ECON 1000 Exam Review Worksheet – Sample Final

Use the table below to answer the following questions.

Table 2.1.2
Production Possibilities

1) Refer to Table 2.1.2. In moving from combination B to combination C, the opportunity cost of
producing one additional unit of guns is
A) 2 kilograms of butter.
B) 1/2 kilogram of butter.
C) 6 kilograms of butter.
D) 1/6 kilogram of butter.
E) 3 kilograms of butter.

2) As we move down the bowed-out production possibilities frontier, opportunity cost

A) increases.
B) decreases.
C) remains constant.
D) initially decreases, then increases.
E) decreases but at an increasing rate.

3) Consider a country that has two industries. In the north, they grow wild rice, which requires a
lot of rainfall. In the south, they grow wheat, which requires just a moderate amount of rainfall
(too much rainfall is bad for wheat production). One year, there is a record rainfall. This will
result in
A) a parallel shift inward of the production possibilities frontier.
B) a parallel shift outward of the production possibilities frontier.
C) the production possibilities frontier swiveling, with the wild rice intercept increasing, and the
wheat intercept decreasing.
D) the production possibilities frontier swiveling, with the wild rice intercept decreasing, and the
wheat intercept increasing.
E) none of the above.

4) Individuals A and B can both produce good X. We say that A has a comparative advantage in
the production of good X if
A) A has a lower opportunity cost of producing X than B.
B) A has a higher opportunity cost of producing X than B.
C) A can produce more units of X in a given time period than B.
D) A can produce X using newer technology than B.
E) A can produce less units of X in a given time period than B.
5) If a turnip is an inferior good, then, ceteris paribus, an increase in the price of a turnip will
A) decrease the demand for turnips.
B) increase the demand for turnips.
C) decrease the supply of turnips.
D) increase the supply of turnips.
E) none of the above.

6) Suppose income increases. Choose the correct statement.

A) The equilibrium price of turnips falls if a turnip is an inferior good.
B) The equilibrium price of turnips rises if a turnip is an inferior good.
C) The equilibrium quantity of turnips decreases if a turnip is an inferior good.
D) The supply of turnips decreases whether or not a turnip is an inferior good.
E) Both A and C.

Use the figure below to answer the following questions.

Figure 3.2.2
7) Which one of the following would result in the demand curve shifting from D1 to D2 in
Figure 3.2.2?
A) an increase in the supply of pizza
B) a rise in the price of hamburgers, a substitute for pizza
C) a rise in the price of pizza
D) a fall in the price of pizza
E) a rise in the price of Coke, a complement of pizza

8) Good A is a normal good if

A) a rise in the price of a complement causes the demand for A to decrease.
B) income and the demand for A are negatively related.
C) a rise in the price of a substitute causes the demand for A to increase.
D) the demand for A increases when income rises.
E) good A satisfies the law of demand.
9) If a producer can use its factors of production to produce either good A or good B, then a rise
in the price of A
A) increases the supply of B.
B) decreases the supply of A.
C) increases the supply of A.
D) decreases the supply of B.
E) both C and D.

10) Which one of the following correctly describes how price adjustment eliminates a shortage?
A) As the price rises, the quantity demanded decreases and the quantity supplied increases.
B) As the price rises, the quantity demanded increases and the quantity supplied decreases.
C) As the price falls, the quantity demanded decreases and the quantity supplied increases.
D) As the price falls, the quantity demanded increases and the quantity supplied decreases.
E) As the price falls, the quantity demanded increases and the quantity supplied increases.

11) The price of gasoline rises by 25 percent and remains fixed at the new higher level. Choose
the correct statement.
A) The demand for gasoline will increase after consumers adjust their consumption behaviour to
the new higher price.
B) The demand for gasoline will decrease after consumers adjust their consumption behaviour to
the new higher price.
C) Initially after the price change, the price elasticity of demand will be less elastic than it will be
a few years after the price change.
D) The price elasticity of demand for gasoline will decrease in the future.
E) Initially after the price change, the price elasticity of demand will be more elastic than it will
be a few years after the price change.

12) If the cross elasticity of demand between peanut butter and jelly is negative, then
A) a rise in the price of peanut butter results in a rise in the equilibrium price of jelly.
B) a rise in the price of peanut butter results in a fall in the equilibrium price of jelly.
C) a rise in the price of peanut butter has no effect on the equilibrium price of jelly.
D) a fall in the price of peanut butter results in a fall in the equilibrium price of jelly.
E) peanut butter and jelly are substitutes.

Use the table below to answer the following questions.

Table 4.2.2

13) Refer to Table 4.2.2. The cross elasticity of demand for Jolt with respect to the price of Coke
is
A) 0.75.
B) 1.5.
C) 0.40.
D) 10.
E) cannot be calculated because income is not constant.

14) When the price of a bicycle falls from $220 to $180 and other things remain the same
I. the quantity of bicycles demanded increases from 150 to 250 an hour.
II. the quantity of skateboards demanded decreases from 125 to 75 an hour.
III. the quantity of bicycle helmets demanded increases from 170 to 230 an hour.
Bicycle helmets and bicycles are ________ because a fall in the price of a bicycle brings
________ in the quantity demanded of bicycle helmets. The cross elasticity of demand for
bicycle helmets with respect to bicycles is ________.
A) complements; an increase; -1.5
B) substitutes; a decrease; 1.5
C) substitutes; an increase; -0.67
D) complements; a decrease; 0.67
E) complements; an increase; 1.5

15) Choose the statement or statements that are correct.

I. The value of one more unit of a good or service is its marginal benefit.
II. Marginal benefit equals the total amount we spend on a good or service.
III. Marginal benefit is the maximum amount willingly paid for another unit of a good or service.
A) I only.
B) II only.
C) I and III.
D) III only.
E) I, II, and III.

16) Bill and Ted each consume 15 chocolate bars at the current price. If Bill's demand for
chocolate bars is more elastic than Ted's demand, then
A) Bill's willingness to pay for the last chocolate bar is greater than Ted's.
B) Ted's willingness to pay for the last chocolate bar is greater than Bill's.
C) Bill's consumer surplus is greater than Ted's.
D) Ted's consumer surplus is greater than Bill's.
E) Bill's consumer surplus equals Ted's.

17) Consider the market for hot dogs. If this market becomes a monopoly, then there will be
A) underproduction of hot dogs.
B) overproduction of hot dogs.
C) a deadweight loss in the market for hot dogs.
D) an efficient quantity of hot dogs.
E) both A and C are correct.
Use the figure below to answer the following questions.

Figure 5.3.1

18) Refer to Figure 5.3.1. If the quantity produced is 200,

A) a deadweight loss exists.
B) the sum of consumer surplus and producer surplus is maximized.
C) production is efficient.
D) the sum of consumer surplus and producer surplus is zero.
E) deadweight loss is minimized.

19) Which one of the following is not likely to be an outcome of a rent ceiling?
A) a black market for rent-controlled housing
B) long waiting lists of potential renters for rent-controlled housing
C) a short-run shortage of housing
D) a black-market price below the rent ceiling
E) increased search activity for rent-controlled housing

20) A price ceiling set below the equilibrium price will result in
A) excess supply.
B) excess demand.
C) the equilibrium price.
D) an increase in supply.
E) a decrease in demand.