Download Economics 1 - Bakersfield College

Economics 2 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 current price and quantity of
gasoline if there is an expectation of a lower price in the future. Assume that buyers do not
have gas stored and can not store gasoline, but sellers do have gas stored and can store more.
Mark the starting price of gasoline as 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
cigarettes if the government places a high tax on the selling of cigarettes. Mark the starting
price of cigarettes 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 5 of the 6 things that affect supply. This question is worth 2.5 points.
(1)
(4)
(2)
(5)
(3)
2. What is the nominal and real GDP in both years for a country that produces the following
goods at the following prices? Use year 1 as the base year. This question is worth 2 points.
Year 1
Year 2
Apples
Q
P
3 $2
4 $3
Oranges
Q
P
2
$1
1
$5
1. If the price of a good changes, which curve does this cause to move?
a. The demand curve.
b. The supply curve.
c. Both the demand and supply curve.
d. Neither the demand or supply curve.
2. Which of the following is a correct statement of part of the Law of Demand?
a. When price goes up, demand goes up.
b. When price goes up, demand goes down.
c. When price goes up, quantity demanded goes up.
d. When price goes up, quantity demanded goes down.
3. If goods A and B are complement 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. Which equation below correctly shows the breakdown of GDP?
a. GDP = A + B + C.
b. GDP = L + O + B.
c. GDP = D + S + E.
d. GDP = C + I + G.
5. The demand curve by itself (without the supply 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.
6. Which type of unemployment describes someone who is unemployed because he lacks
marketable labor skills?
a. Frictional.
b. Structural.
c. Cyclical.
d. Seasonal.
7. A price control setting the price of a good above its equilibrium price will:
a. cause a surplus.
b. cause a shortage.
c. cause the quantity demanded and the quantity supplied to become the same.
d. be illegal in the U.S. because we have a market economy.
8. Which of the following is an example of an intermediate good?
a. Hamburgers sold by McDonalds to their customers.
b. Steel sold to Ford Auto Company.
c. Textbooks sold to students by the college book store.
d. All of the above.
9. Which of the following is true?
a. Nominal GDP measures an average of price and quantity changes, but real GDP
measures only quantity changes.
b. Both nominal and real GDP measure an average of price and quantity changes.
c. Nominal GDP measures only quantity changes, but real GDP measures an average of
price and quantity changes.
d. Both nominal and real GDP measure only quantity changes.
10. When will the price of a good rise?
a. When there is a shortage.
b. When there is a surplus.
c. When the quantity supplied is less than the quantity demanded.
d. Both a and c.
11. Which of the following shifts the demand curve for a good?
a. Change in price of a related good.
b. Change in technology used to make the good.
c. Change in number of sellers of the good.
d. Both a and c.
12. Something that lowers the cost of production for a good will have the effect of:
a. raising demand.
b. lowering demand.
c. raising supply.
d. lowering supply.
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 of 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. What is the main difference between the consumer price index and the GDP deflator?
a. The CPI measures changes in prices and the GDP deflator measures changes in quantity.
b. The CPI measures changes in prices of consumer goods only while the GDP deflator
measures changes in prices of all goods counted in GDP.
c. There are no differences between the two.
d. The GDP deflator is always much smaller than the consumer price index.