Economics 1 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 Christmas trees at Christmas time when people’s preference to have a tree in their house increases. Mark the starting price of the trees 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 oranges produced in Las Angeles when the price of farm land sold to construction companies rises. Mark the starting price of the oranges 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 to be better than all of the efficient points. 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. 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) 5. Below is a table of 3 workers and how much calculators 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 2 6 _____ Betty 4 8 _____ Charles 6 6 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 BMW’s is higher than many people want to pay, the government can pass a law setting a maximum legal selling price below the equilibrium price, and now everyone who wants to buy a BMW for that cheaper price will be able to do so. Use a supply and demand diagram to support your answer. 7. Answer whether the following statement is true, false, or uncertain, and explain your answer. Since almost everyone would consider an increase in the speed limit from 10 mph to 25 mph on the freeway to be a good thing, a higher speed limit is always better and the speed limit on freeways should be raised to 140 mph. 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. a person who makes money by organizing the factors of production in a new way. c. a person who seeks to earn profits by organizing factors of production. d. all other things unchanged. 3. Which of the following is a normative statement? a. Economics is a major that, on average, makes more money that philosophy. b. Economics class uses graphs and diagrams. c. Both a and b. d. Neither a or b. 4. Which of the following is a positive statement? a. It is better to have 2 average cars than one really nice car. b. Studying more for this class is a good idea. c. Both a and b. d. Neither a or b. 5. Which of the below is one of the 3 fundamental questions of economics? a. Shall we produce efficiently or ineffeciently? b. Who should get what is produced? c. Should we build our first aircraft carrier in Kansas or Maine? d. Where should we produce? 6. What is microeconomics? a. The study of individual consumers, businesses, and markets. b. The study of how the total economy or aggregate economy is doing. c. The study of money. d. The study of how a society allocates scarce resources to satisfy unlimited wants. 7. Which of the following is on the list of things that affects demand (shifts the demand curve)? a. Expectation of future price. b. Price of an input. c. Both of the above. d. None of the above. 8. Which of the following is on the list of things that affects supply (shifts the supply curve)? a. Natural events. b. The price of the good. c. Preferences. d. Both b and c. 9. If two goods are substitute goods, then: a. if income rises, people buy more of them. b. if income rises, people buy less of them. c. if people have more of one, they will want more of the other one. d. if people have more of one, they will want less of the other one. 10. Which of the following is a good example of the law of increasing opportunity cost? a. It costs more to build the second aircraft carrier than the first. b. It costs more to build two aircraft carriers than one. c. A factory that produces at a cheaper cost as it produces in bulk. d. Trick question – there is no such thing as a “law of increasing opportunity cost”. 11. A potential problem with a market economy is: a. money is not an incentive for many people. b. the market may not produce things of value that do not have monetary price. c. businesses usually make more money if they treat their customers badly. d. it is hard to make complicated products without the government coordinated the production . 12. Why does the law of increasing opportunity cost exist? a. The experience a worker gets making a product, the better he gets at making it. b. The more of a good you make, the more advertising you can afford for it, so the more of it you can sell. c. It costs twice as much to make twice as much of anything. d. As you hire additional workers, the additional workers are probably worse than the already hired workers. 13. When an economy has economic growth, this is shown on a PPF diagram by: a. Moving the PPF line out (up and to the right). b. Moving the PPF line in (down and to the left). 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. 14. If buyers think the price of a good is going to rise, and it is a storable good, the demand curve will: a. move to the right. b. move to the left. c. stay where it is. 15. If the demand curve shifts to the left and the supply curve shift to the left, 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. 16. Which of the following can move both the supply and demand curves? a. Change in income. b. Change in technology. c. Change in price of the good. d. None of the above. 17. What does economics have to say about the value of a human life? a. Every life is infinitely valuable. b. There is never a cost that is too high to save a life. c. Saving lives is a benefit, but sometimes it is too costly to be worth it. d. Both a and b. 18. A store owner would most likely prefer to have a sale on an item that has many: a. complements. b. substitutes. c. opportunity costs. d. it doesn’t matter, each item is as good to have a sale on as any other. 19. For which situation are people most 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. 20. If two goods are normal, then: a. people buy more of them when their income rises. b. people buy less of them when their income rises. c. when people have more of one, the they buy less of the other. d. when people have more of one, they buy more of the other. 21. 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. 22. Which of the following most accurately describes the U.S. economy? a. Completely market economy. b. Mostly market economy. c. Mostly command economy. d. Completely command economy. 23. Which of the following is a correct statement of part of the Law of Demand? a. When price goes up, quantity demanded goes up. b. When price goes up, quantity demanded goes down. c. When price goes up, demand goes up. d. When price goes up, demand goes down. 24. Where are the unattainable points on the PPF diagram? a. Inside/under the PPF line. b. On the PPF line. c. Outside/over the PPF line. d. All of the above. 25. The demand curve by itself (without the supply 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. 26. 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. 27. Setting a price control price below the equilibrium price usually results in customers being treated: a. better. b. worse. c. sometimes better, sometimes worse. d. it should not result in any difference in how customers are treated. 28. 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 other person can not. d. that person is stronger than the other person. 29. Anything that raises the cost of production causes: a. the demand curve to move right. b. the demand curve to move left. c. the supply curve to move right. d. the supply curve to move left. 30. Who would have won the Julian Simon-Paul Ehrlich bet on what was going to happen to the prices of 5 basic metals if the bet had lasted from 1980 to 2011 rather than stopping in 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. 31. A model in economics is: a. a realistic simulation of all the factors that could possibly affect a result. b. a simpler version of reality that leaves some things out so that others can be understood. c. a name for the person who explains what is going on, such as a model might make a presentation at an event or on a game show. d. trick question – there is no such thing as a model in economics. 32. What is human capital? a. Robots on the assembly line that look like humans. b. Any machine that produces, whether it looks like a human or not. c. The skills a worker has from education or experience that allow him to produce more. d. Factories in which the humans produce.