Econ 101, section 3, F06
Schroeter
Exam #1, Red
Choose the single best answer for each question.
1. A market economy is one in which
a. most of the goods and services that the economy consumes are produced abroad.
*. resource allocations are the result of decentralized decisions.
c. the primary economic activity is trade rather than production.
d. each member of society has access to abundant quantities of goods and services.
2. For which of the following individuals would the opportunity cost of going to college
be the highest?
a. a promising young math genius who will command a high salary once she earns her
college degree.
b. a high school graduate who made average grades and has limited employment
opportunities.
*. a highly-paid professional football star, who wants to take off a season to finish college
and earn a degree.
d. a college basketball player with a "full-ride" athletic scholarship but no prospects to
play professional ball.
3. A marginal change is
a. a change that is probably a mistake.
b. a change for the worse.
c. an unavoidable alteration to a planned course of action.
*. a small, incremental adjustment.
4. A real estate developer has built 50 houses in a new subdivision at a total cost of $8
million. If he adds a 51st house to the development, total cost will increase to $8.1
million. Which of the following statements is true?
a. For the first 50 houses, the average cost per house is $160,000.
b. The marginal cost of the 51st house, if it is built, will be $160,000.
c. If the developer can realize a marginal benefit of $130,000 by building the 51st house,
then he should build it.
*. a and c are true.
5. The Republican candidate for Congress was quoted as saying that (1) "The minimum
wage should be abolished" because it (2) "creates unemployment among young and
unskilled workers." The first part of this quotation is a _________ statement and the
second part is a __________ statement.
a. positive; positive.
b. positive; normative.
*. normative; positive.
d. normative; normative.
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6. Adam Smith's "invisible hand" works to promote general well-being in the economy
primarily through
a. government intervention in markets.
b. the outcome of the political process.
c. altruism and charitable actions.
*. individuals' pursuit of self-interest.
7. When a single person (or small group of people) has the ability to influence market
prices, there is
a. competition.
*. market power.
c. an externality.
d. absent or poorly-defined property rights.
8. A farmer has 100 acres of cropland that can be planted in corn, or in soybeans, or can
be split between corn and soybean cultivation in any proportions (for example: 35.6 acres
of corn and 64.4 acres of soybeans). Each acre could yield 90 bushels of corn or 60
bushels of soybeans. In deciding how to allocate his cropland, the farmer's opportunity
cost of a bushel of corn is
*. 2/3 bushels of soybeans per bushel of corn.
b. 3/2 bushels of soybeans per bushel of corn.
c. 2 bushels of soybeans per bushel of corn.
d. 3 bushels of soybeans per bushel of corn.
9. When an economy is operating inside its production possibilities frontier we know that
*. there are unused resources or inefficiencies in the economy.
b. all of the economies resources are fully employed.
c. economic growth would have to occur in order for the economy to move to a point on
the frontier.
d. in order to produce more of one good, the economy would have to give up some of the
other good.
10. The "art" in scientific thinking -- whether in physics, economics, or psychology -- is
a. the design and implementation of laboratory experiments.
b. knowing when to stop collecting data and when to start analyzing the data.
*. deciding which assumptions to make.
d. being able to represent aspects of reality in precise mathematical terms.
11. Which of the following is false? Trade among nations
a. allows countries to specialize in the production of goods in which they have a
comparative advantage.
b. has the potential to benefit both trading partners.
c. allows nations to consume outside of their production possibilities frontiers.
*. is only beneficial to countries with low resource costs of production.
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Questions 12 through 16 are based on the following information. Two small countries,
Muscatine and Decatur, use their labor resources to produce goods of two types:
manufactured goods and agricultural goods. The table below gives the number of hours
of labor needed to produce one unit of each type of good in each country.
Muscatine
Decatur
Hours needed to produce one unit of
manufactured goods
agricultural goods
2
0.5
6
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12. The resource cost of 1 unit of agricultural goods in Muscatine is
a. 0.25 hours per unit of agricultural goods.
*. 0.50 hours per unit of agricultural goods.
c. 2.00 hours per unit of agricultural goods.
d. none of the above.
13. The opportunity cost of 1 unit of manufactured goods in Decatur is
a. 3 units of agricultural goods per unit of manufactured goods.
b. 4 units of agricultural goods per unit of manufactured goods.
c. 6 units of agricultural goods per unit of manufactured goods.
*. none of the above.
14. Which of the following is true?
a. Decatur has the absolute advantage in the production of agricultural goods.
b. Muscatine has the comparative advantage in the production of manufactured goods.
c. Decatur has the comparative advantage in the production of agricultural goods.
*. None of the above is true.
15. Suppose that there were international markets in manufactured goods and agricultural
goods. Muscatine and Decatur would be able to engage in a mutually beneficial trade
with each other if the trade price of one unit of manufactured goods were
a. 0.5 units of agricultural goods.
b. 1 unit of agricultural goods.
*. 3 units of agricultural goods.
d. none of the above.
16. If Muscatine were to engage in trade with another country (not necessarily Decatur),
what is the greatest number of units of manufactured goods it would be willing to spend
to buy one unit of agricultural goods?
*. 0.25 units of manufactured goods.
b. 0.50 units of manufactured goods.
c. 1.00 units of manufactured goods.
d. 2.00 units of manufactured goods.
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Questions 17, 18, 19, and 20 refer to the following graph of supply and demand curves in
a competitive market.
($/unit)
Supply
p2
p1
Demand
Q1
Q2
Q3
(units/day)
17. At a price of p1 $/unit, the quantity supplied is
a. Q2 units/day.
b. equal to the quantity demanded.
c. equal to the equilibrium quantity.
*. all of the above.
18. At a price of p2 $/unit, there is
a. excess supply in the amount of Q3 - Q2 units per day.
*. excess supply in the amount of Q3 - Q1 units per day.
c. excess demand in the amount of Q3 - Q2 units per day.
d. excess demand in the amount of Q3 - Q1 units per day.
19. A change in equilibrium to price p2 and quantity Q1 would require
a. an increase in supply.
*. a decrease in supply.
c. an increase in demand.
d. a decrease in demand.
20. A change in equilibrium to price p1 and quantity Q1 would require
a. a decrease in demand.
*. decreases in both supply and demand.
c. a decrease in demand and an increase in supply.
d. none of the above.
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21. Which of the following would cause a leftward shift in the demand for a good?
a. an increase in income (assuming the good is a normal good).
b. an increase in the price of a substitute.
c. a decrease in the good's own price.
*. none of the above.
22. Which of the following would cause a rightward shift in the supply of a good?
a. an increase in the price of a substitute good.
b. an increase in the good's own price.
c. an increase in the price of an input used to produce the good.
*. a technological innovation that reduces the costs of producing the good.
23. Which of the following would unambiguously cause a decrease in equilibrium price
in the competitive market for cotton shirts?
a. an increase in the price of wool shirts and an increase in the price of raw cotton.
b. an increase in the price of wool shirts and a decrease in the price of raw cotton.
c. a decrease in the price of wool shirts and an increase in the price of raw cotton.
*. a decrease in the price of wool shirts and a decrease in the price of raw cotton.
24. What would happen in the competitive market for coffee if the wages paid to coffeebean pickers falls and the price of tea falls? The equilibrium price of coffee will
a. increase and the equilibrium quantity will either increase, decrease, or stay the same.
*. decrease and the equilibrium quantity will either increase, decrease, or stay the same.
c. either increase, decrease, or stay the same, and the equilibrium quantity will increase.
d. either increase, decrease, or stay the same, and the equilibrium quantity will decrease.
25. A surplus exists in a competitive market if
a. there is excess demand for the good.
b. there is a situation in which market forces are creating upward pressure on price.
*. the current price is above the equilibrium price.
d. none of the above.
26. Which of the following is not a determinant of the quantity demanded of a good?
*. the price of a resource used to produce the good.
b. the price of the good.
c. the price of a substitute good.
d. consumer income.
27. The Honda motor company announces that it will offer $3000 rebates on the purchase
of new Honda Accords starting next month. As a result of this announcement, today's
demand curve for Accords
a. shifts to the right.
*. shifts to the left.
c. will not shift, but the demand curve for Accords will shift to the right next month.
d. will not shift, but the demand curve for Accords will shift to the left next month.
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28. A competitive market is one in which
a. there is only one seller, but there are many buyers.
b. there are many sellers and each seller has the ability to set the price of her product.
*. there are many buyers and many sellers and each has a negligible impact on price.
d. there is only one buyer who makes "take-it-or-leave-it" price offers to sellers.
29. When the quantity demanded of a good increases at every possible price, it might be
because
*. the number of buyers in the market has increased.
b. income has increased and the good is an inferior good.
c. the costs incurred by sellers in producing the good have increased.
d. the price of a substitute good has decreased.
30. What would happen to the equilibrium price and quantity in the competitive market
for avocadoes if the U.S. Surgeon General were to announce that avocado consumption
has been shown to reduce the risk of heart disease? Equilibrium price would
*. increase and equilibrium quantity would increase.
b. increase and equilibrium quantity would decrease.
c. decrease and equilibrium quantity would increase.
d. decrease and equilibrium quantity would decrease.