University of Illinois Department of Economics
Econ 103 – Fall 2014
Exercise 1
TA: Zheng Zhang
1. Opportunity cost can be best defined as:
A the value of the best alternative given up when making a choice.
B the cost of making one additional unit.
C the cost of finding profitable opportunities.
D sunk costs
E the explicit cost of an action.
2. You own Kill Bill on DVD. The opportunity cost of watching this
DVD for the third time.
A must be the same as the opportunity cost of watching it the first
time.
B is the value of the alternative use of the time you spend watching
the DVD
C is one-third the cost of the DVD, as this is the third time you have
watched it.
D is zero,since you own it.
3. A production possibilities frontier illustrates the ____________ facing an economy
that
___________ only two goods.
A prices, sells
B trade-offs, consumes
C trade-offs, produces
D shortages, produces
4. Table: Production Possibilities Schedule 1
Alternatives
Consumer goods
Capital Goods
A
B
C
D
E
F
0
1
2
3
4
5
30
28
24
18
10
0
a. (Table: Production Possibilities Schedule 1) If the economy produces 10 units of
capital
goods per period, it also can produce at most _______ unit(s) of consumer goods per
period.
A5
B4
C3
D2
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b. (Table: Production Possibilities Schedule 1) The opportunity cost of producing
the
fourth unit of consumer goods is _______ units of capital goods.
A2
B4
C6
D8
5. Economists usually make the assumption that production is subject to increasing
opportunity costs because
A higher production usually results in more inflation.
B all resources are not equally suited to producing every good.
C individuals desire constantly increasing opportunities to make themselves better
off.
D if production is efficient, it is not possible to increase the production of all goods
simultaneously given resources and technology are both constant.
6. Production possibilities in the Robinson Crusoe economy is shown in Fig. 1.
Robinson’s current production combination is B (5,1). Now, he is planning to
produce an additional unit of capital, switching to A (3,2). What is the opportunity
cost associated with this change?
A 1 unit of capital goods.
B 2 units of consumption goods.
C 3 units of consumption goods.
D 4 units of capital goods.
E 5 units of consumption goods.
7.If an economy is operating at a point inside Production Possibility Curve, then this
economy
A) is using its resources efficiently.
B) is using its resources inefficiently.
C) is fully-employing its resources.
D) is doing none of the above.
University of Illinois Department of Economics
8. The production possibilities frontier will shift outward for which of the following
reasons?
A) a decrease in the labor force
B) an upgrade of capital to the best available technology that is currently available
C) better technology which improves worker productivity
D) a decrease in the unemployment rate
9. Which one following will NOT result in a shift in the supply curve for clothing?
A) The number of clothing manufacturers increases.
B) A change in the technology used to make clothing.
C) A union representing clothing workers successfully obtains a wage increase.
D) The cost of cotton increases as a result of a draught.
E) The incomes of people purchasing clothes increase.
10.Which one of the following will result in movement along the demand curve for
clothing?
A) A dramatic change in fashions causes people to want to purchase more new
clothing.
B) Warmer weather means people need fewer winter clothes.
C) The aging of the population implies that people will be less concerned with
clothing fashions.
D) Clothing prices decline because manufacturers shift to production in countries
with lower wages.
E) The incomes of people purchasing clothes increase.
11 Suppose that the price of peanut butter increases. What would we expect to
happen in the market for jelly (a complement for peanut butter)?
A) The price and quantity sold will both increase.
B) The price and quantity sold will both decrease.
C) The price will increase and the quantity sold will decrease.
D) The price will decrease and the quantity sold will increase.
E) Price and quantity will remain the same.
12 Suppose there is a decrease in the demand for hats. What would we expect to
happen to the equilibrium price and quantity of hats?
A) Price and quantity will both rise.
B) Price and quantity will both fall.
C) Price will rise, quantity will fall.
D) Price will fall, quantity will rise.
E) Price and quantity will remain the same.
13 Suppose we notice that the equilibrium price of computers has fallen and the
equilibrium quantity of computers sold has increased. Which one of the following a
potential explanation? A) An increase in demand
B) A decrease in demand
C) An increase in supply
University of Illinois Department of Economics
D) A decrease in supply
E) All of the above
Answer Key:
1. A 2. B 3. C 4. (a) B (b) D 5. B 6. B 7. B 8. C 9. E 10. D 11. B 12. B 13. C