Problematic questions from the Introduction to Economics Exam, Fall 2013 (<=40% of students answer correctly)

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1 Problematic questions from the Introduction to Economics Exam, Fall 2013 (<=40% of students answer correctly) 1) Which of the following is not considered a factor that influences supply? A) Taxes and subsidies. Б) Technology. В) The number of buyers. Г) Resource prices. 2) In the market for cell phones, all of the following would cause the supply of cell phones to change except: A) an increase in the number of buyers in the market for cell phones. Б) an improvement in the technology used to produce cell phones. В) a change in cell phone producers' expectations. Г) an increase in the cost of labor used to produce cell phones. 3) All else constant, what is the ultimate market reaction of suppliers to an increase in the incomes of consumers? A) The supply curve shifts to the left. Б) Suppliers do not react, because a change in income shifts the demand curve, not the supply curve. В) Quantity supplied increases. Г) The supply curve shifts to the right. 4) Assume wages paid by a firm to its workers decrease. What would reasonably be expected to happen to the equilibrium price and equilibrium quantity of the firm's output? A) Equilibrium price would increase and equilibrium quantity would decrease. Б) Equilibrium price and quantity would both increase. В) Equilibrium price would decrease and equilibrium quantity would increase. Г) Equilibrium price and quantity would both decrease. 5) As the price of milk increases, what would reasonably be expected to happen to the equilibrium price and equilibrium quantity of cereal? (Milk and cereal are complements.) A) Equilibrium price and quantity would both increase. Б) Equilibrium price would decrease and equilibrium quantity would increase. В) Equilibrium price would increase and equilibrium quantity would decrease. Г) Equilibrium price and quantity would both decrease. 6) Assume there is a simultaneous decrease in the incomes of people in the market for new homes and a decrease in the wages paid to carpenters, plumbers, and electricians. All else constant, we can predict, with certainty, that in the market for new homes the equilibrium: A) price of new homes will decrease.

2 Б) quantity of new homes will increase. В) quantity of new homes will decrease. Г) price of new homes will increase. 7) In the run up to the war in Iraq that began in 2003, one of the many concerns raised was that a war could result in a decrease in the supply of oil. At the same time, the U.S. economy was having a hard time recovering from the most recent recession and, as a result, incomes of many consumers had decreased (due to layoffs, wage cuts, and so forth). All else constant, it was reasonable to predict, with certainty, that the combination of these two factors would cause the equilibrium: A) price of oil to increase. Б) quantity of oil to increase. В) price of oil to decrease. Г) quantity of oil to decrease. 8) Assume the costs of production in the U.S. auto industry are rising and, at the same time, the prices of Japanese-made autos are decreasing. What would reasonably be expected to happen to the equilibrium price and quantity of U.S.-made autos? A) Price will increase; quantity cannot be determined. Б) Price will decrease; quantity cannot be determined. В) Quantity will increase; price cannot be determined. Г) Quantity will decrease; price cannot be determined. 9) All else constant, a large decrease in the number of people who want to own sport utility vehicles (SUVs) because of their poor fuel efficiency could be expected to cause: A) an increase in the equilibrium price of SUVs. Б) an increase in the supply of SUVs. В) a decrease in the equilibrium price of gasoline. Г) an increase in the supply of gasoline. 10) Which of the following best describes the influence of successful advertising on the market for aspirin? A) Individuals' demand curves shift to the right, but the market demand curve remains at its original position. Б) The market demand curve shifts to the right, creating a shortage at the original equilibrium price. В) The market supply curve shifts to the right, creating a surplus at the original equilibrium price. Г) The market supply curve for aspirin shifts to the right, causing equilibrium price to decrease. 10) Coffee and tea would be expected to have: A) positive income elasticities of demand with respect to each other. Б) a negative cross-price elasticity of demand. В) a positive cross-price elasticity of demand.

3 Г) negative income elasticities of demand with respect to each other. 12) A firm's production function is the relationship between: A) the demand for a firm's output and the quantity it is able to produce with available resources. Б) the factors of production and the resulting outputs of the production process. В) the firm's production costs and the amount of revenue it receives from the sale of its output. Г) the inputs employed by the firm and the resulting costs of production. 13) The upward-sloping part of the short-run marginal cost function is due to: A) the upward-sloping part of the production function. Б) the change in total product rising as units of a variable input are added to a fixed input. В) marginal product rising as units of a variable input are added to a fixed input. Г) marginal product falling as units of a variable input are added to a fixed input. 14) Much of the empirical evidence on the behavior of costs for real-world firms suggests that: A) for many firms, marginal and average variable costs are constant over wide ranges of output. Б) there is no relationship between the marginal and average variable costs of production. В) for most firms, marginal costs are declining in the range in which the firms operate. Г) average costs functions are U-shaped as suggested by economic theory. 15) Positive economics is an approach to economics that A) describes the economy and how it works. Б) analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe preferred courses of action. В) prescribes roles for government in an economy. Г) seeks to understand behavior and the operation of systems while making judgments about their usefulness to society. 16) Which of the following is a normative question? A) Why do gasoline prices increase before holiday weekends? Б) What will happen to gasoline consumption if excise taxes on gasoline are increased? В) How will oil exploration be affected if the government imposes price controls on gasoline? Г) To reduce the regressive nature of the gasoline excise tax, should a portion of the gasoline excise tax paid by low-income individuals be refunded to them? 17) The price of computer chips used in the manufacturing of personal computers rises. This will lead to a(n) in the of personal computers. A) decrease; quantity supplied Б) decrease; supply

4 В) increase; quantity supplied Г) increase; supply 18) If the price of pizza sauce used in the production of pizza rises, there will be a(n) of pizza. A) decrease in the quantity supplied Б) increase in the supply В) increase in the quantity supplied Г) decrease in the supply 19. Refer to the information provided in the Figure below to answer the following question. Refer to the Figure. A decrease in the wage rate of pizza makers will cause a movement from Point B on supply curve S2 to A) Point A on supply curve S2. Б) Point B on supply curve S2. В) supply curve S1. Г) supply curve S3. 20) Refer to the information provided in Figure below to answer the question that follows. Figure. Refer to the Figure. The market is initially in equilibrium at Point A. If supply shifts from S1 to S2 and the price of pizzas remains constant at $7.00, there will be an excess

5 pizzas. A) supply of 2 Б) demand of 7 В) supply of 5 Г) demand of 5 21) A movement along the demand curve to the left may be caused by a A) rise in income. Б) fall in the price of inputs. В) decrease in supply. Г) fall in the number of substitute goods. 22) At a price of $20, a store can sell 24 picture frames a day. At a price of $18 the store can sell 33 picture frames a day. Using the midpoint formula, the price elasticity of demand is A) Б) В) Г) ) If the quantity demanded of tea increases by 2% when the price of coffee increases by 8%, the cross-price elasticity of demand between tea and coffee is A) 4. Б) -25. В) -4. Г) ) Economists usually assume that labor is input in the run. A) a variable; short Б) part fixed and part variable; long В) a fixed; short Г) a fixed; long