Download 1 Solutions - Practice Test 1 1. C – note that the graph shows the

Solutions - Practice Test 1
1. C – note that the graph shows the supply of peanuts… so if we want to show the relationship between
P and Q for peanuts…all other variables besides P and Q for peanuts are constant. So the price of
pecans is constant. (i.e. if you want a 2D relationship everything else cannot change)
2. D – the definition of slope is Δy/Δx…which is just the change in y divided by the change in x.
Note: Another interpretation that is common is that it is the change in y for every 1 unit change in x. For
example 10/2 = 5 or 5/1...so for every 1 unit change in x we get a 5 unit change in y.
3. D – this is the how we decide to produce goods and services (G/S).
4. D – the line is upward sloping…so it is direct and linear. Another word for direct is positive or upward
sloping.
5. E – this is just the definition of simple circular flow which has the two markets for Goods/Service and
then the Factor market which is for the factors of production.
6. C – in the circular flow we see that government receives taxes from HH and also pays them transfers.
The question doesn’t have this as a solution…but the government also buys goods/services in the Good
market.
7. B – as there is more production…the PPF would shift outward showing that there is greater amounts
of X and Y that are produced. This is also called economic growth.
Good Y
PPF 1
PPF 2
Good X
8. E – recall that if we have a choice between consumption and capital goods, if we produce less capital
and more consumption goods then our future production would go down. This is because capital (K) is
what allows us to produce G/S. So if we choose to produce less of it…then we can’t produce as much in
the future.
9. C – if a nation has a comparative advantage…it means producing with lower OC. If there is a
comparative advantage present it means nations can trade for goods and services they have a CA in and
get more than if they simply produced all the G/S themselves.
10. C – Growth in the economy means the ability to produce more G/S. See picture in Q7
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11. B – if the price is higher than PE then we have that Qs > Qd which is a surplus.
P
S
Surplus
D
Q
Qd
Qs
12. C – the law of demand is based on the notion that as the price is higher people search for lower cost
alternatives.
13. E – simply note that if the price is 3, then on the schedule the quantity is 60.
14. D – recall that OC is the highest valued alternative and not simply everything you don’t choose. So it
is whatever is the 2nd choice between the chips and Pepsi.
15. C – when you increase one variable, if another variable decrease it is called a negative, indirect, or
inverse relationship.
16. D – recall that if you go from tacos and want to produce pizza…you should transfer over what is best
at pizza production. The last things you transfer over is what is good at tacos (and not good at pizza) b/c
you get very little pizza and must give up a lot of tacos. This is called increasing OC.
17. A – to get the overall Quantity at each price we simply add up all the q’s from each person at each
price. This is called horizontal summation. See below.
Price
1
2
3
D –Person 1
6
4
2
D –Person 2
10
6
3
D -Total
16
10
5
18. D – recall OC is what we give up of the other G/S when getting one more unit of something. So if
you get more pizza…it is the amount of soda you must give up to get that slice.
19. B – recall that the shifter of anything is what is NOT used to actually draw the graph. So for D we
have P and Q of the good or service for the graph (as seen below) so all OTHER variables that affect
demand must be held constant.
So we use P and Q to graph it…but
P
Income, Prices of other G/S, Tastes
and Preference, etc… or anything else
that affects D is constant.
D
Q
2
20. C – recall that to have a negative relationship it must be downward sloping. Note that it is not linear
however since it is not a simply a line.
21. C- as the number of suppliers goes up it shifts the supply curve outward; note that it is a shifter of S
because it is not simply changing P or Q which are use to draw the curve and are only movers.
P
S1
S2
Q
22. A- as before…if you change anything that it not P or Q (ie you held it constant) it shifts the curve.
Since the technology gets better it shifts supply outward. Since no demand variables change the D curve
stays the same.
23. E – recall that for supply the definition is what people are willing and able to supply/produce at a
given price.
24. D – as the price rises…we can see that the quantity rises as well.
P
S
1.50
0
Q
0
4
25. C- if you go back to Q11 and note that at a surplus the price is too high and results in Qs > Qd. So the
amount that consumers increases as price drops and the amount that producers produce drops (this is
the law of D and the law of S respectively).
26. C- recall that if technology gets better supply shifts out. So we can see that at market (you need
both S and D to know this) P drops and Q increases.
S1
P
S2
P1P
1
P2
Q
Q1
Q2
3
27. D - If P = 8 we can see that Qs = 90, while Qd = 10…so there is a surplus of 80 units.
28. A – if research shows that Pizza is healthy…then tastes and preference should go up for it. This is a
demand shifter and it would increase D.
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