam. All topics, problems, key words,
and class discussion are fair game for the exam whether or not they are contained on this
practice exam.
----------------------------------------------------------------------------------------------------------Directions:
• Provide the best answer to the following:
• 10 Multiple Choice Questions each worth 4 points
• 10 True/False Questions each worth 2 points
• 5 Short Answer Questions each worth 8 points
• for a total of 100 points.
• You will be given 110 minutes to complete the exam.
• If you finish early, you may quietly turn in your exam and leave.
• The exam is closed book and closed note, please place everything other than your calculator and writing tools at the front of the class.
• You may not share a calculator.
• Ensure that you label your graphs comprehensively. Show the before state and the after
state where appropriate and label the two states in a way that is unambiguous
• You are expected to use full sentences in your answers to the Short Answer Questions.
Incomplete sentences will be penalized in the grade awarded.
-----------------------------------------------------------------------------------------------------------Multiple Choice: Identify the letter of the choice that best completes the statement or answers the
question.
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1.
An example of an externality is the impact of
a. bad weather on the income of farmers.
b. the personal income tax on a person's ability to purchase goods and services.
c. pollution from a factory on the health of people in the vicinity of the factory.
d. increases in health care costs on the health of individuals in society.
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2.
In the United States, incomes have historically grown about 2% per year. At this rate
incomes will double every
a. 10 years.
b. 25 years.
c. 35 years.
d. 50 years.
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3.
Senator Smith wants to increase taxes on people with high incomes and use the money to
help the poor. Senator Jones argues that such a tax will discourage successful people
from working and will therefore make society worse off. An economist would say that
a. we should agree with Senator Smith.
b. we should agree with Senator Jones.
c. a good decision requires that we recognize both viewpoints.
d. there are no tradeoffs between equity and efficiency.
____
4.
What would be the best statement about a theory based on assumptions that are not true?
a. If the assumptions underlying the theory are not true, the theory must be false.
b. The ideas may be good in theory, but not in practice.
c. The theory is a good one if it helps us to understand how the world works.
d. The theory is a good one if no logical mistakes were made in developing it.
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5.
Economists use models in order to
a. learn how the economy works.
b. make their profession appear more precise.
c. make economics difficult for students.
d. make sure that all of the details of the economy are included in their analysis.
Figure 2-3
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6.
Refer to Figure 2-3 – at the foot of the previous page. The economy can produce at which
point or points?
a. B, D, E
b. A, B, D, E
c. D, C
d. D
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7.
One way to determine the direction of causality is to
a. assume the 2 variables move in the same direction.
b. assume the 2 variables move in opposite directions.
c. determine which variable moves first.
d. determine which variable is the dependent variable and which variable could be the
independent variable.
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8.
If Jane receives a decrease in his pay, we would expect
a. Jane's demand for each good he purchases to remain unchanged.
b. Jane's demand for normal goods to increase.
c. Jane's demand for luxury goods to increase.
d. Jane's demand for inferior goods to increase.
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9.
Suppose that a decrease in the price of X results in less of good Y sold. This would mean
that X and Y are:
a. complementary goods.
b. normal goods.
c. inferior goods.
d. substitute goods.
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10.
When it comes to people's tastes, economists generally believe that
a. tastes are based on forces beyond the realm of economics.
b. tastes are based on historical and psychological forces.
c. tastes can only be studied through well-constructed, real-life models.
d. since tastes do not directly affect demand, there is little need to explain people's
tastes.
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True/False:
Indicate whether the sentence or statement is true or false.
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11.
Tuition is the single-largest cost of attending college for most students.
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12.
Inflation increases the value of money.
____
13.
In the markets for goods and services, as in the markets for the factors of production,
households are buyers and firms are sellers.
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14.
Jonathan can make a bird house in 3 hours. He can make a bird feeder in 1 hour. The
opportunity cost to Jonathan of making a bird house is 1/3 bird feeder.
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15.
The computer software industry is an example of monopolistic competition.
____
16.
A local cable TV company might be a monopolist.
____
17.
Baseballs and baseball bats are substitute goods.
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18.
If there is an improvement in the technology of producing a product, the supply curve for
that product will shift to the left.
____
19.
Surpluses drive price up while shortages drive price down.
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20.
The behavior of buyers and sellers drives markets toward equilibrium.
Short Answer: Your answers should be given in complete sentences.
21.
Define opportunity cost. What is the opportunity cost to you of attending college? What
was your opportunity cost of coming to class today?
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22.
Draw a production possibilities frontier showing increasing opportunity cost for hammers
and horseshoes.
a. On a graph, identify the area of feasible outcomes and the area of infeasible
outcomes.
b. On the graph, label a point that's efficient as point "E" and a point that inefficient as
point "I".
c. On a graph, illustrate the effect of the discovery of a new vein of iron ore, a resource
needed to make both horseshoes and hammers, on this economy.
d. On a graph for hammers and horseshoes, illustrate the effect a new computerized
assembly line in the production of hammers would have.
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23.
Use the following demand curve to answer the following questions.
a. How would point A be represented as an ordered pair?
b. What type of curve is this?
c. Does this curve show a positive or negative correlation between price and quantity?
d. Compute the slope of the D1 between points A and C.
e. What is the slope of D1 between points C and E? Why would you not have to
calculate this answer?
f.
What is it called if we move from D1 to D2?
g. How do you know that the slope of D2 is the same as the slope of D1?
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24.
The only two countries in the world, Alpha and Omega, face the following production
possibilities frontiers.
a. Assume that each country decides to use half of its resources in the production of
each good. Show these points on the graphs for each country as point A.
b. If these countries choose not to trade, what would be the total world production of
popcorn and peanuts?
c. Now suppose that each country decides to specialize in the good in which each has a
comparative advantage. By specializing, what is the total world production of each
product now?
d. If each country decides to trade 100 units of popcorn for 100 units of peanuts, show
on the graphs the gain each country would receive from trade. Label these points B.
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25.
Julia can fix a meal in 1 hour, and her opportunity cost of one hour is $50. Eric can fix
the same kind of meal in 2 hours, and his opportunity cost of one hour is $20.
Will both Julia and Eric be better off if she pays him $45 per meal to fix her meals?
Explain.
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