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Dr. Shishkin
ECON 2106
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Fall 2010
Submit your scantron and questions sheet
Exam 1
Version A
1. Scarcity means that
A) what we can produce with our resources is greater than our material wants
B) resources are unlimited
C) our wants are greater than what we can produce with our resources
D) governments must make up for shortages in resources
2. Economics is the social science that studies
A) the real reasons people buy goods and services
B) the psychology of individuals and businesses
C) whether a nation has enough natural resources
D) how people make choices to cope with scarcity
3. Ali decides to attend the one hour review session for microeconomics instead of working at his
job. His job pays him $10 per hour. Ali’s opportunity cost of attending the review session
A) the $10 he could have earned at his job
B) the value of the session minus the $10 he could have earned at his job
C) nothing, because the review session does not cost anything
D) equal to the benefit he gets from the review session
4. In 2006 Sara bought a condo for $250,000. In 2009 she got a new job that required her to
relocate to a different state, and she realized that because of the real estate market downturn she
would not be able to get more than $180,000 for her condo. What is her sunk cost in this
situation?
A) $50,000
B) $70,000
C) $180,000
D) $250,000
5. Decision making on the margin involves
A) comparing the marginal cost and marginal benefits when making a decision
B) comparing the total cost and the total benefit when making a decision
C) eliminating the additional cost when making a decision
D) determining the total benefits of a decision
6. Based on the marginal analysis, a rational individual knows that he or she should do more of
something if for this activity:
A) MC > MB
B) MC = MB
C) MC < MB
D) Sunk Cost > MB
Version A
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Dr. Shishkin
ECON 2106
Fall 2010
7. The concept of increasing opportunity cost means that the opportunity cost of an additional
increase in the output of a good goes up
A) as time passes by
B) as the output of this good goes down
C) as resources used to produce this good become more abundant
D) as the output of this good goes up
8. The figure above shows the production possibilities frontier for a country. The opportunity cost
of a gallon of milk when moving from point A to point B is
A) 4 gallons of ice cream
B) 3 gallons of milk
C) 1 gallon of ice cream
D) 1/3 of a gallon of ice cream
9. The PPF shows economic growth when the PPF
A) shifts outward, away from the origin
B) shifts inward, towards the origin showing lower costs
C) changes from a bowed out PPF to a flatter PPF
D) changes from a bowed out PPF to a bowed in PPF
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Dr. Shishkin
ECON 2106
Fall 2010
10. Suppose that Robinson Crusoe can produce only two goods, X and Y. The graph below
illustrate a change in his PPF from PPF0 to PPF1 that is likely to occur because Robinson
A) got more skillful in producing both goods
B) got more skillful in producing good X
C) got more skillful in producing good Y
D) built a device that makes him more productive in making good Y
11. All points inside the production possibilities frontier represent:
A) inefficient production points.
B) the opportunity cost
C) efficient production points.
D) non-feasible production points.
12. A bowed out (nonlinear) production possibilities frontier indicates
A) inefficient production
B) increasing opportunity cost
C) changing technology
D) constant opportunity cost
13. The ability to produce a good at a lower opportunity cost than others is known as
A) marginal cost production
B) absolute advantage
C) specialization
D) comparative advantage
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Dr. Shishkin
ECON 2106
Fall 2010
Questions 14-18. The following diagrams represent Tom’s and Jerry’s production possibility
frontiers.
Answer the following questions:
14. Who has absolute advantage in producing wheat?
A) Tom
B) Jerry
C) Neither Tom nor Jerry
D) Both Tom and Jerry
15. What is the opportunity cost of increasing his output of wheat by one bushel for Tom?
A) 0.25 bushels of wheat
B) 0.5 bushels of corn
C) 2 bushels of corn
D) 4 bushels of wheat
16. What is the opportunity cost of increasing his output of wheat by one bushel for Jerry?
A) 0.25 bushels of corn
B) 0.5 bushels of corn
C) 2 bushels of corn
D) 4 bushels of corn
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Dr. Shishkin
ECON 2106
Fall 2010
17. What is the opportunity cost of increasing his output of corn by one bushel for Jerry?
A) 0.25 bushels of wheat
B) 0.5 bushels of wheat
C) 2 bushels of wheat
D) 4 bushels of wheat
18. Who has comparative advantage in producing corn?
A) Tom
B) Jerry
C) Neither Tom nor Jerry
D) Both Tom and Jerry
19. If consumers expect a good to become more expensive sometime soon, then presently
A) the good's demand curve shifts rightward
B) the good's demand curve shifts leftward
C) there is a rightward movement down along the good's demand curve
D) there is a leftward movement up along the good's demand curve
20. An increase in price of steel used in the production of automobiles will:
A) increase the demand for automobiles.
B) increase the supply of automobiles.
C) decrease the demand for automobiles.
D) decrease the supply of automobiles.
21. A good is inferior if:
A) when income increases, demand for this good increases.
B) when income increases, demand for this good remains unchanged.
C) when income increases, demand for this good decreases.
D) none of the above.
22. When considering the supply curve of sweaters only (i.e. ignoring interaction between supply
and demand), which of the following events will increase the quantity supplied of sweaters?
A) a rise in the price of a sweater
B) a rise in the wage rate paid to the workers who make sweaters
C) a rise in the expected future price of a sweater by sellers
D) an increase in the number of sellers of sweaters
23. If sellers expect a good to become more expensive sometime soon, then presently
A) the good's supply curve shifts rightward
B) the good's supply curve shifts leftward
C) there is a leftward movement down along the good's supply curve
D) there is a rightward movement up along the good's supply curve
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Dr. Shishkin
ECON 2106
Fall 2010
24. In the figure above, a price of $35 per dozen roses results in
A) a shortage
B) equilibrium
C) a surplus
D) an eventual rightward shift of the demand curve and/or leftward shift of the supply curve
25. When the demand curve shifts rightward and the market moves to a new equilibrium, then the
A) supply increases
B) supply decreases
C) quantity supplied increases
D) Equilibrium price falls
26. If people's incomes rise, then the demand curve for a normal good will ____ and the equilibrium
quantity of this good will _____.
A) shift to the right; increase
B) shift upward; increase
C) not shift; increase
D) shift to the left; decrease
27. If supply and demand both increase, the equilibrium price ________ and the equilibrium
quantity ________.
A) rises, increases
B) rises, might go either way
C) might go either way, increases
D) falls, increase
28. Which of the following is likely to occur if the price of coffee has decreased?
A) The demand for cream increases and the price of cream goes down.
B) The demand for cream increases and the price of cream goes up.
C) The supply of cream decreases and the price of cream goes up.
D) The supply of cream increases and the price of cream goes down.
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Dr. Shishkin
ECON 2106
Fall 2010
29. Assume that orange juice and apple juice are substitutes in consumption, but not related in
production. What would you expect to happen with the equilibrium price and quantity of orange
juice if the price of apple juice decreases, and oranges become more expensive?
A) the price and quantity will definitely go up
B) the price will definitely go up and quantity might go up or down
C) the price might go up or down, and quantity will definitely go up
D) the price might go up or down, and quantity will definitely go down
30. If a company is operating on the inelastic section of demand curve, then an increase in the price
will result in:
A) An increase in total revenues
B) No change in total revenues
C) A decrease in total revenues
D) Either increase or decrease in total revenues
31. In the figure below, what is the price elasticity of demand between points A and B?
A) 0.05
B) 0.13
C) 0.43
D) 0.67
32. Demand for which of the following categories of goods you would expect to be least elastic?
A) Food
B) Bread
C) Wheat Bread
D) Sara Lee Whole Wheat
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Dr. Shishkin
ECON 2106
Fall 2010
33. After long hair for men became popular, barbers in a small town found that their incomes fell. In
an attempt to boost their revenues, they decided to raise the price of a haircut and yet their total
revenue fell even more. What can explain this result?
A) Barbers were operating on the elastic section of the demand curve for haircuts.
B) The demand for haircuts by barbers became inelastic after the increase in price
C) Haircuts are inferior products
D) The demand for haircuts by barbers is inelastic because most people need haircuts
34. As we move downward along a linear (straight-line) downward-sloping demand curve, the
A) price elasticity of demand does not change
B) total revenue stays the same
C) demand becomes more elastic
D) demand becomes less elastic
35. If two goods are complements in consumption, then their cross price elasticity is
A) zero
B) positive
C) negative
D) either positive or negative
36. If two goods are substitutes in production, then their cross price elasticity is
A) zero
B) positive
C) negative
D) either positive or negative
37. If income increases from $50,000 to $60,000 while the demand for a good increases from 100
units to 125 units, what is the income elasticity of demand?
A) 1.25
B) 1.22
C) 0.83
D) 0.80
38. Based on your answer to the previous question, the good is
A) inferior
B) superior
C) normal
D) abnormal
39. When the price of going to a movie rises 5 percent, the quantity of DVDs demanded increases
10 percent. The cross elasticity of demand equals
A) 10.0
B) 0.50
C) -2.0
D) 2.0
Version A
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Dr. Shishkin
ECON 2106
Fall 2010
40. In the figure below, at the point where the price is $60 per bunch, the price elasticity of supply is
A) 1.8
B) 0.56
C) 1.0
D) 1.5
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