Samples for Exam 1

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

1. Which of the following is a macroeconomics topic?

A) Wages of textile workers in the Northeast.
B) The cost of producing 10,000 bookcases.
C) The economy's annual growth rate.
D) National demand for fish.
E) Effects of farm subsidies on food prices.
2. Which of the following is included in the study of macroeconomics?
A) Wage rate of college students.
B) Prices of automobiles.
C) Unemployment in the nation.
D) Price of silver and gold.
3. Which of the following represents a positive statement?
A) A higher income tax rate will reduce the amount of time that people spend working.
B) Teenage unemployment should be reduced.
C) We should raise the standard of living for the elderly.
D) A decrease in tax rates is needed to help the poor.
4. The horizontal summation of all individual demands at different given prices results in the:
A) market supply curve.
B) individual supply curve.
C) individual demand curve.
D) equilibrium demand and supply curves.
E) market demand curve.
5. A normal good is defined by economists to be a good:
A) with a negatively-sloped demand curve.
B) that is purchased by at least 75 percent of the population.
C) that is bought by consumers with normal tastes.
D) whose demand increases when incomes increase.
E) whose demand decreases when incomes increase.
6. If the demand for a good increases when the price of another good increases, then these goods are:
A) complementary in consumption.
B) complementary in production.
C) substitute in production.
D) substitute in consumption.
E) neither substitutes nor complementary.
7. Assuming gasoline and oil to be complementary goods, the effect on the oil market of an increase in the price of
gasoline (other things being equal) would best be described as a (an):
A) increase in the demand for oil.
B) decrease in the demand for oil.
C) increase in the quantity of oil demanded.
D) increase in the quantity of oil demanded.
 8. Other things being equal, the effect of a decrease in the price of DVDs on the market for DVD players is a (an):
A) leftward shift in the demand curve for DVD players.
B) upward movement along the demand curve for DVD players.
C) rightward shift in the demand curve for DVD players.
D) downward movement along the demand curve for DVD players.

Exhibit 3-15 Supply and demand curves for good X

9. In Exhibit 3-15, if the market price of good X is initially $1.50, a movement toward equilibrium requires:
A) no change, because an equilibrium already exists.
B) the price to fall below $1.50 and both the quantity supplied and the quantity demanded to
fall.
C) the price to remain the same, but the supply curve to shift to the left.
D) the price to fall below $1.50, the quantity supplied to fall, and the quantity demanded to
rise.
10. A technological breakthrough lowers the cost of manufacturing DVDs. As a result, the market changes to a new
equilibrium because of a (an):
A) upward movement along the demand curve for DVDs.
B) rightward shift in the demand curve for DVDs.
C) rightward shift in the supply curve for DVDs.
D) shortage of DVDs.

Exhibit 4-2 Supply and demand curves

11. In Exhibit 4-2, which of the following might cause a shift from S1 to S2?
A) A decrease in input prices.
B) An improvement in technology.
C) An increase in input prices.
D) An increase in consumer income.

Exhibit 4-5 Supply and demand curves

12. Beginning from an equilibrium at point E2 in Exhibit 4-5, an increase in demand for good X, other things being
equal, would movement the equilibrium point to:
A) E1.
B) E2.
C) E3.
D) E4.

Exhibit 4-10 Supply and demand data for apricots

Bushels demanded Price per Bushels supplied

 per month bushel per month
50 $5 80
55 4 75
60 3 70
65 2 65
70 1 55

13. In Exhibit 4-10, the equilibrium price is:

A) $1.
B) $2.
C) $3.
D) $4.
14. Which of the following would occur if the government sets a price floor of $4 in the market shown in Exhibit 4-
10?
A) There would be a shortage of apricots.
B) Buyers would not purchase all of the apricots that are grown.
C) Buyers would purchase more apricots than are currently being supplied.
D) Farmers would reduce the number of acres allocated to the growing of apricots.

Exhibit 1A-6 Straight line

15. In Exhibit 1A-6, the slope of the straight line A-D is:
A) 0.
B) 1.
C) 1/2.
D) 1.

16. After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water
increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity
of bottled water?
A) Price will increase, and quantity will decrease.
B) Price will decrease, and quantity will decrease.
C) Price will decrease, and quantity will increase.
D) Price will increase, and quantity will increase.
17. How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?
A) The demand for beef would increase, increasing beef prices.
B) The demand for beef would decrease, decreasing beef prices.
C) The supply of beef would increase, decreasing beef prices.
D) The supply of beef would decrease, increasing beef prices.
18. Which of the following would decrease the price of packaged hot dogs?
A) An increase in the price of hot dog buns, a complement to packaged hot dogs.
B) A decrease in the price of hamburger meat, a substitute for packaged hot dogs.
C) A technological advance that lowers the cost of producing packaged hot dogs.
D) All of these.
19. A decrease in consumer income decreases the demand for compact discs. As a result of the change to a new
equilibrium, there is a(n):
A) leftward shift of the supply curve.
B) rightward shift of the supply curve.
C) upward movement along the supply curve.
D) downward movement along the supply curve.

Exhibit 4-4 Supply and demand curves for good X

20. A decrease in buyers' income, assuming good X is a normal good, combined with a decrease in the wage rate paid
to workers producing good X would be represented by which of the following changes in equilibrium shown in
Graph C of Exhibit 4-4?
A) E1 to E2.
B) E1 to E3.
C) E3 to E2.
D) E1 to E4.
21. If the market supply increases and, simultaneously, market demand decreases, the new equilibrium will show:
A) market price will decrease, and market quantity exchanged could increase, decrease, or
remain unchanged.
B) market price will increase, and market quantity exchanged will decrease.
C) market price will increase, and the quantity exchanged could increase, decrease, or remain
the same.
D) market price could increase, decrease, or remain the same, and quantity exchanged will
increase.
E) market price will increase, decrease, or remain the same, and quantity exchanged will
decrease.
 Exhibit 4-7 Demand and supply schedules for movie tickets

Quantity Quantity
Price Demanded Supplied
$10 200 500
8 240 470
6 370 420
4 390 390
2 410 310

22. In Exhibit 4-7, a 100 decrease in quantity demanded at every price level would cause the new equilibrium price to
become:
A) $10.
B) $8.
C) $6.
D) $4.
E) $2.
23. If the equilibrium price of aspirins is $2.50 and a price ceiling is imposed at $3.00, the eventual result after market
adjustment will be a(n):
A) surplus.
B) shortage.
C) accumulation of inventories.
D) equilibrium.
24. A legally mandated minimum wage is an example of:
A) the invisible hand principle.
B) a price floor.
C) a price ceiling.
D) a fringe benefit.
25. Which of the following would be an external cost to the consumption of cigarettes?
A) Price of a pack of cigarettes.
B) Loss of income resulting from extra missed days of work.
C) Higher life insurance premiums due the practice of smoking.
D) The loss in utility received because the smoker must stand outside her office building in
the winter to smoke.
E) Increased risk of cancer to the nonsmoking passengers in the smoker's carpool.
26. In the presence of positive externalities, a free market will choose a price which is too ____ and produce an output
which is too ____ compared with the social optimum.
A) high; low
B) low; low
C) high; high
D) low; high
E) marginal; inequitable
27. Pete throws leftover bread onto his front lawn because he enjoys watching the pigeons feeding. His neighbor John
is not happy about the pigeons, since they leave a mess on his property. This is an example of:
A) a negative externality.
B) a public good.
C) privatization.
 D) third-party benefits.
E) well-defined property rights.
28. Goods whose benefits to society are not diminished as more people consume them and whose benefits cannot be
withheld from anyone are:
A) impossible since resources are limited.
B) examples of negative externalities.
C) public goods.
D) food and other necessities.
E) provided by free markets to free riders.
29. The highest valued alternative that must be given up in order to choose an option is called the:
A) opportunity cost.
B) utility cost.
C) scarcity expense.
D) disutility option.

Exhibit 3-6 Milk market

Quantity Demanded Quantity Supplied

Price per Quart (Quarts per week) (Quarts per week)
0.70 20 180
0.60 60 140
0.50 100 100
0.40 140 60
0.30 180 20

30. In Exhibit 3-6, which of the following is true about the milk market?
A) At price 0.60 there is an excess demand of milk.
B) At price 0.40 there is an excess supply of milk.
C) At price 0.30 there is an excess supply of milk.
D) At price 0.50 there is an excess demand of milk.
E) At price 0.70 there is an excess supply of milk.

Exhibit 3-7 Demand and supply curves

31. In Exhibit 3-7, if price happened to currently be $75 in this market, a ____ would result, causing a(n) ____ in
price.
 A) shortage; increase
B) shortage; decrease
C) surplus; increase
D) surplus; decrease
E) market clearing; change

32. . Consider a market characterized by the following demand and supply conditions: QD = 20 - 2P and Qs =
2 + 4p. The equilibrium price and quantity are, respectively,

A) $14 and 3 units. C) $9 and 2 units.

B) $3 and 14 units. D)
$20 and 6 units.

True/False
Indicate whether the statement is true or false.

33. The statement "The income tax is unfair to those who work hard to earn their incomes" is an example of positive
economic analysis.

34. If pork and beans is an inferior good, other things being equal, an increase in consumer income will decrease the
demand for pork and beans.

35. Suppose A and B are complementary goods. Other things being equal, the demand curve for A will shift to the
right when the price of B goes up.

36. The law of supply indicates that an increase in price will cause an increase in supply which is reflected graphically
as a rightward shift of the supply curve.

37. Other things being equal, a fall in the price of orange juice will decrease the quantity supplied.

38. If a good gives rise to substantial external benefits to society that are associated with its production and/or
consumption then the good likely has too few resources devoted to its production.

39. Other things being equal, a fall in the price of Coca-Cola will increase the quantity of Coca-Cola demanded.

40. Other things being equal, an increase in the price of aspirin will decrease the demand for aspirin.
Exam 1
Answer Section

MULTIPLE CHOICE

1. ANS: C TOP: Macroeconomics

2. ANS: C TOP: Macroeconomics
3. ANS: A TOP: Positive economics
4. ANS: E TOP: Demand curve
5. ANS: D TOP: Normal good
6. ANS: D TOP: Substitutes
7. ANS: B TOP: Complements
8. ANS: C TOP: Complements
9. ANS: D TOP: Equilibrium
10. ANS: C TOP: Change in equilibrium
11. ANS: C TOP: Change in equilibrium
12. ANS: C TOP: Change in equilibrium
13. ANS: B TOP: Change in equilibrium
14. ANS: B TOP: Price floor
15. ANS: A TOP: Slope of a line
16. ANS: D TOP: Change in equilibrium
17. ANS: C TOP: Change in equilibrium
18. ANS: D TOP: Change in equilibrium
19. ANS: D TOP: Change in equilibrium
20. ANS: D TOP: Change in equilibrium
21. ANS: A TOP: Change in equilibrium
22. ANS: E TOP: Change in equilibrium
23. ANS: D TOP: Price ceiling
24. ANS: B TOP: Price floor
25. ANS: E TOP: Externalities
26. ANS: B TOP: Externalities
27. ANS: A TOP: Externalities
28. ANS: C TOP: Public goods
29. ANS: A TOP: Opportunity cost
30. ANS: E TOP: Surplus
31. ANS: D TOP: Surplus
32. ANS: B

TRUE/FALSE

33. ANS: F TOP: Macroeconomics

34. ANS: T TOP: Inferior good
35. ANS: F TOP: Complements
36. ANS: F TOP: Law of supply
37. ANS: T TOP: Change in quantity supplied
38. ANS: T TOP: Externalities
39. ANS: T TOP: Change in quantity demanded
40. ANS: F TOP: Change in quantity demanded