ECN 101 Principles of Economics
Midterm
Fall 2007-2008
Prof. Dr. Sedef Akgüngör
November 19, 2007
Name:______
1) You spent a total of $5 buying songs for your MP3 player. After you buy one more song, your total cost rises to $6. The marginal cost of the last song that you bought is _____.
A) $0.50
B) $1.00
C) $5.00
D) $6.00
2) Opportunity cost is
A) that which we forgo, or give up, when we make a choice or a decision.
B) a cost that cannot be avoided, regardless of what is done in the future.
C) the additional cost of producing an additional unit of output.
D) the additional cost of buying an additional unit of a product.
3) The ______is NOT an opportunity cost of attending college.
A) tuition you pay
B) income you could have earned if you didn't attend college
C) alternative uses of the time you spend studying
D) cost of the food that you consume while you are attending college
4) You own The Wizard of Oz on DVD. The opportunity cost of watching this DVD for the second time
A) is zero.
B) is one-half the cost of the DVD, as this is the second time you have watched it.
C) is the value of the alternative use of the time you spend watching the DVD.
D) cannot be calculated.
5) In an efficient market
A) equilibrium happens more frequently than disequilibrium.
B) profit opportunities are eliminated almost instantaneously.
C) profits are always very high and persistent.
D) opportunity costs are zero.
6) ______focuses on the prices of individual goods and services and ______focuses on the rate of inflation.
A) Microeconomics; macroeconomics
B) Macroeconomics; microeconomics
C) Microeconomics; microeconomics
D) Macroeconomics; macroeconomics
7) Which of the following is a positive question?
A) Will the level of teenage unemployment increase if the minimum wage is increased?
B) Should the minimum wage be set at one-half the average manufacturing wage to guarantee individuals a decent standard of living?
C) Wouldn't it be more equitable if the minimum wage increased automatically with the cost of living?
D) Wouldn't it be better to try to increase people's wages through job-training programs than by requiring employers to pay minimum wages?
8) Two variables are ______if one variable changes when the other variable changes.
A) causally related
B) correlated
C) unrelated
D) independent of each other
9) In an efficient economy
A) output is steady or growing and there is low inflation.
B) what consumers want is produced at the least possible cost.
C) output is distributed equally among all consumers.
D) the distribution of wealth is fair.
10) You have noticed that there is an increase in the number of homeless people in your city. At the same time you observe that there are also a number of vacant apartments. You believe that the government could reduce the number of homeless people if landlords were required to rent their apartments for less than they are currently charging. This policy recommendation would be motivated by concerns over
A) increased production.
B) equity.
C) economic growth.
D) stability.
11) If a straight line has negative slope, a(n) ______in X ______Y.
A) increase; increases
B) decrease; lowers
C) increase; lowers
D) decrease; doesn’t change
12) The slope of a curve
A) is always positive.
B) must first increase then decrease.
C) is not constant.
D) is constant.
13) The slope of a horizontal line is
A) negative.
B) zero.
C) continually changing.
D) infinite.
14) If the slope of a straight line is 5 and if X (the variable on the horizontal axis) increases by 10, then Y (the variable on the vertical axis) will
A) decrease by .5.
B) decrease by 50.
C) increase by 0.5.
D) increase by 50.
15) As an individual consumes more of a product within a given period of time, it is likely that each additional unit consumed will yield
A) successively less satisfaction.
B) successively more satisfaction.
C) the same amount of satisfaction.
D) less satisfaction for a while and then start to add more satisfaction.
16) The concept of ______is central to the discipline of economics.
A) need
B) absolute advantage
C) scarcity
D) comparative advantage
17) According to the theory of comparative advantage, specialization and free trade will benefit
A) all trading parties with the same opportunity costs.
B) all trading parties, even when some are absolutely more efficient producers than others.
C) only the trading party that has an absolute advantage in the production of all goods.
D) only the trading party that has a comparative advantage in the production of all goods.
Refer to the information provided in Table 1 below to answer the following questions.
Table 1
18) Refer to Table 1. Matthew’s opportunity cost of designing one Web site is
A) 1/5 of a brochure.
B) 4 brochures.
C) 5 brochures.
D) 10 brochures.
19) Refer to Table 1. Andrew’s opportunity cost of designing one Web site is
A) 1/4 of a brochure.
B) 2 brochures.
C) 4 brochures.
D) 8 brochures.
20) Refer to Table 1. ______has a comparative advantage in ______brochures.
A) Matthew; both Web site design and in
B) Andrew; both Web site design and in
C) Matthew; Web site design and Andrew has a comparative advantage in
D) Andrew; Web site design and Matthew has a comparative advantage in
21) Refer to Table 1. To maximize total production,
A) Matthew should specialize in Web site design and Andrew should specialize in brochures.
B) Andrew should specialize in Web site design and Matthew should specialize in making brochures.
C) Matthew and Andrew should both split their time between making brochures and Web site design.
D) Matthew should make brochures and design Web sites, but Andrew should only make brochures.
22) An example of trading present benefits for future benefits is
A) production.
B) saving.
C) consumption.
D) growth.
23) Because resources are scarce, the opportunity cost of investment in capital is
A) zero.
B) forgone future consumption.
C) forgone present consumption.
D) infinite.
24) The production possibility frontier is a graph that shows
A) all the combinations of goods and services that are consumed over time if all of society's resources are used efficiently.
B) the amount of goods and services consumed at various average price levels.
C) the rate at which an economy's output will grow over time if all resources are used efficiently.
D) all the combinations of goods and services that can be produced if all of society's resources are used efficiently.
25) Production inefficiency occurs when an economy is producing
A) on its production possibility frontier.
B) at the “right” combination of goods on its production possibility frontier.
C) either when an economy is producing inside its production possibility frontier or when the economy is producing the wrong combination of goods on its production possibility frontier.
D) outside its production possibility frontier.
26) An economy that is NOT producing the mix of goods that people want is
A) efficient, as it is on the production possibility frontier.
B) inefficient, even if the mix of goods is on the production possibility frontier.
C) efficient, as the economy is producing goods at the lowest possible cost.
D) inefficient, because the economy could produce the mix of goods at a lower cost if it used more efficient technology.
27) As an economy produces more of a good, the opportunity costs of producing it increases. This most likely occurs because
A) as more of a good is produced the inputs used to produce that good will increase in price.
B) consumers would be willing to pay higher prices for the good as more of the good is produced.
C) resources are not equally well suited to producing all goods and as more of a good is produced it is necessary to use resources less well suited to the production of that good.
D) as more of a good is produced the quality of that good declines and therefore the costs of production increase.
28) For an economy to produce at a point beyond its current ppf, the economy must
A) waste less.
B) be more efficient.
C) reduce inputs.
D) increase its resource base.
29) ______causes a shift in the demand curve for compact discs.
A) A rise in the price of compact discs
B) A fall in the price of compact discs
C) No change in the price of compact discs
D) A change in the price of prerecorded cassette tapes
30) The "law of demand" implies that as prices ______increases.
A) fall, demand
B) rise, demand
C) fall, quantity demanded
D) rise, quantity demanded
Refer to the information provided in Figure 2 below to answer the questions that follow.
Figure 2
31) Refer to Figure 2. Which of the following would be most likely to cause the demand for Dr. Pepper to shift from D0 to D1?
A) a decrease in income, assuming that Dr. Pepper is a normal good
B) an increase in the price of 7-UP, assuming 7-UP is a substitute for Dr. Pepper
C) a decrease in the price of Dr. Pepper
D) a reduction in the price of sugar used to make Dr. Pepper
32) If a buyer’s demand for chicken thighs decreases as her income increases, chicken thighs for her are a(n) ______good.
A) normal
B) inferior
C) substitute
D) complementary
33) Suppose the demand for newspapers goes up when the price of coffee goes down. We can say that these two goods are
A) complements.
B) substitutes.
C) normal goods.
D) perfect substitutes.
34) During an economic downturn when consumer income falls, the demand for ice cream cones increases and the demand for chocolate cheesecake decreases. This implies ice cream cones
A) and chocolate cheesecake are complements.
B) are a normal good and chocolate cheesecake is an inferior good.
C) are an inferior good and chocolate cheesecake is a normal good.
D) are an economic bad and chocolate cheesecake is an economic good.
35) A good whose demand is directly proportional to income is a(n) ______good.
A) normal
B) inferior
C) regular
D) substitute
36) The ABC Computer Company wants to increase the quantity of computers it sells by 5%. If the price elasticity of demand is -2.5, the company must ______price by ______.
A) increase; 2.0%
B) decrease; 2.0%
C) increase; 0.5%
D) decrease; 0.5%
Refer to the information provided in Figure 3 below to answer the questions that follow.
Figure 3
37) Refer to Figure 3. Using the midpoint formula, if the price of a hamburger is increased from $8 to $10, the price elasticity of demand equals
A) 0.36.
B) 333.
C) -2.5.
D) -3.0.
38) If price ______and demand is ______, total revenue will increase.
A) falls; inelastic.
B) falls; elastic
C) rises; elastic
D) rises; unitarily elastic
39) The more substitutes there are for a product, the
A) less price elastic the demand for the product is.
B) more price elastic the demand for the product is.
C) greater the income elasticity for the product.
D) smaller the income elasticity for the product.
40) The determinants of elasticity include
A) availability of substitutes.
B) price relative to income.
C) time.
D) All of the above
41) If the quantity demanded of tea increases by 2% when the price of coffee increases by 8%, the cross-price elasticity of demand between tea and coffee is
A) -25.
B) 0.25.
C) -4.
D) 4.
Figure 4
42) Refer to Figure 4. The market is initially in equilibrium at Point A (where price = $7 and quantity = 12 thousand pizzas) and supply shifts from S1 to S2. Which of the following statements is TRUE?
A) Price will still serve as a rationing device causing quantity supplied to rise from 10 to 14 thousand pizzas.
B) There is no need for price to serve as a rationing device in this case because the new equilibrium quantity is higher than the original equilibrium quantity.
C) Price will still serve as a rationing device causing quantity demanded to fall from 12 to 10 thousand pizzas.
D) The market cannot move to a new equilibrium until there is also a change in supply.
Refer to the information provided in Figure 5 below to answer the questions that follow.
Figure 5
43) Refer to Figure 5. Assume Tom is on budget constraint AC. If the price of a hamburger is $5, Tom's monthly income is
A) $20.
B) $60.
C) $100.
D) $300.
Refer to the information provided in Figure 6 below to answer the questions that follow.
Figure 6
44) Refer to Figure 6. Bill's budget constraint was originally CD. If his new budget constraint is EF, then his income
A) increased.
B) decreased.
C) increased and the price of black beans decreased.
D) decreased and the price of black beans increased.
Answer: A
Diff: 3
Type: C
45) Refer to Figure 6. Bill's budget constraint is BD. If the price of bell peppers increases, Bill's new budget constraint is
A) AD.
B) AO.
C) CD.
D) EF.
46) Refer to Figure 6. Bill's budget constraint is BD. Bill's income is $800, the price of a bell pepper is $1, and the price of a bag of black beans is $1. At Point B Bill is buying ______bell peppers and ______bags of black beans.
A) 800; 0
B) 0; 800
C) 400; 400
D) 600; 200
Refer to the information provided in Table 7 below to answer the questions that follow.
Table 7
47) Refer to Table 7. The marginal utility of the second candy bar per day is
A) 10.
B) 15.
C) 35.
D) 55.
48) Refer to Table 7. Diminishing marginal utility sets in after the ______candy bar per day.
A) first
B) second
C) third
D) fourth
49) Refer to Table 7. The total utility of five candy bars per day is
A) 115.
B) 120.
C) 130.
D) indeterminate from this information.
Answer: B
Diff: 2
Type: A
50) Refer to Table 7. If the price of a candy bar is $1, the price of a hot dog is $2, and Aaron has $6 of income, Aaron's utility maximizing combination of sodas and hamburgers per day is
A) 1 candy bar and 2 hot dogs.
B) 4 candy bars and 1 hot dog.
C) 2 candy bars and 1.5 hot dogs.
D) indeterminate from this information.