Midterm 1

Multiple Choice Identify the letter of the choice that best completes the statement or answers the question.

1. Holding everything else constant, an increase in the price of MP3 players will result in a. b. c. d. a decrease in the quantity of MP3 players supplied. a decrease in the demand for MP3 players. an increase in the supply of MP3 players. a decrease in the quantity of MP3 players demanded.

2. How does the increasing use of digital cameras affect the market for traditional camera film? a. b. c. d. The demand curve for traditional camera film shifts to the right. The supply curve for traditional camera film shifts to the left. The supply curve for traditional camera film shifts to the right. The demand curve for traditional camera film shifts to the left.

3. If a firm expects that the price of its product will be lower in the future than it is today a. the firm has an incentive to increase supply now and decrease supply in the future. b. the firm has an incentive to decrease supply now and increase supply in the future. c. the firm has an incentive to increase quantity supplied now and decrease quantity supplied in the future. d. the firm will not change supply until it knows for certain what will happen to its price.

4. The demand for lobster is lower in the spring than in the summer. If the price of lobster is higher in spring than in summer then: a. b. c. d. The supply of lobster is greater in summer than in spring. Consumers' tastes for lobster are greater in spring than in summer. There is a shortage of lobster in spring and a surplus of lobster in summer. There are more substitutes for lobster in summer than there are in spring.

5. In which case we can get a PPF that looks like a straight line? a. b. c. d. when opportunity cost decreases when opportunity cost increases when there is no opportunity cost when there is constant opportunity cost

6. Individuals will continue consuming so long as: a. b. c. d. The price of a good continues to decrease The marginal costs of consuming are outweighed by the marginal benefits The individual seeks additional utility The individual is willing and able

a surplus will occur at the new market price of P2. when the supply curve for gasoline shifts from S1 to S2 the price will: a. c.000 individuals desire Good X. remain at P1 and a shortage will still exist. A decrease in supply causes equilibrium price to rise. a. Inefficient Production implies which of the following: a. An increase in demand causes a change in equilibrium price. 1.Figure 3 7. ______________ will determine who attains Good X. b. Refer to Figure 3. the increase in price then results in a decrease in demand. b. d. An opportunity cost A rationing device Utility Natural Selection . Refer to Figure 3. but only 100 units are available. b. Which of the following statements is true? a. With a price ceiling present in this market. d. d. the change in price does not cause a further change in demand or supply. d. Without the price ceiling in this market. the market price will stay at P1 due to the price ceiling. c. 8. 11. c. it is impossible to produce more of one good without producing less of another there are too few resources there are too many resources it is possible to produce more of one good without producing less of another 10. increase to P3 and the market will clear. but a shortage will still exist. c. increase to P3. b. and who does not. equilibrium quantity may either increase or decrease. when the supply curve for gasoline shifts from S1 to S2 a. d. b. eventually move to P2 without government assistance. a shortage will occur at the price ceiling of P2. the price will increase to P3. If demand decreases and supply increases one cannot determine if equilibrium price will increase or decrease without knowing which change is greater. 9. c. If both demand and supply increase there must be an increase in equilibrium price..

e. but sales still doubled.12. a. your demand for Wasabi Peas will increase starting next year. and go away was $4000. In 2011 the average price rose to $5000. The equilibrium point will move from A to E. It follows that: a. The equilibrium point will move from A to C. b. c. The law of supply does not hold for the Refrigerators Demand for the refrigerators could be higher in 2011 than in 2010 Supply of the refrigerators decreased in 2011 Income may be higher in 2011 than in 2010 b and d 13. . close the door. This will cause the price you pay to double next year. the average price for Refrigerators that tell people to stop eating. In 2010. The CNN news anchor announces that the Japanese believe Americans are fat and lazy. c. The equilibrium will first move from A to B. The equilibrium point will move from A to C. The equilibrium point will move from A to E. The graph in Figure 3 illustrates an initial competitive equilibrium in the market for apples at the intersection of D1 and S1 (point A). You eat Wasabi Green Peas by the case. b. If the price of oranges. d. your demand for Wasabi Peas falls as you look for a substitute good. 15. b. a substitute for apples. The equilibrium point will move from A to B. d. c. The graph in Figure 3 illustrates an initial competitive equilibrium in the market for apples at the intersection of D1 and S1 (point A). decreases and the wages of apple workers increase how will the equilibrium point change? a. d. you decide to give up Wasabi Peas completely. They respond by putting a tariff on all food exports to the US starting in 2011. d. c. b. There will be no change in the equilibrium point. As a result. The equilibrium point will move from A to B. FIGURE 3 14. then return to A. If there is a shortage of apples how will the equilibrium point change? a. your demand for Wasabi Peas increases today.

therefore more goods are produced. Producers seek to maximize total revenue. suppliers raise the price. but the price of shirts increases. c. d. The supply curve of shirts will move inward The supply curve of cotton will move outward The demand curve will move inward Nothing changes with either the demand or supply curves. Graph A Graph B Graph C Graph A or Graph C . Should the price of cotton rise. The basic reason most supply curves are upward sloping is that: a. b. b. a. Refer to Figure 4 Farmer Bob grows tomatoes and strawberries on his land. More firms are in the market.16. then: a. b. d. Which of the following would shift a nation's production possibilities frontier inward? a. c. c. Shirts are made with cotton. Because more quantity is being demanded. discovering a cheap way to convert sunshine into electricity producing more capital equipment an increase in the unemployment rate a law requiring workers to retire at age 50 FIGURE 4 19. A portion of his land is more suitable for growing tomatoes and the other portion is better suited for strawberry cultivation. 17. so they must receive a higher price. c. 18. Which of the graphs represent his production possibilities frontier? a. Producers face higher opportunity costs when producing higher levels of quantity. b. d.

specialize in being a lawyer because its opportunity cost is lower. If the best lawyer in town is also the best at typing on MS Word. The income given up by not working. one and a half lawns mowed. Jack has a comparative advantage in garden cultivating and George in lawn mowing. half a garden cultivated. c.Table 1 George 10 5 Jack  6 4 Lawns Mowed Gardens Cultivated 20. Costs of vacations or hobbies. 23. should pursue the activity she enjoys more. this person should : a. c. c. Refer to Table 1: What is Jack's opportunity cost of mowing a lawn? a. consume a combination of goods that lie outside its own production possibilities frontier. c. specialize in typing because the opportunity cost is higher. b. b. Medical bills. c. 21. b. a. d. George has a comparative advantage in both tasks. Jack has a comparative advantage in both tasks. increase the variety of products that it can consume with no increase in resources. engage in mutually beneficial trade with other nations. b. d. Refer to Table 1: Which of the following statements is true. two-thirds of a garden cultivated. b. Jack has a comparative advantage in lawn mowing and George in garden cultivating. Insurance costs. split her time evenly between being a lawyer and a typer . 22. Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all of the following except: a. d. d. two lawns mowed. the largest single cost of retirement is: a. produce a combination of goods that lie outside its own production possibilities frontier. 24. then according to economic reasoning. . d. For most people who retire.

d. the marginal cost of iced tea is greater than the marginal benefit. Figure 5 above represents the market for iced tea. c. producers should lower the price to $1 in order to sell the quantity demanded of 10. d. output is inefficiently low. Sue receives a large pay increase when taking a new job. b. Her demand for inferior goods decreases Her demand for normal goods decreases Her demand for luxury goods remains the same Her demand for normal goods remains the same . c.FIGURE 5 25. therefore. the marginal benefit of iced tea is greater than the marginal cost. 26. therefore. At a price of $3 a. b. output is inefficiently high. the marginal benefit of iced tea is greater than the marginal cost. We would expect which of the following to occur: a. therefore.000. output is inefficiently low.