ECON 2302 –PRACTICE EXAM 1

1. Economics deals primarily with the concept of

a. scarcity.
b. money.
c. poverty.
d. banking.

2. In a market economy,
a. households decide which firms to work for and what to buy with their incomes.
b. firms decide whom to hire and what to make.
c. a central planner makes decisions about production and consumption.
d. Both a and b are correct.

3. In conducting their research, economists face an obstacle that not all scientists face; specifically, in economics,
it is often difficult and sometimes impossible to
a. make use of theory and observation.
b. rely upon the scientific method.
c. conduct laboratory experiments.
d. find articles or books that were written before 1900.

4. Which of the following trade-offs does the production possibilities frontier illustrate?
a. if an economy wants to increase efficiency in production, then it must sacrifice equality in
consumption
b. once an economy has reached the efficient points on its production possibilities frontier, the only
way of getting more of one good is to get less of the other
c. for an economy to consume more of one good, it must stop consuming the other good entirely
d. for an economy to produce and consume goods, it must sacrifice environmental quality

lamps
50

45

40

35
V
30

25
Z
20

15
W Y
10

10 20 30 40 50 60 70 80 notepads
 5. Refer to the previous graph. If this economy devotes all of its resources to the production of notepads, then
it will produce
a. 0 notepads and 40 lamps.
b. 35 notepads and 20 lamps.
c. 70 notepads and 0 lamps.
d. 70 notepads and 40 lamps.

6. Refer to the previous graph. The opportunity cost of obtaining 20 additional lamps by moving from point W
to point V is
a. 0 notepads.
b. 10 notepads.
c. 50 notepads.
d. None of the above; the economy cannot move from point W to point V.

Assume that Andia and Zardia can switch between producing wheat and producing beef at a constant rate.
HINT: CONVERT MINUTES PER QUANTITY INTO QUANTITY PER HOUR AND IT WILL BE
EASIER
Minutes Needed to Make 1
Bushel of Wheat Pound of Beef
Andia 20 12
Zardia 15 10

7. Refer to the above table. What is Andia’s opportunity cost of producing one bushel of wheat?
a. 3/5 pound of beef
b. 6/5 pounds of beef
c. 4/3 pounds of beef
d. 5/3 pounds of beef

8. Refer to the above table. Andia should specialize in the production of

a. wheat and Zardia should specialize in the production of beef.
b. beef and Zardia should specialize in the production of wheat.
c. both goods and Zardia should specialize in the production of neither good.
d. neither good and Zardia should specialize in the production of both goods.

9. Refer to the above table. Assume that Andia and Zardia each has 60 minutes available. If each person
spends all his time producing the good in which he has a comparative advantage, then total production is
a. 3 bushels of wheat and 6 pounds of beef.
b. 3.5 bushels of wheat and 5.5 pounds of beef.
c. 4 bushels of wheat and 5 pounds of beef.
d. 7 bushels of wheat and 11 pounds of beef.

10. Refer to the above table. At which of the following prices would both Andia and Zardia gain from trade with
each other?
a. 6 bushels of wheat for 10.5 pounds of beef
b. 12 bushels of wheat for 19 pounds of beef
c. 24 bushels of wheat for 34 pounds of beef
d. Andia and Zardia could not both gain from trade with each other at any price.
 Hosne’s Production Possibilities Frontier Merve’s Production Possibilities Frontier
wallets wallets
10 10

9 9

8 8

7 7

6 6

5 5

4 4

3 3

2 2

1 1

1 2 3 4 5 6 7 8 9 10 purses 1 2 3 4 5 6 7 8 9 10 purses

11. Refer to the above graphs. Hosne has an absolute advantage in the production of
a. purses and Merve has an absolute advantage in the production of wallets.
b. wallets and Merve has an absolute advantage in the production of purses.
c. both goods and Merve has an absolute advantage in the production of neither good.
d. neither good and Merve has an absolute advantage in the production of both goods.

12. Refer to the above graphs. Hosne has a comparative advantage in the production of
a. purses and Merve has a comparative advantage in the production of wallets.
b. wallets and Merve has a comparative advantage in the production of purses.
c. both goods and Merve has a comparative advantage in the production of neither good.
d. neither good and Merve has a comparative advantage in the production of both goods.

13. Refer to the above graphs. At which of the following prices would both Hosne and Merve gain from trade
with each other?
a. 5 wallets for 1.25 purses
b. 5 wallets for 2.5 purses
c. 5 wallets for 3.75 purses
d. Hosne and Merve could not both gain from trade with each other at any price.

14.A decrease in quantity demanded

a. results in a movement downward and to the right along a demand curve.
b. results in a movement upward and to the left along a demand curve.
c. shifts the demand curve to the left.
d. shifts the demand curve to the right.
 Price

Demand A Demand B Demand C

Quantity

15.Refer to the above figure. Which of the following would cause the demand curve to shift from Demand A to
Demand B in the market for golf balls in the United States?
a. a decrease in the price of golf balls
b. an increase in the price of green fees
c. an expectation by buyers that their incomes will increase in the very near future
d. a change in consumer tastes away from golf and toward tennis
16. Refer to the above figure. Which of the following would cause the demand curve to shift from Demand C to
Demand A in the market for DVDs?
a. an increase in the price of DVDs
b. a decrease in the price of DVD players
c. a change in consumer preferences toward watching movies in movie theaters rather than at home
d. an expectation by buyers that their incomes will increase in the very near future
17. A improvement in production technology will shift the
a. supply curve to the right.
b. supply curve to the left.
c. demand curve to the right.
d. demand curve to the left.
18. Ashley bakes bread that she sells at the local farmer’s market. If she purchases a new convection oven that
reduces the costs of baking bread, the
a. supply curve for Ashley’s bread will increase.
b. supply curve for Ashley’s bread will decrease.
c. demand curve for Ashley’s bread will increase.
d. demand curve for Ashley’s bread will decrease.
19. Which of the following would cause price to increase?
a. an increase in supply
b. a decrease in demand
c. a surplus of the good
d. a shortage of the good
20.Suppose the number of buyers in a market increases and a technological advancement occurs also. What would
we expect to happen in the market?
a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.
b. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.
c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.
d. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
21. Suppose buyers of computers and printers regard the two goods as complements. Then an increase in the price
of computers will cause a(n)
a. decrease in the demand for printers and a decrease in the quantity supplied of printers.

b. decrease in the supply of printers and a decrease in the quantity demanded of printers.

c. decrease in the equilibrium price of printers and an increase in the equilibrium quantity of printers.

d. increase in the equilibrium price of printers and a decrease in the equilibrium quantity of printers.

Panel (a) Panel (b)

price price

S S

Pe' Pe

Pe Pe'

D D' D' D

Qe Qe' quantity Qe' Qe quantity

Panel (c) Panel (d)

price price

S S' S' S

Pe Pe'

Pe' Pe

D D

Qe Qe' quantity Qe' Qe quantity

22. Refer to the above figure Which of the four panels represents the market for winter coats as we progress
from winter to spring?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
23. Refer to the above figure. Which of the four panels represents the market for cars as a result of the adoption
of new technology on assembly lines?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
24. Refer to the above figure. Which of the four panels represents the market for peanut butter after a major
hurricane hits the peanut-growing south?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
25..The price elasticity of demand measures
a. buyers’ responsiveness to a change in the price of a good.
b. the extent to which demand increases as additional buyers enter the market.
c. how much more of a good consumers will demand when incomes rise.
d. the movement along a supply curve when there is a change in demand.
26 .If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a
a. 0.4 percent decrease in the quantity demanded.
b. 2.5 percent decrease in the quantity demanded.
c. 4 percent decrease in the quantity demanded.
d. 40 percent decrease in the quantity demanded.
27.The demand for Hubba Bubba bubble gum is likely
a. elastic because gum is expensive relative to other snacks.
b. elastic because there are many close substitutes for Hubba Bubba.
c. elastic because bubble gum is regarded as a necessity by many people.
d. inelastic because it is consumed quickly, making the relevant time horizon short.
28.When the price of a bracelet was $25 each, the jewelry shop sold 20 per month. When it raised the price to $35
each, it sold 14 per month. Using the midpoint method, the price elasticity of demand for bracelets is about
a. 1.66.
b. 1.06.
c. 0.94.
d. 0.60.
29. When demand is inelastic, an increase in price will cause
a. an increase in total revenue.
b. a decrease in total revenue.
c. no change in total revenue but an increase in quantity demanded.
d. no change in total revenue but a decrease in quantity demanded.
30. Tyler purchases 5 pounds of hot dogs per month when his monthly income is $2,000 and 4 pounds of hot dogs
per month when his monthly income is $2,200. Tyler’s income elasticity of demand for hot dogs is
a. 2.33, and hot dogs are a normal good.
b. -2.33, and hot dogs are an inferior good.
c. 0.43, and hot dogs are a normal good.
d. -0.43, and hot dogs are an inferior good.
 31. Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20
units to 25 units. Using the midpoint method, the cross-price elasticity of demand is
a. -1.0, and X and Y are complements.
b. -1.0, and X and Y are substitutes.
c. 1.0, and X and Y are complements.
d. 1.0, and X and Y are substitutes.

32. If sellers do not adjust their quantity supplied at all in response to a change in price, the price elasticity of supply
is
a. zero, and the supply curve is horizontal.
b. zero, and the supply curve is vertical.
c. infinity, and the supply curve is horizontal.
d. infinity, and the supply curve is vertical.

33.The supply of a good will be more elastic, the

a. more the good is considered a luxury.
b. broader is the definition of the market for the good.
c. larger the number of close substitutes for the good.
d. longer the time period being considered.

34. When a binding price ceiling is imposed on a market,

a. price no longer serves as a rationing device.
b. the quantity supplied at the price ceiling exceeds the quantity that would have been supplied
without the price ceiling.
c. all buyers benefit.
d. All of the above are correct.
 35. If a price ceiling is a binding constraint on a market, then
a. the equilibrium price must be below the price ceiling.
b. the quantity supplied must exceed the quantity demanded.
c. sellers cannot sell all they want to sell at the price ceiling.
d. buyers cannot buy all they want to buy at the price ceiling.
Price
20
Supply
18

16

14

12

10

2
Demand

2 4 6 8 10 12 14 16 18 20 Quantity

36 .Refer to the above figure. A government-imposed price of $12 in this market is an example of a
a. binding price ceiling that creates a shortage.
b. non-binding price ceiling that creates a shortage.
c. binding price floor that creates a surplus.
d. non-binding price floor that creates a surplus.

37 .Refer to the figure on the previous page. A government-imposed price of $6 in this market is an example of a
a. binding price ceiling that creates a shortage.
b. non-binding price ceiling that creates a shortage.
c. binding price floor that creates a surplus.
d. non-binding price floor that creates a surplus.

38. Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per
tube. As a result of the price floor, the
a. demand curve for toothpaste shifts to the left.
b. supply curve for toothpaste shifts to the right.
c. quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply
increases.
d. quantity supplied of toothpaste stays the same.

39. Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing
because
a. with rent control, the government guarantees landlords a minimum level of profit.
b. they become resigned to the fact that many of their apartments are going to be vacant at any given
time.
c. with shortages and waiting lists, they have no incentive to maintain and improve their property.
d. with rent control, it becomes the government's responsibility to maintain rental housing.
 The vertical distance between points A and B represents the tax in the market.

price

S
A
24

16

10
B

70 100 quantity

40. Refer to the above. The effective price that sellers receive after the tax is imposed is
a. $6.
b. $10.
c. $16.
d. $24.

41. Refer to the above. The amount of the tax revenue raised is
a. $980.
b. $1080.
c. $1400.
d. $1600.

42. Refer to the above. The per-unit burden of the tax on buyers is
a. $6.
b. $8.
c. $14.
d. $24.