Principles of Microeconomics

Andy Yuengert
Old test questions, midterm 1 (answer key at end)

1. When a good is not scarce

a) it is impossible to satisfy every desire for the good, and choices must be made.
b) rationing of the good will be necessary.
c) the available supply of time, goods, and resources can satisfy all desires for the good.
d) the good must be a want not a need.
e) direct opportunity costs will be greater than indirect costs.

2. It is the middle of July. Joe was a Freshman last year at Pepperdine, and did very well. He has
just been offered a consulting job, paying $50,000, starting in August. He is thinking about
dropping out of school this year, before school starts. Which of the following is an indirect
opportunity cost of going back to school?

a) the cost of tuition

b) the cost of room and board
c) the value of what he would have learned in school
d) $50,000

3. When you are deciding whether to come to class on a given day, which of the following is not
a sunk cost?

a) tuition
b) what you would do with the time if you do not go to class
c) how much you studied for class last night
d) b and c
e) none are sunk costs

4. In the table below, Q is output, C is total cost, and MC is marginal cost:

Q C MC
3 27 9
4 __ 11

If the marginal cost of the 4th unit is 11 (as reported in this table), what is the total cost of the 4th
unit?

a) 2
b) 11
c) 38
d) 44
e) none of the above
(questions 5 – 7) The following table shows the number of hours of labor it takes to produce
one rotid, and the number of hours it takes to produce one tauron, in two countries, Mandovia
and Ducennia:

Worker hours per

One One
Rotid Tauron

Mandovia 50 100

Ducennia 150 200

5. Which of the following statements is true?

a) Mandovia has an absolute advantage in Rotids, and Ducennia has an absolute

advantage in Taurons.
b) Mandovia has an absolute advantage in Taurons, and Ducennia has an absolute
advantage in Rotids.
c) Ducennia has an absolute advantage in Rotids and Taurons.
d) Mandovia has an absolute advantage in Rotids and Taurons.
e) Both countries have an absolute advantage in Rotids.

6. Which of the following statements is true?

a) Mandovia has a comparative advantage in Rotids, and Ducennia has a comparative

advantage Taurons.
b) Mandovia has a comparative advantage in Taurons, and Ducennia has a comparative
advantage Rotids.
c) Mandovia has a comparative advantage in Rotids and Taurons.
d) Ducennia has a comparative advantage in Rotids and Taurons.
e) Both countries have a comparative advantage in Rotids.

7. Someone proposes the following terms of trade: 1.5 Rotids will trade for 1 Tauron. Will this
exchange be acceptable to Decennia and Mandovia?

a) Ducennia will accept this trade, and Mandovia will reject it

b) Ducennia will reject this trade, and Mandovia will accept it
c) both countries will accept this trade
d) both countries will reject this trade
 (questions 8 – 10) Kara can build 2 glass sculptures per day, or design 1 full-page magazine
advertisement. Sara can build 3 glass sculptures per day, or design 3 magazine ads per day. The
graphs below show the production possibility frontiers (PPFs) for each.

Sculptures
5

2 a

Sara PPF
1
Kara PPF

1 2 3 4 5 Ads

8. Point (a) on the graph is ____________ for Kara and _____________ for Sara

a) optimal; efficient
b) efficient; inefficient
c) unattainable; efficient
d) inefficient; optimal
e) inefficient; unattainable

9. Which of the following statements is true about Kara and Sara?

a) Kara has a comparative advantage in sculptures, and Sara has a comparative

advantage in ads
b) Kara has a comparative advantage in ads, and Sara has a comparative advantage in
sculptures
c) Sara has a comparative advantage in both goods
d) Kara has an absolute advantage in sculptures, and Sara has no absolute advantage
e) Kara has a comparative advantage in sculptures, and Sara has no comparative
advantage
 10. If you combine the PPFs of Sara and Kara into one large PPF for the nation “Kara-Sara,”
which of the PPFs below is correct? If none of these is the combined PPF, choose answer (e).

Sculptures

e) none of these is the combined PPF

5

4
a
3
b
2
c
d
1

1 2 3 4 5 Ads

11. A country has a comparative advantage in steel if

a) it uses the fewest resources in producing steel

b) it has an absolute advantage in steel
c) it has the highest opportunity cost of producing steel
d) it has the lowest opportunity cost of producing steel
e) it is a larger country than its neighbors

12. A decrease in the price of iPods will cause

a) an increase in the demand for iPods

b) a decrease in the demand for iPods
c) an increase in the elasticity of demand
d) an increase in the quantity demanded for iPods
e) diminishing returns in iPod production

13. Which of the following will cause a decrease in demand for veggie burgers?

a) a decrease in the price of veggie burgers

b) an increase in the price of burger buns
c) an increase in the price of tofu burgers, a substitute for veggie burgers (this is caused
by a supply change in the tofu burger market)
d) technological innovation in the production of veggie burgers
e) none of the above
14.
P

Demand
P0

100 Q

The vertical line in the above graph represents

a) the marginal cost of production for the 100th unit

b) consumer surplus for the 100th unit
c) the maximum amount someone is willing to pay for the 100th unit of Q
d) the willingness to pay for the 100th unit of Q
e) c and d
15.
P

15

P=10

Demand

50 Q

What is the consumer surplus of the 50th unit, if the market price is $10?

a) 5
b) 10
c) 15
d) 250
e) none of the above

16. The President of Tucker Motors says “lowering the price won’t sell a single additional
Tucker car.” The President believes that demand for Tucker cars is

a) unitary elastic
b) perfectly elastic
c) perfectly inelastic
d) elastic
e) variably elastic

17. The elasticity of demand tends to be larger (more elastic) in the long run than in the short
run. Which of the following is consistent with this observation?

a) over time consumer income rises

b) over time there are fewer substitutes available
c) over time there are more substitutes available
d) over time, any good becomes a smaller part of the typical household budget
e) c and d
18.
P

400

300

Demand

50 100 Q

The elasticity of demand between P = 300 and P = 400 is

a) -2.33
b) -.43
c) -.5
d) -2
e) none of the above

19. What shifts demand?

a) the price of the good itself

b) income
c) technological change
d) the number of companies producing the good
e) c and d

20. What information about value is contained in the price of a good?

a) total value
b) average value
c) marginal value
d) sunk cost
21. Farmers who grow broccoli have a choice to grow lettuce or broccoli. An increase in the
price of lettuce will lead to

a) an increase in the supply of lettuce

b) a decrease in the supply of lettuce
c) no change in the supply of broccoli
d) an increase in the supply of broccoli
e) a decrease in the supply of broccoli

22.
P SA

SB

P0

100 Q

On both supply curve SA and SB, the price is P0 and quantity supplied is 100. Which of the
following pairs of statements is true at this price?

a) elasticity of supply is higher for B than A; producer surplus is higher for A than for B
b) elasticity of supply is higher for B than A; producer surplus is lower for A than for B
c) elasticity of supply is higher for A than B; producer surplus is higher for A than for B
d) elasticity of supply is higher for A than B; producer surplus is lower for A than for B
e) the elasticity of supply is the same for A and B

23. In a market, the price is currently at a point where there is excess supply. As the market
moves from excess supply to equilibrium,

a) quantity demanded will increase

b) quantity demanded will decrease
c) price will increase
d) excess supply will increase
e) a and d
24. At the equilibrium price in a competitive market, which of the following statements is not
true?

a) quantity supplied equals quantity demanded

b) the price is stable
c) consumer surplus plus producer surplus is maximized
d) all mutually beneficial exchanges (willingness to pay > opportunity cost) have been
made.
e) all of the above are true

25. The price of cow’s milk increases. This will cause which of the following changes in the
two markets, assuming that cow’s milk is used to make butter, and that butter and margarine are
substitutes for consumers.

a) butter: price increases, quantity decreases

margarine: price increases, quantity increases
b) butter: price decreases, quantity decreases
margarine: price increases, quantity increases
c) butter: price increases, quantity decreases
margarine: price decreases, quantity increases
d) butter: price decreases, quantity decreases
margarine: price decreases, quantity decreases
e) none of the above

26. Say that the price of cow’s milk does not increase, as in the question above. Instead,
consumers begin to be worried about the health effects of butter. This will cause which of the
following changes in the two markets?

a) butter: price increases, quantity decreases

margarine: price increases, quantity increases
b) butter: price increases, quantity decreases
margarine: price decreases, quantity increases
c) butter: price decreases, quantity decreases
margarine: price increases, quantity increases
d) butter: price decreases, quantity decreases
margarine: price decreases, quantity decreases
e) none of the above
27. A deadly virus affects chicken production, killing 20% of the chicken population, at the
same time raising health concerns among consumers. What will be the effect on the market for
chicken?

a) Price will increase, no clear prediction about quantity

b) Price will decrease, no clear prediction about quantity
c) No clear prediction about price, quantity will increase
d) No clear prediction about price, quantity will decrease
e) Price will increase, quantity will decrease

28. You observe that price has increased at the same time that quantity has increased. Which of
the following is causing this change?

a) Supply increased
b) Supply decreased
c) Demand decreased
d) Demand increased
e) demand decreased and supply decreased

(questions 29 and 30) Let us assume that new solar power technologies will become
available in 10 years. These two questions ask about the effects of this new technology in ten
years (when it becomes available) and the effect of the expectation of this technology today.

29. What will be the anticipated effect of the availability of solar power technology on the
market for oil in 10 years?

a) price increases, quantity decreases

b) price increases, quantity increases
c) price decreases, quantity increases
d) price decreases, quantity decreases

30. What will be the effect of the anticipation of the events in the above question on the market
for oil today?

a) price increases, quantity decreases

b) price increases, quantity increases
c) price decreases, quantity increases
d) price decreases, quantity decreases
31. You observe that price has decreased at the same time that quantity has increased. Which of
the following is causing this change?

a) Supply increased
b) Supply decreased
c) Demand decreased
d) Demand increased
e) demand decreased and supply decreased

32. The price of a private college education is tuition. If information technology makes the
production of education more efficient, and the number (quantity) of students has not been
changing, which of the following must be true?

a) Demand is perfectly inelastic

b) Demand is perfectly elastic
c) Demand decreased and supply decreased
d) Demand is unit elastic
e) Tuition will increase

33. In a competitive market, which of the following statements do not describe what economists
say is desirable about the solution to the scarcity problem?

a) consumer surplus is greater than producer surplus

b) Goods are consumed by those who value them the most
c) Goods are produced at the lowest marginal costs of production
d) No one gets the good if his or her willingness to pay is less than marginal cost
e) all are descriptive of desirable solutions
(questions 34 and 35) Say the two diagrams below show the markets for medical devices in
two different countries, the United States and Venezuela.

United States Venezuela

P D P
S S

P1 P1 D

Q1 Q Q1 Q

34. If the same tax T is levied on suppliers of medical devices in both countries, which of the
following statements are true?

I. Quantity will decrease in Venezuela

II. There will be no change in quantity in the US

a) I and II are both true

b) I is true and II is false
c) I is false and II is true
d) both I and II are false

35. _________ will suffer the largest deadweight loss from the tax, and in ___________
consumers will bear the largest burden of the tax.

a) the United States; the United States

b) the United States; Venezuela
c) Venezuela; the United States
d) Venezuela; Venezuela
e) the deadweight losses are the same in both countries
answer key:
1. C
2. D
3. B
4. C
5. D
6. A
7. C
8. C
9. A
10. A
11. D
12. D
13. B
14. E
15. A
16. C
17. C
18. A
19. B
20. C
21. E
22. A
23. A
24. E
25. A
26. C
27. D
28. D
29. D
30. C
31. A
32. A
33. A
34. A
35. C