Econ 2113 – Test #1 Name__________________________________

Dr. Rupp – Fall 2008

D
Pledge: “I have neither given nor received aid on this exam”
Signature:______________________________________
Identify the letter of the choice that best completes the statement or answers the question. Turn cell phones off (if your phone
rings during the test you will be ineligible to answer the extra credit question).

____ 1. Economics is the study of

a. how society manages its scarce resources.
b. the government's role in society.
c. how a market system functions.
d. how to increase production.
____ 2. The adage, "There is no such thing as a free lunch," means
a. even people on welfare have to pay for food.
b. the cost of living is always increasing.
c. to get something we like, we usually have to give up another thing we like.
d. all costs are included in the price of a product.
____ 3. Efficiency means that
a. society is conserving resources in order to save them for the future.
b. society's goods and services are distributed equally among society's members.
c. society's goods and services are distributed fairly, though not necessarily equally, among
society's members.
d. society is getting the maximum benefits from its scarce resources.
____ 4. What you give up to obtain an item is called your
a. opportunity cost.
b. explicit cost.
c. true cost.
d. direct cost.
____ 5. A rational decision maker takes an action only if the
a. marginal benefit is less than the marginal cost.
b. marginal benefit is greater than the marginal cost.
c. average benefit is greater than the average cost.
d. marginal benefit is greater than both the average cost and the marginal cost.
____ 6. Trade between the United States and India
a. benefits both the United States and India.
b. is a losing proposition for the United States because India has cheaper labor.
c. is a losing proposition for India because capital is much more abundant in the U.S. than in
India.
d. is a losing proposition for India because U.S. workers are more productive.
____ 7. Which of the following statements about markets is most accurate?
a. Markets are usually a good way to organize economic activity.
b. Markets are usually inferior to central planning as a way to organize economic activity.
c. Markets fail and are therefore not an acceptable way to organize economic activity.
d. Markets are a good way to organize economic activity in developed nations, but not in less
developed nations.
____ 8. Almost all variation in living standards is attributable to differences in countries'
a. population growth rates.
b. productivity.
c. systems of public education.
d. taxes.
____ 9. Inflation is defined as
a. a period of rising productivity in the economy.
b. a period of rising income in the economy.
c. an increase in the overall level of output in the economy.
d. an increase in the overall level of prices in the economy.
____ 10. In economics, capital refers to
a. services, but not goods.
b. buildings and machines used in the production process.
c. the money households use to purchase firms' output.
d. goods, but not to services.
____ 11. Any point on a country's production possibilities frontier represents a combination of two goods that an economy
a. will never be able to produce.
b. can produce using all available resources and technology.
c. can produce using some portion, but not all, of its resources and technology.
d. may be able to produce in the future with more resources and/or superior technology.
____ 12. Which of the following concepts can not be illustrated by the production possibilities frontier?
a. efficiency
b. opportunity cost
c. equity
d. tradeoffs

Figure 2-3

____ 13. Refer to Figure 2-3. The economy has the ability to produce at which point or points?
a. B, D, E
b. A, B, D, E
c. D, C
d. D
 Figure 2-4

____ 14. Refer to Figure 2-4. The opportunity cost of obtaining 20 additional toasters by moving from point D to point A
is
a. 10 toothbrushes.
b. 20 toothbrushes.
c. 30 toothbrushes.
d. none of the above; the economy cannot move from point D to point A.

Figure 2-6

____ 15. Refer to Figure 2-6. A movement from point C to point D could be caused by
a. unemployment.
b. a decrease in society's preference for bananas.
c. fewer resources available for production of bananas.
d. All of the above are correct.
____ 16. Microeconomics is best described as the study of
a. economy-wide phenomena.
b. how households and firms make decisions and how they interact in specific markets.
c. the flows of dollars between households and firms.
d. markets for land, labor, and capital.
____ 17. Economists consider normative statements to be
a. descriptive, making a claim about how the world is.
b. statements about the normal condition of the world.
c. prescriptive, making a claim about how the world ought to be.
d. statements which establish production goals for the economy.
____ 18. Almost all economists agree that rent control
a. has no effect on the rental income of landlords.
b. allows the market for housing to work more efficiently.
c. adversely affects the availability and quality of housing.
d. is a very inexpensive way to help the most needy members of society.
____ 19. Which of the following statements is not correct?
a. Trade allows for specialization.
b. Trade has the potential to benefit all nations.
c. Trade allows nations to consume outside of their production possibilities curves.
d. Absolute advantage is the driving force of specialization.

Figure 3-1

____ 20. Refer to Figure 3-1. The opportunity cost of 1 bushel of wheat for Cliff is
a. 1/3 bushel of corn.
b. 2/3 bushel of corn.
c. 1 bushel of corn.
d. 3/2 bushels of corn.
____ 21. Refer to Figure 3-1. The opportunity cost of 2 bushels of corn for Cliff is
a. 2 bushels of wheat.
b. 3 bushels of wheat.
c. 6 bushels of wheat.
d. 12 bushels of wheat.
____ 22. Refer to Figure 3-1. Which of the following statements is correct?
a. Paul has an absolute advantage in both wheat and corn.
b. Paul has an absolute advantage in wheat and Cliff has an absolute advantage in corn.
c. Cliff has an absolute advantage in wheat and Paul has an absolute advantage in corn.
d. Cliff has an absolute advantage in both wheat and corn.
____ 23. Refer to Figure 3-1. Which of the following statements is correct?
a. Paul has a comparative advantage in both wheat and corn.
b. Paul has a comparative advantage in wheat and Cliff has a comparative advantage in corn.
c. Cliff has a comparative advantage in wheat and Paul has a comparative advantage in corn.
d. Cliff has a comparative advantage in both wheat and corn.

For the following question(s), use the accompanying table.

Table 3-2
Labor Hours needed to make one Amount produced in 90 hours:
Quilt Dress Quilts Dresses
Helen 50 10 1.8 9
Carolyn 90 45 1 2

____ 24. Refer to Table 3-2. For Helen, the opportunity cost of 1 quilt is
a. 0.2 dresses.
b. 2 dresses.
c. 3.5 dresses.
d. 5 dresses.
____ 25. Refer to Table 3-2. For Carolyn, the opportunity cost of 1 quilt is
a. 0.5 dresses.
b. 1 dress.
c. 2 dresses.
d. 3 dresses.
____ 26. Refer to Table 3-2. Helen has a comparative advantage in
a. quilts and Carolyn has an absolute advantage in neither good.
b. dresses and Carolyn has an absolute advantage in quilts.
c. quilts and Carolyn has an absolute advantage in dresses.
d. dresses and Carolyn has an absolute advantage in neither good.
____ 27. Refer to Table 3-2. Helen has an absolute advantage in
a. dresses and Carolyn has an absolute advantage in quilts.
b. quilts and Carolyn has a comparative advantage in dresses.
c. both goods and Carolyn has a comparative advantage in quilts.
d. neither good and Carolyn has a comparative advantage in dresses.
____ 28. Belarus has a comparative advantage in the production of linen, but Russia has an absolute advantage in the
production of linen. If these two countries decide to trade,
a. Belarus should export linen to Russia.
b. Russia should export linen to Belarus.
c. trading linen would provide no net advantage to either country.
d. Without additional information about opportunity costs, this question cannot be answered.
____ 29. Canada and the U.S. both produce wheat and computer software. Canada is said to have the comparative
advantage in producing wheat if
a. Canada requires fewer resources than the U.S. to produce a bushel of wheat.
b. the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the
U.S.
c. the opportunity cost of producing a bushel of wheat is lower for the U.S. than it is for
Canada.
d. the U.S. has an absolute advantage over Canada in producing computer software.
____ 30. The demand for a good or service is determined by
a. those who buy the good or service.
b. the government.
c. the producers who create the good or service.
d. those who supply the raw materials used in the production of the good or service.
____ 31. A competitive market is one in which
a. there is only one seller, but there are many buyers.
b. there are many sellers and each seller has the ability to set the price of his product.
c. there are many sellers and they compete with one another in such a way that some sellers
are always being forced out of the market.
d. there are so many buyers and so many sellers that each has a negligible impact on the price
of the product.
____ 32. If Francis experiences a decrease in his income, we would expect that, as a result, Francis’s demand for
a. each good he purchases will remain unchanged.
b. normal goods will decrease.
c. luxury goods will increase.
d. inferior goods will decrease.
____ 33. Two goods are substitutes if a decrease in the price of one good
a. decreases the demand for the other good.
b. decreases the quantity demanded of the other good.
c. increases the demand for the other good.
d. increases the quantity demanded of the other good.
____ 34. A likely example of substitute goods for most people would be
a. peanut butter and jelly.
b. tennis balls and tennis rackets.
c. televisions and subscriptions to cable television services.
d. pencils and pens.
____ 35. You love peanut butter. You hear on the news that 50 percent of the peanut crop in the South has been wiped out
by drought, and that this will cause the price of peanuts to double by the end of the year. As a result,
a. your demand for peanut butter will increase, but not until the end of the year.
b. your demand for peanut butter increases today.
c. your demand for peanut butter decreases as you look for a substitute good.
d. you will wait for the price of jelly to change before altering your demand for peanut butter.
____ 36. The law of demand says that
a. an increase in price causes quantity demanded to increase.
b. an increase in price causes quantity demanded to decrease.
c. an increase in quantity demanded causes price to increase.
d. an increase in quantity demanded causes price to decrease.
____ 37. A higher price for batteries would result in a(n)
a. increase in the demand for flashlights.
b. decrease in the demand for flashlights.
c. increase in the demand for batteries.
d. decrease in the demand for batteries.
 Figure 4-1

____ 38. Refer to Figure 4-1. The movement from point A to point B on the graph would be caused by
a. an increase in price.
b. a decrease in price.
c. a decrease in the price of a substitute good.
d. an increase in income.
____ 39. Refer to Figure 4-1. The movement from point A to point B on the graph shows
a. a decrease in demand.
b. an increase in demand.
c. a decrease in quantity demanded.
d. an increase in quantity demanded.
____ 40. According to the law of supply,
a. the quantity supplied of a good is negatively related to the price of the good.
b. when the price of a good falls, the quantity supplied of the good rises.
c. the supply curve for a good is upward-sloping.
d. All of the above are correct.
Extra Credit Question
To be eligible to answer this extra credit question you must satisfy both criteria below:
• Your cell phone has not rung in class
• You are taking this test in class at the regularly scheduled time: (Tuesday, September 9th)

____ 41. A technological advance will shift the

a. supply curve to the right.
b. supply curve to the left.
c. demand curve to the right.
d. demand curve to the left.

*Note: I tossed out question #15 on this test since > 90% of the class missed this question. The best answer was “A”, however,
“C” would also be a possibility if there were a reduction in banana resources (i.e., a fire destroys some banana trees). Hence,
to avoid confusion/ambiguity it was tossed out.