ECON 101 MIDTERM EXAM 1
GROUP A
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Suppose Jeep Cherokees are a normal good. Then if household income increases, the direct result
will be
A) a decrease in the demand for Jeeps.
B) an increase in the demand for Jeeps.
C) an increase in the supply of Jeeps.
D) Both answers A and C are correct.
1)
Answer: B
2) The above figure shows the demand and supply curves for housing in City A. What would be the
effects of a rent ceiling equal to $500 per month?
A) a surplus equal to 3000 apartments
B) a shortage equal to 250 apartments
C) a shortage equal to 3000 apartments
D) nothing because the rent ceiling has no effect on the equilibrium price and quantity
Answer: C
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2)
3) As a student of economics, when you speak of scarcity, you are referring to
3)
A) the inability of society to satisfy all human wants because of limited resources.
B) the ability of society to continually make technological breakthroughs and increase
production.
C) the ability of society to consume all that it produces.
D) the ability of society to employ all of its resources.
Answer: A
4) Which of the following is not a resource of an economy?
A) Land
B) Labor
C) Central Planning
D) Capital
4)
Answer: C
5) When a market is in equilibrium,
5)
A) the supply curve has the same slope as the demand curve.
B) there is no shortage and no surplus at the equilibrium price.
C) the number of buyers is exactly equal to the number of sellers.
D) everyone has all they want of the commodity in question.
Answer: B
6) If the price elasticity of demand for airline travel is -0.52 in the short run and -1.46 in the long run,
then the demand for airline travel is ________ in the short run and ________ in the long run.
A) elastic; elastic
B) elastic; inelastic
C) inelastic; elastic
D) inelastic; inelastic
6)
Answer: C
7) Throughout the 1990s, the price of sport utility vehicles (SUVs) rose and each year more SUVs were
purchased. This experience suggests that
7)
A) there must have movement leftward along the supply curve for SUVs.
B) there must have been a rightward shift of the demand curve for SUVs.
C) there must have been technological advances in the way SUVs are produced.
D) the "law of demand" does not hold true in this market.
Answer: B
8) If the price of crude oil falls, the equilibrium price of benzene ________ and the equilibrium
quantity of benzene________.
A) falls; increases
B) rises; increases
C) rises; decreases
Answer: A
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D) falls; decreases
8)
9) There are two important differences between a command economy and a free market economy. In
a command economy, _________ do (does) not signal buyer and seller behavior . Also, there is (are)
no _______ in a command economy.
A) resources / central planning
B) elasticity / capital goods
C) prices / private ownership
D) goods / services
9)
Answer: C
10) The above figures show the market for benzene. Which figure(s) shows the effect of a decision by
the OPEC countries in the Middle East to export less oil to the rest of the world?
A) Figure B
B) Figure C
C) Figure D
10)
D) Figures B and C
Answer: B
11) Suppose the equilibrium price for soft drinks is $1.00. If the current price in the soft drink market is
$1.25 ,
A) the supply curve of soft drinks will shift leftward.
B) there is a surplus of soft drinks.
C) there is a shortage of soft drinks.
D) the demand curve for soft drinks will shift leftward.
Answer: B
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11)
Production possibilities
Possibility
Pizza
(per hour)
A
B
C
D
E
F
0
1
2
3
4
5
Soda
(cases per
hour)
100
95
80
60
35
0
12) In the above table, the production of 3 pizzas and 80 cases of soda is
12)
A) impossible unless more resources become available or technology improves.
B) possible only if there is inflation.
C) possible only if the economy produces with maximum efficiency.
D) feasible but would involve unemployed or misallocated resources.
Answer: A
13) In the above table, the opportunity cost of the 2nd pizza is
A) 80 cases of soda.
B) 15 cases of soda.
C) 0 cases of soda.
D) 95 cases of soda.
13)
Answer: B
14) After the sugar substitute saccharin was found to cause cancer in laboratory animals, its price
dropped dramatically. This change in the price was because
14)
A) saccharin producers felt sorry for their past customers and were making an honest attempt to
compensate them.
B) the supply of saccharin decreased.
C) the demand for saccharin decreased.
D) the government ordered the price reduction.
Answer: C
15) The price elasticity of demand for new cars is 1.2. Hence, a 10 percent increase in price will
A) decrease the quantity of new cars sold by 12 percent.
B) increase consumer spending on new cars by 12 percent.
C) increase consumer spending on new cars by 1.2 percent.
D) decrease the quantity of new cars sold by 1.2 percent.
Answer: A
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15)
16) In 1973 and again in 1979, the Organization of Petroleum Exporting Countries (OPEC) raised the
world price of crude oil and increased their revenue as well. Which of the following is a true
statement regarding these OPEC price hikes?
16)
A) Their revenue would have increased regardless of income elasticity or price elasticity because
oil is an imported product for most nations.
B) Their revenue increased because the demand for oil was income inelastic.
C) Their revenue increased because the demand for oil was price inelastic.
D) Their revenue only increased because oil was already very expensive.
Answer: C
17) Suppose the equilibrium price of bottled water has increased from $1.00 per bottle to $2.00 per
bottle and the equilibrium quantity has risen. These changes are a result of a ________ shift of the
________ curve for bottled water.
A) leftward; supply
B) rightward; supply
C) leftward; demand
D) rightward; demand
17)
Answer: D
18) To maximize its revenue,
18)
A) a firm should always charge the highest price possible regardless of the elasticity of demand.
B) a firm facing elastic demand should always raise its price.
C) a firm facing inelastic demand should always raise its price.
D) None of the above answers is correct.
Answer: C
19) The Turkish government has a price floor policy for all of the following goods except
A) wheat
B) bananas
C) hazelnuts
Answer: B
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D) tobacco
19)
20) In the above figure, which of the following is TRUE regarding the movements from point A to B
and from point C to D?
I) The movement from point A to B shows that the economy has chosen to produce 100 more jets.
II) The movement from point C to D shows that the economy has chosen to produce 100 more jets.
III) The movement from point A to B and from point C to D have the same opportunity cost.
A) I and II
B) I and III
C) I, II and III
20)
D) II and III
Answer: A
21) Suppose a country, when operating on its PPF curve, can produce 2 tons of butter and 200 cars OR
3 tons of butter and 150 cars. The opportunity cost of 1 ton of butter is
A) 50 cars.
B) 0.75 cars.
C) 200 cars.
21)
D) 300 cars.
Answer: A
22) The price elasticity of demand for wheat is -0.42. A dry season cuts the supply of wheat. What will
happen to the farmers' total revenue?
A) The total revenue will increase.
B) The total revenue will not change.
C) The total revenue will decrease.
D) There is not enough information to determine what happens to the total revenue.
Answer: A
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22)
23) The above figure shows the demand curve for movie rentals from Blockbuster. If Blockbuster
lowered its price from $4.00 to $3.50, which of the following would happen?
23)
A) Total revenue would decrease because demand is inelastic.
B) Total revenue would increase because demand is inelastic.
C) Total revenue would decrease because demand is elastic.
D) Total revenue would increase because demand is elastic.
Answer: D
24) The price elasticity of demand for corn is -0.4. A new seed of corn is discovered and all farmers
start to use it, which increases the quantity of corn they can produce from each acre. What happens
to the farmers' total revenue?
24)
A) The total revenue will increase.
B) The total revenue will not change.
C) The total revenue will decrease.
D) There is not enough information to determine what happens to the total revenue.
Answer: C
25) If the quantity of textbooks supplied is 10 000 per year and the quantity of textbooks demanded is
12 000 per year, there is a ________ in the market and the price will ________.
A) surplus; fall
B) shortage; fall
C) surplus; rise
Answer: D
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D) shortage; rise
25)
26) Changes in which of the following items will shift the demand curve for hamburgers?
26)
A) an increase in the price of the meat used to produce hamburgers
B) an increase in the number of hamburger restaurants
C) an improvement in the productivity of hamburger-making machines
D) a fall in the price of french fries, a complement for hamburgers
Answer: D
27) From 8 p.m. to 10 p.m., Susan can go to a movie, study, or talk with friends. Suppose that Susan
decides to go to the movie but thinks that, if she did not go to the movie, she would have talked
with friends. The opportunity cost of attending the movie is
A) studying.
B) talking with friends and studying.
C) talking with friends.
D) two hours of time.
27)
Answer: C
28) A minimum wage set above the equilibrium wage will
28)
A) have no effect because the equilibrium level of employment is not affected by a minimum
wage above the equilibrium wage.
B) create a surplus of labor.
C) create a shortage of labor.
D) create a lower wage rate for skilled workers than for unskilled workers.
Answer: B
29) If the price of a movie ticket increases by 4 percent and the quantity of tickets demanded falls by 2
percent, the price elasticity of demand is
29)
A) -0.5.
B) -2.0.
C) -4.0.
D) some amount that cannot be determined without more information.
Answer: A
30) In a free market economy, individual economic decisions are coordinated by
A) government through adjustments in income taxes.
B) government through adjustments in sales taxes.
C) markets through adjustments in sales levels.
D) markets through adjustments in prices.
Answer: D
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30)