MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Microeconomics includes the study of the

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1 Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Microeconomics includes the study of the 1) A) recessions and inflation in the global economy. B) reasons why the government changes interest rates. C) choices made by individuals and businesses. D) aggregate effects on the national economy. E) nationwide unemployment rate. 2) Which of the following statements is a normative statement? 2) A) Every American household should have health care insurance coverage. B) Fewer people are unemployed this year than last year. C) Welfare reform has decreased the amount the government spends on welfare. D) The price of computers fell last year. E) Military spending as a percent of government spending decreased by 5 percent in the 1990s. 3) Suppose you decide to attend summer school and that this is considered a rational choice. When making this choice, A) you must ignore the problem of scarcity. B) you have made a positive statement. C) you have used the ceteris paribus assumption. D) you must have considered the social interest. E) you considered the marginal cost and marginal benefit of your choice. 3) 4) The opportunity cost of a decision is measured in terms of 4) A) the price of a new opportunity that arises. B) the next best thing given up. C) sunk cost. D) the price of the alternative we choose. E) time. 5) In the circular flow model, which of the following is on the buying side of the factor markets? 5) A) only households B) only firms C) only financial institutions such as banks D) federal, state, and local governments E) firms and households 6) Payments to the factors of production are 6) A) rent, mortgage, interest, and bonds. B) rent, wages, interest, and profit or loss. C) land, labor, capital, and entrepreneurship. D) rent, interest, bonds, and profit or loss. E) rent, wages, profit or loss, and bonus. 7) Which of the following correctly lists the categories of factors of production? 7) A) land, labor, capital, and entrepreneurship B) labor, money, stocks, and bonds C) land, buildings, capital, and entrepreneurship D) forests, fish, buildings, capital, and entrepreneurship E) labor, machines, buildings, capital, and entrepreneurship

2 8) The figure above shows the production possibilities frontiers for the United Kingdom and France. What is the opportunity cost of one bushel of wheat in France? A) 4 pounds of fish B) 2 pounds of fish C) 100 pounds of fish D) 1/4 of a pound of fish E) 1 pound of fish 8) 9) Mac can bake more cookies than Monica per hour. It must be true that 9) A) Monica has a comparative advantage in baking cookies. B) Monica has an absolute advantage in cookie baking. C) Mac has an absolute advantage in baking cookies. D) Mac has a comparative advantage in baking cookies. E) Mac cannot benefit by trade between the two of them. 10) The figure above shows the production possibilities frontier for a country. A combination of 3 million gallons of milk and 3 million gallons of ice cream is A) attainable and has full employment of resources. 10)

3 B) unattainable. C) attainable and has less than full employment of resources. D) unattainable and has less than full employment of resources. E) More information is needed to determine if the point is attainable or not. 11) Relative to Al, Joe has if Joe can produce a good at a lower opportunity cost than Al. 11) A) a comparative advantage B) a comparative benefit C) a marginal benefit D) a free lunch E) more production efficiency 12) Huey and Steve can grow potatoes or tomatoes. The table above shows the pounds of potatoes and tomatoes Huey and Steve can grow in a week. Based on the table, Huey's opportunity cost of producing one pound of tomatoes is A) 0, because he has an absolute advantage in it. B) 1.5 pounds of potatoes. C) 0, because he has a comparative advantage in it. D) 0.66 pound of potatoes. E) 1.0 pound of potatoes. 12) 13) In the above figure, the shift in the demand curve from D to D 1 can be the result of 13) A) a decrease in income if pizza is a normal good. B) an increase in the number of teenagers, all of whom demand more pizza than do other age groups. C) an increase in the price of soda, a complement to pizza. D) a decrease in the price of a sub sandwich, a substitute for pizza. E) new technology that increases the profit from producing pizza.

4 14) In the figure above, if point "a" represents the original equilibrium and point "b" the new equilibrium, then A) there has been an increase in supply. B) there has been an increase in demand. C) there has been a change in the quantity supplied and no change in supply. D) Both answers B and C are correct. E) Both answers A and B are correct. 15) Suppose that the demand curve for desktop computers shifts rightward and at the same time the supply curve shifts leftward. Which of the following could have caused these shifts? A) Desktop computers are a normal good and incomes increased, while more firms entered the market. B) Desktop computers are a normal good and incomes decreased, while the labor costs of producing personal computers increased. C) Desktop computers are a normal good and incomes increased, while the labor costs of producing personal computers increased. D) The price of a laptop computer, a substitute for desktop computers, fell and the cost of producing desktop computers decreased. E) Consumers purchased more computers because of the Christmas season and the labor costs of producing desktop computers decreased. 14) 15) 16) The supply schedule 16) A) is a curve showing the relationship between the amount the sellers are willing and able to sell and the price of that good when all relevant factors change. B) is the schedule that suppliers have to keep or else they will be late. C) shows the relationship between the quantity supplied and the price of a good when all other influences on selling plans remain the same. D) shows one quantity at one price. E) shows the relationship between the quantity supplied and the price of a good when all other influences on selling plans change.

5 17) In the above figure, the shift in the demand curve from D to D 2 can be the result of 17) A) an increase in the price of soda, a complement to pizza. B) an increase in the price of a sub sandwich, a substitute for pizza. C) a decrease in the supply of pizza that raises the price of pizza. D) an increase in income if pizza is a normal good. E) a change in quantity demanded. 18) If the price elasticity of supply for a good is 0.75, then 18) A) the percentage change in the quantity supplied is less than the percentage change in price. B) the supply is inelastic so the demand must also be inelastic. C) the supply is elastic. D) an increase in the price boosts the quantity supplied by a larger percentage. E) None of the above answers is correct. 19) The income elasticity of demand for skiing trips to Vermont is greater than one. Thus a trip to Vermont for skiing is good. A) a price inelastic B) an inferior C) a unit elastic D) a price elastic E) a normal 19) 20) Total revenue increases if the price of the good 20) A) rises and demand is elastic. B) falls and demand is unit elastic. C) rises and demand is unit elastic. D) falls and supply is inelastic. E) rises and demand is inelastic. 21) Using the data in the table above, when the price of a pizza falls from $10 to $9, what is the percentage change in price? (Use the midpoint method.) A) 8.2 percent B) 5.0 percent C) 15.5 percent 21)

6 D) 10.5 percent E) 1.0 percent 22) In the figure above, at the market price of $15, the consumer surplus equals 22) A) 2,000 units B) $40,000. C) $30,000. D) $10,000. E) None of the above answers is correct. 23) A marginal cost curve can be the same as the 23) A) supply curve. B) producer surplus curve. C) deadweight production curve. D) marginal benefit curve. E) consumer surplus curve.

7 24) The figure above shows the market for brooms. If 400 brooms are produced, 24) A) consumer surplus equals zero. B) producer surplus is maximized. C) a deadweight loss occurs. D) marginal cost is greater than marginal benefit. E) consumer surplus is maximized. 25) The demand curve is also the 25) A) marginal deadweight cost curve. B) marginal benefit curve. C) total cost curve. D) marginal cost curve. E) total benefit curve.

8 1) C 2) A 3) E 4) B 5) B 6) B 7) A 8) D 9) C 10) A 11) A 12) B 13) B 14) A 15) C 16) C 17) A 18) A 19) E 20) E 21) D 22) D 23) A 24) C 25) B