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ECO 2301 - Roach

Test 1

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Demand for one item goes down when the price of another item goes up. These items must be 1)
A) normal goods. B) complements. C) inferior goods. D) substitutes.

2) In a laissez-faire economy ________ what gets produced, how it is produced, and who gets it. 2)
A) the behavior of buyers and sellers determines
B) the central government authority determines
C) consumers but not firms determine
D) firms but not consumers determine

Refer to the information provided in Figure 3.6 below to answer the questions that follow.

Figure 3.6

3) Refer to Figure 3.6. The number of DVDs Isabel rents per week increases from 4 to 7. This is caused 3)
by
A) a decrease in the rental price of DVDs.
B) a decrease in the price of popcorn which is a complement to DVDs.
C) an increase in income if DVDs are a normal good.
D) either A or B

4) Which of the following is a positive question? 4)

A) Should the minimum wage be set at one-half the average manufacturing wage to guarantee
individuals a decent standard of living?
B) Will the level of teenage unemployment increase if the minimum wage is increased?
C) Wouldn't it be better to try to increase people's wages through job-training programs rather
than by requiring employers to pay minimum wages?
D) Wouldn't it be more equitable if the minimum wage increased automatically with the cost of
living?

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Refer to the information provided in Figure 2.4 below to answer the questions that follow.

Figure 2.4

5) According to Figure 2.4, which point cannot be produced with the current state of technology? 5)
A) A B) B C) C D) F

6) According to Figure 2.4, the point where only hybrid cars are produced is 6)
A) A. B) B. C) C. D) D.

7) Whenever the Democrats gain control of the Congress, spending on social programs increases; 7)
whenever Republicans gain control of the Congress, spending on defense increases. Hence, we
know what the next party in control will do. This statement is an example of
A) post hoc fallacy. B) fallacy of inductive reasoning.
C) fallacy of composition. D) ceteris paribus fallacy.

8) The process of using resources to produce new capital is 8)

A) consumption. B) economic growth.
C) research and development. D) investment.

9) Which of the following will definitely occur when there is an increase in the supply of and decrease 9)
in demand for MP3 players?
A) a decrease in equilibrium price B) a decrease in equilibrium quantity
C) an increase in equilibrium quantity D) an increase in equilibrium price

10) The Bureau of Labor Statistics announced that the unemployment rate fell by one percentage point. 10)
This is best described as
A) a normative statement. B) descriptive economics.
C) an economic model. D) Marxist ideology.

11) In input or factor markets 11)

A) consumers purchase products. B) households demand goods.
C) households supply resources D) firms supply goods.

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Refer to the information provided in Figure 3.17 below to answer the questions that follow.

Figure 3.17

12) Refer to Figure 3.17. If this market is unregulated and the price is currently $90, you would expect 12)
that the price of sunglasses would
A) fall to $30, so the firm could sell its excess supply.
B) fall, but the new price is indeterminate from the information provided.
C) fall to $60, where quantity demanded equals quantity supplied.
D) remain at $90, because firms would not want to reduce the price.

13) Which of the following would an economist classify as capital? 13)

A) a post office employee B) a corporate bond
C) a guitar used by a musician D) a $50 bill

14) If the demand for sardines increases as income decreases, sardines are a(n) 14)
A) inferior good. B) normal good.
C) substitute good. D) complementary good.

15) The basic coordinating mechanism in a free market system is 15)

A) price. B) the corporation.
C) quantity. D) a central government authority.

16) In an output market 16)

A) consumers purchase products.
B) land, labor and capital may be exchanged.
C) households earn income.
D) firms purchase resources.

17) Suppose you are deciding whether to spend your tax rebate check on a new iPod player or a new 17)
digital camera. You are dealing with the concept of
A) the fallacy of composition. B) comparative advantage.
C) diminishing marginal returns. D) opportunity costs.

18) The price of hard drives used in the manufacturing of laptop computers has risen. This will lead to 18)
________ laptop computers.
A) an increase in the supply of B) a decrease in the quantity supplied of
C) an increase in the quantity supplied of D) a decrease in the supply of

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Refer to the information provided in Table 3.2 below to answer the questions that follow.

Table 3.2
Price per Quantity Demanded Quantity Supplied
Cheeseburger (Cheeseburgers per Month) (Cheeseburgers per Month)
$5 1,500 500
6 1,200 700
7 900 900
8 600 1,100
9 300 1,300

19) Refer to Table 3.2. If the price per cheeseburger is $9, there is a(n) 19)
A) excess demand of 300 units. B) market equilibrium.
C) excess demand of 500 units. D) excess supply of 1,000 units.

20) Refer to Table 3.2. This market will be in equilibrium if the price per cheeseburger is 20)
A) $5. B) $6. C) $8. D) $7.

21) An economy in which a central authority draws up a plan that establishes what will be produced 21)
and when, sets production goals, and makes rules for distribution is a
A) laissez-faire economy. B) command economy.
C) public goods economy. D) free market economy.

Refer to the information provided in Figure 2.5 below to answer the questions that follow.

Figure 2.5

22) Refer to Figure 2.5. The best point for society would be 22)
A) Point C, as at this point there are approximately equal amounts of LCD and plasma
televisions being produced.
B) at any of the labeled points, as all of the points represent an efficient allocation of resources.
C) either Point B or Point C, as the total amount being produced at either of these points is
approximately the same.
D) indeterminate from this information, as we don't have any information about the society's
desires.

23) Refer to Figure 2.5. For this economy to move from Point B to Point C so that an additional 20 23)
plasma televisions could be produced, production of LCD televisions would have to be reduced by
A) exactly 30. B) more than 30. C) fewer than 30. D) exactly 60.

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 24) Refer to Figure 2.5. The economy is currently at Point A. The opportunity cost of moving from Point 24)
A to Point B is the
A) 30 LCD televisions that must be forgone to produce 20 additional plasma televisions.
B) 120 LCD televisions that must be forgone to produce 40 additional plasma televisions.
C) 90 LCD televisions that must be forgone to produce 20 additional plasma televisions.
D) 30 LCD televisions that must be forgone to produce 60 additional plasma televisions.

25) In terms of the production possibility frontier, an increase in productivity attributable to new 25)
technology would best be shown by
A) a movement from a point inside the frontier to a point on it.
B) a movement along the frontier.
C) a movement toward the origin.
D) the production possibility frontier shifting outward, away from the origin.

26) In response to news reports that taking aspirin daily can reduce an individual's risk of a heart 26)
attack, there will most likely be a(n)
A) increase in the demand for aspirin.
B) decrease in the supply of aspirin.
C) increase in the supply of aspirin.
D) increase in the quantity demanded of aspirin.

27) The fallacy of composition is 27)

A) the belief that it is impossible to draw generalizations about cause and effect.
B) the belief that if Event A happens before Event B happens, then Event A causes Event B to
occur.
C) the belief that what is true for a part is necessarily true for the whole.
D) the belief that what is true for the whole is necessarily true of the parts.

Refer to the information provided in Figure 3.14 below to answer the following questions.

Figure 3.14

28) Refer to Figure 3.14. An increase in supply is represented by the movement from 28)
A) Point B to Point C along supply curve S2 . B) Point B to Point A along supply curve S2 .
C) S2 to S1 . D) S2 to S3 .

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 29) A frozen food manufacturer can produce either pizzas or calzones. As the result of an increase in 29)
the price of calzones, the firm produces more calzones and fewer pizzas. An economist would
explain this by saying
A) there has been an increase in the quantity supplied of calzones and a decrease in the supply of
pizza.
B) there has been an increase in the quantity supplied of calzones and a decrease in the quantity
supplied of pizzas.
C) the supply of calzones increased and the quantity supplied of pizza decreased.
D) the supply of calzones increased and the supply of pizzas decreased.

Refer to the information provided in Figure 3.13 below to answer the questions that follow.

Figure 3.13

30) Refer to Figure 3.13. The market is initially in equilibrium at Point B. If supply shifts from S2 to S1 , 30)
the new equilibrium price will be ________ and the new equilibrium quantity will be ________.
A) $5.00; 4 B) $7.00; 7 C) $7.00; 6 D) $5.00; 10

31) According to the law of supply, there is a 31)

A) positive relationship between price and the change in supply.
B) positive relationship between price and the quantity of a good supplied.
C) negative relationship between price and the change in supply.
D) negative relationship between price and the quantity of a good supplied.

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Refer to the information provided in Figure 3.2 below to answer the questions that follow.

Figure 3.2

32) Refer to Figure 3.2. Which of the following would be most likely to cause the demand for macaroni 32)
and cheese to shift from D1 to D0 ?
A) an increase in income, assuming macaroni and cheese is a normal good
B) an increase in the price of macaroni and cheese
C) an increase in the price of flour used to make macaroni and cheese
D) an increase in the quantity demanded for macaroni and cheese

33) Bonus Question: Papayas and grapefruit are substitute goods. A drought in California destroyed a 33)
good portion of the grapefruit crop. Ceteris paribus,
A) the price of grapefruit will increase and the price of papayas will fall.
B) the price of both papayas and grapefruit will increase.
C) the price of grapefruit will fall and the price of papayas will increase.
D) the price of both papayas and grapefruit will fall.

34) Suppose that video game discs are a normal good. If the income of video game players increases, 34)
you predict that in the market for video games
A) both equilibrium price and quantity will increase.
B) equilibrium price will increase and quantity will decrease.
C) both equilibrium price and quantity will fall.
D) equilibrium price will fall but quantity will increase.

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Refer to the information provided in Figure 3.11 below to answer the questions that follow.

Figure 3.11

35) Refer to Figure 3.11. Assume hamburgers are a normal good. An increase in income will cause a 35)
movement from:
A) S1 to S2 . B) Point A to Point B.
C) D1 to D2. D) Point G to Point F.

Refer to the information provided in Figure 3.9 below to answer the following questions.

Figure 3.9

36) Refer to Figure 3.9. Assume that there are only two people in the market for coconuts: Sasha and 36)
Kyle. Along the market demand curve for coconuts, at a price of ________, quantity demanded
would be ________.
A) $10; 9 B) $14; 7 C) $14; 9 D) $10; 8