Download Economics 1 - Bakersfield College

Economics 2 Unit 1 Test
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Part A. Answer the following 6 questions. Each question is worth 4 points.
1. Use a supply and demand diagram to show what will happen to the price and quantity of
computers if there is an advance in the technology used to make computers. Mark the
starting price of the computers P1, the ending price P2, the starting quantity Q1, and the
ending quantity Q2. Be sure to label both axis on the diagram and any lines you draw in the
diagram with the proper letter; and if you move a line, mark the first line with a subscript 1
and the second with a subscript 2. Next to the diagram, write whether price is rising or
falling and whether quantity is rising or falling.
2. Use a supply and demand diagram to show what will happen to the price and quantity of
dogs if there is a rise in the price of cats. Assume that dogs and cats are substitutes. Mark
the starting price of the dogs P1, the ending price P2, the starting quantity Q1, and the ending
quantity Q2. Be sure to label both axis on the diagram and any lines you draw in the diagram
with the proper letter; and if you move a line, mark the first line with a subscript 1 and the
second with a subscript 2. Next to the diagram, write whether price is rising or falling and
whether quantity is rising or falling.
3. Answer whether the following statement is true, false, or uncertain, and explain your answer.
Even though country A is producing inefficiently, it is possible that the people of that country
are happier than they would be at any alternative point of production. Illustrate your answer
with a PPF diagram (one that assumes there is increasing opportunity cost). Make sure to
include at least one efficient point and one inefficient point in your diagram and make clear
which is which.
4. For the following economy, calculate its nominal and real GDP in years 1 and 2. Assume
year 1 is the base year.
Year 1
Year 2
Slinkies
Q
P
4
$2
5
$1
Twinkies
Q
P
3
$4
2
$5
5. Below is a table of 3 workers and how much calculator and butter they can make. Currently
all the workers are making butter. Mark the best order to move these workers out of
butter and into making calculators on the line before each worker’s name (writing 1, 2,
and 3). Then draw the PPF line for this economy.
Calculators
Butter
_____ Arnold
12
4
_____ Betty
2
2
_____ Charles
4
8
16
14
12
10
8
6
4
2
0
0
2
4
6
8
10
12
14
16
18
20
6. Answer whether the following statement is true, false, or uncertain, and explain your answer.
If the price of BMW’s is higher than many people want to pay, the government can pass a law
setting a maximum legal selling price below the equilibrium price, and now everyone who
wants to buy a BMW for that cheaper price will be able to do so. Use a supply and demand
diagram to support your answer.
Part B. Answer the following 36 multiple choice questions by marking the letter of the best
answer on your scantron. Each question is worth 1 point.
1. Economics is the study of:
a. the role of money in the economy and how a society should properly utilize it.
b. how a society allocates scarce resources to satisfy unlimited wants.
c. how market economies use the technique of supply and demand to determine prices and
quantities.
d. supply and demand.
2. Ceteris paribus means:
a. the model is correctly set up.
b. all other things unchanged.
c. a person who seeks to earn profits by organizing factors of production.
d. the skills a worker has because of his education.
3. Which of the following is a normative statement?
a. The minimum wage should be higher.
b. The minimum wage is currently at $8.00 an hour in California.
c. Both a and b.
d. Neither a or b.
4. Which of the above is a positive statement?
a. The United States economy is great!
b. The United States currently has over 7% unemployment.
c. Both a and b.
d. Neither a or b.
5. What is human capital?
a. The skills a worker has as a result of education, training, or experience that can be used in
production.
b. Machines in the shape of humans, in other words, robots.
c. Assigning workers to their tasks so that it is impossible to make more of one thing without
making less of something else.
d. A business man taking advantage of an opportunity that nobody else has yet seen.
6. Who is an entrepreneur?
a. A customer who shops at various stores and is careful to almost always pay the cheapest
price.
b. A government official who makes laws or regulations that help the economy serve the
needs of the people.
c. An advertising executive who helps a businessman find customers through an effective
advertising campaign.
d. A person who, operating within the context of a market economy, seeks to earn profits by
finding new ways to organize factors of production.
7. Which of the following is on the list of things that affects supply (shifts the supply curve)?
a. Preferences.
b. Seller expectations.
c. Income.
d. Prices of related goods.
8. Which of the following is on the list of things that affects demand (shifts the demand curve)?
a. Technology.
b. The price of the good.
c. Buyer expectations.
d. All of the above.
9. Which of the following is on the list of things that affects demand (shifts the demand curve)?
a. Income.
b. Buyer expectations.
c. Demographics.
d. All of the above.
10. Which of the following is on the list of things that affects supply (shifts the supply curve)?
a. Returns from alternate opportunities.
b. Buyer expectations.
c. Prices of related goods.
d. All of the above.
11. Which of the following is considered one of the main types of economies.?
a. Computer based.
b. Religious.
c. Market.
d. All of the above.
12. What is the law of increasing opportunity cost?
a. The more of a good that is made, the higher the total cost of making it goes.
b. The more of a good you make and try to sell, the lower the price you can get from
customers becomes.
c. It costs twice as much to make twice as much of anything.
d. The more of a good that is being made, the greater the cost of making one more becomes.
13. When an economy has economic growth, this is shown on a PPF diagram by:
a. Moving the PPF line in (down and to the left).
b. Moving the PPF line out (up and to the right).
c. Moving from one point on the PPF line to another point on the PPF line.
d. Moving from one point on the PPF line to another point that is inside the PPF line.
14. When the government lowered the speed limit to 55 miles per hour:
a. this had to be a good thing because at no monetary cost to drivers, the country saved
both gasoline and lives.
b. the cost to drivers can be accurately measured by the dollar value of the speeding ticket
fines they now had to pay.
c. the primary cost of the law was in the loss to the drivers of extra time they now had to
spend driving.
d. this had to be a bad thing because the government’s action had an opportunity cost.
15. If both the demand curve and the supply curve shift to the left, what happens to quantity?
a. It always increases.
b. It always decreases.
c. It may increase or decrease, there is not enough information to tell.
d. In the real world, both curves could never move at the same time.
16. Which of the following can move both the supply and demand curves?
a. Change in income.
b. Change in expectations of the future.
c. Change in technology.
d. Change in price of the good.
17. Which goods will a market economy likely have problems providing for its citizens?
a. Goods made primarily in other countries, such as coffee.
b. Goods that require complicated technology to make, such as computers.
c. Good that are greatly impacted by the weather, such as oranges.
d. Goods that do not normally have prices associated with them, such as clean air.
18. A person with the marketable labor skill of accounting is laid off because the business he worked
for went bankrupt when a competitor was more successful. What category of unemployment does
he belong in until he finds a new job?
a. Frictional.
b. Structural.
c. Cyclical.
d. Seasonal.
19. For which situation are people least likely to bargain over the price of the good?
a. The good is cheap and it is a low wage country.
b. The good is cheap and it is a high wage country.
c. The good is expensive and it is a low wage country.
d. The good is expensive and it is a high wage country.
20. What is the difference between the consumer price index and the implicit price deflator?
a. The consumer price index only measures changes in consumer prices, while the implicit price
deflator also includes prices of things purchased by the government and businesses.
b. The implicit price deflator only measures changes in consumer prices, while the consumer price
index also includes prices of things purchased by the government and businesses.
c. There is no difference, they both measure the exact same thing.
d. CPI measures changes in prices, and the implicit price deflator measures changes in quantity.
21. Which of the following is true?
a. Nominal GDP measures an average of price and quantity changes, but real GDP
measures only quantity changes.
b. Both nominal and real GDP measure an average of price and quantity changes.
c. Nominal GDP measures only quantity changes, but real GDP measures an average of
price and quantity changes.
d. Both nominal and real GDP measure only quantity changes.
22. If a country is producing efficiently, then:
a. it is impossible for them to make more of one thing without making less of something else.
b. it is possible for them to make more of one thing without making less of something else.
c. they must be producing at a point outside the PPF line on the PPF diagram.
d. both b and c.
23. When the consumer price index rises by 6%, this means:
a. the price of each individual consumer good rose by exactly 6%.
b. the price of each good in the country, whether a consumer good or not, rose by exactly 6%.
c. the price of each good in the country was necessarily higher in the second year than the first
year.
d. the average price of all consumer goods rose by 6%.
24. When a country is at the natural rate of unemployment, over time its wages will:
a. rise.
b. fall.
c. stay the same.
d. trick question – wages have no relation to the natural rate of unemployment.
25. Why does the law of increasing opportunity cost exist?
a. As more of a good is produced, the producer must move to using resources which are
getting worse and worse for production.
b. As more of a good is produced, the producer must move to using resources which are
getting better and better for production.
c. Because businesses can charge higher prices when they have more customers and thus
produce more.
d. It doesn’t, actually costs go down as more is produced.
26. Which of the following most accurately describes the U.S. economy?
a. Completely market economy.
b. Mostly market economy.
c. Mostly command economy.
d. Completely command economy.
27. Which of the following is a correct statement of part of the Law of Demand?
a. When price goes up, demand goes up.
b. When price goes up, demand goes down.
c. When price goes up, quantity demanded goes up.
d. When price goes up, quantity demanded goes down.
28. When prices are falling over time in an economy, this is known as:
a. inflation.
b. deflation.
c. reflation.
d. flatflation.
29. There is a lot of political uncertainty in the oil producing countries in the Middle East right
now. If people expect this will cause higher oil prices in the future, the effect on oil prices
now is:
a. they will not change unless a shortage does develop, then the price will go up.
b. they will fall right now, and then if a shortage does develop, they will rise.
c. they will rise right away, even before the shortage hits.
d. since the U.S. has a command economy, the government sets the price and whatever they
order to happen, is what will happen.
30. The demand curve by itself (without the supply curve) gives enough information to know:
a. the price a good will have in the market, but not the quantity made.
b. the quantity of the good that is actually being sold in the market, but not the price.
c. both the actual price and quantity the good will be sold for in the market.
d. none of the above.
31. When a supply curve shows businesses making quantity Q1 if the price is P1, this is because:
a. at that price, customers don’t want to buy more than Q1 of the good.
b. it is past Q1 that the cost of production goes above the selling price.
c. by government law, they can only sell Q1 of the good.
d. there is no reason really, it is just a result of random chance.
32. When will a government policy to reduce usage of a good by raising its price (such as the
war on drugs does) be more successful?
a. When the elasticity of demand is low.
b. When the elasticity of demand is high.
c. When the elasticity of demand is neither high nor low, but in between.
d. The elasticity of demand will not affect the success of the policy.
33. Third party payment in health-care by insurance companies or the government probably has
the effect of:
a. increasing demand.
b. decreasing demand.
c. holding demand constant.
d. trick question – there is no such thing as third party payment in health care.
34. When would an economy not have increasing opportunity cost?
a. If businesses would prefer not to have an increasing cost of production.
b. If it was a command economy.
c. If all the resources in the economy were equally good at producing all things.
d. If they were producing efficiently.
35. Macroeconomics is primarily about:
a. how individual shoppers decide what to buy.
b. how individual businesses decide what to produce.
c. how individual markets, like the car market perform.
d. how overall production, prices, and unemployment are doing.
36. Between two people, one is said to have the comparative advantage when:
a. that person can produce a good faster than another person.
b. that person can produce a good for a lower opportunity cost than another person.
c. that person can produce a certain good and the person can not.
d. than person is stronger than the other person.