Download Economics 1 - Bakersfield College

Economics 1 Unit 1 Test
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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 4th
of July fireworks if there is a rise in the price of potassium nitrate which is the explosive
oxidizer input used in many fireworks. Mark the starting price of fireworks 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
steak sauce if there is a fall in the price of steak. Mark the starting price of the steak sauce
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.
Any efficient point is always better than at least some inefficient 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. Put calculators on the horizontal axis.
Calculators
Butter
_____ Arnold
2
4
_____ Betty
6
6
_____ Charles
8
4
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 gasoline 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 gasoline for that cheaper price will be able to do so. Use a supply and
demand diagram to support your answer.
7. Because we live in a market economy, to get more umbrellas to the market in a rainy winter,
the government has to order the umbrella producers to make more umbrellas.
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. It is over 100 degrees today.
b. It would be better if it were cooler.
c. Both a and b.
d. Neither a or b.
4. Which of the following is a positive statement?
a. The more you study for this test, the better you will likely do.
b. Studying more for this class is a good idea.
c. Both a and b.
d. Neither a or b.
5. Which of the below is not one of the 3 fundamental questions of economics?
a. What shall we produce?
b. What time shall we produce it?
c. Who gets what is produced?
d. How shall we produce it?
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 demand (shifts the demand curve)?
a. Expectation of future price.
b. Price of a related good.
c. Both of the above.
d. None of the above.
8. Which of the following is on the list of things that affects supply (shifts the supply curve)?
a. Preferences.
b. The price of the good.
c. Returns to alternate opportunities.
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 candy store offers a buy one, get one half-off deal. This is an example of:
a. decreasing opportunity cost.
b. constant opportunity cost.
c. increasing opportunity cost.
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. If sellers think the price of a good is going to rise, and it is a storable good, the supply curve will:
a. move to the right.
b. move to the left.
c. stay where it is.
15. If the demand curve shifts to the right and the supply curve shift to the right, 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 expectation of the future.
b. Change in technology.
c. Change in price of the good.
d. Both a and c.
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. When there is decreasing opportunity cost, then the total cost to buy 2 units of a good
compared to one unit is:
a. lower.
b. the same.
c. higher.
23. Which of the following is a correct statement of part of the Law of Demand?
a. When price goes up, quantity demanded goes up.
b. When price goes up, quantity demanded goes down.
c. When price goes up, demand goes up.
d. When price goes up, demand goes down.
24. Where are the unattainable points on the PPF diagram?
a. Inside/under the PPF line.
b. On the PPF line.
c. Outside/over the PPF line.
d. All of the above.
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 raises 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. Who won the Julian Simon-Paul Ehrlich bet on what was going to happen to the
prices of 5 basic metals from 1980 to 1990.
a. Simon, because most of the prices were still lower.
b. Ehrlich, because most of the prices were now higher.
c. It would have been a tie, because prices stayed where they were on average.
d. Trick question – there never was a bet between Julian Simon and Paul Ehrlich.
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. What is an entrepreneur?
a. A worker on an assembly line that works with robots or computers.
b. A robot or computer on the assembly line that can produce goods without the assistance
of humans.
c. A person who makes money by analyzing stock trends and predicting the price of stocks
in the future.
d. A person who organizes factors of production in a new way to make money.