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Sample Questions for Exam 1

Econ 101 (004)-Introduction to Microeconomics


Department of Economics
University of Waterloo
Fall 2009

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) In a world without scarcity 1) ______
A) opportunity costs would determine choices.
B) it would still be necessary to choose among alternatives.
C) all goods would be free.
D) the market would be irrelevant.
E) all goods would be free, and as a result, the issue of market would be irrelevant.


2) Which of the following is the best definition of economics? 2) _______
A) The study of how individuals, businesses, governments, and entire societies make choices
as they cope with scarcity and the incentives that influence and reconcile those choices.
B) The study of how consumers and producers meet each other at the market.
C) The study of how a provincial government allocates tax dollars.
D) The study of how consumers spend their income.
E) The study of how producers decide what inputs to hire and what outputs to produce.


3) A tractor is an example of which of the following factors of production? 3) _______
A) energy
B) entrepreneurial ability
C) land (natural resources)
D) labour
E) capital


4) When a firm decides to produce more electric cars and fewer gas guzzlers, it is answering the
________ question.
4) _______
A) "when" B) "what" C) "who" D) "where" E) "how"


5) The branch of economics that studies the economy as a whole is called 5) ______
A) normative economics.
B) macroeconomics.
C) positive economics.
D) Keynesian economics.
E) microeconomics.







6) Complete the following sentence. Entrepreneurship is 6) _______
A) the human resources that organizes labour, land and capital.
B) money.
C) shares.
D) additional capital stock.
E) all of the above.


7) Which one of the following is a part of the opportunity cost of attending college for an
individual who lives on their own?
7) _______
A) cost of clothing
B) cost of transportation
C) cost of renting movies
D) cost of tuition
E) cost of meals


8) When asked in an interview what she missed the most because of the time she spent training for
the Olympics, a rower, who lived on her own, answered "a normal social life." She also revealed
that she had given up a job that paid $30 000 per year to train full-time. She received a grant of
$8 000 per year from Sport Canada, but this failed to cover all her training expenses. Her food
and rent were $5 000 per year and training expenses were $12 000 per year. Aside from the value
of a normal social life, what is the annual opportunity cost, expressed in dollars, to this rower of
"Going for Gold"?
8) _______
A) $25 000 B) $4 000 C) $34 000 D) $39 000 E) $30 000


9) Complete the following sentence. Marginal cost is 9) ______
A) the opportunity cost of an increase in an activity.
B) the total cost of an activity.
C) the additional cost of an increase in an activity.
D) the additional cost of a decrease in an activity.
E) the opportunity cost of a decrease in an activity.


10) Statements about "what ought to be" are called 10) ______
A) economic statements.
B) positive statements.
C) scientific statements.
D) hypotheses.
E) normative statements.


11) The Latin term ceteris paribus means 11) ____
A) "The whole is not the sum of the parts."
B) "Innocent until proven guilty."
C) "Fallacies are composed."
D) "Compositions are fallacious."
E) "If all other relevant things remain the same."




Use the figure below to answer the following question.




Figure A1.4

13) Refer to Figure A1.4. The behaviour of x over time is best characterized as exhibiting 13) ______
A) an upward trend and decreasing variability.
B) a constant trend and increasing variability.
C) a downward trend and increasing variability.
D) a downward trend and decreasing variability.
E) an upward trend and increasing variability.


14) A cross-section graph shows the values of a variable 14) ______
A) for different groups at a point in time.
B) for a given group across time.
C) as a percentage of change across time.
D) in relationship to other variables.
E) as an absolute rate of change across time.


















Use the figure below to answer the following question(s).



Figure A1.6

15) Consider Figure A1.6. The variables x and y 15) _____
A) are negatively related.
B) are positively related.
C) move down together.
D) are unrelated.
E) have a nonlinear relationship.


16) The equation of the line in Figure A1.6 is 16) ______
A) y = 1.5 + 0.5x.
B) y = -3 + 2x.
C) y =1.5 + 2x.
D) y = 1.5 - 0.5x.
E) dependent on where you measure it.


17) The slope of the line in Figure A1.6 is 17) ______
A) 2.
B) -1.
C) 1.
D) 1/2.
E) dependent on where you measure it.





18) The slope of a horizontal line is 18) ______
A) negative.
B) infinite.
C) zero.
D) positive.
E) first positive and then negative.


Use the figure below to answer the following question(s).



Figure A1.12

19) Refer to Figure A1.12. The slope across the arc between a and b is 19) ______
A) 1. B) 2. C) 2/3. D) 3. E) 1/2..


20) Which one of the following concepts is not illustrated by a production possibilities frontier? 20) _____
A) attainable and unattainable points
B) scarcity
C) opportunity cost
D) the tradeoff between producing one good versus another
E) monetary exchange













Use the figure below to answer the following question(s).




Figure 2.1

21) Refer to the production possibilities frontier in Figure 2.1. Which one of the following is true
about point a?
21) ______
A) Resources are not fully employed.
B) It is preferred to point b.
C) While no more of good Y can be produced, more of good X can be produced.
D) It is unattainable.
E) It is attainable only if the amount of capital goods is increased.


22) Complete the following sentence. In Figure 2.1, 22) ______
A) point b is superior to point a.
B) movement from c to b would require a technological improvement.
C) the concept of decreasing opportunity cost is illustrated.
D) movement from a to b would require a technological improvement.
E) some resources must be unemployed at point c.
















Use the figure below to answer the following question(s).




Figure 2.2

23) Refer to the production possibilities frontier in Figure 2.2. If 6 units of X are currently being
produced, then
23) ______
A) 50 units of Y must be produced, regardless of resource utilization.
B) 40 units of Y cannot be produced unless production of X is increased.
C) 50 units of Y can be produced if all resources are fully utilized.
D) 40 units of Y cannot be produced unless production of X is decreased.
E) 60 units of Y can be produced with some resources not fully utilized.






Use the table below to answer the following question(s).

Table 2.2 Production Possibilities



24) Refer to Table 2.2. In moving from combination b to combination c, the opportunity cost of
producing one additional unit of guns is
24) ______
A) 1/2 unit of butter.
B) 3 units of butter.
C) 6 units of butter.
D) 1/6 unit of butter.
E) 2 units of butter.




25) Refer to Table 2.2. According to this production possibilities frontier, 25) ______
A) a combination of 0 butter and 4 guns is attainable.
B) resources are equally useful in all activities.
C) a combination of 6 butter and 1 gun would not employ all resources.
D) the opportunity cost of producing guns decreases as more guns are produced.
E) the opportunity cost of producing guns increases as more guns are produced.


26) A marginal benefit curve measures 26) ______
A) willingness to pay.
B) expenditure.
C) absolute advantage.
D) comparative advantage.
E) opportunity costs.


27) When an economist refers to choices made "at the margin," the economist is referring to 27) ______
A) an individual's all-or-nothing choice concerning a specific good or activity.
B) decisions based on the marginal benefits and marginal costs of small changes in a
particular activity.
C) decisions based only on the costs a person incurs from an activity.
D) decisions based only on the benefits a person receives from an activity.
E) all of the above.


28) With allocative efficiency, for each good produced, 28) ______
A) marginal benefit exceeds marginal cost by as much as possible.
B) marginal cost exceeds marginal benefit by as much as possible.
C) marginal benefit is at its maximum.
D) marginal cost is at its minimum.
E) marginal benefit equals marginal cost.




29) The development of new goods and better ways of producing goods and services is referred to
as
29) ______
A) technological change.
B) capital accumulation.
C) the big tradeoff.
D) allocative efficiency.
E) none of the above.


30) Which one of the following would likely shift a production possibilities frontier inward? 30) ______
A) a drought.
B) a technological improvement.
C) a decrease in the price of natural resources.
D) all of the above
E) None of the above, since production possibility frontiers do not shift inward.


31) Individuals A and B can both produce good X. We say that A has a comparative advantage in
the production of good X if
31) ______
A) A has a higher opportunity cost of producing X than B.
B) A can produce less units of X in a given time period than B.
C) A can produce more units of X in a given time period than B.
D) A can produce X using newer technology than B.
E) A has a lower opportunity cost of producing X than B.


32) A person has an absolute advantage in producing a good when he/she 32) ______
A) can produce the good at lower opportunity cost than anyone else.
B) has a comparative advantage in producing that good.
C) can produce more of that good than anyone else, using the same quantity of inputs.
D) has better technology than anyone else.
E) has exclusive rights to sell one good.


Use the figure below to answer the following question(s).

Table 2.4 The planets of Vulcan and Romulus each produce goods X and Y. The following table gives points on their
production possibilities frontiers.
V- R
x-2 of y x- 1.5 of y
y-half of x y-2 thirds of x


33) Refer to Table 2.4. Which one of the following is true? 33) ______
A) Vulcan has a comparative advantage in the production of X.
B) Romulus has both an absolute advantage and a comparative advantage in the production
of Y.
C) Vulcan should specialize in the production of X.
D) Romulus has both an absolute advantage and a comparative advantage in the production
of X.
E) Romulus has a comparative advantage in the production of X.


34) Refer to Table 2.4. For Vulcan, the opportunity cost of producing an additional unit of X is 34) ______
A) 2 units of Y.
B) 2/3 unit of Y.
C) 1 unit of Y.
D) 4 units of Y.
E) dependent upon how many units of X are already produced.






35) Refer to Table 2.4. For Romulus, the opportunity cost of producing an additional unit of X is 35) ______
A) 1 unit of Y.
B) 4 units of Y.
C) 2/3 unit of Y.
D) 2 units of Y.
E) 3/2 unit of Y.


36) Refer to Table 2.4. For Romulus, the opportunity cost of producing an additional unit of Y is 36) ______
A) 2 units of X.
B) 3/2 unit of Y.
C) 3 units of X.
D) 1/2 unit of X.
E) 2/3 unit of X.


37) Refer to Table 2.4. For Vulcan, the opportunity cost of producing an additional unit of Y is 37) ______
A) 1/2 unit of X.
B) 2 units of X.
C) 4 units of X.
D) 3 units of X.
E) 2/3 unit of X.


38) Refer to Table 2.4. Each country will gain from trade if 38) ______
A) Romulus specializes in good X.
B) Romulus specializes in both goods.
C) they both continue to produce both goods.
D) Vulcan specializes in good X .
E) Vulcan specializes in both goods.


39) How many sides does a market have? 39) ______
A) markets do not have any sides
B) two sides-buyers and sellers
C) three sides-buyers, sellers, and organizers
D) one side-sellers
E) one side-buyers


40) The theory of demand and supply determines 40) ______
A) relative prices.
B) demand prices.
C) money prices.
D) absolute prices.
E) supply prices.


z
4
1
)

The law of demand states that, all else constant, 41) ______
A) the higher the price of a good, the greater is the quantity demanded.
B) the higher the price of a good, the smaller is the quantity demanded.
C) the higher the price of a good, the smaller is the quantity supplied.
D) price and quantity supplied are positively related.
E) as income increases, willingness to pay for the last unit increases.


42) An increase in income will 42) ______
A) decrease the demand for turnips if turnips have a very low price.
B) increase the supply of turnips.
C) increase the demand for turnips if turnips are normal goods.
D) decrease the supply of turnips.
E) increase the demand for turnips if turnips are inferior goods.


43) A lower price increases the quantity demanded because 43) ______
A) the purchasing power of a household increases.
B) the income effect is stronger than the substitution effect.
C) households buy more of the good and less of its substitutes.
D) households buy less of the good and more of its substitutes.
E) both A and C.




Use the figure below to answer the following question(s).



Figure 3.2

44) Which one of the following would cause a shift in demand from D
1
to D
2
in Figure 3.2? 44) ______
A) an increase in the price of Coke, a complement for pizzas
B) an increase in the supply of pizzas
C) a decrease in the price of pizzas
D) an increase in the price of hamburgers, a substitute for pizzas
E) an increase in the price of pizzas


45) Refer to Figure 3.2. Which one of the following represents a decrease in quantity demanded? 45) ______
A) A shift from D
2
to D
1
.
B) A movement from a to b.
C) A movement from b to a.
D) A shift from D
1
to D
2
.
E) none of the above


46) Refer to Figure 3.2. If a consumer's income increases, 46) ______
A) the supply of pizzas will increase.
B) the quantity supplied of pizzas decreases.
C) the quantity demanded of pizzas will increase.
D) a movement from point a to point b on D
1
occurs.
E) the demand for pizzas will shift from D
1
to D
2
if pizza is a normal good.


47) The supply curve of a good slopes upward to the right because of 47) ______
A) the fact that prices tend to increase over time.
B) the law of demand.
C) the law of supply.
D) the existence of substitute goods.
E) technological improvements over time.


48) An increase in supply is represented by 48) ______
A) a movement down the supply curve.
B) an initial movement up and then down on the same supply curve.
C) a rightward shift in the supply curve.
D) a leftward shift in the supply curve.
E) a movement up the supply curve.


49) A decrease in the quantity supplied is represented by a 49) ______
A) movement down the supply curve.
B) movement up the supply curve.
C) rightward shift of the supply curve.
D) rightward shift of the demand curve.
E) leftward shift of the supply curve.


50) If resources can be used to produce either good A or good B, then A and B are 50) ______
A) complements in production.
B) substitutes in consumption.
C) complements in consumption.
D) normal goods.
E) substitutes in production.




51) If the number of suppliers for good Y increases, then 51) ______
A) the supply curve for good Y will shift to the left.
B) the supply curve for good Y will remain unchanged.
C) a movement down on the same supply curve will occur.
D) the supply curve for good Y will shift to the right.
E) a movement up on the same supply curve will occur.




Use the table below to answer the following question(s).

Table 3.2

Price
(dollars per
unit)
Quantity
Demanded
(units)
Quantity
Supplied (units)
1 1,100 50
2 800 200
3 600 420
4 500 500
5 420 580
6 350 640
7 320 680
8 300 700
52) In Table 3.2, the equilibrium price is 52) ______
A) $1. B) $5. C) $3. D) $4. E) $7.


53) In Table 3.2, the equilibrium quantity is 53) ______
A) 320 units.
B) 200 units.
C) 500 units.
D) 420 units.
E) none of the above; there is no equilibrium.


54) Refer to Table 3.2. Excess demand occurs if 54) ______
A) the price is $6.
B) the price is $7.
C) the price is $4.
D) there is a surplus.
E) the price is below $4.


55) Refer to Table 3.2. Excess supply occurs if 55) ______
A) if the price is $3.
B) the price is above $4.
C) the price is $2.
D) the price is $4.
E) there is a shortage.


56) Refer to Table 3.2. If the price is $7, then excess supply is 56) ______
A) zero. B) 360. C) 290. D) 400. E) 160.


57) Refer to Table 3.2. If the price is $3, then excess demand is 57) ______
A) 1050. B) 180. C) zero. D) 600. E) 160.



58) Which one of the following correctly describes how price adjustment eliminates a surplus? 58) ______
A) As the price falls, the demand for substitutes of the good falls, eliminating the surplus.
B) As the price rises, the quantity demanded increases while the quantity supplied decreases.
C) As the price rises, the quantity demanded decreases while the quantity supplied increases.
D) As the price falls, the quantity demanded increases while the quantity supplied decreases.
E) As the price falls, the quantity demanded decreases while the quantity supplied increases.


59) Since 1980, there has been a dramatic increase in the number of working mothers. Based on this
information alone, we can predict that the market for child care services has experienced a(n)
59) ______
A) increase in supply.
B) decrease in demand.
C) increase in demand.
D) increase in quantity demanded.
E) decrease in quantity supplied.


60) The price of a good will increase if 60) ______
A) the price of a substitute in consumption decreases.
B) supply of the good decreases.
C) demand for the good decreases.
D) there is a surplus of the good.
E) it is an inferior good and income increases.


61) The price of a good will decrease if 61) ______
A) demand for the good remains constant.
B) supply of the good decreases.
C) demand for the good increases.
D) supply of the good remains fixed.
E) supply of the good increases.


62) Suppose we observe both an increase in the price of good A and a decrease in the quantity of
good A bought and sold. Which one of the following is a likely explanation?
62) ______
A) The law of supply is violated.
B) The demand for A has decreased.
C) The supply of A has increased.
D) The supply of A has decreased.
E) The demand for A has increased.


63) If A is an inferior good and consumer income rises, the demand for A will 63) ______
A) decrease, and thus the price and the equilibrium quantity will decrease.
B) decrease, and thus the price will rise; as a result, the equilibrium quantity will decrease.
C) increase, and thus the price and the equilibrium quantity will increase.
D) increase, and thus the price will rise but the equilibrium quantity will decrease.
E) decrease, and thus the price will fall but the equilibrium quantity will increase.




64) If demand decreases and supply increases, then the 64) ______
A) price will rise but the effect on equilibrium quantity will be indeterminate.
B) equilibrium quantity will decrease but the effect on the price is indeterminate.
C) equilibrium quantity will increase but the effect on the price is indeterminate.
D) price will fall but the effect on equilibrium quantity will be indeterminate.
E) effect on both equilibrium price and quantity will be indeterminate.


65) If A and B are complementary goods (in consumption) and the cost of a resource used in the
production of A decreases, then the price of
65) ______
A) both A and B will fall.
B) A will rise and the price of B will fall.
C) A will fall and the price of B will rise.
D) A will fall and the price of B will remain unchanged.
E) both A and B will rise.


66) A price elasticity of demand of 2 means that a 10 percent increase in price will result in a 66) ______
A) 5 percent decrease in quantity demanded.
B) 20 percent decrease in quantity demanded.
C) 20 percent increase in quantity demanded.
D) 2 percent decrease in quantity demanded.
E) 2 percent increase in quantity demanded.


67) The price of apples falls by 5 percent and quantity demanded increases by 6 percent. This means
that the demand for apples is
67) ______
A) perfectly inelastic.
B) perfectly elastic.
C) elastic.
D) inelastic.
E) unitary elastic.


68) The price of good A declines by 10 percent and quantity demanded does not change. This
implies that the demand for good A is
68) ______
A) perfectly elastic.
B) perfectly inelastic.
C) unit elastic.
D) elastic.
E) inelastic.


69) If an increase in price causes a decrease in total revenue then price elasticity of demand is 69) ______
A) greater than zero but less than 1.
B) negative.
C) greater than 1.
D) zero.
E) equal to 1.



70) The income elasticity of demand equals the percentage change in 70) ______
A) price divided by the percentage change in income.
B) price divided by the percentage change in quantity demanded.
C) income divided by the percentage change in quantity demanded.
D) quantity demanded divided by the percentage change in income.
E) quantity demanded divided by the percentage change in price