Econ 111X - Midterm Test - October 21, 2009
Version 1
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1) Suppose there are only two goods, A and B, and that consumer income is constant. If the price of good A falls
and the consumption of good B rises, we can conclude that
A) both A and B are normal goods.
B) A is a normal good.
C) A is an inferior good.
D) B is an inferior good.
E) B is a normal good.
2) Suppose new medical research suggests that consuming 200 grams of tofu everyday will help to prevent heart
disease. The dissemination of this research, other things being equal, is likely to have what impact on the
market for tofu?
A) Movement along the demand curve to the left
B) Shift the whole demand curve to the left
C) Shift the whole demand curve to the right
D) Movement along the demand curve to the right
E) There would likely be no effect.
3) If a binding price ceiling is in effect and if the demand for the product increases, one consequence would be
A) an increase in the amount of excess demand.
B) a decrease in the amount of excess demand.
C) an increase in the amount of excess supply.
D) a decrease in the amount of excess supply.
E) none of the above.
4) ʺDemandʺ in a particular market refers to
A) only the quantity demanded by households at current market prices.
B) the quantity that is desired but not satisfied by current supply.
C) the relationship between demand and supply.
D) the entire relationship between quantity demanded and price.
E) the quantity purchased at the current market price.
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The downward-sloping line in the diagram below shows the combinations of health care and education expenditures that the government
can afford with a given amount of tax revenue.
FIGURE 1-4
5) Refer to Figure 1-4. The levels of health and education expenditures at point C
A) could be achieved if the prices of health and/or education increased.
B) are equal to those of point A and point B.
C) are more cost-effective than those at points A, B, and D.
D) are less than at point D.
E) are not attainable with the governmentʹs current budget.
6) Suppose that Spain is currently producing 90 units of wine and 10 units of cheese, but to produce 10 more units
of cheese it must sacrifice 30 units of wine. Further, suppose that Portugal produces 45 units of wine and 45
units of cheese, but to produce 10 more units of cheese it must sacrifice only 10 units of wine. It can be
concluded that
A) Portugal has an absolute advantage in both wine and cheese production.
B) Spain has an absolute advantage in both wine and cheese production.
C) Portugal has an absolute advantage in wine production and Spain has an absolute advantage in cheese
production.
D) Spain has a comparative advantage in the production of wine and Portugal has a comparative advantage
in the production of cheese.
E) none of the above
7) As a science, economics is disadvantaged in that
A) it is usually not possible to conduct controlled experiments in economics, in contrast with certain other
sciences.
B) it deals with human behaviour and thus is not open to empirical testing.
C) economic variables do not change enough to provide reliable data for testing hypotheses.
D) some economic variables are determined within the theory.
E) economic hypotheses cannot be accepted with complete certainty, by contrast with the other sciences.
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8) Consumers will bear a larger burden of an excise tax if
A) the tax is collected by firms rather than remitted directly to the government by consumers.
B) demand is relatively elastic and supply is relatively inelastic.
C) demand is relatively inelastic and supply is relatively elastic.
D) both demand and supply are relatively elastic.
E) both demand and supply are relatively inelastic.
9) Indifference theory is based on the assumption that
A) the consumer has equated the marginal utilities of all products, and is therefore indifferent between
consumption bundles.
B) consumers can always say which of two consumption bundles they prefer without having to say by how
much they prefer it.
C) the consumer receives the same utility and is therefore indifferent between any two consumption
bundles.
D) consumers are not able to rank consumption bundles in order of preference.
E) the consumer is able to quantify the difference in total utility received from two different consumption
bundles.
10) Which of the following is a positive statement?
A) The higher the price for gasoline, the less of it will be consumed.
B) There should be one price for gasoline throughout Canada.
C) Canada should reduce its imports of consumer goods.
D) Substitutes for fossil fuels should be developed.
E) Corporations in Canada should pay more taxes.
FIGURE 5-4
11) Refer to Figure 5-4. Suppose the government imposes a rent-controlled price of $600 per month on apartments
in this city. In the short run we can expect the shortage of apartments to be ________ units.
A) 1000
B) 800
C) 0
D) 300
E) 200
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FIGURE 5-7
12) Refer to Figure 5-7. The market for good X is in equilibrium at P 0 and Q 0 . Now suppose the government
imposes a ________ at P 2 . One result would be ________.
A) price ceiling; an increase in economic surplus represented by areas 2 and 5.
B) price floor; a deadweight loss represented by area 8.
C) price floor; a deadweight loss represented by areas 5 and 6.
D) price floor; an increase in economic surplus represented by area 1.
E) price ceiling; a deadweight loss represented by areas 5 and 6.
Demand and Supply Schedules for Chocolate Bars
Price
($)
2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 Quantity Demanded
(thousands per week)
Quantity Supplied
thousands per week)
1500
1600
1700
1800
1900
2000
2100
2200
2300
2100
2050
2000
1950
1900
1850
1800
1750
1700
TABLE 5-1
13) Refer to Table 5-1. Suppose that as a public health measure the government wants to reduce the number of
chocolate bars that children consume. To achieve this outcome the government could implement which of the
following policies?
A) Impose a price floor of $1.80.
B) Impose an equilibrium price of $1.80.
C) Impose a price ceiling of $1.80.
D) Impose an equilibrium price of $1.20.
E) Impose a price ceiling of $2.00.
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Chrisʹs consumption of specialty coffee per week.
FIGURE 6-7
14) Refer to Figure 6-7. The line connecting points A, B and C is ________. The line connecting points D, E and F is
________.
A) the income-consumption line; the demand curve
B) the budget line; the price-consumption line
C) the income-consumption line; the budget line
D) the price-consumption line; the demand curve
E) the demand curve; the budget line
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FIGURE 4-3
15) Refer to Figure 4-3, which shows a demand shift and the short-run and long-run supply curves for some
product. In the new long-run equilibrium at EL, producersʹ revenue
A) is unambiguously lower than at E0 .
B) could be higher or lower than at E0 , depending on the price elasticity of demand.
C) could be higher or lower than at ES, depending on the price elasticity of demand.
D) is unambiguously higher than at ES.
E) is unambiguously lower than at ES.
16) All of the following will cause the supply curve to shift EXCEPT:
A) a change in the price of the good.
B) a technological change.
C) a change in factor costs.
D) a change in the number of suppliers of the commodity.
E) a change in the price of substitute goods.
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The following production possibilities schedule shows the quantities of wheat and rice that can be produced in Canada and India with one
unit of equivalent resources.
Canada
India
Wheat
(bushels)
13
6
Rice
(bushels)
5
13
TABLE 33-2
17) Refer to Table 33-2. If Canada were to transfer one unit of resources from rice to wheat production and if one
unit of Indian resources were switched from wheat to rice production,
A) both wheat and rice production would go up by 7 bushels.
B) wheat production would go up by 7 bushels.
C) wheat production would be decreased by 12 bushels.
D) rice output would decrease by 8 bushels.
E) rice production would increase by 18 bushels.
18) If the income elasticity of demand for a good is 1.25, a 10 percent increase in income results in
A) a decrease in quantity demanded.
B) a 12.5 percent decrease in the quantity demanded.
C) a 125 percent increase in the quantity demanded.
D) a 12.5 percent increase in the quantity demanded.
E) not enough information to answer this question.
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FIGURE 6-8
19) Refer to Figure 6-8. Suppose the consumer begins at E 1 . The income and substitution effects of the reduction in
the price of X are represented as follows:
A) the distance Q 1 Q3 shows the substitution effect and the distance Q 2 Q3 shows the income effect.
B) the distance Q 1 d shows the substitution effect and the distance Q 2 e shows the income effect.
C) the distance de shows the income effect and the distance cd shows the substitution effect.
D) the distance Q 1 Q2 shows the income effect and the distance Q 2 Q3 shows the substitution effect.
E) the distance Q 1 Q2 shows the substitution effect and the distance Q 2 Q3 shows the income effect.
20) Which of the following statements about comparative advantage is true?
A) To have a comparative advantage a country must also have an absolute advantage.
B) Comparative advantage is based solely on differences in factor endowments.
C) A country with a rising price level will lose any existing comparative advantage.
D) Comparative advantage for certain products may be acquired by deliberate domestic government policy.
E) Comparative advantage is based solely on differences in climate.
21) Josie is allocating her expenditure between steaks and asparagus in order to maximize her total utility. For the
quantities of steak and asparagus she has chosen, an increase in the price of steaks will, ceteris paribus,
A) reduce the marginal utility per dollar spent on steak.
B) reduce the marginal utility of a unit of steak.
C) have no effect on the marginal utility per dollar spent on steak.
D) increase the marginal utility of a unit of steak.
E) increase the marginal utility per dollar spent on steak.
22) The price of apples at a local market rises from $2.95 to $3.05 per kilo, and as a result the quantity of oranges
that households purchase increases from 3950 to 4050 kilos per week. The cross-price elasticity is
A) -1.33.
B) -0.75.
C) 0.75.
D) 1.33.
E) 1.5.
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FIGURE 33-1
23) Refer to Figure 33-1. If Austria and Switzerland engage in free trade with each other, it is likely that
Switzerland will specialize in the production of ________ and Austria will specialize in the production of
________.
C) shoes; bicycles
D) bicycles; bicycles
A) shoes; shoes
B) bicycles; shoes
24) At a garage sale, Dominique purchases a sewing machine for $30 when she was willing to pay $55. If the
sewing machine costs $200 new, Dominiqueʹs consumer surplus would be ________.
A) $0
B) $25
C) $120
D) $145
E) $170
FIGURE 5-5
25) Refer to Figure 5-5. Suppose this market for gardening services is in a free -market equilibrium. If the
government then imposes a price floor of $50 per hour for gardening services, the result would be
A) a loss of economic surplus of the areas 6 and 7.
B) a loss of economic surplus of the areas 2 and 6.
C) a loss of economic surplus of the area 1.
D) a loss of economic surplus of the areas 1, 2, 3, and 4.
E) a loss of economic surplus of the areas 2, 3, 4, 6, and 7.
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Answer Key
Testname: F09‐111X‐V1
1) E
2) C
3) A
4) D
5) E
6) D
7) A
8) C
9) B
10) A
11) D
12) C
13) A
14) D
15) C
16) A
17) B
18) D
19) E
20) D
21) A
22) C
23) B
24) B
25) A
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