Economics 2Unit 1 TestClass Time:Name:
Part A. Answer the following 7 questions. Each question is worth 4 points.
- Use a supply and demand diagram to show what will happen to the price and quantity of almonds produced if a nice rainy season ends a drought which has curtailed almond growth. Mark the starting price of almonds 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.
- Use a supply and demand diagram to show what will happen to the world price and quantity of electric cars if there is a lower price for gas and electric cars and gasoline are substitutes for each other. Mark the starting price of electric 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.
- Answer whether the following statement is true, false, or uncertain, and explain your answer. Every efficient point is always better than every inefficient point. 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.
- Answer whether the following statement is true, false, or uncertain, and explain your answer. By passing a law setting a price control below the equilibrium price, the government can insure that everyone who wants to get the good for the government set price can do so. Be sure to use as supply and demand diagram to illustrate your answer.
5. Below is a table of 3 workers and how much calculator and butter they can make. Currently
all the workers are making calculators. Mark the best order to move these workers out of
calculators and into making butter on the line before each worker’s name (writing 1, 2,
and 3). Then draw the PPF line for this economy. Put butter on the horizontal axis.
CalculatorsButter
_____ Arnold 6 2
_____ Betty 4 8
_____ Charles 4 4
6. Answer whether the following statement is true, false, or uncertain, and explain your answer.
The reason half of Americans chose to go to college and half do not is that half of them are
making a mistake.
.
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 5 factors that affect supply.
1) 3)
2) 4)
8. For the following economy, calculate its nominal and real GDP in years 1 and 2. Assume
year 1 is the base year. Clearly label each of your 4 answers.
SlinkiesTwinkies
QPQP
Year 1 8 $76 $1
Year 24 $32 $5
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. the study of decision making when our wants exceed our resources.
c. how market economies use the technique of supply and demand to determine prices and
quantities.
d. supply and demand.
2. What is microeconomics?
a. The branch of economics that focuses on the impact of choices on the total, or aggregate,
level of economic activity.
b. The branch of economics that focuses on the choices made by consumers and firms and
the impacts those choices have on individual markets.
c. The study of large businesses only.
d. The study of how a society allocates scarce resources to satisfy unlimited wants.
3. 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.
4. When a store announces a sale for next week, they have to anticipate customer purchases this
week will:
a. rise.
b. fall.
c. stay the same.
d. They may change, but there is no reason to expect them to change any particular way.
5. Which of the following items is on the list of things that move demand?
a. Returns to alternate opportunities.
b. Expectation of future price.
c. Income.
d. Both a and b.
6. Which of the following is an important type of economy?
a. Command.
- Goods-producing.
- Religious.
- Both a and b.
7. Which type of good will a store prefer to have if a recession lowers incomes?
a. Normal.
b. Inferior.
c. Substitute.
d. Complement.
8. Which of the following might cause a change in cost of production?
a. Change in technology.
b. Change in price of an input.
c. Change in price of a related good.
d. Both a and b.
9. 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.
10. 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.
11. If a country is producing efficiently, 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 inside the PPF line on the PPF diagram.
d. both a and c.
12. 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.
13. When there is a surplus 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.
14. Which of the following is a correct statement of part of the Law of Supply?
a. When price goes up, quantity demanded goes up.
b. When price goes up, quantity demanded goes down
c. Whenprice goes up, demand goes up.
d. Whenprice goes up, demand goes down.
15. If buyers expect the future price of a good to be lower, and they can store more or less.
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.
16. 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.
17. 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.
18. What is on the horizontal axis and vertical axis of a supply and demand 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.
19. What is the correct statement of the Law of Increasing Opportunity Cost?
a. As more of a good is produced, total cost goes up.
b. As more of a good is produced, total cost goes down.
c. As more of a good is produced, individual cost of production goes up.
d. As more of a good is produced, individual cost of production goes down because
workers are getting more experience.
20. 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.
21. Does the fact that people buy more ice cream in the summer even if it is more expensive
show that the law of demand is not true?
a. Yes.
b. No, because that does not actually happen.
c. No, because of ceteris paribus.
d. No, because this is what is predicted by the law of demand.
22. 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.
23. The fact that drivers sometimes exceed the speed limit by a significant amount shows:
a. people place an infinite value on their own life.
b. people place no value on their own life.
c. people place a value on their own life such that any improvement is safety is always
worth the cost.
d. none of the above.
24. The nominal GDP of a country in year 1 is $25 and in year 2 is $20. Year 1 is the base year and
the real GDP of the country in year 2 is $23. Which of the following is true for the GDP deflator?
- It rose from year 1 to year 2.
- It fell from year 1 to year 2.
- It stayed the same in both years.
25. The real GDP is lower in year 2 than year 1. This is because:
- quantity produced is definitely lower.
- prices are definitely lower.
- it could be either quantity or prices that are lower.
- actually, prices and quantity could both be higher and RGDP still fall.
26. Which of the following is the equation showing what GDP will be?
a. A + B + C.
b. X + Y + Z
c. D + S + P
d. C + I + G.
27. Is the wood the furniture company bought to make the chair you are sitting in counted as
part of GDP?
a. Yes.
b. No.
28. Is the wood the furniture company bought to make the chair you are sitting in counted as
part of GDP?
a. Yes.
b. No.
29. Is the value of cocaine made in California and purchased by consumers counted as
part of GDP?
a. Yes.
b. No.
30. Is the value of McDonald’s Big Macs made in California and purchased by consumers
counted as part of GDP?
a. Yes.
b. No.
31. Two of the problems that price solves for a market economy are:
a. Greed and unfairness.
b. Incentive and information.
c. Geographic distance and different languages.
d. Overpopulation and lack of resources.
32. Which of the following is an example of the invisible hand in action?
a. There is a pizza place near a college because the students like pizza.
b. Cigarette smoking in a crowded restaurant.
c. A cigarette smoker who gets cancer.
d. None of the above.