Practice Exam 1
1. In order to maximize the efficiency of a market you must:
a. Remove all of the economic problems.
b. Maximize the consumer surplus.
c. Maximize the economic surplus.
d. Maximize the producer surplus.
2. Opportunity cost can be defined by:
a. The most opportune route for a business venture.
b. The value of what you give up when making a choice.
c. The highest cost that comes with an inefficient market.
d. The benefit from choosing the least costly choice.
3. When a government introduces measures to suppress the number of immigrants into their
country, the production possibilities curve will:
a. Shift outward in a parallel fashion
b. Shift inward in a parallel fashion
c. Shift outward along one of the axis (a single product)
d. Shift inward along of the axis (a single product)
4. A country has the comparative advantage for producing a good over another country when:
a. They are able to produce more of that good in the same time frame
b. They are able to produce less of that good in the same time frame
c. Their opportunity cost for that good is lower
d. Their opportunity cost for that good is higher
5. All points along a production possibilities curve are:
a. The most productively efficient combination of two goods
b. The most allocatively efficient combination of two goods
c. The most allocatively equitable combinations of two goods
d. The most productively equitable combination of two goods
For question 6 use the following graphics:
6. Which of the above arrows best describes a, increase in price?
a. A
b. B
c. C
d. D
7. The factors of production are:
a. Natural resources, labor, capital, goods
b. Money, labor, capital, entrepreneurial ability
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c. Natural resources, labor, capital, entrepreneurial ability
d. Land, capital, households
For question 8 - 9 use the following graphics:
8. Which shift occurs in the market for bottled water, when there is an increase in the price of
the plastic to make the actual bottle?
a. a.
b. b.
c. c.
d. d.
9. Which shift occurs in the market for LCD TVs now, when the future price of LCD TVs is
expected to increase by $100 on average.
a. a.
b. b.
c. c.
d. d.
10. What statement best describes the difference between the law of demand and law of
supply?
a. The law of demand depicts a direct relationship between price and quantity
supplied whereas the law of supply depicts an inverse relationship between price
and quantity supplied.
b. The law of demand depicts an inverse relationship between price and quantity
supplied whereas the law of supply depicts a direct relationship between price and
quantity supplied.
c. The law of demand depicts an inverse relationship between price and quantity
demanded whereas the law of supply depicts a direct relationship between price
and quantity supplied.
d. The law of demand depicts a direct relationship between price and quantity
demanded whereas the law of supply depicts an inverse relationship between price
and quantity supplied.
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For question 11 use the following chart of the highest price each customer’s
willingness and ability to pay for season tickets with the Reds baseball team:
Hannah
$1900.00
Bob
$5000.00
Django
$2550.00
Rachel
$1450.00
Will
$2000.00
11. If the market price of these season tickets is set at $1900, what is the consumer surplus?
a. $1900.00
b. $7650.00
c. $3850.00
d. $12900.00
12. Which of the following statements best describes economic efficiency in a market?
a. When there is a maximum economic surplus in a market
b. When a market has the most equitable distribution of supplies
c. When there is maximum producer surplus in a market
d. When there is maximum consumer surplus in a market
13. As you move down this PPF curve (if it is non-linear and bowed from the origin), there is a(n)
__________ marginal opportunity cost (are the marginal cost increasing or decreasing as you move
down the curve).
a. Increasing
b. Decreasing
c. Constant
d. None of the above
14. When dealing with the graph of an inferior good, an overall increase in the disposable
income of the population will cause:
a. The supply increases or the curve shifts to the right
b. The demand increases or the curve shifts to the right
c. The supply decreases or the curve shifts to the left
d. The demand decreases or the curve shifts to the left
15. Ceteris Paribus is a condition that exists in economics because….
a. There is a necessity for Latin words in every social science
b. We are unable to characterize the economic world with tools, such as graphs,
without it assumed
c. It enables us to maximize our allocation of resources correctly on a production
possibilities curve with it assumed
d. The circular flow of income would be ineffective without it assumed
16. With the Algebraic Method, find the equilibrium quantity and equilibrium price with the
following quantity supplied and quantity demanded equations:
𝑸𝒔 = −𝟐𝟐𝟓, 𝟎𝟎𝟎 + 𝟑𝟓𝟎𝑷
𝑸𝑫 = 𝟐𝟕𝟓, 𝟎𝟎𝟎 − 𝟏𝟓𝟎𝑷
a. 500,000; $1000
b. 500,000; $500
c. 125,000; $500
d. 125,000; $1000
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For question 17-21 use the following graphic of the Frozen Pizza Market:
(The dotted line is touching 100 along this axis)
17. What is equilibrium price and equilibrium quantity?
a. $10; 100,000 units
b. $20; 100 units
c. $20; 100,000 units
d. $30; 10,000 units
18. What is the quantity of consumer surplus and producer surplus at equilibrium?
a. $2,000,000; $1,000,000
b. $500,000; $1,500,000
c. $1,000,000; $1,000,000
d. $2,000,000; $2,000,000
19. Say that the government imposes a price _________ by setting a maximum price at $_____ for
the Frozen Pizza Market in order to help out us starving college students (the consumers).
Which of the following options makes the most sense to fill in the above blanks?
a. floor; $10
b. ceiling; $10
c. floor; $30
d. ceiling; $30
20. Using the letters now, say that the price was set at $30, what portion of the consumer
surplus is lost to producer surplus?
a. B
b. B + C
c. D + E
d. D
21. Using the letters again, say that the price was set at $10, what portion is the dead weight
loss?
a. A + F
b. B + D
c. D + E
d. C + E
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For questions 22-24 use the following Production Possibilities Frontier Curve
graphic:
22. What it the opportunity cost from going from point A to C?
a. 18 Marshmallows
b. 10 Marshmallows
c. 8 Marshmallows
d. None of the above
23. What is the opportunity cost from going from point D to C?
a. 8 Marshmallows
b. 7 Marshmallows
c. 1 Butterfly Net
d. None of the above
24. Say that the majority of people in this economy do not like butterflies therefore there is a
low preference for butterfly nets, but they do love eating their marshmallows therefore
there is a high preference for marshmallows. With that, it is ________ efficient to produce at
point B or A, and ________ efficient to produce at point D.
a. Allocatively and Productively; Productively
b. Allocatively; Productively
c. Allocatively and Productively; neither Allocatively nor Productively
d. Neither Allocatively nor Productively; Allocatively and Productively
25. Which of the following pairs are substitutes?
a. Notebooks and Pencils
b. Coffee and Tea
c. iPads and Desks
d. Pearl Necklaces and Pearl Earrings
26. Used cars are considered inferior goods. In the Used Car’s Market, the disposable income of
the population that buys these products decreases, while there was an increase in the
number of businesses selling Used Cars. What shift in the demand and supply curves occur?
a. The demand curve shifts left; the supply curve shifts right
b. The demand curve shifts left; the supply curve shifts left
c. The demand curve shifts right; the supply curve shifts left
d. The demand curve shifts right; the supply curve shifts right
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27. What happens to equilibrium price and equilibrium quantity when there is a natural
disaster reducing technology used to produce the product?
a. The equilibrium price reduces; the equilibrium quantity reduces
b. The equilibrium price increases; the equilibrium quantity reduces
c. The equilibrium price increases; the equilibrium quantity increases
d. The equilibrium price reduces; the equilibrium quantity increases
28. Peanut butter and Jelly are compliments. Which of the following occurs in the jelly market
as there is an increase in the price of peanut butter?
a. Supply increases for jelly
b. Demand increases for jelly
c. Supply decreases for jelly
d. Demand decreases for jelly
For questions 29-32 use the following productivity chart:
Janet:
Pat:
Apples:
6
12
Oranges:
2
3
29. Who has the lowest opportunity cost for apples; who has the lowest opportunity cost for
oranges?
a. Janet; Pat
b. Janet; Janet
c. Pat; Janet
d. Pat; Pat
30. Who has the absolute advantage for apples; who has the comparative advantage for apples?
a. Janet; Pat
b. Janet; Janet
c. Pat; Janet
d. Pat; Pat
31. Who has the absolute advantage for oranges; who has the comparative advantage for
oranges?
a. Janet; Pat
b. Janet; Janet
c. Pat; Janet
d. Pat; Pat
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For questions 32-33 use the following graphic:
32. Which of the following cases best illustrates the ability to go from producing at E to
producing at A (PPF 2 to PPF 3)?
a. There was a recent influx of immigrants into the country
b. There was an increase in the productivity of creating Fun-Dip
c. There was a decrease in the technology used to create Nunchucks
d. There was a natural disaster that lowered the productivity of the entire country
33. Which of the following cases best illustrates the ability to go from producing at E to
producing at D (PPF 2 to PPF 1)?
a. The labor force for creating Fun-Dip increased substantially
b. There was a natural disaster that wiped out the Fun-Dip production facilities
c. There was an increase in the ability to produce Nunchucks
d. There was an exponential increase in the technology of this country
34. What option best describes what results in the Sperry Shoe’s Market when a major
demographic that consumes these products (i.e. college-age students) is increasing at a
faster rate than the rest of the demographics, while the number of firms producing this
product decreases?
a. The equilibrium price is indeterminate; the equilibrium quantity reduces
b. The equilibrium price is indeterminate; the equilibrium quantity increases
c. The equilibrium price increases; the equilibrium quantity is indeterminate
d. The equilibrium price reduces; the equilibrium quantity is indeterminate
35. What shifts in the demand and supply curves happen in the iPhone’s Market when there is
an influx of immigrants into the country of production, and also, the expected future price of
iPhones is expected to rise?
a. The demand curve shifts left; the supply curve shifts right
b. The demand curve shifts left; the supply curve shifts left
c. The demand curve shifts right; the supply curve shifts left
d. The demand curve shifts right; the supply curve shifts right
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36. What happens to equilibrium price and equilibrium quantity of the market for Coca-Cola
when their main competitor, Pepsi, has decreased in their prices, while the inputs into
creating Coca-Cola increase in cost?
a. The equilibrium price is indeterminate; the equilibrium quantity reduces
b. The equilibrium price is indeterminate; the equilibrium quantity increases
c. The equilibrium price increases; the equilibrium quantity is indeterminate
d. The equilibrium price reduces; the equilibrium quantity is indeterminate
For questions 37 use the following Circular Flow Diagram of a Market Economy:
Factor
Market
Firms
Households
Product
Market
37. What do the arrows on the inside of the circle represent the flow of?
a. Supplies of Factors of Production
b. Money
c. Goods and services
d. Market capital
38. Bill Board, a soon to be P.H.D. graduate, is quite economically-minded and is trying to weigh
his implicit and explicit cost between the two strongest job offers after graduation. One of
his options is being a Research Analyst for a major firm in Silicon Valley, where he would be
making a yearly salary of $100,000 while renting an apt for $40,000/year on top of an extra
$40,000/year due to a high standard of living. His other top option is with Ohio University,
where he would make $90,000/year teaching Economics’ courses, and live with his parents
that are located in the nearby town, Nelsonville, for free of charge. What is his opportunity
cost of going out to Silicon Valley to be a Research Analyst?
a. $10,000
b. $30,000
c. $40,000
d. $70,000
39. Pick out the normative economic statement:
a. The unemployment is at 8%.
b. The GDP is 7% of our deficit.
c. Economics is a social science.
d. There ought to be a lower gas tax.
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