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Practice Exam 1 – ECON 200

(value of a benefit is greater than it cost)
Multiple Choice (2 points each, best 40 of 43 count)

1. In making your decision whether to take a trip during Spring Break, you compare all the
other activities you could undertake. As a result, you (the alternative of the
A) are making a choice on the margin highest value that
B) are not making a rational choice
you must sacrifice to
C) do not face an opportunity cost
obtain something)
D) must have made a choice in the social interest

2. You would not be sitting in the class right now if

A) wants and resources were finite finite = limited = scarcity
B) wants were finite and resources were infinite infinite = not limited = surplus
C) wants were infinite and resources were finite wants = needs
D) wants and resources were infinite resources = good

3. ʺLower ticket prices would lead to more people attending ballgames.ʺ This statement is a
A) ceteris paribus assertion Ceteris paribus = the process of examining
B) normative statement change in one variable while holding
constant the other
C) positive statement
D) macroeconomic statement
Normative statement =
cannot be tested
4. Choice is fundamentally a consequence of Positive statement = can be
A) living in a world where there are both goods and bads tested
B) how wealthy one is
C) scarcity
D) opportunity cost

5. If the government wanted to give people a negative direct incentive not to save money, what would be
the appropriate policy?

A) imposing a tax on individuals for saving their money

B) providing individuals a subsidy to save their money
C) providing funding for an advertising campaign encouraging people to spend more money
D) informing consumers about all that they could buy with their money with the hope that they
spend more

6. Patrick bought an orange pen from Jill for $2.00. Patrick would have been willing to pay $2.50 for the
pen, and Jill would have willing to sell the pen for $1.25. Compute the total value created with this
exchange. [End of Ch. 1 Solved problems #8a]
A) $0.25
B) $0.50
C) $0.75
D) $1.25

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7. In examining two variables, we find that as one variable changes, the other changes. These
variables are said to be
A) independent
B) correlated
C) statistics
D) casually related

8. If there is no scarcity,
A) the opportunity cost of an action would be greater than its sunk cost
B) an action would have zero opportunity cost
C) choices are no longer rational
D) marginal cost of an action is greater than its marginal benefit

9. Suppose that you must decide between attending a Taylor Swift concert or a Maroon 5 concerts. The
concerts are at the same time so you cannot see both. You love Taylor Swift and would pay as much as
$200 to see her perform. Tickets to her concert are $135. You are not as big a Maroon 5 fan, but a friend
has just offered you a free ticket to the concert. If you go to Maroon 5, what is your opportunity cost?
[End of Ch. 2 Solved Problems #11]
A) $0
B) $65
C) $135
D) $200

10. Which of the following could lead the production possibilities frontier to shift inward?
A) an increase in productive resources
B) the discovery of new sources of raw materials
C) an earthquake that destroys several major factories
D) None of the above because the production possibilities frontier can never shift inward

11. If a society moves from a period of time with significant unemployment to a time with full
employment, its production possibilities frontier will
A) shift leftward
B) shift rightward
C) not shift because the society moves from one point on the frontier to a point inside the frontier
D) not shift because the society moves from a point inside the frontier to a point on the frontier

12. As we move along the production possibilities frontier,

A) the production of one good increases as the production of the other good decreases
B) the possibilities of tradeoffs diminish
C) a tradeoff is not possible because nations need all goods
D) more of both goods can be produced

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13. The figure above shows the production possibilities frontier for a country. The opportunity
cost of a gallon of milk between combination point A and B is
A) 4 gallons of ice cream for a gallon of milk.
B) 3 gallons of ice cream for a gallon of milk.
C) 1 gallon of ice cream for a gallon of milk.
D) 1/3 of a gallon of ice cream for a gallon of milk.

14. In the above table, for Mary the opportunity cost of producing a dress is ________ and the
opportunity cost for Mark of producing a dress is ________.
A) 1 1/2 jackets; 2/3 of a jacket
B) 1 1/2 jackets; 2 1/2 jackets
C) 1 1/4 jackets; 1/2 of a jacket
D) 1 jacket; 1 jacket

15. The United States is one of the richest nations in the world,
A) and so does not need to trade with poor nations in order to achieve any gains from trade.
B) but it can still benefit from specialization and exchange.
C) and so it must have a comparative advantage in the production of all goods.
D) and so it must have an absolute advantage in the production of all goods.

16. A market is defined as

A) a physical place where people buy only goods.
B) a physical place where people buy both goods and services.
C) a store where people buy physical goods.
D) any arrangement that brings buyers and sellers together.

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17. Suppose that quantity demanded, QD, is represented by the following equation: QD = 90 – 2P and the
quantity supplied, QS, is represented by the following equation: QS = P. Find the equilibrium price and
quantity. [End of Ch. 3 Solved Problems #8].
A) P* = $60; Q* = 60
B) P* = $30; Q* = 30
C) P* = $60; Q* = 30
D) P* = $30; Q* = 60

18. Two brands of water, Natural Water and Mountain Water, are close substitutes. If the price
of Mountain Water decreases, the fall in price
A) shifts the demand curve for Natural Water rightward.
B) shifts the demand curve for Natural Water leftward.
C) increases the price of Natural Water.
D) More information is needed to determine if the demand curve for Natural Water shifts
rightward or leftward.

19. Refer to the graph above that shows the market for low-skilled laborers. How many low-skilled laborers
will be unemployed when the minimum wage is $6 an hour? [Ch. 6 Solved Problems #7]
A) 9 million
B) 7 million
C) 6 million
D) No unemployment is caused

20. All of the following are effects of price controls on economic activity except:
A) Unemployment
B) Increased search activity
C) Black markets
D) Scarcity

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Use the figures above about the market for scooters to answer the next three questions

21. Scooters are a normal good and buyersʹ incomes decrease. Which of the figures above best
illustrates how this change affects the demand curve for scooters?
A) Figure A
B) Figure B
C) Figure C
D) None of the above answers is correct because the decrease in income will affect the
supply curve not the demand curve.

22. Over the next few years more and more people prefer to ride on scooters. Which of the
figures above best illustrates how this change affects the demand curve for scooters?
A) Figure A
B) Figure B
C) Figure C
D) None of the above answers is correct because the change in tastes will affect the supply
curve not the demand curve.

23. A scooter uses much less gasoline than does a car. Suppose the price of gasoline rises
substantially. Which of the figures above best illustrates how this change affects the demand
curve for scooters?
A) Figure A
B) Figure B
C) Figure C
D) Figure D

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24. Over the next several years the number of corn producers is expected to increase. As a result,
the supply of corn will ________ and the supply curve of corn will ________.
A) increase; shift rightward
B) increase; shift leftward
C) decrease; shift rightward
D) decrease; shift leftward

25. Suppose the equilibrium price of oranges is $2.00 per pound. If the actual price is above the
equilibrium price a
A) shortage exists and the price falls to restore equilibrium.
B) shortage exists and the price rises to restore equilibrium.
C) surplus exists and the price falls to restore equilibrium.
D) surplus exists and the price rises to restore equilibrium.

26. If the purchase and sale of marijuana is legalized

A) the equilibrium price and quantity will both rise.
B) the equilibrium price will fall, but the change in equilibrium quantity depends upon whether the
demand curve shifts more or the supply curve shifts more.
C) the equilibrium quantity will rise, but the change in equilibrium price depends upon whether the
demand curve shifts more or the supply curve shifts more.
D) the equilibrium price and quantity will both fall.

27. The table above shows the situation in the gasoline market in Tulsa, Oklahoma. If the price of
a gallon of gasoline is $3.65, then
A) there is a surplus of gasoline in Tulsa.
B) there is a shortage of gasoline in Tulsa.
C) the gasoline market in Tulsa is in equilibrium.
D) without more information we cannot determine if there is a surplus, a shortage, or an
equilibrium in the gasoline market in Tulsa.

28. If good weather conditions results in a larger than normal crop of peaches, then the
A) equilibrium price of peaches rises and the equilibrium quantity of peaches increases.
B) equilibrium price of peaches falls and the equilibrium quantity of peaches increases.
C) demand curve for peaches shifts leftward.
D) increase in the supply of peaches induces a greater demand for peaches, so that the
equilibrium price rises and the equilibrium quantity increases.

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29. Kiwis and strawberries are substitutes for consumers. An increase in the price of a kiwi
coupled with an increase in the number of strawberry growers ________ the equilibrium
price of a pound of strawberries and ________ the equilibrium quantity of strawberries.
A) Raises; increases
B) probably changes, but more information is needed to determine if it rises or falls; increases
C) raises; probably changes, but more information is needed to determine if it increases or
decreases
D) lowers; probably changes, but more information is needed to determine if it increases
or decreases

30. Consider the market for peanut butter. If there is an increase in the price of peanuts,
A) there is an upward movement along the supply curve for peanut butter.
B) the supply curve for peanuts shifts rightward.
C) there is a decrease in the supply of peanuts.
D) there is a decrease in the supply of peanut butter.

31. Suppose the price of a ticket to a Bruno Mars concert is $41 and at that price, the quantity
of tickets demanded is 17,000 per concert. Using the midpoint method of calculating
percentage changes, if Mr. Mars raises the price to $48 and the quantity demanded
decreases to 16,000, the price elasticity of demand for his concert tickets is
A) -15.73.
B) -6.06.
C) -1.00.
D) -0.39.

32. Total revenue increases if the price of the good

A) rises and demand is elastic.
B) rises and demand is inelastic.
C) rises and demand is unit elastic.
D) falls and supply is inelastic.

33. If a 10 percent increase in income leads to a 5 percent decrease in the demand for a good, the
income elasticity of demand equals ________ and the good is ________ good.
A) 1/2; a normal
B) -1/2; an inferior
C) 2; a normal
D) -2; a normal

34. The price of a large pizza decreased from $24.00 to $20.00. As a result, the quantity demanded of
skateboards increased from 310.00 to 330.00. Calculate and interpret the cross-price elasticity of
demand between pizzas and skateboards. [Ch. 4 Homework #7]
A) -.34; substitutes
B) -.34; complements
C) 3.33; substitutes
D) 3.33; complements

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35. In general, if you spend a large portion of your income on a good,
A) supply of that good would be price elastic.
B) demand for that good is more elastic than if you spent a smaller portion of your income
on the good.
C) supply of that good is price inelastic.
D) demand for that good is less elastic than if you spent a smaller portion of your income
on the good.

36. Of the following, which good has the most elastic demand?
A) Pepsi
B) food
C) insulin
D) salt

37. If the price of a DVD increases from $12 to $20 and the quantity of DVDs supplied increases
from 100,000 per hour to 118,000 per hour, using the midpoint formula the elasticity of supply equals
A) 0.33.
B) 2.94.
C) 3.08.
D) 0.23.

38. The demand and supply schedules for pizza are in the table above. A price ceiling of $2 per
slice results in
A) a surplus of 20 slices of pizza.
B) a shortage of 20 slices of pizza.
C) a shortage of 40 slices of pizza.
D) neither a shortage nor a surplus.

39. A price floor set above the equilibrium price

A) creates a surplus.
B) creates a shortage.
C) balances supply and demand.
D) has no effect.

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40. Suppose the current equilibrium wage rate for landscapers is $5.65 in Little Rock; $6.50 in St.
Louis and $8.05 in Raleigh. An increase in the minimum wage to $6.50 per hour results in
unemployment of landscapers in
A) Little Rock and St. Louis.
B) only Raleigh.
C) Little Rock, St. Louis, and Raleigh.
D) only Little Rock.

41. The table below shows the demand and supply schedule for chocolate. Suppose that after a successful
lobbying campaign by chocolate producers, the government imposes a price floor of $7 per pound. The
price floor will lead to a surplus of ____ pounds of chocolate. [Ch. 6 Homework #5]

A) 50
B) 30
C) 25
D) 20

42. Before class we listened to “Soak Up the Sun” by Sheryl Crow. In the song she expresses the idea of
trying to catch rays while they are still “free”. I wonder, does Ms. Crow understand that there is no such
thing as a free suntan? What “5 Foundations of Economics” does this best illustrate?
A) Incentives
B) Opportunity cost
C) Trade-offs
D) Scarcity

43. In the song “Automatic” that we listened to before class, country singer Miranda Lambert reflects on
when times were much simpler and muses about whether the world would be a better place if people
had to work harder to get the things they want. This illustrates the concept of:
A) Technological advancements in the PPF model
B) Unemployment in the in the PPF model
C) Comparative advantage
D) Absolute advantage