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Midwestern State University
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101-02 EconS Exam 1 Please input your last name, first name and student ID number on the scantron. Please write the color of your exam above your last name on the scantron. Be sure to answer all 33 questions on your scantron. Take your time and relax. Go Cougs! 1. Scarcity exists when: A) a choice must be made among two or more alternatives. B) individuals can have more of any good. C) individuals can have more of one good but only at the expense of another. D) both A and C exist. 2. The basic concern of economics is: A) to keep business firms from losing money. B) to prove that capitalism is better than socialism. C) to study the choices people make. D) to use unlimited resources to produce goods and services to satisfy limited wants. 3. Margo spends $10,000 on one-year's college tuition. The opportunity cost of spending one year in college for Margo is: A) $10,000. B) whatever she would have purchased with the $10,000. C) whatever she would have earned had she not been in college. D) both B and C. 4. According to economists, equilibrium exists when: A) output is distributed equitably. B) scarcity is eliminated. C) an individual would be better off taking a different action. D) no individual has an incentive to change their behavior. 5. The best example of making a choice at the margin is: A) buying a new car. B) quitting your job. C) drinking another cup of coffee. D) attending college.
Use the following to answer questions 6-7: Figure: Strawberries and Submarines
6. (Figure: Strawberries and Submarines) Suppose the economy is now operating at point C. Achieving production at point F would require that the economy: A) achieve full employment and an efficient allocation of resources. B) reduce its production of strawberries. C) reduce its production of submarines. D) improve its technology or increase the quantities of factors of production it has. 7. (Figure: Strawberries and Submarines) As the economy moves from point A toward, say, point D, it will find that the opportunity cost of each additional submarine: A) falls. B) rises. C) remains unchanged. D) does none of the above. 8. The production possibilities curve illustrates that: A) the economy will automatically end up at full employment. B) an economy's productive capacity increases proportionally with its population. C) if all resources of an economy are being used, more of one good can be produced only if less of another good is produced. D) economic production possibilities have no limit.
9. If the opportunity cost of manufacturing machinery is higher in the United States than in Britain and the opportunity cost of manufacturing sweaters is lower in the United States than in Britain, then the United States will: A) export both sweaters and machinery to Britain. B) import both sweaters and machinery from Britain. C) export sweaters to Britain and import machinery from Britain. D) import sweaters from Britain and export machinery to Britain. 10. An economy is said to have a comparative advantage in the production of one good if it: A) can produce more of all goods than another economy. B) can produce less of all goods than another economy. C) has the highest opportunity cost for producing a particular good. D) has the lowest opportunity cost for producing a particular good. 11. A decrease in the price of eggs will result in a(n): A) increase in the demand for eggs. B) increase in the supply of eggs. C) greater amount of eggs supplied. D) greater amount of eggs demanded. 12. Given that chicken and beef are substitute goods, if the price of chicken decreases substantially, there would be: A) an increase in the demand for beef. B) a decrease in the demand for beef. C) a decrease in the quantity of beef demanded. D) no change in the demand for beef. 13. If the price of hamburger increases, it would probably result in ________ in the demand for hamburger buns. A) a decrease B) an increase C) no change D) random fluctuations
Use the following to answer questions 14-15: Figure: Demand for Videotapes
14. (Figure: Demand for Videotapes) A decrease in the price of movie tickets (a substitute) would result in a change illustrated by: A) the move from f to g in Panel A. B) the move from h to i in Panel B. C) the move from j to k in Panel C. D) the move from l to m in panel D. 15. (Figure: Demand for Videotapes) A decrease in the price of videotape rentals would result in a change illustrated by: A) the move from f to g in Panel A. B) the move from h to i in Panel B. C) the move from j to k in Panel C. D) the move from l to m in Panel D.
16. After graduation from college, you will receive a substantial increase in your income from a new job. If you decide that you will purchase more T-bone steak and less hamburger, then for you hamburger would be considered a(n): A) normal good. B) substitute good. C) complementary good. D) inferior good. Use the following to answer questions 17-18: Figure: Demand and Supply of Gasoline
17. (Figure: Demand and Supply of Gasoline) Given the initial equilibrium of S1 and D, any price lower than ________ create will pressure for the price to ________. A) $2.00; fall B) $2.50; rise C) $3.00; rise D) none of the above 18. (Figure: Demand and Supply of Gasoline) A factor that may have changed supply from S1 to S2 is: A) better technology in the production of gasoline. B) increased demand. C) lower labor productivity. D) increased prices of substitutes for gasoline.
19. An increase in demand and a decrease in supply, will lead to a(n) ________ in equilibrium quantity and a(n) ________ in equilibrium price. A) decrease; decrease B) indeterminate change; increase C) indeterminate change; decrease D) increase; indeterminate change 20. A decrease in demand, with no change in supply, will lead to ________ in equilibrium quantity and ________ in equilibrium price. A) an increase; an increase B) an increase; a decrease C) a decrease; an increase D) a decrease; a decrease 21. The government decides to impose a price ceiling on a good, because it thinks the market determined price is too high. If it imposes the price ceiling above the equilibrium price: A) consumers will respond to the higher price and therefore wish to purchase less of the good than at the equilibrium price. B) producers will respond to the higher price and therefore offer fewer units for sale. C) consumers will purchase less of the good after the price ceiling is imposed. D) there will be no change to either the price of quantity in the market. 22. When the government removes a binding price floor: A) quantity demanded would decrease and quantity supplied would increase. B) quantity demanded would increase and quantity supplied would decrease. C) an excess demand would develop. D) an excess supply would develop.
Use the following to answer questions 23-24: Figure: Rent Controls
23. (Figure: Rent Controls) If rent controls are set at Rent1: A) rental apartments may be of inefficiently low quality. B) there will be an efficient allocation of rentals. C) some landlords may break the law by renting below the mandated price. D) all of the above may happen. 24. (Figure: Rent Controls) If rent controls are set at Rent1: A) the shortage of rental units is the distance Q1Q 3 . B) some renters would be willing to pay a price as high as Rent4 for Q1 units. C) no one would have to pay a higher actual price than Rent0, nor would anyone be willing to do so. D) there would be a surplus of rental units, but it is impossible to tell how large the surplus is based on the information provided.
25. If the U.S. government imposes a quota on the amount of French wine allowed into the United States (the quota is set at a quantity below equilibrium), the price of French wine in the United States will ___ while the price of price of U.S. manufactured wine will ___. A) increase, increase B) increase, decrease C) decrease, increase D) decrease, decrease 26. If the government imposes a $5 excise tax on the sale of leather shoes collected from the supplier and the price of leather shoes increases by $2: A) the government will receive less tax revenue than anticipated. B) consumers are paying more of the tax than the producers. C) producers are paying more of the tax than are the consumers. D) the quantity of shoes sold will increase. 27. If an increase in the price of a good leads to an increase in total revenue, then: A) the supply curve must be price inelastic. B) the demand curve must be price inelastic. C) the supply curve is price elastic. D) none of the above is correct. 28. The price elasticity of demand for lettuce has been estimated to be 2.58. If an insect infestation destroys 10 percent of the nation's lettuce crop, how will that affect total revenue from lettuce, all other things unchanged? A) Total revenue will remain unchanged. B) Total revenue will fall. C) Total revenue will rise. D) Not enough information is given to answer the question. 29. The price elasticity of a good will tend to be greater: A) the longer the relevant time period. B) the fewer the number of substitute goods available. C) if it is a staple or necessity with few substitutes. D) if all of the above exist.
30. The pair of items that is most likely to have a negative cross-price elasticity of demand is: A) aspirin and hamburgers. B) hot dogs and mustard. C) margarine and butter. D) ketchup and coffee. 31. Supply curves tend to be more ________ the greater the time period facing the producer. A) price inelastic B) price elastic C) steeply sloped D) inflexible 32. If the income elasticity of demand for a good is positive, the good is said to be a(n): A) inferior good. B) substitute good. C) normal good. D) positive good. Question 33 is on the next page.
Use the following to answer question 33: Figure: Tax Incidence
33. (Figure: Tax Incidence) All other things unchanged, when a good or service is characterized by a relatively inelastic supply, as shown in Panel _______, the greater share of the burden of an excise tax imposed on it (shown by the tax wedge in each panel) is borne by _______. A) A; buyers B) B; sellers C) A; sellers D) B; buyers