Douglas, Fall 2006
Version A
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Econ 202 Midterm 1
1. Human capital is the
a. knowledge and skills that workers acquire through education, training, and experience.
b. stock of equipment and structures that is used to produce goods and services.
c. total number of hours worked in an economy.
d. same thing as technological knowledge.
2. Ralph pays someone to mow his lawn. Norton mows his own lawn.
a. Only what Ralph pays to have his lawn mowed is included in GDP.
b. Both Ralph’s payment and Norton’s opportunity cost of lawnmowing are counted in
c.
d.
GDP.
Neither Ralph’s payment nor Norton's opportunity cost of mowing is included in GDP.
The answer depends only on what Norton reports to survey takers.
Figure 4-6
3. Refer to Figure 4-6. The movement from S to S1 could be caused by
a. an increase in the price of the good.
b. an improvement in technology.
c. an increase in income.
d. an increase in input prices.
4. Beef is a normal good. Both the price and quantity of beef would fall if
a. Consumer incomes rise and beef-production technology improves.
b. The price of chicken rises and the price of steak sauce falls.
c. Consumers come to believe that beef consumption causes heart attacks.
d. and only if the demand curve for beef is positively sloped.
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Econ202 Exam 1, Fall 2006, Version A
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Figure 2-3
5. Refer to Figure 2-3. Efficient production is represented by which point or points?
a. B, E
b. A, B, C, E
c. D
d. C
6. Buyers and sellers who have no influence on market price are referred to as
a. price makers.
b. market pawns.
c. price takers.
d. powerless.
7. Lead is an important input in the production of crystal. If the price of lead decreases, all else equal, we would
expect the supply of
a. crystal to be unaffected.
b. crystal to decrease.
c. crystal to increase.
d. lead to decrease.
8. Trade between the United States and India
a. benefits both the United States and India.
b. is a losing proposition for the United States because India has cheaper labor.
c. is a losing proposition for India because capital is much more abundant in the U.S.
d. is a losing proposition for India because U.S. workers are more productive.
9. What will happen in the rice market if buyers are expecting higher prices in the near future?
a. The demand for rice will increase.
b. The demand for rice will decrease.
c. The demand for rice will be unaffected.
d. The supply of rice will increase.
10. Suppose GDP consists of wheat and rice. In 2002, 20 bushels of wheat are sold at $4 per bushel, and 10
bushels of rice are sold at $2 per bushel. In 2001, the price of wheat was $2 per bushel and the price of rice
was $1 per bushel. If 2001 is the base year,
a. nominal GDP in 2002 is $100, real 2002 GDP is $50, and the 2002 GDP deflator is 50.
b. nominal GDP in 2002 is $50, real 2002 GDP is $100, and the 2002 GDP deflator is 200.
c. nominal GDP in 2002 is $100, real 2002 GDP is $50, and the 2002 GDP deflator is 200.
d. nominal GDP in 2002 is $40, real 2002 GDP is $100, and the 2002 GDP deflator is 50.
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Econ202 Exam 1, Fall 2006, Version A
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11. What will happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fall and
the price of tea (a substitute good) falls?
a. Price will fall and quantity may either rise or fall.
b. Price will rise and quantity may either rise or fall.
c. Quantity will fall and price may either rise or fall.
d. Quantity will rise and price may either rise or fall.
Figure 4-7
12. Refer to Figure 4-7. At a price of $35,
a. there would be a shortage of 400 units.
b. there would be a surplus of 200 units.
c. there would be a surplus of 400 units.
d. there would be a surplus of 600 units.
13. Refer to Figure 4-7. At the equilibrium price,
a. 200 units would be supplied and demanded.
b. 400 units would be supplied and demanded.
c. 600 units would be supplied and demanded.
d. 600 units would be supplied, but only 200 would be demanded.
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Figure 2-7
14. Refer to Figure 2-7. Which of the following would most likely have caused the production possibilities
frontier to shift outward from A to B?
a. an increase in the availability of capital-producing resources
b. a technological advance in the consumer-goods industries
c. a general technological advance
d. a decrease in unemployment
15. The positive relationship between price and quantity supplied is called
a. a market.
b. a change in supply.
c. the demand curve.
d. the law of supply.
Table 11-2
year
2003
2004
price of pork
$20
$20
price of corn
$20
$30
16. Refer to Table 11-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 2 units of
corn. What is the inflation rate for 2004?
a. 33.3 percent
b. 25 percent
c. 20 percent
d. 15 percent
17. Refer to Table 11-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 2 units of
corn. What is the consumer price index for 2004 if the base year is 2003?
a. 100
b. 105
c. 115
d. 120
18. Which goods are supposed to be included in the CPI?
a. all goods and services produced in the economy
b. all goods and services that typical consumers buy
c. all goods and services in the consumption component of the GDP accounts
d. all the goods, but not the services, in the consumption component of the GDP accounts
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19. Economic models
a. cannot be useful if they are based on false assumptions.
b. were once thought to be useful, but that is no longer true.
c. must incorporate all aspects of the economy if those models are to be useful.
d. can be useful, even if they are not particularly realistic.
20. The local Chevrolet dealership has an increase in inventory of 25 cars in 2003. In 2004 it sells all 25 cars.
The 25 cars in dealer inventory at the end of 2003 will
a. increase GDP in 2003, but the cars sold in 2004 will not affect 2004 GDP.
b. not affect 2003 GDP, but will increase 2004 GDP when they are sold.
c. will increase 2003 GDP, and the value of the cars sold in 2004 will increase 2004 GDP.
d. will increase investment (I), but will not affect GDP, in 2003 .
21. The substitution bias in the consumer price index occurs because of the
a. substitution of new goods for old goods in the purchases of consumers.
b. substitution of quality for quantity in consumer purchases over time.
c. fact that consumers substitute toward goods that have become relatively less expensive.
d. substitution of new prices for old prices in the basket of goods from one year to the next.
Table 3-2
Labor Hours needed to make one unit of:
Quilts
Dresses
Helen
30
6
Carolyn
80
20
22. Refer to Table 3-2. Helen and Carolyn both could benefit by Helen specializing in
a. dresses and Carolyn specializing in quilts.
b. neither good and Carolyn specializing in both goods.
c. quilts and Carolyn specializing in dresses.
d. both goods and Carolyn specializing in neither good.
23. Refer to Table 3-2. The opportunity cost of 1 quilt for Helen is
a. 2 dresses.
b. 3 dresses.
c. 4 dresses.
d. 5 dresses.
24. Refer to Table 3-2. Carolyn offers to trade two quilts to Helen, and asks Helen how many dresses she is
willing to offer in return. If Helen offers _____ for the two quilts, they can both gain from the trade.
a. 9 dresses.
b. one dress
c. 14 dresses.
d. Helen has comparative advantage in quilts, so she won’t buy them from Carolyn.
25. Refer to Table 3-2. Helen has an absolute advantage in
a. dresses and Carolyn has an absolute advantage in quilts.
b. quilts and Carolyn has an absolute advantage in dresses.
c. neither good and Carolyn has an absolute advantage in both goods.
d. both goods and Carolyn has an absolute advantage in neither good.
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26. Mallory decides to spend three hours working rather than watching a video with her friends. She earns $8 an
hour. Her opportunity cost of working is
a. the $24 she earns working.
b. the $24 minus the enjoyment she would have received from watching the video.
c. the enjoyment she would have received had she watched the video.
d. nothing, since she would have received less than $24 of enjoyment from the video.
27. Two goods are substitutes if a decrease in the price of one good
a. increases the demand for the other good.
b. reduces the demand for the other good.
c. reduces the quantity demanded of the other good.
d. increases the quantity demanded of the other good.
28. What would happen to the equilibrium price and quantity of peanut butter if the price of peanuts went up, and
the price of jelly (a complementary good) fell?
a. Price will fall and quantity may either rise or fall..
b. Price will rise and quantity may either rise or fall.
c. Quantity will fall and price may either rise or fall.
d. It is impossible to predict how price and quantity will change. .
Figure 2-6
29. Refer to Figure 2-6. If the economy moves from point C to point B, then
a. the economy must have seen a technological advance in the production of baseballs.
b. The opportunity cost of each additional baseball is 2 bananas.
c. The opportunity cost of each additional banana is 2 baseballs.
d. The move involves no opportunity cost, as it just reflects the desires of the citizens.
30. Refer to Figure 2-6. If this economy put all its resources into the production of bananas, it could produce
a. 200 bananas and also 150 baseballs.
b. 300 bananas and also 100 baseballs.
c. 400 bananas and no baseballs.
d. It is impossible to know unless we know the quantity of resources available.
31. In the markets for input factors of production,
a. households are sellers and firms are buyers.
b. households are buyers and firms are sellers.
c. households and firms are both buyers.
d. households and firms are both sellers.
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32. Economists differ in their views of the role of the government in promoting economic growth. According to
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the text, at the very least, the government should
a. lend support to the invisible hand by maintaining property rights and political stability.
b. limit foreign investment to industries that don't already exist.
c. impose trade restrictions to protect the interests of domestic producers and consumers.
d. subsidize key industries.
If a small country has current nominal GDP of $20 billion and a GDP deflator of 50, what is its real GDP?
a. $100 billion
b. $40 billion
c. $10 billion
d. $4 billion
If a state makes an ongoing illegal activity such as gambling or prostitution legal, then GDP
a. increases.
b. decreases.
c. doesn't change because both legal and illegal production are included in GDP.
d. doesn't change because immoral activities are not included in GDP.
Which of the following will definitely cause equilibrium quantity to fall?
a. demand increases and supply decreases
b. demand and supply both decrease
c. demand decreases and supply increases
d. demand and supply both increase
Which of the following is included in U.S. GDP?
a. U.S. exports of goods and services
b. Social Security payments
c. the sale of used goods
d. None of the above are correct.
A government can encourage growth and, in the long run, raise the economy's standard of living by
encouraging
a. population growth.
b. consumption.
c. saving and investment.
d. spending.
For a college student who wishes to calculate the true costs of going to college, the costs of room and board
a. should be counted in full, regardless of the costs of eating and sleeping elsewhere.
b. should be counted only if they are different at college than elsewhere.
c. usually exceed the opportunity cost of going to college.
d. plus the cost of tuition, equals the opportunity cost of going to college.
If the nominal interest rate is 8 percent and rate of inflation is 3 percent, the real interest rate is
a. 11 percent.
b. 24 percent.
c. 5 percent.
d. 3.75 percent.
Suppose that the CPI is currently 400 and was 100 in 1969. Then according to the CPI, $100 purchases the
same amount of goods and services today as
a. $25 would have purchased in 1969.
b. $40 would have purchased in 1969.
c. $60 would have purchased in 1969.
d. $400 would have purchased in 1969.
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41. Which of the following is an example of a normative statement?
a. If the price of a product decreases, people’s willingness to buy that product will increase.
b. Reducing tax rates on the wealthy would benefit the nation.
c. If the national saving rate were to increase, so would the rate of economic growth.
d. The Pope lives in Rome.
42. If the supply of a product increases, we would expect equilibrium price
a. to increase and equilibrium quantity to decrease.
b. to decrease and equilibrium quantity to increase.
c. and equilibrium quantity to both increase.
d. and equilibrium quantity to both decrease.
43. If Shawn can produce donuts at a lower opportunity cost than Sue, then
a. Shawn has a comparative advantage in the production of donuts.
b. Sue has a comparative advantage in the production of donuts.
c. Shawn should be retrained and produce a different product.
d. it is obvious that Shawn is capable of producing more donuts than Sue.
44. To accumulate more capital, a society must
a. purchase fewer consumption goods.
b. purchase more consumption goods.
c. save less and import fewer goods.
d. do nothing, as the invisible hand will make the right decisions automatically.
45. The producer that can produce a product with lower opportunity cost
a. has a comparative advantage in the production of that good.
b. has an absolute advantage in the production of that good.
c. should import that product.
d. Both a and b are correct.
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ID: A
Econ 202 Midterm 1
Answer Section
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MSC: Interpretive
MSC: Interpretive
MSC: Applicative
MSC: Applicative
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MSC: Applicative
MSC: Interpretive
MSC: Interpretive
MSC: Applicative
MSC: Applicative
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ID: A
44. ANS: A
45. ANS: A
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