Instructor: Hirofumi Shimizu
Economics 101
First Midterm Exam Spring 2000
Exam 1B
Mark the one best answer to each of the following 30 multiple choice questions on the
answer sheet.
Be sure to mark the answer by the corresponding question number on the answer sheet.
Do not make any stray marks on your answer sheet.
1.
Which of the following would NOT be classified as a factor of production?
(a)
(b)
(c)
(d)
a computer
the knowledge of computer programming
a coal mine
money
2.
A production possibility boundary between military and civilian goods shows
(a) the preference of individuals to work in the military or the civilian sector.
(b) the amount of unemployment that will result from reduced military purchases.
(c) the alternative combinations of military and civilian goods that can be produced if all
available resources are used.
(d) the desire of the public for expenditures on military versus civilian goods.
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3.
A production possibility boundary that is concave to the origin (bowed out) implies
(a)
(b)
(c)
(d)
constant opportunity cost.
decreasing opportunity cost.
increasing opportunity cost.
zero opportunity cost.
4.
Along a linear production possibility boundary, 1 unit of resources can produce either 5
cars or 6 bags. What is the opportunity cost of producing 1 car?
(a)
(b)
(c)
(d)
6/5 bags
5/6 bag
6/5 cars
5/6 car
5.
Suppose that an equal quantity of resources can produce 4 cars or 3 bags in the United
States and 1 car or 2 bags in Italy. In that case,
(a)
(b)
(c)
(d)
Italy has comparative advantage in production of bags.
Italy has absolute advantage in production of bags.
The United States has comparative advantage in production of cars and bags.
Italy has comparative advantage in production of cars.
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6.
Suppose that the United States has comparative advantage in production of radios, and
Italy has absolute advantage in production of both radios and cameras. In that case,
gains from trade in these two goods
(a)
(b)
(c)
(d)
are maximized if the United States imports both cameras and radios.
are maximized if the United States exports cameras and imports radios.
are maximized if the United States exports radios and imports cameras.
do not exists because Italy is better than the United States at producing both radios
and cameras.
7.
By trading in international markets, countries will be able to
(a)
(b)
(c)
(d)
consume at any point along their domestic production possibility boundaries.
consume at a level beyond their domestic production possibility boundaries.
ensure that they maintain full employment.
produce at points beyond their production possibility boundaries.
8.
Which of the following would NOT cause the demand curve for Microsoft Word to shift?
(a)
(b)
(c)
(d)
a change in the price of computers
a change in the price of Word Perfect (a substitute)
a change in the price of Microsoft Word
a change in average household income
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9.
A rightward shift of the supply curve for computers could be caused by
(a)
(b)
(c)
(d)
a reduction in the prices of computers.
an increase in the prices of computers.
an increase in the cost of producing computers.
a decrease in the cost of producing computers.
10.
The development of more efficient techniques of producing CDs (compact discs) has
resulted in
(a)
(b)
(c)
(d)
increased demand for CDs.
an increase in the market price of CDs.
increased supply of CDs.
both (a) and (c).
11.
If potato chips and pretzels are substitutes for each other, an increase in the price of
potato chips would cause
(a)
(b)
(c)
(d)
a rightward shift of the demand curve for pretzels.
a leftward shift of the demand curve for potato chips.
movement downward along the demand curve for pretzels.
a rightward shift of the supply curve for pretzels.
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12.
When average household income decreases and the number of sellers in the market
increases, which of the following describes the change in equilibrium price and
equilibrium quantity of the good (normal good)?
(a) The equilibrium price increases, but the change in equilibrium quantity cannot be
determined.
(b) The equilibrium price decreases, but the change in equilibrium quantity cannot be
determined.
(c) The equilibrium quantity increases, but the change in equilibrium price cannot be
determined.
(d) The equilibrium quantity decreases, but the change in equilibrium price cannot be
determined.
13.
When the prices of substitutes decrease and the prices of inputs used in producing a
product increase, which of the following describes the change in equilibrium price and
equilibrium quantity of the good (normal good)?
(a) The equilibrium quantity increases, but the change in equilibrium price cannot be
determined.
(b) The equilibrium quantity decreases, but the change in equilibrium price cannot be
determined.
(c) The equilibrium price increases, but the change in equilibrium quantity cannot be
determined.
(d) The equilibrium price decreases, but the change in equilibrium quantity cannot be
determined.
14.
If good A and good B are substitutes, an increase in the supply of good A is likely to
(a)
(b)
(c)
(d)
decrease the price of good A and increase the price of good B.
increase the price of good A and decrease the price of good B.
increase the price of both good A and good B.
decrease the price of both good A and good B.
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15.
Suppose that the quantity of a good demanded decreases by 20% when the price
increases by 40%. The demand for this product is
(a)
(b)
(c)
(d)
elastic
inelastic
unit elastic
perfectly elastic
16.
Suppose that the quantity of a good demanded decreases from 120 units to 80 units
when the price increases from $0.60 to $1.00 per unit. The own-price elasticity of
demand () for this product is
(a)
(b)
(c)
(d)
-0.8
-1.0
-1.25
-1.5
17.
With elastic demand, as supply decreases
(a)
(b)
(c)
(d)
price decreases, and total revenue increases.
price decreases, and total revenue decreases.
price increases, and total revenue increases.
price increases, and total revenue decreases.
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18.
With inelastic demand, as supply increases
(a)
(b)
(c)
(d)
price decreases, and total revenue increases.
price decreases, and total revenue decreases.
price increases, and total revenue increases.
price increases, and total revenue decreases.
19.
Own-price elasticity of a horizontal demand curve is
(a)
(b)
(c)
(d)
zero, and the demand is perfectly inelastic.
zero, and the demand is perfectly elastic.
–  (infinity), and the demand is perfectly inelastic.
–  (infinity), and the demand is perfectly elastic.
20.
A product with no close substitutes tends to have
(a)
(b)
(c)
(d)
a flat and elastic demand curve.
a flat and inelastic demand curve.
a steep and elastic demand curve.
a steep and inelastic demand curve.
21.
Own price elasticity of demand for wheat is known to be in between –0.3 and –0.7. In
this case, good weather
(a)
(b)
(c)
(d)
leads to a decrease in the price of wheat and an increase in wheat farmers’ revenue.
leads to an increase in the price of wheat and a decrease in wheat farmers’ revenue.
leads to a decrease in the price of wheat and a decrease in wheat farmers’ revenue.
leads to an increase in the price of wheat and an increase in wheat farmers’ revenue.
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Price
Supply (with tax)
Supply (before tax)
P1
P2
P3
Demand
0
Quantity
Refer to the above figure to answer questions 22 – 24.
22.
With an excise tax,
(a)
(b)
(c)
(d)
the price paid by buyers is P2, and the price received by sellers is P3.
the price paid by buyers is P1, and the price received by sellers is P2.
the price paid by buyers is P1, and the price received by sellers is P3.
the price paid by buyers is P3, and the price received by sellers is P1.
23.
The buyers’ tax burden is
(a)
(b)
(c)
(d)
P1 – P2
P2 – P3
P1 – P3
P3 – P1
24.
The sellers’ tax burden is
(a)
(b)
(c)
(d)
P1 – P2
P2 – P3
P1 – P3
P3 – P1
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25.
Sellers will bear a larger burden of an excise tax if
(a)
(b)
(c)
(d)
supply is relatively inelastic.
supply is relatively elastic.
demand is relatively inelastic.
government collects the tax from the sellers.
26.
If an increase in income by 20 percent leads to an increase in quantity demanded by 60
percent, the income elasticity of demand is
(a)
(b)
(c)
(d)
the income elasticity of demand is 3.0, and the good is an inferior good.
the income elasticity of demand is 0.333…, and the good is an inferior good.
the income elasticity of demand is 3.0, and the good is a normal good.
the income elasticity of demand is 0.333…, and the good is a normal good.
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27.
Salt has a positive yet very low income elasticity of demand. This is because
(a)
(b)
(c)
(d)
salt has a close substitute.
salt has many complements.
salt is an inferior good.
salt is a necessary good (basic consumption item).
28.
Products that are known to be close substitutes should have
(a)
(b)
(c)
(d)
zero cross-price elasticities of demand.
high positive cross-price elasticities of demand.
identical own-price elasticities of demand.
high negative cross-price elasticities of demand.
29.
A rent control will
(a) insure that everyone who wants to obtain a rental unit at the ceiling price will be able
to do so.
(b) result in excess supply of rental units.
(c) result in a shortage of rental units.
(d) eliminate “back-door” payments to apartment owners.
30.
Assuming inelastic demand for farm products, rapid technological improvements in
farming lead to
(a)
(b)
(c)
(d)
an increase in farm incomes relative to urban incomes.
a decrease in farm incomes relative to urban incomes.
a decrease in demand for farm products.
an increase in demand for farm products.
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