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22 Spring - Boswell - Practice Midterm 1

The document is a mock exam for an introductory economics course, consisting of 30 questions including multiple-choice and multiple-answer formats. It covers various economic concepts such as scarcity, microeconomics, supply and demand, elasticity, and market structures. Solutions to the questions are provided at the end of the document.

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15 views15 pages

22 Spring - Boswell - Practice Midterm 1

The document is a mock exam for an introductory economics course, consisting of 30 questions including multiple-choice and multiple-answer formats. It covers various economic concepts such as scarcity, microeconomics, supply and demand, elasticity, and market structures. Solutions to the questions are provided at the end of the document.

Uploaded by

liamatwood2
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

MOCK EXAM

SPRING 2022
ECON 1

Read all questions carefully before attempting. Questions 1 -26 are standard MCQ,
while Questions 27-30 are Multiple Answer. Attempt all questions

QUESTION 1
The most important economic problem is:
A) The US debt
B) Security
C) Safety
D) Health
E) Scarcity

QUESTION 2
Which of the following is a microeconomic topic?
A) How money is allocated in the US economy
B) The reason for the price rise in orange juice
C) How to measure standard of living
D) The productivity of a nation
E) The reasons for the rise in average prices

QUESTION 3
The ultimate cost of a choice is:
A) The number of dollars expended
B) What someone else would be willing to pay
C) The after-tax cost
D) The highest-valued alternative foregone
E) None of the above
QUESTION 4
Which of the following is an example of a positive statement?
A) Households are the primary source of saving
B) Governments should redistribute income
C) Business firms ought to contribute to more charities
D) The FED must increase their interest rate
E) None of the above

QUESTION 5

The economy shown in the graph above has the capacity to produce at which
points?
A) A, B only
B) A, B, D only
C) A, B, C, F, G only
D) C, F, G only
E) A, B, C, F only
QUESTION 6

Assume that England and Spain can switch between producing cheese and
producing bread at a constant rate. Which of the following combinations of cheese
and bread could England not produce in 40 hours?
A) 5 units of cheese and 9 units of bread.
B) 10 units of cheese and 7.5 units of bread.
C) 20 units of cheese and 5 units of bread.
D) 30 units of cheese and 2.5 units of bread.
E) None of the above

QUESTION 7
Pens are normal goods. What will happen to the equilibrium price of pens if the
price of pencils rises, consumers experience an increase in income, writing in
ink becomes fashionable, people expect the price of pens to rise in the near
future, the population increases, fewer firms manufacture pens, and the wages
of pen-makers increase?
A) Equilibrium price will rise
B) Equilibrium price will fall
C) Price will stay the same
D) The price change will be ambiguous
E) There is not enough information given

QUESTION 8
Suppose roses are currently selling for $40 per dozen, but the equilibrium price of
roses is $30 per dozen. We would expect
A) A shortage to exist and the market price of roses to increase.
B) A shortage to exist and the market price of roses to decrease.
C) A surplus to exist and the market price of roses to increase.
D) A surplus to exist and the market price of roses to decrease.
E) An unknown outcome

QUESTION 9
Suppose that a worker in the Fire Nation can produce either 4 radios or 1 television
per year, and a worker in the Earth Nation can produce either 2 radios or 4
televisions per year. Each nation has 100 workers. Which nation has a comparative
advantage in radios, televisions?
A) Fire Nation, Earth Nation
B) Earth Nation, Earth Nation
C) Earth Nation, Fire Nation
D) Fire Nation, Fire Nation
E) They are both equally able to produce at the same opportunity cost

QUESTION 10
Suppose that a worker in the Fire Nation can produce either 4 radios or 1 television
per year, and a worker in the Earth Nation can produce either 2 radios or 4
televisions per year. Each nation has 100 workers. Also suppose that each country
completely specializes in producing the good in which it has a comparative
advantage. If the Fire Nation trades 100 radios to the Earth Nation in exchange for
100 televisions each year, then each country's maximum consumption of new
radios and televisions per year will be:
A) 100 radios, 300 televisions in the Fire Nation and 300 radios, 100 televisions
in the Earth Nation
B) 300 radios, 100 televisions in the Fire Nation and 100 radios, 300 televisions
in the Earth Nation
C) 200 radios, 100 televisions in the Fire Nation and 100 radios, 200 televisions
in the Earth Nation
D) 300 radios, 100 televisions in the Fire Nation and 100 radios, 400 televisions
in the Earth Nation
E) None of the above solutions are correct

QUESTION 11
Sophia is planning her activities for a hot summer day. She would like to go to the
local swimming pool and see the latest blockbuster movie, but because she can
only get tickets to the movie for the same time that the pool is open, she can only
choose one activity. This illustrates the basic principle that
A) People respond to incentives
B) Rational people think at the margin
C) People face tradeoffs
D) Improvements in efficiency sometimes come at the expense of equality
E) None of the above

QUESTION 12
Economists make assumptions to
A) Provide issues for political discussions
B) Make a complex world easier to understand
C) Create policy alternatives that are incomplete and subject to criticism
D) Be intentionally hard to work with
E) Make models more difficult

QUESTION 13
In a perfectly competitive market:
A) A seller can always increase her profit by raising the price of her product
B) If a seller chargers more than the going price, buyers will go elsewhere to
make their purchases.
C) A seller often charges less than the going price to increase sales and profit
D) A single buyer can influence the price of the product
E) There are 2 or 3 firms that control the price of the product

QUESTION 14
In the circular flow diagram, which of the following is not a factor of production?
A) Land
B) Labor
C) Physical Capital
D) Human Capital
E) Money

QUESTION 15

Using the PPFs above for reference, Perry has an absolute advantage in the
production of:
A) Novels and Jordan has an absolute advantage in the production of poems
B) Poems and Jordan has an absolute advantage in the production of novels
C) Novels and poems and Jordan has an absolute advantage in the production
of neither good
D) Neither good and Jordan has an absolute advantage in the production of
novels
QUESTION 16

If the market consists of Michelle and Hilary only and the price falls by $1, the
quantity demanded in the market increases by:
A) 2 units
B) 3 units
C) 4 units
D) 5 units
E) We are unable to figure this out without an initial price

QUESTION 17
Using the graph above, which of the following is NOT a result of the shift of the
economy’s PPF from Panel (a) to Panel (b).

A. The tradeoff between the production of coffee and donuts changes


B. The opportunity cost of a cup of coffee is higher at all levels
C. Production of 4 donuts and 2 cups of coffee becomes possible
D. Production of 1 donut and 4 cups of coffee becomes efficient
E. None of the above

QUESTION 18
Using the table given below, which supply schedule obeys the law of supply?

A) Firm A only
B) Firm B, Firm C and Firm D only
C) Firm A and Firm C only
D) Firm B and Firm D only
E) Firm B only

QUESTION 19
If an externality is present in a market, economic efficiency may be enhanced by:
A) A decrease in foreign competition
B) Government intervention
C) Fewer market participants
D) Weaker property rights
E) None of the above

QUESTION 20

Using the figure above, if the price is $25 then there would be:
A) Excess supply of 100 units and price would fall
B) Excess supply of 300 units and price would fall
C) Excess demand of 100 units and price would fall
D) Excess demand of 300 units and price would fall
E) An indeterminate response

QUESTION 21
Which of the following is consistent with the elasticities given in the table above?
A) A is luxury and B is necessity
B) A has fewer substitutes than B
C) A is a good immediately after price increase and B is that same good three
years after price increase
D) A is a good after increase in income and B is that same good after a decrease
in income
E) None of the above

QUESTION 22
Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A
government policy aimed at reducing smoking changed the price of a pack of
cigarettes from $2 to $6. According to the midpoint method, the government
policy should have reduced smoking by
A) 30%
B) 80%
C) 250%
D) 40%
E) We do not have enough information to produce a result

QUESTION 23
Using the midpoint method, if the price falls from $200 to $150, the price elasticity
of demand is:
A) Unit elastic
B) Inelastic
C) Zero
D) Elastic
E) Infinity

QUESTION 24

Using the midpoint method, the income elasticity of demand for Good Y is:

A) -2.33 and Y is and inferior good


B) -0.43 and Y is an inferior good
C) -0.43 and Y is a normal good
D) 2.33 and Y is a normal good
E) Unable to be calculated from the information given

QUESTION 25
The supply of wheat is inelastic, and the supply of biscuits is elastic. Both goods are
considered to be normal goods by a majority of consumers. Suppose that a large
increase in income tax decreases the demand for both goods by 10 percent. The
change in equilibrium price will be:
A) The same in the wheat and biscuit markets
B) Greater in the wheat than in the biscuit market
C) Unknown without more information
D) Greater in the biscuit market than in the wheat market
QUESTION 26

Total revenue when price is P1 is given by:


A) Areas B + D
B) Areas A +B
C) Areas C + D
D) Area C
E) Area D
MULTIPLE ANSWER SECTION
For the following, one or more answers may be correct. Select all that apply:

QUESTION 27

The price ceiling:


A) Is not binding
B) Is set below the equilibrium price
C) Causes a shortage of 90 units
D) Makes it necessary for sellers to ration the good using a mechanism other
than price
E) Causes a surplus of 90 units
QUESTION 28
Rational people make decisions “at the margin” by evaluating
A) Marginal cost
B) Average distribution
C) Marginal benefit
D) What other people are doing then making a decision
E) The most popular choice

QUESTION 29
Which of the following is an example of a normative statement
A) A working resident of a country should not pay for hospital care
B) Since clean water is becoming a limited resource, we should find sustainable
alternatives
C) The government ought to take more action towards climate change
initiatives
D) The 1% must take responsibility for exorbitant spending habits that
exacerbate global warming
E) The twitter ramblings of Elon Musk has a statistically significant effect on
stock and cryptocurrency prices.

QUESTION 30
In economic literature, the invisible hand refers to:
A) The hand of a ghost
B) How the decisions of self-interested households and firms lead to desirable
market outcomes
C) Unseen forces that move the free market economy
D) The ability of one entity to influence market equilibrium
E) The government intervening to bring the market back into balance
SOLUTIONS
1. E
2. B
3. D
4. A
5. C
6. A
7. A
8. D
9. A
10. B
11. C
12. B
13. B
14. E
15. D
16. B
17. D
18. D
19. B
20. B
21. A
22. D
23. D
24. A
25. B
26. A
27. BCD
28. AC
29. ABCD
30. BC

Common questions

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Normative statements are subjective assertions about what ought to be and involve value judgments, such as suggesting income redistribution. Positive statements, on the other hand, are objective and fact-based, describing what is or could be, like stating that households are the primary source of saving. The distinction is significant because policy discussions require a clear understanding of facts (positive) before moving into recommendations (normative). This distinction allows economists to base debates on solid evidence before proceeding to value-laden policy prescriptions .

Comparative advantage determines trade patterns by allowing each nation to specialize in producing goods for which they have a lower opportunity cost and trade for goods that would be more costly to produce domestically. For instance, the Fire Nation has a comparative advantage in radios because it can produce more relative to its opportunity cost compared to televisions, while the Earth Nation has a comparative advantage in televisions . Such specialization increases overall efficiency and consumption possibilities for both nations .

Government intervention can enhance market efficiency when externalities, either positive or negative, are present. By internalizing these externalities through taxation, subsidies, or regulation, governments can correct market failures such as overproduction or underproduction. For instance, taxing negative externalities like pollution incentivizes firms to reduce emissions, aligning private costs with social costs .

Factors such as the availability of substitutes, the proportion of income spent on the good, whether the good is a necessity or luxury, and time periods under consideration can cause price elasticity of demand to vary. For instance, goods with many substitutes generally have higher elasticity. Over time, the elasticity can increase as consumers find alternatives or adjust their consumption habits. Such variations impact how changes in price affect total revenue; a price increase might reduce revenue if demand is elastic because the percentage decrease in quantity demanded is greater than the percentage increase in price .

The elasticity of supply often differs between agricultural and manufactured goods because of their inherent characteristics. Agricultural goods typically have an inelastic supply due to dependency on natural conditions and production cycles, while manufactured goods tend to have more elastic supply as production can be easily adjusted. When demand changes, prices of agricultural goods are likely to fluctuate more due to inelastic supply, affecting producer revenues and consumer prices. In contrast, manufactured goods can adjust supply more flexibly to changes in demand, stabilizing prices .

Income elasticity of demand quantifies how the quantity demanded of a good responds to changes in consumer income. Positive elasticity denotes normal goods, where demand increases with income, while negative elasticity indicates inferior goods, where demand decreases as income rises. This classification helps businesses and policymakers understand consumer spending patterns and guide production, marketing, and policy decisions. For instance, during economic downturns, demand for inferior goods might increase as consumers seek cheaper alternatives .

Economists make assumptions to make a complex world easier to understand. Assumptions simplify the myriad of real-world variables into manageable models that can predict economic outcomes. This practice is crucial in formulating theories that can explain and predict behavior across different economic environments .

The most important economic problem is scarcity, which refers to the limited nature of society's resources. Scarcity is considered the most critical problem because it impacts all areas of economic activity, necessitating the allocation of finite resources among various competing uses. This concept underpins central economic questions such as what to produce, how to produce, and for whom to produce .

When the price is above the equilibrium, a surplus exists because the quantity supplied exceeds the quantity demanded at that price level. In the case of roses selling at $40 per dozen with an equilibrium price of $30, there would be a surplus, leading to an expected decrease in the market price as suppliers reduce prices to clear excess inventory .

The opportunity cost of a choice is the highest-valued alternative foregone, which plays a crucial role in decision-making and resource allocation. It represents the potential benefits lost when one option is chosen over another, thereby guiding individuals and firms in making more informed decisions by considering the trade-offs involved in allocating their limited resources .

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