Name: __________________________ Date: _____________ 1.

If resources are scarce it means that they: A) cannot provide enough goods or services to satisfy all human material ants and needs. !) ") D) have no opportunity cost. are pro#a#ly not valued #y consumers. have an unlimited supply.

$. %he #est measure of the opportunity cost of any choice is: A) the monetary cost of that choice. !) ") D) hatever you have given up to ma&e that choice' even if no monetary costs are involved. the cost associated ith not ta&ing full advantage of the opportunity offered #y that choice. your hourly age.

(. )arginal analysis studies ho individuals decide: A) hether to live on the margin of society. !) ") D) to do a #it more activity versus a #it less activity. to analy*e marginal #usinesses. ho much do n payment to ma&e hen #uying stoc&s.

+. ,ome !ears fans decide to leave the -atriots game after the 1st .uarter in order to avoid the post/game traffic. %he fans are: A) not considering they have already paid the cost of their tic&ets. !) ") D) ma&ing marginal decisions #y comparing the cost of leaving early to the #enefit of leaving early. thin&ing only a#out the #enefits of avoiding traffic. finally reali*ing ho a ful the !ears truly are.

Use the following to answer questions 5-7: Figure: Strawberries and Submarines

-age 1

0. ,uppose the economy is operating at point G. %his implies that: A) the economy can move to a point such as C only if it improves its technology. !) ") D) the economy is e1periencing unemployment and2or inefficient allocation of resources. the economy lac&s the resources to achieve a com#ination such as C. people in this economy don3t really li&e stra #erries and su#marines.

4. As the economy moves from point A to ard point D' it ill find that the opportunity cost of each additional su#marine: A) falls !) rises ") remains unchanged D) dou#les

5. 67igure: ,tra #erries and ,u#marines) ,uppose the economy is no operating at point C. )oving to point E ould re.uire that the economy: A) achieve full employment and an efficient allocation of resources. !) ") D) eliminate its production of stra #erries. reduce its production of su#marines. improve its technology or increase the .uantities of factors of production it has.

8. All points outside the production possi#ility frontier represent: A) efficient production points. !) ") D) inefficient production points. nonfeasi#le production points. economic gro th.

9. In a single day' ,arah can produce 1: ham#urgers hile A#e can produce 0 ham#urgers. ;e then &no that: A) ,arah has a comparative advantage in ma&ing ham#urgers. !) ") D) ,arah has an a#solute advantage in ma&ing ham#urgers. A#e has a comparative advantage in ma&ing ham#urgers. A#e has an a#solute advantage in ma&ing ham#urgers.

1:. If the price of mo**arella cheese 6an ingredient in pi**a) declines due to a ma<or technological #rea&through in the dairy industry' there ould #e: A) a decrease in the supply of pi**a. !) ") D) an increase in the supply of pi**a. an increase in the .uantity of pi**a supplied. no change in the supply of pi**a.
-age $

11. ;hich ould not cause the supply curve to shift= A) a change in technology !) ") D) a change in factor costs a change in the price of the good a change in suppliers3 e1pectations of prices

1$. ;hen the price of corn is rising' e ould e1pect: A) the .uantity demanded for corn to #e rising. !) ") D) the .uantity supplied of corn to #e rising. the demand for corn to #e shifting in ard. the supply of corn to #e shifting out ard.

>se the follo ing to ans er .uestions 1(/14:

1(. If the price of chocolate/covered peanuts is ?:.4:' the price ill: A) remain unchanged. !) fall to ?:.(: ") fall to ?:.0: D) rise to ?:.5: 1+. %he e.uili#rium .uantity and the e.uili#rium price are ________ #ags and ________. A) 1+:@ ?:.+: !) 150@ ?:.4: ") 150@ ?:.8: D) $1:@ ?:.0: 10) If the price of chocolate/covered peanuts is ?:.8:' there is: A) a surplus of 1+: #ags per month. !) a shortage of 1+: #ags per month. ") a surplus of 5: #ags per month. D) a shortage of 5: #ags per month. 14. A shortage of $1: #ags of chocolate/covered peanuts e1ists if the price is ________ per #ag. A) ?:.8: !) ?:.4: ") ?:.+: D) :.(: 15. Aconomists generally #elieve that a country should speciali*e in the production of a good or service if: A) the production possi#ility frontier is larger than that of any other country.
-age (

!) ") D)

the production possi#ility frontier is smaller than that of any other country. the country can produce the product using fe er resources than any other country. the country can produce the product hile forgoing fe er alternative products than any other country.

18. If they produce only ham#urgers' then in a single day ,arah can produce 1: ham#urgers hile A#e can produce 0 ham#urgers. If they only ma&e mil&sha&es' then in a single day ,arah can produce 1: mil&sha&es hile A#e can produce + mil&sha&es. ;e then &no that: A) ,arah has an a#solute advantage and a comparative advantage in ma&ing ham#urgers. !) ") D) ,arah has an a#solute advantage and a comparative advantage in ma&ing mil&sha&es. A#e has an a#solute advantage and a comparative advantage in ma&ing ham#urgers. A#e has an a#solute advantage and a comparative advantage in ma&ing mil&sha&es.

19. If goods A and ! are su#stitutes' a decrease in the price of good ! ill: A) increase the demand for good A. !) ") D) increase the demand for good !. decrease the demand for good A. increase the demand for good ! and decrease the demand for good A.

$:. If goods A and B are complements' an increase in the price of good B ill: A) increase the demand for good A. !) ") D) decrease the demand for good A. decrease the demand for good B. decrease the demand for good A and decrease the demand for good B.

$1. A decrease in the price of a good ill result in: A) an increase in demand. !) ") D) an increase in supply. an increase in the .uantity demanded. more #eing supplied.

$$. %he demand for meals at a local Apple#ee3s ill fall if: A) the Clive Darden offers a 1:E discount coupon in the local ne spaper. !) ") D) the price of a meal at Apple#ee3s rises. local incomes increase and Apple#ee3s is a normal good. people finally reali*e that Apple#ee3s is terri#le. ,eriously' go any here elseFF

-age +

$(. %he demand curve for videos has shifted to the right. ;hat could have caused it= A) a fall in the price of videos !) ") D) an increase in the price of videos an increase in the supply of videos an increase in the incomes of #uyers

>se the follo ing to ans er .uestions $+/$4: Figure: Market for Hamburgers

$+. %he figure sho s the ee&ly mar&et for ham#urgers at the %asty !urger -alace. If the price of a #urger is ?$' consumer surplus ill e.ual: A) ?40:. !) ?+:: ") ?$$0 D) ?+0: $0. %he figure sho s the ee&ly mar&et for ham#urgers at the %asty !urger -alace. If the -alace sells +:: #urgers' consumer surplus ill e.ual: A) ?40:. !) ?+:: ") ?$$0 D) ?+0: $4. %he figure sho s the ee&ly mar&et for ham#urgers at the %asty !urger -alace. If the -alace lo ers the price of a #urger from ?$ to ?1.0:' the gain in consumer surplus to consumers ho are persuaded to #uy at the lo er price 6and ho ere not #uying hen the price as ?$) is e.ual to: A) ?1::. !) ?50 ") ?0: D) ?$0

-age 0

Use the following to answer questions 27-3 :

$5. 6%a#le: -roducer ,urplus and Phantom %ic&ets) Diven the information in the ta#le' if the price for Phantom tic&ets is ?00' hich student has the highest individual producer surplus= A) %im !) Gaura ") Hic& D) Halph $8. 6%a#le) Diven the information in the ta#le' if the price for Phantom tic&ets is ?1+:' and there is no other mar&et for tic&ets' total producer surplus for these five students is: A) ?1(9. !) ?11: ") ?+: D) ?(59 $9. 6%a#le: -roducer ,urplus and Phantom %ic&ets) Diven the information in the ta#le' if the price for Phantom tic&ets is ?00' total producer surplus for the five students is: A) ?0+. !) ?59 ") ?8+ D) ?4+ (:. 6%a#le: -roducer ,urplus and Phantom %ic&ets) Diven the information in the ta#le' if these students can sell their Phantom tic&ets for only ?0' then: A) %im ill #e the only student not to sell his tic&et. !) ") D) Gaura' ;hitney' Halph' and Hic& ill sell their tic&ets. the total producer surplus for the five students ill #e ?+. the total producer surplus for the five students ill #e ?((:.

(1. %he li&ely result of a price floor is: A) a surplus of the good at a price a#ove the mar&et e.uili#rium price. !) ") D) a shortage of the good at a price #elo the mar&et e.uili#rium price. a surplus of the good at a price #elo the mar&et e.uili#rium price. a shortage of the good at a price a#ove the mar&et e.uili#rium price.

($. A persistent shortage may occur if: A) the government imposes a price ceiling. !) ") D) a price floor is imposed. demand &eeps falling. supply shifts right ard.
-age 4

>se the follo ing to ans er .uestion ((: Figure: Market for H!brid "ars

((. 67igure: )ar&et for Iy#rid "ars) Identify the area6s) that represent dead eight loss if there is a #inding price floor. A) a J # J c !) ") D) #JcJdJe cJe c

(+. %he price of gasoline rises 0E and the .uantity of gasoline purchased falls 1E. %he price elasticity of demand is e.ual to ________ and demand is descri#ed as ________. A) :.$@ inelastic !) ") D) 0@ inelastic :.$@ elastic 0@ elastic

(0. %he demand for te1t#oo&s is price inelastic. ;hich of the follo ing ould e1plain this= A) )any alternative te1t#oo&s can #e used as su#stitutes. !) ") D) ,tudents have a lot of time to ad<ust to price changes. %e1t#oo& purchases consume a large portion of most students3 income. %he good is a necessity.

-age 5

(4. A perfectly price/inelastic demand curve is: A) hori*ontal. !) ") D) do n ard/sloping. up ard/sloping. vertical.

(5. Cn a linear demand curve: A) demand is elastic at high prices. !) ") D) demand is inelastic at high prices. elasticity is the same at all points on the demand curve. demand is elastic at lo prices.

(8. A linear demand curve: A) has a constant price elasticity of demand. !) ") D) has price elasticity of demand e.ual to one. has price elasticity of demand that is positive. can have #oth elastic and inelastic price elasticities of demand.

(9. A good is li&ely to have an inelastic demand curve if: A) the consumer has significant time to respond to the price change. !) ") D) the good has fe availa#le su#stitutes. the good is a lu1ury. the good accounts for a large share of consumer income.

+:. If the >niversity of )ichigan increases the price of foot#all tic&ets' this ill result in increasing revenues if the price elasticity of demand is: A) price/inelastic. !) ") D) price/elastic. e.ual to 1. perfectly elastic.

+1. %he principle of diminishing marginal utility means that hen ,arah eats pi**a' her satisfaction from the second slice of pi**a is pro#a#ly: A) greater than that from the first. !) e.ual to that from the first.
-age 8

") D)

less than that from the first. not compara#le to that from the first.

>se the follo ing to ans er .uestions +$/++:

+$. 6%a#le: >tility II) %he marginal utility for the si1th unit is: A) K$0. !) : ") $0 D) /10 +(. 6%a#le: >tility II) %otal utility is ma1imi*ed at the ________ unit. A) 7irst !) second ") fourth D) si1th ++. 6%a#le: >tility II) )arginal utility is *ero for the ________ unit. A) 7irst !) second ") third D) fifth +0. A) !) ") D) %he short run is defined as a: period of time less than 1 year. period of time less than 4 months. period in hich some inputs are considered to #e fi1ed in .uantity. time period in hich some inputs are fi1ed' #ut it cannot e1ceed 1 year.

+4. In the long run: A) all inputs are fi1ed. !) ") D) inputs are neither varia#le nor fi1ed. at least one input is varia#le and one input is fi1ed. all inputs are varia#le.

-age 9

>se the follo ing to ans er .uestions +5/+8:

+5. 6%a#le: -roduction of !agels) %he marginal product of the fifth or&er is: A) 0':::. !) 9'::: ") 1:'::: D) 1$'::: +8. 6%a#le) Diminishing marginal returns #egin ith the addition of the ________ or&er. A) %hird !) fourth ") fifth D) si1th

-age 1:

>se the follo ing to ans er .uestions +9/0:: Figure and #able: $ariable% Fi&ed% and #otal "osts

+9. 67igure and %a#le: Laria#le' 7i1ed' and %otal "osts) In the figure' the marginal cost of increasing production from 01 to 4+ #ushels of heat is: A) ?14. !) ") D) ?10.(8. ?1$.0:. ?18.50.

0:. 67igure and %a#le: Laria#le' 7i1ed' and %otal "osts) In the figure' hen 94 #ushels of heat are produced' average fi1ed cost is ________' average varia#le cost is ________' and average total cost is ________. A) ?5.8+@ ?11.54@ ?19.4: !) ") D) ?1((.((@ ?$::@ ?(((.(( ?+.15@ ?14.45@ ?$:.8( ?0.((@ ?1(.((@ ?18.45

01. ;hen an increase in the firm3s output reduces its long/run average total cost' it e1periences: A) increasing returns to scale 6economy in scale). !) decreasing returns to scale.

-age 11

") D)

constant returns to scale. varia#le returns to scale.

0$. An assumption of the model of perfect competition is: A) discrimination. !) ") D) difficult entry and e1it. many #uyers and sellers. limited information.

0(. If all firms in an industry are price/ta&ers' then: A) each firm can ta&e the price that it ants to charge and sell at this price' provided it is not too different from the prices other firms are charging. !) each firm ta&es the mar&et price as given for its current output level' recogni*ing that the price ill change if it alters its output significantly. ") an individual firm cannot alter the mar&et price even if it dou#les its output. D) the mar&et sets the price' and each firm can ta&e it or leave it 6#y setting a different price).

0+. If a perfectly competitive firm is producing a .uantity that generates MC M MR, then profit: A) is ma1imi*ed. !) ") D) can #e increased #y increasing production. can #e increased #y decreasing production. can #e increased #y decreasing the price.

00. If a perfectly competitive firm is producing a .uantity that generates MC N MR, then profit: A) is ma1imi*ed. !) ") D) can #e increased #y increasing production. can #e increased #y decreasing production. can #e increased #y decreasing the price.

04. In the short run' if AVC M P M ATC, a perfectly competitive firm: A) produces output and earns an economic profit. !) ") D) produces output and incurs an economic loss. does not produce output and earns an economic profit. does not produce output and earns *ero economic profit.

05. In the short run' if P M AVC, a perfectly competitive firm: A) produces output and earns an economic profit.

-age 1$

!) ") D)

produces output and incurs an economic loss. does not produce output and earns an economic profit. does not produce output and incurs an economic loss.

08. -eople ith more education tend to e1perience lo er poverty rates. A) %rue !) 7alse

09. %he elfare state often: A) ta&es up a large share of government spending in ealthy countries. !) ") D) is referred to as ,ocial ,ecurity. ma&es up only a small share of government spending in ealthy countries. impacts only lo /income households.

4:. -olitical conservatives and li#erals: A) #oth oppose the creation of elfare state programs. !) ") D) strongly agree on their support of elfare state programs' #ut disagree on the appropriate e1tent of these programs. have conflicting vie s@ conservatives support the creation of elfare state programs hile li#erals oppose the creation of elfare state programs. have conflicting vie s@ li#erals support the creation of elfare state programs hile conservatives oppose the creation of elfare state programs.

41. %he poverty threshold depends upon: A) only the ma<or age earner3s annual income. !) ") D) the si*e and composition of a family. only the si*e of the family. only the composition of the family.

4$. )eans/tested programs: A) provide #enefits for all. !) ") D) are poverty programs that specifically help those ith lo incomes. provide #enefits only for those households that earn #elo the mean household income in the >nited ,tates for a given year. provide only in/&ind #enefits.

4(. Non/means/tested programs: A) provide #enefits for all regardless of income level. !) are poverty programs that specifically help those ith lo incomes.
-age 1(

") D)

provide #enefits only for those households that earn #elo the mean household income in the >nited ,tates for a given year. provide only in/&ind #enefits.

4+. Increases in income ine.uality in the >nited ,tates have #een attri#uted to: A) e.ual and rising increases in the salaries of lo / age or&ers. !) ") D) the impact of technological innovation on the demand for la#or. a drop in international trade3s effects on the economy. stricter immigration policies.

40. A social insurance program ould #e one aimed at: A) &eeping people from earning less than ?1:':::. !) ") D) people ho have encountered une1pected financial distress. reducing the percentage of families earning incomes #elo the poverty line. households ith children.

-age 1+

'nswer (e! 1. $. (. +. 0. 4. 5. 8. 9. 1:. 11. 1$. 1(. 1+. 10. 14. 15. 18. 19. $:. $1. $$. $(. $+. $0. $4. $5. $8. $9. (:. (1. ($. ((. (+. (0. (4. (5. (8. (9. +:. +1. +$. +(. ++. +0. +4. +5. +8. +9. 0:. 01. 0$. 0(. A ! ! ! ! ! ! " ! ! " ! A ! A D D ! " ! " A D " ! D A D " " A A " A D D A D ! A " A " D " D ! ! ! " A " "
-age 10

0+. 00. 04. 05. 08. 09. 4:. 41. 4$. 4(. 4+. 40.

! A ! D A A ! ! ! A ! !

-age 14