Midterm 1

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

1. Holding everything else constant, an increase in the price of MP3 players will result in

a. a decrease in the quantity of MP3 players supplied.

b. a decrease in the demand for MP3 players.
c. an increase in the supply of MP3 players.
d. a decrease in the quantity of MP3 players demanded.

2. How does the increasing use of digital cameras affect the market for traditional camera film?

a. The demand curve for traditional camera film shifts to the right.
b. The supply curve for traditional camera film shifts to the left.
c. The supply curve for traditional camera film shifts to the right.
d. The demand curve for traditional camera film shifts to the left.

3. If a firm expects that the price of its product will be lower in the future than it is today
a. the firm has an incentive to increase supply now and decrease supply in the future.
b. the firm has an incentive to decrease supply now and increase supply in the future.
c. the firm has an incentive to increase quantity supplied now and decrease quantity supplied in the
future.
d. the firm will not change supply until it knows for certain what will happen to its price.

4. The demand for lobster is lower in the spring than in the summer. If the price of lobster is higher in spring
than in summer then:

a. The supply of lobster is greater in summer than in spring.

b. Consumers' tastes for lobster are greater in spring than in summer.
c. There is a shortage of lobster in spring and a surplus of lobster in summer.
d. There are more substitutes for lobster in summer than there are in spring.

5. In which case we can get a PPF that looks like a straight line?

a. when opportunity cost decreases

b. when opportunity cost increases
c. when there is no opportunity cost
d. when there is constant opportunity cost

6. Individuals will continue consuming so long as:

a. The price of a good continues to decrease

b. The marginal costs of consuming are outweighed by the marginal benefits
c. The individual seeks additional utility
d. The individual is willing and able
 Figure 3

7. Refer to Figure 3. With a price ceiling present in this market, when the supply curve for gasoline shifts
from S1 to S2
a. the price will increase to P3.
b. a surplus will occur at the new market price of P2.
c. the market price will stay at P1 due to the price ceiling.
d. a shortage will occur at the price ceiling of P2.

8.. Refer to Figure 3. Without the price ceiling in this market, when the supply curve for gasoline shifts from
S1 to S2 the price will:

a. increase to P3, but a shortage will still exist.

b. increase to P3 and the market will clear.
c. remain at P1 and a shortage will still exist.
d. eventually move to P2 without government assistance.

9. Inefficient Production implies which of the following:

a. it is impossible to produce more of one good without producing less of another

b. there are too few resources
c. there are too many resources
d. it is possible to produce more of one good without producing less of another

10. Which of the following statements is true?

a. An increase in demand causes a change in equilibrium price; the change in price does not
cause a further change in demand or supply.
b. A decrease in supply causes equilibrium price to rise; the increase in price then results in a
decrease in demand.
c. If both demand and supply increase there must be an increase in equilibrium price; equilibrium
quantity may either increase or decrease.
d. If demand decreases and supply increases one cannot determine if equilibrium price will
increase or decrease without knowing which change is greater.

11. 1,000 individuals desire Good X, but only 100 units are available. ______________ will determine
who attains Good X, and who does not.

a. An opportunity cost
b. A rationing device
c. Utility
d. Natural Selection
12. In 2010, the average price for Refrigerators that tell people to stop eating, close the door, and go
away was $4000. In 2011 the average price rose to $5000, but sales still doubled. It
follows that:

a. The law of supply does not hold for the Refrigerators

b. Demand for the refrigerators could be higher in 2011 than in 2010
c. Supply of the refrigerators decreased in 2011
d. Income may be higher in 2011 than in 2010
e. b and d

13. You eat Wasabi Green Peas by the case. The CNN news anchor announces that the Japanese
believe Americans are fat and lazy. They respond by putting a tariff on all food exports to the US
starting in 2011. This will cause the price you pay to double next year. As a result,

a. your demand for Wasabi Peas will increase starting next year.
b. your demand for Wasabi Peas increases today.
c. your demand for Wasabi Peas falls as you look for a substitute good.
d. you decide to give up Wasabi Peas completely.

FIGURE 3

14. The graph in Figure 3 illustrates an initial competitive equilibrium in the market for apples at the
intersection of D1 and S1 (point A). If the price of oranges, a substitute for apples, decreases
and the wages of apple workers increase how will the equilibrium point change?

a. The equilibrium point will move from A to E.

b. The equilibrium point will move from A to B.
c. The equilibrium point will move from A to C.
d. The equilibrium will first move from A to B, then return to A.

15. The graph in Figure 3 illustrates an initial competitive equilibrium in the market for apples at the
intersection of D1 and S1 (point A). If there is a shortage of apples how will the equilibrium point
change?

a. The equilibrium point will move from A to B.

b. The equilibrium point will move from A to C.
c. There will be no change in the equilibrium point.
d. The equilibrium point will move from A to E.
16. The basic reason most supply curves are upward sloping is that:

a. More firms are in the market, therefore more goods are produced.
a. Because more quantity is being demanded, suppliers raise the price.
b. Producers face higher opportunity costs when producing higher levels of quantity, so
they must receive a higher price.
c. Producers seek to maximize total revenue.

17. Shirts are made with cotton. Should the price of cotton rise, then:

a. The supply curve of shirts will move inward

b. The supply curve of cotton will move outward
c. The demand curve will move inward
d. Nothing changes with either the demand or supply curves, but the price of shirts
increases.

18. Which of the following would shift a nation's production possibilities frontier inward?

a. discovering a cheap way to convert sunshine into electricity

b. producing more capital equipment
c. an increase in the unemployment rate
d. a law requiring workers to retire at age 50

FIGURE 4

19. Refer to Figure 4

Farmer Bob grows tomatoes and strawberries on his land. A portion of his land is more suitable
for growing tomatoes and the other portion is better suited for strawberry cultivation. Which of the
graphs represent his production possibilities frontier?

a. Graph A
b. Graph B
c. Graph C
d. Graph A or Graph C
 Table 1

George Jack 
Lawns Mowed 10 6
Gardens Cultivated 5 4

20. Refer to Table 1: What is Jack's opportunity cost of mowing a lawn?

a. half a garden cultivated.

b. two lawns mowed.
c. two-thirds of a garden cultivated.
d. one and a half lawns mowed.

21. Refer to Table 1: Which of the following statements is true.

a. Jack has a comparative advantage in both tasks.

b. George has a comparative advantage in both tasks.
c. Jack has a comparative advantage in lawn mowing and George in garden cultivating.
d. Jack has a comparative advantage in garden cultivating and George in lawn mowing.

22. Specializing in the production of a good or service in which one has a comparative advantage
enables a country to do all of the following except:

a. engage in mutually beneficial trade with other nations.

b. increase the variety of products that it can consume with no increase in resources.
c. consume a combination of goods that lie outside its own production possibilities frontier.
d. produce a combination of goods that lie outside its own production possibilities frontier.

23. For most people who retire, the largest single cost of retirement is:

a. Medical bills.
b. The income given up by not working.
c. Costs of vacations or hobbies.
d. Insurance costs.

24. If the best lawyer in town is also the best at typing on MS Word, then according to economic
reasoning, this person should :

a. split her time evenly between being a lawyer and a typer .

b. specialize in being a lawyer because its opportunity cost is lower.
c. should pursue the activity she enjoys more.
d. specialize in typing because the opportunity cost is higher.
 FIGURE 5

25. Figure 5 above represents the market for iced tea. At a price of $3

a. the marginal cost of iced tea is greater than the marginal benefit; therefore, output is
inefficiently low.
b. producers should lower the price to $1 in order to sell the quantity demanded of 10,000.
c. the marginal benefit of iced tea is greater than the marginal cost; therefore, output is
inefficiently low.
d. the marginal benefit of iced tea is greater than the marginal cost; therefore, output is
inefficiently high.

26. Sue receives a large pay increase when taking a new job. We would expect which of the following to
occur:

a. Her demand for inferior goods decreases

b. Her demand for normal goods decreases
c. Her demand for luxury goods remains the same
d. Her demand for normal goods remains the same