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Exam #1 – Sample
Economics 103
Wayne Carroll
Name:
Part II - Multiple Choice (90 points)
Select the best answer to each of the following questions. Use a pencil to mark your answer on
the answer sheet. This part of the exam includes thirty questions worth 3 points each.
1. Two hundred years ago England exported cloth to other countries, and Portugal exported
wine. Based on this pattern, we can conclude that
a. the opportunity cost of producing cloth was lower in Portugal than in England.
b. the opportunity cost of producing wine was lower in Portugal than in England.
c. English factories must have had a better technology for manufacturing cloth than
Portuguese factories.
d. it would have been impossible for Portugal to produce enough cloth to satisfy its
consumers’ needs.
2. When a good is sold in a market (in the economist’s sense of the word “market”),
a. the good ends up being purchased by the consumers who need it most.
b. the good ends up being purchased by the consumers who are willing to pay the highest
prices for it.
c. it’s likely that suppliers will produce too much of the good.
d. it’s likely that there will be a shortage of the good.
3. Suppose the demand for copies of the Leader-Telegram newspaper is elastic. Then the
publisher of the Leader Telegram would earn more revenue if
a. it cut the price it charges for a copy of the Leader-Telegram.
b. the price of a copy of the Leader-Telegram rose.
c. the price of a copy of the Pioneer Press (a competing newspaper) fell.
d. the cost of producing copies of the Leader-Telegram went up.
4. The law of diminishing returns states that
a. opportunity costs fall as you do more of something.
b. opportunity costs rise as you do more of something.
c. a production possibilities curve must be downward-sloping.
d. a production possibilities curve must be upward-sloping.
5. If we have a very hot summer this year, people will use air conditioners more. It is likely that
this would
a. shift the demand curve for electricity down to the left.
b. shift the demand curve for electricity up to the right.
c. shift the supply curve of electricity up to the left.
d. shift the supply curve of electricity down to the right.
e. cause a shortage of electricity.
6. The price elasticity of demand for a good is high if
a. there are many close substitutes for the good.
b. the quantity demanded doesn’t change very much when the price changes.
c. consumers’ incomes are high.
d. there is a large supply of the good.
Exam #1 - Economics 103
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Japan and Mexico each produce two goods, computers and medical care. The graph below
shows each country’s production possibilities frontier.
14
12
computers
10
8
6
Japan
Mexico
4
2
0
0
2
4
6
8
10
medical care
7. Based on this graph, we know that
a. Mexico will buy 1 unit of medical care and 8 units of computers from Japan.
b. Mexico will produce 4 computers and 8 units of medical care.
c. Japan has a comparative advantage in producing computers.
d. Japan has a comparative advantage in producing medical care.
8. Based on this graph, we would expect that
a. Japan will sell medical care to Mexico and buy computers from Mexico.
b. Japan will sell computers to Mexico and buy medical care from Mexico.
c. Japan will sell both medical care and computers to Mexico.
d. Japan will buy both medical care and computers from Mexico.
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9. An increase in the price of gasoline could be caused by
a. the discovery of new oil fields in Central Asia.
b. a reduction in the price of oil, from which gasoline is made.
c. an increase in the price of cars.
d. increased consumer spending on SUVs because they’re safer than smaller, more fuelefficient cars.
10. Suppose that people who eat yogurt have two choices: Yoplait and Dannon. Then if the price
of Yoplait yogurt falls (due to reduction in production costs that only affects the production
of Yoplait),
a. the price and quantity of Dannon yogurt sold each year will both fall.
b. the price and quantity of Dannon yogurt sold each year will both rise.
c. the price of Dannon yogurt will rise and the quantity of Dannon yogurt sold each year will
fall.
d. the price of Dannon yogurt will fall and the quantity of Dannon yogurt sold each year will
rise.
Exam #1 - Economics 103
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Venezuela can use its resources to produce two goods: oil and food. The graph below shows
Venezuela’s production possibilities curve.
oil
600
500
400
300
200
100
0
0
2
4
6
8
10
12
food
11. Based on the graph, we can conclude that the opportunity cost of producing one more unit
of food in Venezuela is equal to
a. 1 unit of oil.
b. 500 units of oil.
c. 50 units of oil.
d. 100 units of oil.
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12. An increase in consumers’ incomes would
a. increase the prices of television sets.
b. shift the supply curve for television sets up to the left.
c. shift the demand curve for television sets down to the left.
d. reduce the prices of television sets.
13. If used cars are an inferior good, then an increase in demand for used cars (a shift to the
right) can be caused by
a. a reduction in the prices of used cars.
b. a reduction in the prices of new cars.
c. a reduction in consumers’ incomes.
d. an inelastic demand for used cars.
14. Bad weather in Florida last fall destroyed a significant share of the orange crop there. This
could
a. shift the demand curve for oranges up to the right.
b. shift the supply curve for oranges up to the left.
c. shift the demand curve for oranges down to the left.
d. reduce orange prices.
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15. The table below shows the quantities of a good demanded at two different prices.
price
$200
$199
quantity demanded
1000
1100
Based on this information, we can conclude that
a. this good is an inferior good.
b. this good is a normal good.
c. the demand for this good is elastic.
d. total consumer spending on this good is higher when the price of the good is higher.
16. An increase in the price of cars can be caused by
a. an increase in the demand for cars or a reduction in the supply of cars.
b. an increase in the supply of cars.
c. a reduction in consumers’ incomes (if cars are a normal good).
d. a technological improvement that makes it easier to produce cars.
e. an increase in the price of a complementary good (like gasoline).
17. For most students the opportunity cost of attending college is lower if
a. tuition charges are higher.
b. the economy is in a recession, so it’s hard to find good jobs.
c. employers don’t want to hire college graduates.
d. employers are eager to hire college graduates.
18. The price of oil has risen in recent months. As a result,
a. the supply curve for gasoline has shifted up to the left.
b. the demand curve for gasoline has shifted down to the left.
c. the supply curve for gasoline has shifted down to the right.
d. the demand curve for gasoline has shifted up to the right.
19. If a 5% increase in the price of homes causes a 4% reduction in the quantity of homes
demanded, then the price elasticity of demand for homes is equal to
a. 0.8.
b. 1.
c. 5.
d. 9.
e. 20.
20. If the wages paid by firms in the steel industry go up, it is likely that
a. steel producers will increase the quantity of steel they sell.
b. steel producers will reduce the quantity of steel they sell.
c. the change in wages can have no effect on the quantity of steel sold by the steel industry.
d. steel producers will reduce the price they charge for steel in order to attract more
business.
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21. Suppose a country can produce two goods: guns and butter. If there’s technological progress
that makes it easier to produce both goods, then
a. the country’s production possibilities curve would shift up to the right, since it can
produce more than before.
b. the country’s production possibilities curve would shift down to the left, since it doesn’t
need as many resources as before.
c. the country would move along its production possibilities curve in the direction of fewer
guns and more butter.
d. the country would move along its production possibilities curve in the direction of more
guns and less butter.
22. People who buy Gillette razors must also buy Gillette razor blades. If the price of Gillette
razor blades falls, then it is likely that
a. the price of Gillette razors will fall and the quantity of Gillette razors sold each year
will fall.
b. the price of Gillette razors will fall and the quantity of Gillette razors sold each year
will rise.
c. the price of Gillette razors will rise and the quantity of Gillette razors sold each year
will fall.
d. the price of Gillette razors will rise and the quantity of Gillette razors sold each year
will rise.
23. Suppose that today the price of a candy bar in a campus vending machine is 50 cents, and 200
are sold. Tomorrow the price is raised to 60 cents per candy bar, and the number sold per day
falls to 180. Then the price elasticity of demand for candy bars on campus is equal to
a. 10
b. 1
c. 0.1
d. 0.5
24. If the demand for a good is inelastic, then an increase in the price of the good tends to
a. make consumers’ incomes fall.
b. shift the demand curve for the good to the right, but only by a small amount.
c. make the quantity of the good demanded fall by a smaller percentage. (That is, the
quantity change is smaller in percentage terms than the price change.)
d. make the quantity of the good demanded fall by a larger percentage.
25. If the price elasticity of demand for gasoline is equal to 0.2, then a 5% reduction in the
quantity sold would raise the price by
a. 0.1% (that is, one-tenth of a percent)
b. 5%
c. 10%
d. 25%
Exam #1 - Economics 103
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$25
$20
Supply
price
$15
$10
$5
Demand
$0
0
200
400
600
800
1,000
1,200
1,400
quantity
The graph above shows the supply and demand curves for a good. (You’ll use this graph to
answer #26 and #27.) Suppose the government sets a price ceiling at $5 per unit.
26. Given that there’s a price ceiling at a price of $5, the quantity of the good that will be sold is
a. 200 units.
b. 400 units.
c. 600 units.
d. 900 units.
27. Given that there’s a price ceiling at a price of $5,
a. there will be no shortage in this market.
b. there will be a shortage that’s equal to 400 units.
c. there will be a shortage that’s equal to 600 units.
d. there will be a shortage that’s equal to 700 units.
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28. The law of demand states that
a. an increase in buyers’ incomes must cause an increase in demand
b. the demand for a good rises if the price of a substitute rises.
c. an increase in the price of a good always decreases the quantity demanded (moving along
the demand curve).
d. the demand for a good must shift to the right when its price falls.
29. A couple of years ago the federal government adopted a policy that reduced the quantity of
steel that could be imported into the U.S. from other countries. This policy tends to
a. raise the price of steel in the U.S.
b. also reduce the quantity of steel sold by U.S. steel manufacturers.
c. reduce the price of cars made in the U.S. (which contain a lot of steel).
d. shift the demand curve for steel down to the left in the U.S.
30. Suppose it costs $99 for Burger King to produce 49 hamburgers per hour, and it costs $100 to
produce 50 hamburgers per hour. Then the marginal cost of producing the 50th hamburger
per hour equals
a. $1.
b. $2.
c. $100.
Exam #1 - Economics 103
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Exam #1 – Sample
Economics 103
Wayne Carroll
Name: ____________________________
Part I – Applied Problems (ten points total)
1. (5 points) Suppose that Peru and Chile both produce only two goods: salsa and grapes. Their
production possibilities curves are shown below. Each country starts out producing at point
A on its curve.
Chile
Peru
50
60
40
50
40
30
salsa
salsa
60
A
20
30
A
20
10
10
0
0
10
20
30
40
grapes
50
60
70
0
0
10
20
30
40
50
60
grapes
a. Does Chile have a comparative advantage (relative to Peru) in producing either good? Or
both goods? Why or why not? Explain, and show your work.
b. Suppose each country specializes, and then they trade with each other. Mark as Point B
on each curve the combination each country would produce if it specializes.
c. Figure out a trade that Peru and Chile could undertake that would make each country
better off:
Peru could sell _______ (quantity) units of _________________ (Good) to Chile.
Chile could sell _______ (quantity) units of _________________ (Good) to Peru.
Mark as Point C on each graph the point at which each country would end up after
this trade.
2. (5 points) Hurricanes Katrina and Rita recently devastated much of the Gulf Coast. Many oil
wells are located in the Gulf of Mexico off Louisiana and Texas, and they have been forced
to shut down. When these oil wells stop producing oil due to the storms, how does this affect
the market for oil? Draw a graph showing the demand for oil and the supply of oil to
show what effect these storms have had on the market for oil. Be sure to label your graph
clearly and completely. Briefly explain your graph and your results.
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