Download ECON 1: PRINCIPLES OF MACROECONOMICS

PRACTICE QUIZ 1
1. To celebrate its 50th anniversary, a gasoline station sells gasoline at the price it charged on its first day of
operation: $0.10 per gallon. As you drive by the gasoline station, you notice that there is a long line of
people waiting to buy gasoline.
What types of people would you expect to join the
line?_________________________________________________________________________________
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2. “The cost of a masters degree in engineering equals the tuition plus the cost of books.” True or false?
Explain.______________________________________________________________________________
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3. Suppose a nation picks 1,000 young adults at random to serve in the army. What information do you
need
to
determine
the
cost
of
using
these
people
in
the
army?
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4. Explain the logic behind the economist’s quip that “There is no such thing as a free lunch.”
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5. In March of 1996, many news reports predicted that the price of coffee was about to rise sharply, possibly
by as much as 20%, within a short period of time. The reason for the expected increase was a poor coffee
crop in much of South and Central America and labor problems in Brazil and Columbia that had driven
up wages.
A.
What would be the effect on the coffee market?Support your answer with a supply/demand
graph.
B.
What would happen in the market for tea? For donuts and other goods commonly consumed
with coffee?
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6. Complete the statement with "increase" or "decrease": When a price increases, the law of demand
suggests that the quantity demanded will _________, while the law of supply suggests that the quantity
supplied will __________.
7. List the variables that are held fixed in drawing a market demand curve.
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8. List the variables that are held fixed in drawing a market supply curve.
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9. Complete the statement: The market equilibrium is shown by the intersection of the ___________ curve
and
the
______________
curve.
10. Complete the statement with “less” or “greater”: Excess demand occurs when the price is _________
than the equilibrium price; excess supply occurs when the price is _________ than the equilibrium price.
11. Complete the statement with "supply" or "demand": A maximum price below the equilibrium price causes
excess ________, while a minimum price above the equilibrium price causes excess _________.
12. Which of the following items go together?
A. Change in demand
D. Movement along the demand curve
B. Change in quantity demanded E. Shifting the demand curve
C. Change in price
F. Change in income
13. What's wrong with the following statement? "Demand increased because the demand curve shifted."
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14. Complete the statement with “right” or “left”: An increase in the price of cassette tapes will shift the
demand curve for CDs to the _________________; an increase in the price of CD players will shift the
demand curve for CDs to the _____________________.
15. From the variables, quantity of pencils, number of potential consumers, price of pencils, price of pens,
consumer income, circle the change as we move along the market demand curve for pencils, and cross out
those that are assumed to be fixed.
16. Which of the following items go together?
A. Change in quantity supplied
D. Shifting the supply curve
B. Change in production cost
E. Change in price
C. Change in supply
F. Movement along the supply curve
17. True or False, and explain: An increase in the wage of computer workers will shift the supply curve for
computers to the left.
18. From the variables, quantity of housing, number of potential consumers, price of wood, price of houses,
consumer income, circle those that change as we move along the market supply curve for housing, and
cross out those that are assumed to be fixed.
19. Complete the statement with "supply" or "demand": If the price and quantity change in the same
direction, ____________ is changing; if the price and quantity change in opposite directions, __________
is changing.
20. Suppose a freeze in Florida wipes out 20% of the orange crop. How will this affect the equilibrium price
of Florida oranges? Defend your answer with a graph.
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21. Suppose that between 1997 and 1999, the equilibrium price and the equilibrium quantity of VCR both
decrease. Draw a supply and demand diagram that explains these changes.
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