ETP Economics 101 Midterm Examination
1. Your professor loves his work, teaching economics. He has been offered other positions in the corporate world making 25 percent more, but has decided to stay in teaching. His decision would not change unless the marginal
a.cost of teaching increased.
b.benefit of teaching increased.
c.cost of teaching decreased.
d.cost of a corporate job increased.
2. According to the graph, if this economy puts all of its resources into the production of bathtubs it could produce
a.20 barrels and 12 bathtubs.
b.35 barrels and no bathtubs.
c.no barrels and 16 bathtubs.
d.This economy would not choose to put all of its resources into the production of one good.
3. According to the graph, if this economy moved from point C to point E,
a.it still would not be producing efficiently.
b.there would be no gain in either bathtubs or barrels.
c.it would be producing more barrels and more bathtubs than at point C.
d.It is not possible for this economy to move from point C to point E without additional resources.
4. According to the graph, assume that Cliff and Paul were both producing wheat and corn, and each were dividing their time equally between the two. Then they decide to specialize in the product they have a comparative advantage in. As a result, total production of corn would
a.increase by 1 bushel.
b.increase by 3 bushels.
c.increase by 5 bushels.
d.decrease by 2 bushels.
5. According to the graph, which of the following is true for Cliff and Paul?
a.Paul has a comparative advantage in both wheat and corn.
b.Paul has a comparative advantage in wheat and Cliff has a comparative advantage in corn.
c.Cliff has a comparative advantage in wheat and Paul has a comparative advantage in corn.
d.Cliff has a comparative advantage in both wheat and corn.
6. Two goods are substitutes if a decrease in the price of one good
a.increases the demand for the other good.
b.reduces the demand for the other good.
c.reduces the quantity demanded of the other good.
d.increases the quantity demanded of the other good.
7. When we move up or down a given demand curve,
a.only price is held constant.
b.income and the price of the good are held constant.
c.all nonprice determinants of demand are assumed to be constant.
d.all determinants of quantity demanded are held constant.
8. Which of the following cause and effect events is in order for a seller?
a.Technology improves, profit falls, the supply curve shifts left.
b.An input price falls, profit increases, the supply curve shifts right.
c.An input price rises, profit falls, the supply curve shifts right.
d.An input price rises, profit rises, the supply curve shifts left.
9. Funsters, Inc., the largest toy company in the country, sells its most popular doll for $15. It has just learned that its leading competitor Toysorama is mass producing an excellent copy and plans to flood the market with their $5 doll in 6 weeks. Funsters should
a.increase the supply of their doll now before the other doll hits the market.
b.fight fire with fire and decrease supply for 6 weeks and then increase the supply of its doll too.
c.continue business as usual, since consumers will not buy the cheaper imitation.
d.discontinue this doll.
10. A decrease in resource costs to firms in a market will result in
a.a decrease in equilibrium price and an increase in equilibrium quantity.
b.a decrease in equilibrium price and a decrease in equilibrium quantity.
c.an increase in equilibrium price and no change in equilibrium quantity.
d.an increase in equilibrium price and an increase in equilibrium quantity.
11. Which chain of events occurs in the correct order?
a.Quantity supplied increases, price increases, demand increases.
b.Price increases, demand increases, quantity supplied increases.
c.Demand increases, price increases, quantity supplied increases.
d.Any of the above could be correct.
12. Which of the following would definitely result in a higher price in the market for Snickers?
a.demand increases and supply decreases
b.demand and supply both decrease
c.demand decreases and supply increases
d.demand and supply both increase
13. What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?
a.Price will fall and the effect on quantity is ambiguous.
b.Price will rise and the effect on quantity is ambiguous.
c.Quantity will fall and the effect on price is ambiguous.
d.Quantity will rise and the effect on price is ambiguous.
14. New cars are normal goods. What will happen to the equilibrium price of new cars if the price of gasoline rises, the price of steel falls, public transportation becomes cheaper and more comfortable, auto-workers accept lower wages and automobile insurance becomes more expensive?
a.Price will rise.
b.Price will fall.
c.Price will stay exactly the same.
d.The price change will be ambiguous.
15. When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, you know that the demand for bubble gum is
a.inelastic.
b.elastic.
c.unit elastic.
d.perfectly inelastic.
16. The flatter the demand curve through a given point, the
a.greater the price elasticity of demand.
b.smaller the price elasticity of demand.
c.closer the price elasticity of demand will be to the slope of the curve.
d.more equal the price elasticity of demand will be to the slope of the curve.
17. On a downward-sloping linear demand curve, total revenue would be at a maximum at the
a.midpoint of the demand curve.
b.lower end of the demand curve.
c.upper end of the demand curve.
d.It is impossible to tell without knowing prices and quantities demanded.
18. A demand curve with a zero elasticity is perfectly
a.inelastic and vertical.
b.inelastic and horizontal.
c.elastic and vertical.
d.elastic and horizontal.
19. Because the demand for wheat tends to be inelastic, the development of a new, more productive hybrid wheat would tend to
a.increase the total revenue of wheat farmers.
b.decrease the total revenue of wheat farmers.
c.weaken the demand for wheat.
d.weaken the supply of wheat.
20. A decrease in supply will cause the largest increase in price when
a.both supply and demand are inelastic.
b.both supply and demand are elastic.
c.demand is elastic and supply is inelastic.
d.demand is inelastic and supply is elastic.
21. If a binding price ceiling is imposed in a market
a.there will be a surplus in the market.
b.the price will be legally forced toward equilibrium price.
c.there will be a shortage in the market.
d.market forces will guarantee that the price will be at equilibrium.
22. A binding price floor in a market sets price
a.above equilibrium price and causes a shortage.
b.above equilibrium price and causes a surplus.
c.below equilibrium price and causes a surplus.
d.below equilibrium price and causes a shortage.
23. In the housing market, rent controls cause quantity supplied to
a.fall and quantity demanded to fall.
b.fall and quantity demanded to rise.
c.rise and quantity demanded to fall.
d.rise and quantity demanded to rise.
24. According to the graph, the price buyers will pay after the tax is imposed is
a.$18.00.
b.$14.00.
c.$12.00.
d.$8.00.
25. According to the graph, the amount of the tax imposed in this market is
a.$10.00.
b.$6.00.
c.$4.00.
d.$2.00.
26. According to the graph, the amount of the tax that buyers would pay would be
a.$10.00.
b.$6.00.
c.$4.00.
d.$2.00.
27. If a tax is imposed on a market with elastic demand and inelastic supply,
a.buyers will bear most of the burden of the tax.
b.sellers will bear most of the burden of the tax.
c.the burden of the tax will be shared equally between buyers and sellers.
d.it is impossible to determine how the burden of the tax will be shared.
28. If the cost of producing sofas decreases, consumer surplus will
a.increase, then decrease.
b.decrease.
c.remain constant.
d.increase.
29. The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium market price of chocolate
a.increases, and producer surplus increases.
b.increases, and producer surplus decreases.
c.decreases, and producer surplus decreases.
d.decreases, and producer surplus increases.
30. Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus
a.would necessarily increase even if the higher price resulted in a surplus of widgets.
b.would necessarily decrease because the higher price would create a surplus of widgets.
c.might increase or decrease.
d.would be unaffected.
31. When a tax is imposed on a good we know that the losses to buyers and sellers
a.are equal to the revenue raised by the government.
b.are less than the revenue raised by the government.
c.exceed the revenue raised by the government.
d.cannot be compared to the tax revenue raised by the government since the amount of the tax will vary from good to good.
32. When evaluating the size of the deadweight loss due to a tax we know that the
a.greater the elasticities of supply and demand, the greater the deadweight loss.
b.smaller the elasticities of supply and demand, the greater the deadweight loss.
c.smaller the decrease in both quantity demanded and quantity supplied, the greater the deadweight loss.
d.primary factor that determines the size of the deadweight loss in the percentage the tax is of price.
33. The Laffer curve indicates each of the following EXCEPT income tax collections will be
a.very low if income tax rates are very low.
b.very low if income tax rates are very high.
c.at a maximum if income tax rates are at some intermediate level between very low and very high.
d.very high if income tax rates are very high.
34. Suppose that the equilibrium quantity in the market for widgets has been 200 per month. Then a tax of $5 per widget is imposed on widgets. The price paid by buyers increases by $2 and the after-tax price received by sellers falls by $3. The government is able to raise $750 per month in revenue from the tax. The deadweight loss from the tax is
a.$250.
b.$125.
c.$75.
d.$50.
35. When a country allows trade and becomes an exporter of a good consumer surplus
a.and producer surplus will increase.
b.and producer surplus will decrease.
c.will increase and producer surplus will decrease.
d.will decrease and producer surplus will increase.
36. Turkey is an importer of goose down pillows. The world price of these pillows is $50. Turkey imposes a $7 tariff on pillows. Turkey is a price-taker in the pillow market. As a result of the tariff Turkey’s price of pillows will be
a.$50 and the quantity of pillows purchased will decrease.
b.$57 and the quantity of pillows purchased will decrease.
c.$50 and the quantity of pillows purchased will increase.
d.$57 and the quantity of pillows purchased will increase.
37. A tariff and an import quota will both
a.increase the quantity of imports and raise domestic price.
b.increase the quantity of imports and lower domestic price.
c.reduce the quantity of imports and raise domestic price.
d.reduce the quantity of imports and lower domestic price.
38. According to the graph, the amount of the quota is
a.100 birdhouses.
b.200 birdhouses.
c.300 birdhouses.
d.400 birdhouses.
39. According to the graph, as a result of the quota, domestic producer surplus increases by
a.$100.
b.$200.
c.$300.
d.$400.
40. According to the graph, the gain as a result of the quota to license holders who import birdhouses would be
a.$100.
b.$200.
c.$400.
d.$500.
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