Economics 2 Unit 1 Test
Class Time:
Name:
Part A. Answer the following 7 questions. Each question is worth 4 points.
1. Use a supply and demand diagram to show what will happen to the price and quantity of Top
Ramen during a recession if Top Ramen is an inferior good and incomes fall in a recession.
Mark the starting price of Top Ramen P1, the ending price P2, the starting quantity Q1, and
the ending quantity Q2. Be sure to label both axis on the diagram and any lines you draw in
the diagram with the proper letter; and if you move a line, mark the first line with a subscript
1 and the second with a subscript 2. Next to the diagram, write whether price is rising or
falling and whether quantity is rising or falling.
2. Use a supply and demand diagram to show what will happen to the price and quantity of cars
if there is a fall in the cost of steel used to make cars. Mark the starting price of cars P1, the
ending price P2, the starting quantity Q1, and the ending quantity Q2. Be sure to label both
axis on the diagram and any lines you draw in the diagram with the proper letter; and if you
move a line, mark the first line with a subscript 1 and the second with a subscript 2. Next to
the diagram, write whether price is rising or falling and whether quantity is rising or falling.
3. Answer whether the following statement is true, false, or uncertain, and explain your answer.
It is possible for an inefficient point of production to better than an efficient point of
production. Illustrate your answer with a PPF diagram (one that assumes there is increasing
opportunity cost). Make sure to include at least one efficient point and one inefficient point
in your diagram and make clear which is which.
4. Answer whether the following statement is true, false, or uncertain, and explain your answer.
It is a good example of the law of increasing opportunity cost that it costs more to build two
aircraft carriers than one aircraft carrier.
5. Below is a table of 3 workers and how much calculator and butter they can make. Currently
all the workers are making butter. Mark the best order to move these workers out of
butter and into making calculators on the line before each worker’s name (writing 1, 2,
and 3). Then draw the PPF line for this economy.
Calculators
Butter
_____ Arnold
6
2
_____ Betty
8
8
_____ Charles
2
4
16
14
12
10
8
6
4
2
0
0
2
4
6
8
10
12
14
16
18
20
6. Answer whether the following statement is true, false, or uncertain, and explain your answer.
If the price of milk is lower than dairy farmers wish to receive, the government can pass a law
setting a minimum legal selling price above the equilibrium price, and now everyone who
wants to sell milk for the higher price will be able to do so. Use a supply and demand
diagram to support your answer.
7. Fill in the following 2 lists. Each pair of correct answers is worth 1 point.
a. List 4 of the 5 factors that affect demand.
1)
3)
2)
4)
b. List 4 of the 6 factors that affect supply.
1)
3)
2)
4)
Part B. Answer the following 32 multiple choice questions by marking the letter of the best
answer on your scantron. Each question is worth 1 point.
1. Economics is the study of:
a. the role of money in the economy and how a society should properly utilize it.
b. how a society allocates scarce resources to satisfy unlimited wants.
c. how market economies use the technique of supply and demand to determine prices and
quantities.
d. supply and demand.
2. Ceteris paribus means:
a. the model is correctly set up.
b. Event A happening will cause event B to happen.
c. all other things unchanged.
d. every choice made has a cost.
3. Which of the following is a normative statement?
a. Economics is taught both in the morning and at night.
b. Economics is the best class to take.
c. Neither a or b.
d. Both a and b.
4. Which of the following is a positive statement?
a. Economics is great!
b. Economics uses diagrams.
c. Neither a or b.
d. Both a and b.
5. What is macroeconomics?
a. The branch of economics that focuses on the choices made by consumers and firms and
the impacts those choices have on individual markets.
b. The branch of economics that focuses on the impact of choices on the total, or aggregate,
level of economic activity.
c. The study of large businesses only.
d. The study of how a society allocates scarce resources to satisfy unlimited wants.
6. Which part of the U.S. government orders more umbrellas made for Bakersfield when we
have an unusually rainy winter?
a. The federal government in Washington D.C.
b. The state government in Sacramento, CA.
c. The city government of Bakersfield.
d. Trick question – no part of the government does.
7. When the price of a good changes, which of the following curves shifts?
a. The demand curve.
b. The supply curve.
c. Neither curves.
d. Both curves.
8. For which type of good does a person buy less when the price of another good falls?
a. Normal.
b. Inferior.
c. Substitute.
d. Complement.
9. Which of the following items is only on the list of things that move demand?
a. Natural events.
b. Demographics.
c. Technology.
d. Cost of production.
10. Our PPF model in class in which we discussed making carriers in Maine or Kansas is an
example of which type of economy?
a. Market.
b. Command.
c. Religious.
d. Democratic.
11. For which type of good will a store prefer to have a sale?
a. Normal.
b. Inferior.
c. Substitute.
d. Complement.
12. When an economy has economic growth, this is shown on a PPF diagram by:
a. Moving the PPF line in (down and to the left).
b. Moving the PPF line out (up and to the right).
c. Moving from one point on the PPF line to another point on the PPF line.
d. Moving from one point on the PPF line to another point that is inside the PPF line.
13. Which of the following is a reason a person’s preference for a good might increase?
a. Advertising.
b. A change in their life circumstances.
c. They just change their mind about how much they like it.
d. All of the above.
14. If the demand curve shifts to the right and the supply curve shift to the right, what happens to
quantity?
a. It always increases.
b. It always decreases.
c. It may increase or decrease, there is not enough information to tell.
d. In the real world, both curves could never move at the same time.
15. Which of the following was on the list of factors that cause economic growth?
a. More machines and factories.
b. Better weather.
c. Both of the above.
d. Neither of the above.
16. Which goods will a market economy likely have problems providing for its citizens?
a. Goods made primarily in other countries, such as coffee.
b. Goods that require complicated technology to make, such as computers.
c. Good that are greatly impacted by the weather, such as oranges.
d. Goods that do not normally have prices associated with them, such as clean air.
17. For which situation are people least likely to bargain over the price of the good?
a. The good is cheap and it is a low wage country.
b. The good is cheap and it is a high wage country.
c. The good is expensive and it is a low wage country.
d. The good is expensive and it is a high wage country.
18. If a country is producing inefficiently, then:
a. it is impossible for them to make more of one thing without making less of something else.
b. it is possible for them to make more of one thing without making less of something else.
c. they must be producing at a point outside the PPF line on the PPF diagram.
d. both a and c.
19. Why does the law of increasing opportunity cost exist?
a. As more of a good is produced, the producer must move to using resources which are
getting worse and worse for production.
b. As more of a good is produced, the producer must move to using resources which are
getting better and better for production.
c. Because businesses can charge higher prices when they have more customers and thus
produce more.
d. It doesn’t, actually costs go down as more is produced.
20. When there is a shortage of a good, it is expected that its price will:
a. fall.
b. rise.
c. stay the same.
d. any of the above three could happen.
21. Which of the following is a correct statement of part of the Law of Supply?
a. When price goes up, supply goes up.
b. When price goes up, supply goes down.
c. When price goes up, quantity supplied goes up.
d. When price goes up, quantity supplied goes down.
22. If buyers expect the future price of a good to be higher, and it is a storable good for buyers:
a. the demand curve will shift to the right.
b. the demand curve will shift to the left.
c. the demand curve will not move.
23. The supply curve by itself (without the demand curve) gives enough information to know:
a. the price a good will have in the market, but not the quantity made.
b. the quantity of the good that is actually being sold in the market, but not the price.
c. both the actual price and quantity the good will be sold for in the market.
d. none of the above.
24. When a supply curve shows businesses making quantity Q1 if the price is P1, this is because:
a. at that price, customers don’t want to buy more than Q1 of the good.
b. it is past Q1 that the cost of production goes above the selling price.
c. by government law, they can only sell Q1 of the good.
d. there is no reason really, it is just a result of random chance.
25. What is on the horizontal axis and vertical axis of a PPF diagram?
a. Quantity is on the horizontal and price is on the vertical.
b. Price is on the horizontal and quantity is on the vertical.
c. Two different goods that people may either like or dislike.
d. Two different goods that people definitely do like.
26. When the new communist governments of the Soviet Union and China took the incentive of
money out of the production of food, the result was:
a. food production actually rose, as this eliminated greed from the system and greed is bad.
b. food production stayed the same.
c. food production dropped a little bit.
d. starvation of millions of people.
27. Between two people, one is said to have the comparative advantage when:
a. that person can produce a good faster than another person.
b. that person can produce a good for a lower opportunity cost than another person.
c. that person can produce a certain good and the person can not.
d. than person is stronger than the other person.
28. What is the goal of businessmen in our supply and demand model?
a. To make the most production possible.
b. To make the most customers happy as possible.
c. To have the most employees as possible.
d. To make the most money as possible.
29. Who won the Julian Simon-Paul Ehrlich bet on what was going to happen to the
prices of 5 basic metals from 1980 to 1990?
a. Simon, because most of the prices were still lower.
b. Ehrlich, because most of the prices were now higher.
c. It would have been a tie, because prices stayed where they were on average.
d. Trick question – there never was a bet between Julian Simon and Paul Ehrlich.
30. If a lawyer can type faster than her secretary, should the lawyer type her own letters?
a. Yes.
b. No
c. Only if this is because the lawyer is a really fast typist.
d. Only if this is because the secretary is a slow typist.
31. Unattainable points on the PPF diagram are:
a. on the PPF line.
b. inside the PPF line.
c. outside the PPF line.
d. it could be any of the above.
32. New York landlords have developed a reputation for treating their renters badly because:
a. they are mean people.
b. almost all businessmen usually treat their customers badly so they can make more money.
c. rent control means that they are not afraid of losing their customers.
d. trick questions – actually New York city landlords are famous for the high quality of
service they provide their renters.