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Exam 1 Review Supplemental Instruction Iowa State University 1. Scarcity is a problem that a) more efficient production would eliminate b) is nonexistent in wealthy economics c) exists due to finite amounts of resources and unlimited human wants d) arises when productivity growth slow down e) exists in command economies but not market economies 2. If a DVD costs $20 and VHS cost $10, then the opportunity cost of five DVDs is a) 50 VHSs b) 10 VHSs c) 5 VHSs d) 2 VHSs e) $25 3. Assuming that the alternative is employment, the opportunity cost of a university education is a) tuition cost only b) tuition and book costs only c) forgone salary only d) tuition costs plus book costs plus forgone salary e) all items in d plus university residence fees and the cost of cafeteria meals 4. Which of the following causes an outward shift in the production possibilities boundary? a) An increase in unemployment b) A loss in the productive capacity of agricultural acreage caused by a prolonged drought c) An increase in the productivity of all factors of production d) Shifting resources away from the production of the good toward another e) all of the above 5. Specialization of labor leads to a more efficient allocation resources because of a) more self-sufficiency b) the use of barter c) the principle of comparative advantage Leader: Maddie Course: Econ 101 Instructor: Kreider Date: September 20, 2015 d) a decrease in scarcity e) all of above 6. The term quantity demanded refers to the a) amount of a good that consumers are willing to purchase at some price during some given time period b) amount of some good that consumers would purchase if they only had the income to afford it c) amount of a good that is actually purchased during a given time period d) minimum amount of a good that consumers require and demand for survival e) amount of a good that consumers are willing to purchase regardless of price 7. Which of the following shifts the demand curve? a) Change in price of a good b) Number of buyers increases c) Buyers income goes down d) All the above e) B and C 8. A shift in the supply curve may be caused by any of the following except a) an improvement in technology b) an increase in the wage paid to labor c) an increase in average consumer income d) an increase in the number of firms in the industry e) both b and c are correct 9. The law of supply is: a) The higher the price, the higher the quantity supplied b) The lower the price, the higher the quantity supplied c) The higher the price, the lower the quantity supplied 10. The law of demand is Supplemental Instruction 1060 Hixson-Lied Student Success Center 294-6624 www.si.iastate.edu a) The lower the price, the lower the quantity demanded b) The higher the price, the lower the quantity demanded c) The higher the price, the higher the quantity demanded 11. A nation has a comparative advantage in producing some good if a) Its workers have a lower wage than workers in other countries b) It can produce the good with less resources than other countries c) It can produce the good with a lower opportunity cost than other countries 12. A country has a/an _____________________ in a good when it can produce the good with fewer resources than some other country. a) Absolute advantage b) Comparative advantage c) Complete advantage i. ½ coconut ii. 2 coconuts iii. 1 coconut f) Which country has the comparative advantage in coconuts? i. Country T ii. Country H iii. Neither country g) The country specializing in coconuts would produce how many? i. 20 ii. 30 iii. 40 h) The country specializing in fish would produce how many? i. 40 ii. 30 iii. 10 14. Refer to the graph below to for the following questions (a-d): 13. Give the following information answer questions below (a-h): B Production (in thousands) Coconuts Fish Country T 30 40 Country H 20 10 a) What is the opportunity cost of one fish in Country T? i. ¾ coconut ii. 4 coconuts iii. 4/3 coconuts b) What is the opportunity cost of one fish in Country H? i. ½ coconut ii. 2 coconuts iii. 1 coconut c) Which country has the comparative advantage in fish? i. Country T ii. Country H iii. Neither country d) What is the opportunity cost of one coconut in Country T? i. ¾ fish ii. 4 fish iii. 4/3 fish e) What is the opportunity cost of one coconut in Country H? C A a) What does this graph represent? i. Supply and Demand ii. Production Possibility Frontier iii. Production Potential Frontier b) Which area of this graph is unfeasible? i. A ii. B iii. C c) Which area of the graph is feasible and efficient? i. A ii. B iii. C d) Which area of the graph is feasible and not efficient? i. A ii. B iii. C 15. Refer to the graph below to answer the following questions (a-e): D B A C a. What does this graph represent? i. Supply and Demand ii. Production Possibility Frontier iii. Neither b. Which of the following represents supply? i. A ii. B iii. C iv. D c. Which of the following represents demand? i. A ii. B iii. C iv. D d. Which of the following represents quantity? i. A ii. B iii. C iv. D e. Which of the following represents price? i. A ii. B iii. C iv. D 16. Which of the following would cause a rightward shift of the demand curve in the market for fresh eggs in St. Louis? a) An increase in the price of powdered eggs, a substitute for fresh eggs b) An increase in the number or firms in the egg-producing industry c) CNN comes out with an article saying that scientists have found that fresh eggs cause lung cancer d) A terrible tornado in St. Louis causes major destruction and causes many consumers to leave the area e) None of the above 17. Which of the following would shift the supply curve for a good leftward? a) A rise in the price of a complement b) A rise in the price of an input used in producing the good c) Suppliers leaving a given area d) All of the above 18. If there is excess supply of a good, we can generally expect a) The demand curve to shift leftward b) A surplus c) A shortage d) The demand curve to shift rightward 19. If used books are an inferior good, then a decrease in income will cause a a) Rightward shift of the demand curve for used books b) Leftward shift of the demand curve for used books c) Shift in both the demand and supply curves for used books d) Rightward shift in the supply curve for used books 20. Who has the absolute advantage for making burgers, fries? McDonald’s - Fries & Burger King - Burgers 21. Who has the comparative advantage for each output? McDonald’s – Fries & Burger King - Burgers One Hour McDonald’s Burger King Burgers 4 5 Fries 16 15 22. The market for pizza is the following table. Price 2 3 4 5 6 Quantity Demanded 80 65 50 35 20 Supplied 10 30 50 70 90 a). What is market equilibrium for price and how much is demanded? $4 and 50 for Quantity b). If the Price was $2 would there be a surplus or shortage? Shortage c). If the price of hamburgers went up, how would that affect the market for pizza? Pizza would increase in demand 23. The price of t-shirts rises from $8 to $12. The quantity demanded falls from 110 to 90. What is the elasticity of this good? a) .2 b) .5 c) 2 d) 5 24. What does it mean if a goods price elasticity for demand is 3? a) It is elastic b) The price sensitivity is high c) It is a necessity d) all the above e) just a and b 25. What does a supply curve that’s inelastic look like? a) It is steeper with price being more sensitive than quantity supplied. b) It is more flat with price being more sensitive than quantity supplied. c) It is steeper with quantity supplied being more sensitive than price. d) It is more flat with quantity supplied being more sensitive than price. 26. What does a negative cross-price elasticity mean? a) The good is inferior b) The good is normal c) The good is a compliment. d) The good is a substitute