Tutorial Session: In-class quiz (PE)

Duration: 17 minutes

1. Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a new mp3
player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so
she can only buy one. This illustrates the basic concept that
a. trade can make everyone better off.
b. people face trade-offs.
c. rational people think at the margin.
d. decisions made at the margin are not particularly important.
2. A tradeoff exists between a clean environment and a higher level of income in that
a. studies show that individuals with higher levels of income pollute less than low-income
individuals.
b. efforts to reduce pollution typically are not completely successful.
c. laws that reduce pollution raise costs of production and reduce incomes.
d. employing individuals to clean up pollution causes increases in employment and income.
3. Which of the following is correct concerning opportunity cost?
a. Except to the extent that you pay more for them, opportunity costs should not include the
cost of things you would have purchased anyway.
b. To compute opportunity costs, you should subtract benefits from costs.
c. Opportunity costs and the idea of trade-offs are not closely related.
d. Rational people should compare various options without considering opportunity costs.
4. The idea that only the government can organize economic activity in a way that promotes
economic well-being for a country as a whole
a. is a basic principle regarding individual decision-making.
b. amounts to a denial of one of the basic principles regarding interactions among people.
c. supports the idea that the "invisible hand" should guide economic activity.
d. was promoted by the economist Adam Smith in a well-known 1776 book.
5. Unemployment would cause an economy to
a. produce inside its production possibilities frontier.
b. produce on its production possibilities frontier.
c. produce outside its production possibilities frontier.
d. experience an inward shift of its production possibilities frontier.
6. On a bowed production possibilities frontier, as you move down along the curve
a. more of one good must be given up to receive one unit of the other good.
b. the available production technology does not change.
c. the opportunity cost increases.
d. All of the above are correct.
7. In a certain economy, jam and bread are produced, and the economy currently operates on its
production possibilities frontier. Which of the following events would allow the economy to
produce more jam and more bread, relative to the quantities of those goods that are being
 produced now?
a. Unemployed labor is put to work producing jam and bread.
b. The economy puts its idle capital to work producing jam and bread.
c. The economy experiences economic growth.
d. All of the above are correct.
8. The most obvious benefit of specialization and trade is that they allow us to
a. work more hours per week than we otherwise would be able to work.
b. consume more goods than we otherwise would be able to consume.
c. spend more money on goods that are beneficial to society, and less money on goods that
are harmful to society.
d. consume more goods by forcing people in other countries to consume fewer goods.
Table 3-1
Assume that John and Jane can switch between producing bread and wine at a constant rate.

Labor Hours Needed to Make

Bottle of Wine Loaf of Bread
Jane 2 1.5
John 3 1

9. Refer to Table 3-1. Assume that John and Jane each work 24 hours. What happens to total
production if instead of each person spending 12 hours producing each good, Jane spends 21 hours
producing wine and 3 hours producing bread and John spends 3 hours producing wine and 21
hours producing bread?
a. The total production of bread and wine each rise.
b. The total production of bread rises and the total production of wine falls.
c. The total production of bread falls and the total production of wine rises.
d. The total production of bread and wine each fall.
10. 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, your demand for peanut butter
a. will increase but not until the end of the year.
b. increases today.
c. decreases as you look for a substitute good.
d. shifts left today.
11. Suppose the price elasticity of supply for cheese is 0.6 in the short run and 1.4 in the long run. If
an increase in the demand for cheese causes the price of cheese to increase by 15%, then the
quantity supplied of cheese will increase by
a. 0.4% in the short run and 4.6% in the long run.
b. 1.7% in the short run and 0.7% in the long run.
c. 9% in the short run and 21% in the long run.
d. 25% in the short run and 10.7% in the long run.
12. Suppose that corn farmers want to increase their total revenue. Knowing that the demand for corn
is inelastic, corn farmers should
a. plant more corn so that they would be able to sell more each year.
b. increase spending on fertilizer in an attempt to produce more corn on the acres they farm.
c. reduce the number of acres on which they plant corn.
d. contribute to a fund that promotes technological advances in corn production.
13. You have just been hired as a business consultant to determine what pricing policy would be
appropriate to increase the total revenue of a bakery. The first step you would take would be to
a. increase the price of every loaf of bread in the store.
b. look for ways to cut costs and increase profit for the bakery.
c. determine the price elasticity of demand for the bakery's products.
d. determine the price elasticity of supply for the bakery’s products.
Figure 5-6

14. Refer to Figure 5-6. For prices above $8, demand is price
a. elastic, and total revenue will rise as price rises.
b. inelastic, and total revenue will rise as price rises.
c. elastic, and total revenue will fall as price rises.
d. inelastic, and total revenue will fall as price rises.
15. If the price elasticity of supply for a window manufacturer is 1.5,
a. a 10% increase in the price of windows results in a 15% increase in the quantity of
windows supplied.
b. supply is considered to be inelastic.
c. the manufacturer is likely operating very near capacity.
d. All of the above are correct.