Download Economics 1 - Bakersfield College

Economics 1 Unit 2 Test
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Part A. Answer the following 2 questions in the space provided. Each question is worth 4.5
points.
1. Use a supply and demand diagram to show what will happen to the price and quantity of
coffee is global warming forces some sellers of coffee out of the coffee market. Mark the
starting price of the coffee 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 bought and sold if the price of dogs decreases. Mark the starting price of dog food 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 the subscript 1 and the second with the subscript 2.
Next to the diagram, write whether price is rising or falling and whether quantity is rising or
falling.
Part B. Answer whether the following statement is true, false, or uncertain and explain your
answer. This question is worth 4.5 points.
1. If the government passes a law setting the legal selling price of a good below its equilibrium
market price, everyone who wants it will now be able to get it for the cheaper price. Use a
supply and demand diagram as part of your explanation.
Part C.
1. List 4 of the 5 things that affect demand. This question is worth 2 points.
(a)
(c)
(b)
(d)
2. Calculate the cross-price elasticity of donuts with respect to the price of coffee if a 6% rise in
the price of coffee causes donut sales to drop by 2% . This question is worth 1.5 points.
3. What does the number you just found mean? This question is worth 1 point.
1. Which of the following was listed as one of the factors that determines elasticity of demand?.
a. The season of the year.
b. If the price of the good went up or down.
c. Closeness of substitutes.
d. All of the above.
2. Which of the following is a correct statement of part of the Law of Supply?
a. When price goes up, supply goes up.
b. When price goes up, supply goes down.
c. When price goes up, quantity supplied goes up.
d. When price goes up, quantity supplied goes down.
3. If goods A and B are inferior goods, then they are:
a. goods used together.
b. goods used in place of each other.
c. goods people buy more of when their income rises.
d. goods people buy less of when their income rises.
4. A coffee shop notices that when they raise the price of their coffee by 3%, their coffee sales
drop by 6%. What is the elasticity of demand for coffee?
a. 2
b. 0.50 or 1/2.
c. 3.
d. 9.
5. There is a lot of political uncertainty in the oil producing countries in the Middle East right
now. If people expect this will cause higher oil prices in the future, the effect on oil prices
now is:
a. They will not change unless a shortage does develop, then the price will go up.
b. They will fall right now, and then if a shortage does develop, they will rise.
c. They will rise right away, even before the shortage hits.
6. 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.
7. If Coca-Cola has an elasticity of 3, this means:
a. for every $3 rise in price, its sales drop by 1 can.
b for every $1 rise in price, its sales drop by 3 cans.
c. for every 3% rise in price, its sales drop by 1%.
d. for every 1% rise in price, its sales drop by 3%.
8. If a store has an elasticity of 1.7 for its product, then when it raises its price, its revenue will:
a. rise.
b. fall.
c. stay the same.
d. there is not enough information to tell.
9. If a good has an elasticity of demand equal to 0.7, then its demand is considered:
a. elastic.
b. inelastic.
c. unit elastic.
d. none of the above.
10. One likely affect of using price controls to set a price below the equilibrium price is that:
a. Businessmen will treat their customers better in terms of quality of service.
b. Businessmen will treat their customers worse in terms of quality of service.
c. Customers will have greater choice of competing businesses.
d. Both a and c.
11. When will the price of a good rise?
a. When there is a shortage.
b. When there is a surplus.
c. When there is a greater quantity supplied than quantity demanded.
d. Both b and c.
12. If the cross price elasticity between demand for good X and price of good Y is -0.2 then:
a. they are substitutes.
b. they are complements.
c. they are not related.
d. there is not enough information to tell.
13. Why do supply curves slope up?
a. The cost of making additional items is the same as the cost of making previous items, in
other words there is constant opportunity cost.
b. The cost of making additional items is higher than the cost of making previous items, in
other words there increasing opportunity cost.
c. The cost of making additional items is lower than the cost making previous items, in
other words there decreasing opportunity cost.
d. Trick question, supply curves actually don’t slope up.
14. 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.
15. If the elasticity of demand for drugs is low, then the main effect of the war on drugs will be:
a. Much less is consumed and a little more is made.
b. Much more is made and a little bit less is consumed.
c. The drop in amount of drugs used will be equal to the amount destroyed.
d. There will not be any drop in amount of drugs used.