Web Page Multiple Choice for Econ 2106 Fall 04, Exam 1

 

1)  The diagram represents the production possibilities frontier for Erewhon, a country that can only produce pineapples and cherries (in pints):

 

 

 

 

If the economy moves from production at point W to point Y, the opportunity cost of 1 pineapple is

 

a) 4 pints of cherries

b) ¼ pint of cherries

c) 1000 pints of cherries

d) 2500 pints of cherries

 

 

(2) If personal computers are normal goods in a market and there is an increase in average consumer income, cet.p., then we would expect that

 

a. demand for computers would increase.

b. the demand curve for computers would shift right.

c. the price of computers would decrease.

d. Both a and b are true.

 

 

 

 

(3) If printers and printer paper are complements and the price of printers decreases, cet.p., we would expect that

 

a. demand for printer paper would decrease.

b. there would be a movement along the demand curve for printers (to the right)

c.  the demand curve for printers would shift to the right.

d.  There would be a movement along the demand curve for printer paper (to the right)

 

 

(4) Consider the market for widgets:  If a tidal wave wipes out  1/3 of the widget factories, cet.p., then we would expect that

 

a. the supply curve of widgets would shift to the left.

b. the price of widgets would decrease.

c. the demand curve of widgets would shift to the left.

d. there would be a movement along (to the left) the supply curve of widgets.

 

 

5) If the market price for mink coats is above the market equilibrium price, then

 

a.  this market is not in equilibrium.

b.  there is a surplus of mink coats.

c.  market forces will bring down the price to eliminate the excess supply

d.  All of the above are true.

 

 

(6) If a market is experiencing a shortage, then

 

a.  the market price is less than the equilibrium price.

b.  the market price is greater than the equilibrium price.

c.  the market is experiencing excess demand.

d.  Both a and c are true.

 

 

(7) Which of the following is NOT held constant when there is movement along the market demand curve for good X?

 

a.   Average consumer income in the market for X.

b.   The population size of the market for X.

c.   The price of good X.

d.   The price of good Z, where Z is a complement good for X.

 

 

(8) The law of demand implies that, other things remaining the same,

 

a.   as the price of cheeseburgers rises, the quantity of cheeseburgers demanded will increase.

b.   as the price of cheeseburgers rises, the quantity of cheeseburgers demanded will decrease.

c.   as income increases, the quantity of cheeseburgers demanded will increase.

d.   as the demand for cheeseburgers increases, the price of cheeseburgers will fall.

 

 

9.   Suppose we know that tea is a normal good in a particular US market, and we observe a decrease in the price of tea.  Cet.p., which of the following could have caused this price decrease?

 

a.                              An increase in the price of coffee, a substitute for tea.

b.                              A decrease in the income of the average household in this market for tea.

c.                               A national news story reports that tea contains anti-oxidents that can reduce the risk of cancer.

d.                              A huge storm and tidal wave in Asia devastates the tea crops of a large number of countries that export tea to this US market.

 

 

10) When supply decreases, the equilibrium quantity

a.   increases and the equilibrium price rises.

b.   decreases and the equilibrium price falls.

c.   increases and the equilibrium price falls.

d.   decreases and the equilibrium price rises.

 

11) Suppose Good Z is an inferior good, and the price of Good Z is observed to fall over a given time period.  Which of the following could have caused this price decrease?

 

a.   Cet.p. a discovery that consumption of Good Z may cure a disease that affects many people and was previously believed to be incurable.

 

b.   Cet.p. a decrease in the income of the average household in the market for Good Z.

 

 c.   Cet.p., an increase in the price of Good X, a substitute for Good Z.

 

 d.   Cet.p. an unusually high number of business firms entered the market as producers of good Z over this time period.

 

 

(12) If 2 goods, R and T, are substitutes and the price of good R decreases, cet.p., then we should observe

 

a.   a movement right along the demand curve for R and a shift left of the demand curve for      T.

b.   a movement left along the demand curve for T and a shift right of the demand curve for      R.

c.   a shift left of the demand curve for T and a shift right of the demand curve for R.

 

d.  a movement right along the demand curve for R and a shift right of the demand curve          for T.

 

 

 

 

 

 

 

 

 

 

13)       If goods A and B are complements and the price of good B decreases, cet.p., then we should observe

 

a.   a movement right along the demand curve for B and a shift left of the demand curve for      A.

 

b.   a shift right of the demand curve for B and a movement left along the demand curve for      A.

 

c.   a movement right along the demand curve for B and a shift right of the demand curve          for A.

 

d.   a shift right of the demand curve for B and a shift left of the demand curve for A.

 

 

14)  In a given market for an inferior good X, when the price of a complement good increases and there is an increase in the number of suppliers of good X, which of the following describes the expected change in equilibrium price and quantity?

 

a.   Price increases, but the expected change in quantity cannot be determined.

 

b.   Price decreases, but the expected change in quantity cannot be determined.

 

c.   Quantity increases, but the expected change in price cannot be determined.

 

d.   Quantity decreases, but the expected change in price cannot be determined.

 

 

15) Suppose Good Z is a normal good, and the price of Good Z is observed to rise over a given time period.  Which of the following could have caused this price increase?

 

a.   Cet.p., an increase in the price of Good X, a substitute for Good Z.

 

b.   Cet.p. a discovery that consumption of Good Z has been linked to an incurable disease.

 

c.   Cet.p. a decrease in the income of the average household in the market for Good Z.

 

d.   Cet.p. an unusually high number of business firms entered the market as producers of good Z over the time period.

 

 

16. Consider the market for an inferior good X, Cet.p., when average consumer incomes decrease in this market and there is a decrease in the number of producers making good X, which of the following describes the expected change in equilibrium price and quantity?

 

a.         Price increases, but the expected change in quantity cannot be determined.

b.         Price decreases, but the expected change in quantity cannot be determined.

c.         Quantity increases, but the expected change in price cannot be determined.

d.         Quantity decreases, but the expected change in price cannot be determined.

 

 

 

CONSIDER THE FOLLOWING SERIES OF 4 QUESTIONS:

 

(17) Cet.p., the equilibrium quantity will increase and the equilibrium price may increase, decrease, or stay the same when

 

a.   demand increases and supply decreases.

b.   demand decreases and supply increases.

c.   demand and supply both decrease.

d.   demand and supply both increase.

 

(18) The equilibrium quantity will decrease and the equilibrium price may increase, decrease, or stay the same when

 

a.   demand and supply both increase.

b.   demand and supply both decrease.

c. demand increases and supply decreases.

d.   demand decreases and supply increases

 

 

19) Cet.p., the equilibrium price will fall and the equilibrium quantity may increase, decrease, or stay the same when

 

a.   demand decreases.

b.   demand and supply both decrease.

c.   demand and supply both increase.

d. demand decreases and supply increases

 

 

20) The equilibrium price will rise and the equilibrium quantity may increase, decrease, or stay the same when

 

a.   demand and supply both increase.

b.  demand increases and supply decreases.

c.   demand decreases and supply increases.

d.   demand and supply both decrease

 

 

21) When the absolute value of the percentage change in price is greater than the absolute value of the per­centage change in quan­ti­ty de­mand­ed, then demand is said to be

 

a.   elastic and thus an increase in price will increase total revenue.

 

b.   inelastic and thus an increase in price will decrease total reve­nue.

 

c.   elastic and thus an increase in price will decrease total revenue.

 

d.   inelastic and thus an increase in price will increase total revenue.

 

 

22) If the cross elasticity of demand between goods A and B is negative and the price of good B decreases, cet.p., then we should observe 

 

a.         a movement right along the demand curve for good B and a shift right of the demand curve for good A.

 

b.         a shift right of the demand curve for good B and a shift left of the demand curve for good A.

 

c.         a shift right of the demand curve for good B and a shift right of the demand curve for good A.

 

d.         a movement right along the demand curve for good B and a shift left of the demand curve for good A.

 

 

23.             Which of the following statements is FALSE?

 

a.               Demand for a good is less elastic if the good is narrowly (specifically) defined.

 

b.               A nearly horizontal demand curve suggests that the good has many close substitutes

 

c.               Demand for a good is more elastic if it requires a large percentage of consumer income to purchase.

 

d.               A horizontal demand curve indicates that the price elas­ticity of demand is infinity.

 

 

24)  Suppose a change in a market’s average household income from $60,000 /year to $40,000/year results in a change in annual demand for good X from 4,000 units to 2,000 units.  Fill in the blanks: the income elas­tic­i­ty of demand over this range has a value of _________, and good X is there­fore  ________________.

 

a.               -5/3; an in­ferior good.

 

b.               5/3; an income inelastic normal good.

 

c.               5/3; an income elastic normal good.

 

d.               -3/5; an inferior good.

 

 

(25) If the population size of the market for potato chips grows, cet.p., then we would expect that

 

a. demand for potato chips would increase.

b. the price of potato chips would go up.

c. the quantity of potato chips sold would increase.

d.  All of the above are true.

 

 

 

 

 

26.             Which of the following statements is TRUE about the following graph?

 

 

 

 

 

a.         At a price of $42, the price floor is effective and the quantity actually sold is 90 units.

b.         At a price of $29, the price floor is not effective and the quantity actually sold is 72 units.

c.         At a price of $29, the price ceiling is effective and the quantity actually sold is 72 units.

d.         At a price of $42, the price ceiling is effective and the quantity actually sold is 72 units.

 

 

Answers to multiple choice: 1) a    2) d    3) b     4) a   5) d    6) d    7) c   8) b    9) b  10) d    11) d   12) a   13) c   14) b   15) a   16) a   17) d   18) b  19) d (just like in #14)   20) b (just like in #16)  21) d   22) a    23) a   24) c  25) d  26)  c