Download ECON102 Midterm 1 - The College of Business UNR

ECON102 Midterm 1
Multiple Choice (ANSWER ALL QUESTIONS - 75 Minutes)
Identify the choice that best completes the statement or answers the question.
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1. When resources are limited, but wants are unlimited, individuals must
a. make choices among available alternatives.
b. put the public interest before self-interest.
c. become less greedy.
d. reduce their expectations.
e. become more self-sufficient.
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2. When economists talk about a mixed economy, they are referring to
a. interaction between the product and the labor markets.
b. the observation that both government and individuals make decisions.
c. interaction between consumers and producers.
d. the relationship between microeconomics and macroeconomics.
e. the observation that both consumers and firms make decisions.
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3. In the labor market, households
a. buy labor services.
b. sell labor services.
c. buy firms’ output.
d. buy and sell labor services.
e. lend money to firms.
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4. Markets in which firms sell their output are called
a. capital markets.
b. stock markets.
c. labor markets.
d. farmers’ markets.
e. product markets.
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5. Microeconomics is that branch of economics that focuses primarily on
a. market economies.
b. the behavior of individual units.
c. centrally planned economies.
d. economic aggregates such as unemployment and inflation.
e. aggregate economic activity.
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6. Thinking like an economist involves focusing on each of the following except
a. trade-offs.
b. incentives.
c. distribution.
d. information.
e. None of the above.
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7. Rationality, in the case of firms, is taken to mean that they strive to
a. maximize profits.
b. charge the highest possible price.
c. maximize revenues.
d. sell the highest quantity possible.
e. minimize costs.
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8. A market system allocates resources through
a. queues.
b. prices.
c. coupons.
d. chance.
e. a lottery.
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9. The constraints imposed by money are referred to as
a. money constraints.
b. opportunity constraints.
c. demand constraints.
d. budget constraints.
e. choice constraints.
____ 10. Katy spends her income on CDs and DVDs. Her budget constraint indicates
a. the various combinations of quantities of CDs and DVDs she can afford, given her
income.
b. how many CDs and DVDs she owns.
c. how many CDs she can buy with her income if she does not buy any DVDs.
d. her preferred combinations of quantities of CDs and DVDs.
e. how many DVDs she wants if she buys all the CDs she likes.
____ 11. Assume that pizza and Coke are the only two goods available to Ian. The price of Coke is $2 per pitcher and
pizza is $1 per slice. If Ian has $20 to spend, which graph in Figure 2.1 represents Ian’s budget constraint?
a. graph A
b. graph B
c. graph C
d. graph D
e. graph E
____ 12. Colin sleeps eight hours a night and works eight hours a day. He spends the rest of his time bird-watching and
riding his bike. Figure 2.3 shows Colin’s time constraint for these two activities. If Colin moves from point A
to point B, this represents
a. an increase in bike riding, at the expense of bird-watching.
b. an increase in bird-watching, at the expense of bike riding.
c. an increase in both bird-watching and bike riding.
d. a decrease in both bird-watching and bike riding.
e. a movement from an attainable point to an unattainable point.
____ 13. A country’s production possibilities curve is downward sloping because
a. resources are equally well equipped for the production of any good.
b. the more the country’s inhabitants have of anything, the lower is the value they place on
having more of it.
c. some resources are better equipped for the production of one good than another.
d. if we want to produce more of one good, we must sacrifice some production of the other
good.
e. different goods require different combinations of labor and capital in their production.
____ 14. The opportunity cost of an activity is
a. the amount of money spent on the activity.
b. the value of the time spent on that activity.
c. zero if you do not have to pay to undertake the activity.
d. infinite if you cannot really spare the time to undertake the activity.
e. the next-best alternative use of all the resources put to use in that activity.
____ 15. Most economists would point to which of the following reasons for a great college basketball player to fail to
complete his college degree?
a. his love for the game
b. his dislike of taking tests
c. his forgone income while finishing school
d. his lack of academic success relative to his peers
e. pressure from professional basketball franchises
____ 16. The curve that describes the quantities of a product that a buyer would like to purchase at different prices is
called the
a. demand curve.
b. supply curve.
c. production possibilities curve.
d. budget constraint.
e. opportunity set.
____ 17. Along an individual demand curve, an increase in quantity demanded occurs when
a. price has increased.
b. price has decreased.
c. the consumer’s income has fallen.
d. the consumer’s income has increased.
e. the individual is induced to reduce consumption by an increase in price.
____ 18. As price rises, quantity demanded falls along an individual consumer’s demand curve because
I. the lower price encourages the consumer to buy more units of the good.
II. as the price falls, consumers enter the market.
Which of the following is correct?
a. Only I applies.
b. Only II applies.
c. Both I and II apply.
d. Neither I nor II applies.
e. Either I or II can apply, but not simultaneously.
____ 19. An increase in consumers’ income will normally cause
a. a movement along the demand curve such that quantity demanded declines.
b. the demand curve to shift to the left.
c. an individual to decrease consumption of any goods she purchases.
d. the demand curve to shift to the right.
e. a movement along the demand curve such that quantity demanded increases.
____ 20. Soaring gasoline prices in the 1970s led to significant decreases in the purchases of large cars and
corresponding increases in the purchases of compact cars. The relationship between large and compact cars
illustrated here is an example of
a. competitive markets.
b. international trade.
c. changing tastes and preferences.
d. complements.
e. substitutes.
____ 21. A fall in the price of Budweiser is likely to result in
a. a rightward shift in the demand curves for other makes of beer that are substitutes for
Budweiser.
b. a rightward shift in the demand for Budweiser.
c. a leftward shift in the demand for pizza, a complement.
d. a leftward shift in the demand curve for Budweiser.
e. a leftward shift in the demand curves for other makes of beer that are substitutes for
Budweiser.
____ 22. Figure 3.3 shows supply curves for two firms producing the same product. If these are the only two firms in
the economy, market supply at a price of $4 will be
a. twenty-five units.
b. twenty units.
c. fifteen units.
d. ten units.
e. five units.
____ 23. Table 3.1 shows the quantities demanded and supplied at different prices. At a price of a $1.80,
a. there is an excess demand of 3,200 units.
b. there is excess supply of 6,400 units.
c. the market is in equilibrium.
d. there is an excess demand of 6,400 units.
e. there is an excess supply of 3,200 units.
____ 24. Total revenue will decline if the price _____ when the demand curve _____.
a. rises; has unit price elasticity.
b. falls; has unit price elasticity.
c. rises; is price elastic.
d. rises; is price inelastic.
e. falls; is price elastic.
____ 25. If the price of a product increases, but the quantity demanded does not decline at all, the demand for this
product in this price range
a. is perfectly price elastic.
b. is price elastic.
c. has a price elasticity of unity.
d. is price inelastic.
e. is perfectly price inelastic.
____ 26. If the supply for a product is price elastic, the value of elasticity will be
a. zero.
b. less than 1.
c. equal to 1.
d. greater than 1.
e. infinite.
____ 27. If the quantity demanded of a product increases at every price (shifting the demand curve rightward) and the
supply of the product is perfectly price inelastic, equilibrium quantity will _____ and equilibrium price will
_____.
a. increase; remain constant
b. increase; increase
c. decrease; remain constant
d. remain constant; increase
e. remain constant; decrease
____ 28. If the quantity supplied increases at every price (shifting the supply curve rightward) and demand for the
product is perfectly price inelastic, equilibrium quantity will _____ and equilibrium price will _____.
a. remain constant; decrease
b. remain constant; increase
c. increase; increase
d. decrease; remain constant
e. increase; remain constant
____ 29. If the quantity demanded of a product decreases at every price (shifting the demand curve leftward) and the
supply curve of the product is relatively price elastic, equilibrium quantity will _____ and equilibrium price
will _____, but equilibrium _____ will change proportionately more.
a. decrease; decrease; quantity
b. decrease; increase; price
c. increase; decrease; price
d. increase; increase; price
e. increase; decrease; quantity
____ 30. A surplus occurs in a market when the going price is _____ the equilibrium price, and as a result there is
excess _____.
a. below; supply
b. above; demand
c. equal to; supply
d. above; supply
e. below; demand
____ 31. When there is a shortage,
a. consumers want to purchase more of the product at the going price than is offered for sale
at that price.
b. sellers offer more of the product for sale at the going price than they can sell at that price.
c. the going price is above the equilibrium price.
d. the quantity demanded at the going price is less than the quantity supplied at that price.
e. the quantity actually traded at the going price is determined by the demand curve.
____ 32. Figure 4.7 shows a market in which the going price is P3. At this price, there is a
a. shortage of Q3 – Q2 units.
b. surplus of Q3 – Q2 units.
c. shortage of Q2 – Q1 units.
d. surplus of Q3 – Q1 units
e. shortage of Q3 – Q1 units.
____ 33. The income effect of an increase in the price of CDs is
a. the effect on the consumption of CDs due to the fall in purchasing power caused by the
price increase.
b. the income elasticity of demand for CDs.
c. the fall in consumption of CDs when the price of CDs increases.
d. the price elasticity of demand for CDs.
e. the effect on the consumption of CDs due to the increase in the price of CDs relative to
other goods.
____ 34. Liz buys only clothes and food. When the price of clothes increases, clothes become relatively more
expensive. The impact of this increased relative price is termed the
a. law of demand.
b. income effect.
c. price effect.
d. elasticity of demand.
e. substitution effect.
____ 35. Economists use the term “utility” to refer to
a. an individual’s consumption of electrical services.
b. the usefulness of a good to an individual.
c. the benefits to an individual from consuming a good.
d. the total cost to an individual of consuming a good.
e. the opportunity cost to an individual of consuming a good.
____ 36. As an individual’s bundle of goods includes more of a particular good, each successive increment yields her
less additional benefit. This is referred to as
a. the race to the bottom.
b. diminishing total utility.
c. diminishing marginal utility.
d. diminishing returns.
e. increasing opportunity costs.
____ 37. The difference between what you pay for something and what you are willing to pay is called
a. total utility.
b. marginal utility.
c. consumer demand.
d. consumer surplus.
e. marginal benefit.
____ 38. The income elasticity of demand measures the responsiveness of
a. consumption to changes in price.
b. income to consumption.
c. prices to changes in income.
d. price to consumption.
e. consumption to changes in income.
____ 39. Economists refer to a good as income inferior when
a. it is primarily purchased by low-income individuals.
b. it is of inferior quality to most other goods.
c. consumers purchase less of it as income increases.
d. consumers purchase it only if no substitutes are available.
e. consumers are temporarily unemployed.
____ 40. Graham buys only golf clubs and restaurant dinners. He can increase utility by reallocating income between
these two goods until
a. the marginal utilities are equal.
b. the willingness to pay for an additional unit is the same for golf clubs and for restaurant
dinners.
c. the marginal utilities per dollar spent are equal.
d. the total willingness to pay for golf clubs equals the total willingness to pay for restaurant
dinners.
e. the last golf club purchased yields the same benefit as the last restaurant dinner purchased.
ECON102 Midterm 1
Answer Section
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Chapter 1-Modern Economics
Chapter 1-Modern Economics
Chapter 1-Modern Economics
Chapter 1-Modern Economics
Chapter 1-Modern Economics
Chapter 2-Thinking like an Economist
Chapter 2-Thinking like an Economist
Chapter 2-Thinking like an Economist
Chapter 2-Thinking like an Economist
Chapter 2-Thinking like an Economist
Chapter 2-Thinking like an Economist
Chapter 2-Thinking like an Economist
Chapter 2-Thinking like an Economist
Chapter 2-Thinking like an Economist
Chapter 2-Thinking like an Economist
Chapter 3-Demand, Supply, and Price
Chapter 3-Demand, Supply, and Price
Chapter 3-Demand, Supply, and Price
Chapter 3-Demand, Supply, and Price
Chapter 3-Demand, Supply, and Price
Chapter 3-Demand, Supply, and Price
Chapter 3-Demand, Supply, and Price
Chapter 3-Demand, Supply, and Price
Chapter 4-Using Demand and Supply
Chapter 4-Using Demand and Supply
Chapter 4-Using Demand and Supply
Chapter 4-Using Demand and Supply
Chapter 4-Using Demand and Supply
Chapter 4-Using Demand and Supply
Chapter 4-Using Demand and Supply
Chapter 4-Using Demand and Supply
Chapter 4-Using Demand and Supply
Chapter 5-The Consumption Decision
Chapter 5-The Consumption Decision
Chapter 5-The Consumption Decision
Chapter 5-The Consumption Decision
Chapter 5-The Consumption Decision
Chapter 5-The Consumption Decision
Chapter 5-The Consumption Decision
Chapter 5-The Consumption Decision