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Economics 1 Unit 1 Test
Class Time:
Name:
Part A. Answer the following 7 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
umbrellas if there is an unusually dry winter (that is, less rain than normal). Mark the
starting price of the umbrellas 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 dog
food if there is a fall in the price of dogs. 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.
It is possible for an inefficient point to be better than some efficient points. 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. Fill in the following 2 lists. Each pair of correct answers is worth 1 point.
a. List 4 of the 5 factors that affect demand.
1)
3)
2)
4)
b. List 4 of the 6 factors that affect supply.
1)
3)
2)
4)
5. Below is a table of 3 workers and how much calculators 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
2
10
_____ Betty
8
8
_____ Charles
4
2
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.
A minimum wage law of $15 an hour will guarantee that everyone wanting to work will be
able to get that wage. Use a supply and demand diagram to support your answer.
7. Why are market economies usually better at providing large amounts of the goods people
want than command economies?
Part B. Answer the following 32 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. a person who makes money by organizing the factors of production in a new way.
c. a person who seeks to earn profits by organizing factors of production.
d. all other things unchanged.
3. Which of the following is a normative statement?
a. Economics is a better class than history.
b. Economics class uses graphs and diagrams.
c. Both a and b.
d. Neither a or b.
4. Which of the following is a positive statement?
a. A life with a good sports car is better than a life without a sports car.
b. Studying more will increase your chance of getting an A in this class.
c. Both a and b.
d. Neither a or b.
5. Which of the below is one of the 3 fundamental questions of economics?
a. What should we produce?
b. How much should everyone be paid?
c. Should we build our first aircraft carrier in Kansas or Maine?
d. Where should we produce?
6. What is microeconomics?
a. The study of individual consumers, businesses, and markets.
b. The study of how the total economy or aggregate economy is doing.
c. The study of money.
d. The study of how a society allocates scarce resources to satisfy unlimited wants.
7. Which of the following is on the list of things that affects supply (shifts the supply curve)?
a. Expectation of future price.
b. Price of an input.
c. Both of the above.
d. None of the above.
8. Which of the following is on the list of things that affects demand (shifts the demand curve)?
a. Natural events.
b. The price of the good.
c. Preferences.
d. Both b and c.
9. If two goods are inferior goods, then:
a. if income rises, people buy more of them.
b. if income rises, people buy less of them.
c. if people have more of one, they will want more of the other one.
d. if people have more of one, they will want less of the other one.
10. Which of the following is a good example of the law of increasing opportunity cost?
a. It costs more to build the second aircraft carrier than the first.
b. It costs more to build two aircraft carriers than one.
c. A factory that produces at a cheaper cost as it produces in bulk.
d. Trick question – there is no such thing as a “law of increasing opportunity cost”.
11. A potential problem with a market economy is:
a. money is not an incentive for many people.
b. voluntary transactions don’t work well to get goods made in other countries.
c. businesses usually make more money if they treat their customers badly.
d. The market cares more for the desires of the very rich than the very poor.
12. Why does the law of increasing opportunity cost exist?
a. The experience a worker gets making a product, the better he gets at making it.
b. The more of a good you make, the more advertising you can afford for it, so the more of
it you can sell.
c. It costs twice as much to make twice as much of anything.
d. As you hire additional workers, the additional workers are probably worse than the
already hired workers.
13. When an economy has economic growth, this is shown on a PPF diagram by:
a. Moving the PPF line out (up and to the right).
b. Moving the PPF line in (down and to the left).
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 the demand curve shifts to the left and the supply curve shift to the right, what happens to price?
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. What does economics have to say about the value of a human life?
a. Every life is infinitely valuable.
b. There is never a cost that is too high to save a life.
c. Saving lives is a benefit, but sometimes it is too costly to be worth it.
d. Both a and b.
18. A store owner would most likely prefer to have a sale on an item that has many:
a. complements.
b. substitutes.
c. opportunity costs.
d. it doesn’t matter, each item is as good to have a sale on as any other.
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. If two goods are complements, then:
a. people buy more of them when their income rises.
b. people buy less of them when their income rises.
c. when people have more of one, the they buy less of the other.
d. when people have more of one, they buy more of the other.
21. 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.
22. 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.
23. Which of the following is a correct statement of part of the Law of Supply?
a. When price goes up, quantity supplied goes up.
b. When price goes up, quantity supplied goes down.
c. When price goes up, supply goes up.
d. When price goes up, supply goes down.
24. What is the largest opportunity cost of going to Bakersfield College for most students?
a. Tuition.
b. Textbooks.
c. Lost Wages
d. As long as you make more money back later in higher income, there is no cost of going
to Bakersfield College.
25. The supply curve by itself (without the demand 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.
26. 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.
27. Setting a price control price below the equilibrium price usually results in customers being
treated:
a. better.
b. worse.
c. sometimes better, sometimes worse.
d. it should not result in any difference in how customers are treated.
28. 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 other person can not.
d. that person is stronger than the other person.
29. Anything that lowers the cost of production causes:
a. the demand curve to move right.
b. the demand curve to move left.
c. the supply curve to move right.
d. the supply curve to move left.
30. For the last 200 years, which of the following has been mostly true for the western
economies?
a. Population growth has used up our resources so we have been getting poorer.
b. Population growth and technological progress have been proceeding at about the same
pace so living standards have remained close to the same.
c. Technological progress has been proceeding faster than population growth, so we have
been getting richer.
d. Sometimes one, sometimes the other has been growing faster, so living standards have
cycled up and down.
31. A model in economics is:
a. a realistic simulation of all the factors that could possibly affect a result.
b. a simpler version of reality that leaves some things out so that others can be understood.
c. a name for the person who explains what is going on, such as a model might make a
presentation at an event or on a game show.
d. trick question – there is no such thing as a model in economics.
32. When we say technology improves in discussing supply and demand, what do we mean?
a. We learn how to make the same quality product for a cheaper cost.
b. We learn how to make a higher quality product which customers will like better.
c. Both a and b.
d. Trick question – technology never improves in a supply and demand discussion.