ECON 2105 Study Guide for Exam #1 (Chapters 2-3 only)

Exam Date: Wednesday, 02/11/2015

Format: 20-25 Multiple-Choice Questions/Problems
Resources Allowed During Exam: calculator (no cell phones allowed); 4 pages of notes (2
sheets of paper, front and back only). Any use of notes in excess of page allotment will
result in confiscation of examination and a grade of 0 awarded.
Extra Credit Paper Opportunity: Worth 7 points towards exam #1 grade only. See course
announcements on Tsquare for more information. Will not be accepted late or by email
under any circumstances.

Name: __________________________ Date: _____________

1. Alexander has a straight-line, or linear, production possibility frontier when he produces
soybeans and corn. If he uses all of his resources to grow soybeans, he can produce 200
bushels of soybeans; if he uses all of his resources for corn production, he can produce
400 bushels of corn. Which of the following combinations of corn and soybeans are not
possible for him to produce?
A) 200 bushels of soybeans and zero bushels of corn
B)

600 bushels of corn and 200 bushels of soybeans

C)

400 bushels of corn and zero bushels of soybeans

D) 100 bushels of soybeans and 200 bushels of corn

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Use the following to answer questions 2-3:

Figure: Wine and Wheat

2. (Figure: Wine and Wheat) Look at the figure Wine and Wheat. If this economy is
producing on the production possibility frontier, what would allow it to produce at point
C?
A) an improvement in technology
B)

a decrease in resources

C)

a decrease in production

D) the elimination of unemployment

3. (Figure: Wine and Wheat) Look at the figure Wine and Wheat. What is the opportunity
cost of moving from only producing wheat to producing at point D?
A) 3 tons of wheat
B)

6 tons of wheat

C)

9 tons of wheat

D) 15 tons of wheat

Use the following to answer question 4:

Figure: Bicycles and Radishes I
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4. (Figure: Bicycles and Radishes I) Look at the figure Bicycles and Radishes I. It shows
production possibility frontiers for two countries that produce only radishes and
bicycles. The axes of both graphs are measured in equivalent units. Country A is now
operating at point M, and country B is now operating at point N. Suppose country A
discovered a new technology that greatly increased its ability to produce bicycles. This
would:
A) lower the opportunity cost of producing radishes in country A.
B)

increase the opportunity cost of producing radishes in country A.

C)

have no effect on the opportunity cost of producing radishes in country A.

D) increase the opportunity cost of producing radishes in country B.

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Use the following to answer question 5:

Figure: Strawberries and Submarines II

5. (Figure: Strawberries and Submarines II) Look at the figure Strawberries and
Submarines II. Assume that the economy is now operating at point A. The opportunity
cost of moving to point C is equal to ________ million tons of strawberries:
A) 800
B)

200

C)

D) 50

Use the following to answer question 6:

Scenario: Countries A and B
Two countries, A and B, produce two goods, wheat (W) and steel (S). Each has a linear
production possibility frontier in both goods. If country A spends all of its available resources to
produce wheat, it can produce 500 tons of wheat and zero tons of steel. If it uses all of its
resources to produce steel, it can produce 250 tons of steel and zero tons of wheat. If country B
spends all of its available resources producing wheat, it can produce 400 tons of wheat, and if it
spends all of its resources on the production of steel, it can produce 400 tons of steel.
6. (Scenario: Countries A and B) Look at the scenario Countries A and B. Given this
information, country ________ has a comparative advantage in the production of wheat
and country ________ has a comparative advantage in the production of steel.
A) A; A

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B)

A; B

C)

B; B

D) B; A

Use the following to answer question 7:

7. (Table: Production Possibilities Schedule I) Look at the table Production Possibilities

Schedule I. If the economy produces 10 units of capital goods per period, it also can
produce at most ________ units of consumer goods per period.
A) 5
B)

C)

D) 2

Use the following to answer question 8:

Scenario: Countries A and B
Two countries, A and B, produce two goods, wheat (W) and steel (S). Each has a linear
production possibility frontier in both goods. If country A spends all of its available resources to
produce wheat, it can produce 500 tons of wheat and zero tons of steel. If it uses all of its
resources to produce steel, it can produce 250 tons of steel and zero tons of wheat. If country B
spends all of its available resources producing wheat, it can produce 400 tons of wheat, and if it
spends all of its resources on the production of steel, it can produce 400 tons of steel.
8. (Scenario: Countries A and B) Look at the scenario Countries A and B. Given this
information, the country that has the absolute advantage in wheat is ________, and the
country that has the absolute advantage in steel is ________.
A) A; A
B)

A; B

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C)

B; B

D) B; A

Use the following to answer question 9:

Figure: Production Possibility Frontier

9. (Figure: Production Possibility Frontier) Look at the figure Production Possibilities

Frontier. If the economy is operating at point B, producing 16 cars and 12 computers
per period, a decision to move to point E and produce 18 computers:
A) indicates you can have more computers and cars simultaneously.
B)

makes it clear that this economy has decreasing opportunity costs.

C)

involves a loss of 8 cars per period.

D) involves a loss of 4 cars per period.

Use the following to answer question 10:

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10. (Table: Production Possibilities Schedule I) Look at the table Production Possibilities
Schedule I. If the economy produces 4 units of consumer goods per period, it also can
produce at most ________ units of capital goods per period.
A) 30
B)

28

C)

10

D) 18

Use the following to answer question 11:

Scenario: Countries A and B
Two countries, A and B, produce two goods, wheat (W) and steel (S). Each has a linear
production possibility frontier in both goods. If country A spends all of its available resources to
produce wheat, it can produce 500 tons of wheat and zero tons of steel. If it uses all of its
resources to produce steel, it can produce 250 tons of steel and zero tons of wheat. If country B
spends all of its available resources producing wheat, it can produce 400 tons of wheat, and if it
spends all of its resources on the production of steel, it can produce 400 tons of steel.
11. (Scenario: Countries A and B) Look at the scenario Countries A and B. If countries A
and B both specialize and trade:
A) only country A will gain.
B)

only country B will gain.

C)

country A and country B will gain if they specialize in their comparatively

advantaged good.
D) neither country will gain.

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Use the following to answer question 12:

12. (Table: Production of Good Z and Good X in Urbanville) Look at the table Production
of Good Z and Good X in Urbanville. Suppose this represents the production possibility
frontier and Urbanville is currently producing 15 of Z and 45 of X. This combination is:
A) both allocatively and productively efficient.
B)

productively efficient.

C)

allocatively efficient.

D) neither productively nor allocatively efficient.

13. If an economy has to sacrifice only one unit of good X for each unit of good Y produced
throughout the relevant range, then its production possibility frontier has:
A) a zero slope.
B)

a constant, negative slope.

C)

an increasing, negative slope.

D) a decreasing, negative slope.

Use the following to answer question 14:

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14. (Table: Production Possibilities Schedule I) Look at the table Production Possibilities
Schedule I. The opportunity cost of producing the fourth unit of consumer goods is
________ units of capital goods.
A) 2
B)

C)

D) 8

Use the following to answer question 15:

Figure: Comparative Advantage
Eastland and Westland produce only two goods, boxes of peaches and boxes of oranges, and this
figure shows each nation's production possibility frontier for the two goods.

15. (Figure: Comparative Advantage) Look at the figure Comparative Advantage. The
opportunity cost of producing 1 box of oranges for Eastland is:
A) 1 box of peaches.
B)

1/4 box of peaches.

C)

4 boxes of peaches.

D) 10 boxes of peaches.

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Use the following to answer question 16:

Figure: Tom's Production Possibilities

16. (Figure: Tom's Production Possibilities) Look at the figure Tom's Production
Possibilities. In the figure, the opportunity cost for Tom to move from point C on the
curve to point A is:
A) 10 coconuts.
B)

30 fish.

C)

5 coconuts.

D) There is no opportunity cost in terms of fish.

17. If a production possibility frontier is a straight line, it tells us that the opportunity cost of
producing one more unit of good X:
A) is an increasing amount of good Y.
B)

is a decreasing amount of good Y.

C)

is equal to the inverse of the amount of good Y.

D) is a constant amount of good Y.

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Use the following to answer question 18:

18. (Table: Comparative Advantage I) Look at the table Comparative Advantage I. The
opportunity cost of producing 1 box of herring for Sweden is:
A) 10 boxes of cell phones.
B)

0.5 box of cell phones.

C)

5 boxes of cell phones.

D) 0.1 box of cell phones.

19. The fact that a society's production possibility frontier is bowed out or concave to the
origin of a graph demonstrates the law of:
A) increasing opportunity cost.
B)

decreasing opportunity cost.

C)

constant opportunity cost.

D) concave opportunity cost.

20. An economy is said to have a comparative advantage in the production of one good if it:
A) can produce more of all goods than another economy.
B)

can produce less of all goods than another economy.

C)

has the highest opportunity cost for producing a particular good.

D) has the lowest opportunity cost for producing a particular good.

21. The production possibility frontier is bowed out from the origin because:
A) resources are not equally suited for the production of both goods.

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B)

resources are scarce.

C)

economic growth leads to inefficiency.

D) resources are inefficiently used.

22. The process observed when an economy's production possibility frontier is shifted
outward is:
A) comparative advantage.
B)

economic growth.

C)

full employment.

D) specialization.

Use the following to answer question 23:

Figure: Wine and Wheat

23. (Figure: Wine and Wheat) Look at the figure Wine and Wheat. If this economy is
producing at point A and it wants to produce at point B, it needs to:
A) trade with another country.
B)

increase its resources.

C)

decrease production.

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D) use its existing resources efficiently.

Use the following to answer question 24:

Figure: Production Possibility Frontier

24. (Figure: Production Possibility Frontier) Look at the figure Production Possibilities
Frontier. A movement from producing 12 cars and 16 computers per period to point B
means:
A) a loss of 4 computers and a gain of 4 cars per period.
B)

a gain of 2 cars and a loss of 4 computers per period.

C)

a gain of 4 cars and a loss of 6 computers per period.

D) a loss of 2 cars and a gain of 4 computers per period.

25. (Figure: Sugar and Freight Trains) Look at the figure Sugar and Freight Trains. Suppose
the economy is operating at point C. The opportunity cost of producing the fourth
freight train would be:
A) 19 tons of sugar.
B)

45 tons of sugar.

C)

80 tons of sugar.

D) 3 freight trains.

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26. All points outside the production possibility frontier are:

A) efficient production points.
B)

inefficient production points.

C)

infeasible production points.

D) economic growth.

27. Increases in resources or improvements in technology will tend to cause a society's

production possibility frontier to:
A) shift inward to the left.
B)

shift outward to the right.

C)

remain unchanged.

D) become vertical.

28. The slope of a typical production possibility frontier is:

A) 0.
B)

vertical.

C)

positive.

D) negative.

29. The concept of comparative advantage is based upon:

A) absolute labor productivity.
B)

relative labor costs.

C)

dollar prices of labor.

D) relative opportunity costs.

30. A statement that says that the minimum wage should be increased is a:
A) positive statement.
B)

normative statement.

C)

other things equal assumption.

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D) scientific conclusion based on marginal analysis.

31. Markets that are characterized by many buyers and many sellers are referred to as:
A) inefficient.
B)

competitive.

C)

foreign.

D) monopolies.

32. A decrease in supply, with no change in demand, will lead to ________ in equilibrium
quantity and ________ in equilibrium price.
A) an increase; an increase
B)

an increase; a decrease

C)

a decrease; an increase

D) a decrease; a decrease

33. Consider the market for iPods. What happens if a fantastic new alternative MP3 player
is developed and at the same time a boat carrying a large shipment of iPods is attacked
by pirates and sunk?
A) Price decreases and quantity increases.
B)

Price increases and quantity increases.

C)

The change in price is indeterminate and quantity decreases.

D) Price increases and the change in quantity is indeterminate.

34. An increase in which of the following determinants of demand will have an ambiguous
(uncertain) effect on price?
A) tastes and preferences
B)

price of a substitute

C)

price of a complement

D) income

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Use the following to answer question 35:

Figure: Shifts in Demand and Supply

35. (Figure: Shifts in Demand and Supply) Look at the figure Shifts in Demand and Supply.
The figure shows how supply and demand might shift in response to specific events.
Suppose a fall frost destroys one-third of the nation's orange crop. Which panel best
describes how this will affect the market for oranges?
A) panel A
B)

panel B

C)

panel C

D) panel D

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Use the following to answer questions 36-37:

Figure: Demand and Supply of Gasoline

36. (Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of
Gasoline. Given the initial equilibrium of S1 and D, any price lower than ________ will
create pressure for the price to ________.
A) $2.00; fall
B)

$2.50; rise

C)

$3.00; rise

D) $2.50; fall

37. (Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of
Gasoline. A factor that may have changed supply from S1 to S2 is:
A) better technology in the production of gasoline.
B)

increased demand.

C)

lower labor productivity in gasoline production.

D) increased prices of substitutes for gasoline.

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Use the following to answer question 38:

38. (Table: The Demand for Chocolate-Covered Peanuts.) Look at the table The Demand for
Chocolate-Covered Peanuts. If the price of chocolate-covered peanuts is $0.60, the
quantity demanded by George is ________ bags per month.
A) 10
B)

15

C)

25

D) 30

39. Which of the following is likely to cause a rightward shift in the demand for homedelivered pizza?
A) a lower price of pizza
B)

a lower price of fast-food hamburgers

C)

a higher price of pepperoni

D) a larger population

40. A decrease in the price of eggs will result in:

A) an increase in the demand for eggs.
B)

an increase in the supply of eggs.

C)

an increase in the quantity of eggs supplied.

D) an increase in the quantity of eggs demanded.

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41. Suppose the input costs associated with manufacturing hair replacement treatments
decreases over time. This would lead to:
A) an increase in the supply of such treatments, lower prices, and an increase in the
equilibrium quantity.
B) a decrease in quantity supplied and lower prices.
C)

an increase in demand and higher prices.

D) a decrease in the supply of such treatments, higher prices, and a decrease in the
equilibrium quantity.
Use the following to answer question 42:
Figure: The Demand and Supply of Wheat

42. (Figure: The Demand and Supply of Wheat) Look at the figure The Demand and
Supply of Wheat. What is the equilibrium quantity in this wheat market?
A) 12,000 bushels
B)

2,000 bushels

C)

10,000 bushels

D) 6,000 bushels

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43. Rice and potatoes are substitutes. If the price of rice rises and there is a bumper crop of
potatoes, in the market for potatoes one would expect the:
A) equilibrium price to rise, fall, or stay the same and equilibrium quantity to rise.
B)

equilibrium price to rise and the equilibrium quantity to fall.

C)

equilibrium price and quantity both to fall.

D) equilibrium price to rise and the equilibrium quantity to fall, rise, or stay the same.

44. Suppose people expect the price of MP3 players to rise next year. As a result of this
expectation, people will most likely:
A) purchase fewer MP3 players this year.
B)

observe higher prices for MP3 players this year.

C)

purchase the same amount of MP3 players, since this expectation will have no
effect on consumers this year.
D) decide to wait and purchase the MP3 players next year.

45. The cost of sensors used in making digital cameras falls, while a successful ad campaign
makes digital cameras more fashionable. As a result, the equilibrium relative price of
digital cameras ________ and the equilibrium quantity ________.
A) increases; increases
B)

increases; may increase, decrease, or stay the same

C)

may increase, decrease, or stay the same; increases

D) decreases; increases

46. If goods A and B are substitutes, a decrease in the price of good B will:
A) increase the demand for good A.
B)

increase the demand for good B.

C)

decrease the demand for good A.

D) increase the demand for good B and decrease the demand for good A.

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47. High-fructose corn syrup, which is derived from corn, is an important ingredient in the
production of many soft drinks. If the price of corn increases, one would expect:
A) the supply curve for soft drinks to shift left.
B)

the quantity supplied of soft drinks to increase.

C)

the demand for soft drinks to increase.

D) the supply curve for soft drinks to shift right.

Use the following to answer question 48:

Figure: Shifts in Demand and Supply

48. (Figure: Shifts in Demand and Supply) Look at the figure Shifts in Demand and Supply.
The figure shows how supply and demand might shift in response to specific events.
Suppose scientists discover that eating a tomato a day prevents aging. Which panel best
describes how this will affect the market for tomatoes?
A) panel A
B)

panel B

C)

panel C

D) panel D

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49. Milk is an important ingredient in the production of ice cream. If the price of milk
increases, then one would expect, holding all other things constant:
A) the supply curve for ice cream to shift left.
B)

the supply curve for ice cream to shift right.

C)

no change in the supply curve for ice cream.

D) a movement along the supply curve for ice cream curve, resulting in more ice
cream supplied.
Use the following to answer question 50:
Figure: Shifts in Demand and Supply II

50. (Figure: Shifts in Demand and Supply II) Look at the figure Shifts in Demand and
Supply II. The graph shows how supply and demand might shift in response to specific
events. Suppose consumer incomes decrease. Which panel best describes how this will
affect the market for used clothing, an inferior good?
A) panel A
B)

panel B

C)

panel C

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D) panel D

51. Which of the following will not cause an increase in the supply of good X?
A) an improvement in the technology used to produce good X
B)

an increase in the price of good Y, a substitute

C)

an increase in the price of inputs used to produce good X

D) a decrease in the price of inputs used to produce good X

Use the following to answer question 52:

Figure: Shifts in Demand and Supply III

52. (Figure: Shifts in Demand and Supply III) Look at the figure Shifts in Demand and
Supply III. The figure shows how supply and demand might shift in response to specific
events. Suppose scientists discover that eating asparagus slows down the aging process.
Which panel best describes how this will affect the market for asparagus?
A) panel A
B)

panel B

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C)

panel C

D) panel D

53. An increase in supply is caused by:

A) an increase in input prices.
B)

a decrease in the number of sellers in the market.

C)

suppliers' expectations of higher prices in the future.

D) an advancement in the technology for producing the good.

54. The price of microchips used to produce computers falls. As a result, the equilibrium
price of computers ________ and the equilibrium quantity ________.
A) rises; increases
B)

rises; decreases

C)

falls; decreases

D) falls; increases

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Use the following to answer question 55:

Figure: The Supply of DVD Rentals

55. (Figure: The Supply of DVD Rentals) Look at the figure The Supply of DVD Rentals. A
decrease in the price of DVD rentals would result in a change illustrated by the move
from:
A) n to o in panel A.
B)

p to q in panel B.

C)

s to t in panel C.

D) u to v in panel D.

56. If the United States increases tariffs on imports of lumber from Canada (which causes
the price of lumber to increase in the United States), the equilibrium price of new homes
in the United States will ________ and the equilibrium quantity of new homes in the
United States will ________.
A) increase; increase

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B)

increase; decrease

C)

decrease; increase

D) decrease; decrease

57. Consider gas stations where customers pay inside before they pump gasoline. If they
introduce a new technology where customers pay at the pump, thus decreasing
production costs, there will be:
A) a shift to the right in the supply curve and lower gas prices.
B)

a shift to the left in the supply curve and higher gas prices.

C)

a shift to the right in the demand curve and higher gas prices.

D) a shift to the left in the demand curve and lower gas prices.

58. The market for soybeans is initially in equilibrium. Because of mad cow disease,
producers decide to replace bone meal with soybeans in cattle feed. The likely effect is
that:
A) the equilibrium price and quantity of soybeans will rise.
B)

the equilibrium price and quantity of soybeans will fall.

C)

the equilibrium quantity of soybeans will rise, but we can't determine what will
happen to the equilibrium price.
D) the equilibrium price of soybeans will rise, but we can't determine what will
happen to the equilibrium quantity.

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Use the following to answer question 59:

Figure: The Market for Candy

59. (Figure: The Market for Candy) Look at the figure The Market for Candy. A surplus of
the good will exist at a price of:
A) P1.
B)

P2.

C)

P3.

D) There are no surpluses in this market.

60. In the market for tacos, you observe that the equilibrium price and quantity have
increased. This can be caused only by:
A) an increase in the price of beef.
B)

an increase in the wages of taco shop workers.

C)

fewer taco shops.

D) an increase in the incomes of people who eat tacos.

61. An increase in supply, with no change in demand, will lead to ________ in equilibrium
quantity and ________ in equilibrium price.
A) an increase; an increase
B)

an increase; a decrease

C)

a decrease; an increase

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D) a decrease; a decrease

Use the following to answer question 62:

Figure: Shifts in Demand and Supply II

62. (Figure: Shifts in Demand and Supply II) Look at the figure Shifts in Demand and
Supply II. The graph shows how supply and demand might shift in response to specific
events. Suppose a fall frost destroys one-third of the nation's grapefruit crop. Which
panel best describes how this will affect the market for vitamin B12 tablets, which are a
substitute for grapefruit?
A) panel A
B)

panel B

C)

panel C

D) panel D

63. A competitive market with flexible prices and many buyers and sellers will:
A) eliminate surpluses.
B)

eliminate shortages.

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C)

reach equilibrium.

D) eliminate surpluses and shortages and reach equilibrium.

Use the following to answer question 64:

Figure: Shifts in Demand and Supply II

64. (Figure: Shifts in Demand and Supply II) Look at the figure Shifts in Demand and
Supply II. The graph shows how supply and demand might shift in response to specific
events. Suppose a drought destroys one-third of the nation's peanut crop. Which panel
best describes how this will affect the market for peanuts?
A) panel A
B)

panel B

C)

panel C

D) panel D

65. Excess supply occurs when:

A) the price is above the equilibrium price.

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B)

the quantity demanded exceeds the quantity supplied.

C)

the price is below the equilibrium price.

D) the quantity demanded exceeds the quantity supplied and when the price is below
the equilibrium price.
Use the following to answer question 66:

66. (Table: The Market for Chocolate-Covered Peanuts) Look at the table The Market for
Chocolate-Covered Peanuts. If the price of chocolate-covered peanuts is $0.50, there is:
A) a surplus of 35 bags per month.
B)

a shortage of 35 bags per month.

C)

a surplus of 70 bags per month.

D) a shortage of 70 bags per month.

67. The demand curve for videos has shifted to the right. What could have caused it?
A) a fall in the price of videos
B)

an increase in the price of videos

C)

an increase in the supply of videos

D) an increase in the incomes of buyers

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Use the following to answer question 68:

Figure: The Demand and Supply of Wheat

68. (Figure: The Demand and Supply of Wheat) Look at the figure The Demand and Supply
of Wheat. If there were a decrease in supply of 2,000 bushels at each price, the
equilibrium price and quantity would be ________ and ________ bushels, respectively.
A) $5; 5,000
B)

$7; 5,000

C)

$6; 4,000

D) $8; 6,000

69. You notice that the price of DVD players falls and the quantity of DVD players sold
increases. This set of observations can be the result of the:
A) demand for DVD players shifting to the right.
B)

demand for DVD players shifting to the left.

C)

supply of DVD players shifting to the right.

D) supply of DVD players shifting to the left.

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Use the following to answer question 70:

Figure: Demand and Supply of Gasoline

70. (Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of
Gasoline. The initial equilibrium price and quantity (at intersection of S1 and D) of
gasoline are:
A) $2.00 and 450 gallons.
B)

$1.50 and 400 gallons.

C)

$2.00 and 200 gallons.

D) $2.50 and 300 gallons.

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Answer Key
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.

B
A
A
B
B
B
B
B
C
C
C
B
B
D
A
D
D
D
A
D
A
B
D
A
C
C
B
D
D
B
B
C
C
D
B
B
A
C
D
D
A
D
A
B

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45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.

C
C
A
C
A
A
C
A
D
B
D
B
A
A
A
D
B
A
D
C
A
D
D
B
C
D

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