Microeconomics Summer2011-Practice Exam One

1. Refer to the production possibilities curve for Ricardia below.

The graph indicates that with the resources and technology it has available, Ricardia:
A. can produce either 40 units of rye or 20 units of eggs.
. can produce both 40 units of rye and 20 units of eggs.
!. cannot produce both 20 units of rye and 10 units of eggs.
". cannot produce both 20 units of rye and # units of eggs.

2. Refer to the graph below.

$iven the production possibility curve, which point is unattainable%
A. A
.
!. !
". "
&. Refer to the graph below.

'roductive inefficiency occurs at what point%
A. A
.
!. !
". "

4. (f a country ta)es advantage of the co*parative advantage of so*e resources over others, then its production
possibility curve is li)ely to be:
A. flat.
. straight.
!. bowed outward.
". bowed inward.

#. The law of de*and states that the +uantity de*anded of a good is inversely related to the price of that good.
Therefore, as the price of a good goes:
A. up, the +uantity de*anded also goes up.
. up, the +uantity de*anded goes down.
!. down, the +uantity de*anded goes down.
". down, the +uantity de*anded stays the sa*e.

,. (f the price of *ovies on -./ rises while the price of *ovies on "-" re*ains the sa*e, the law of de*and
predicts that consu*ers will:
A. substitute *ovies on -./ for *ovies on "-".
. substitute *ovies on "-" for *ovies on -./.
!. buy only *ovies on -./.
". buy only *ovies on "-".

0. Tuition and fees for four year colleges in the 1nited /tates have risen by an average of #.2 percent in 200,.
3ne cause for the increase in price has been an increase in de*and for college education. (n the standard *odel,
what could be a possible e4planation for the increase in the de*and for college education%
A. 5ore colleges have been established.
. The cost of two6year colleges has declined over the sa*e period.
!. (nco*e in the 1nited /tates has risen.
". The price of all other goods in the econo*y has risen & percent over the sa*e period.

7. $as prices rose fro* about 81.0# per gallon to 82.0# per gallon in early 2004. The effect of higher gasoline
prices is *ost li)ely to:
A. increase the de*and for hybrid cars and increase the de*and for the gas gu99ler .u**er.
. decrease the de*and for hybrid cars and decrease the de*and for the gas gu99ler .u**er.
!. increase the de*and for hybrid cars and decrease the de*and for the gas gu99ler .u**er.
". decrease the de*and for hybrid cars and increase the de*and for the gas gu99ler .u**er.

2. !onsider the following de*and table and the graph below.

:hich of the de*and curves best reflects the de*and table%
A. A.
. .
!. !.
". ".

10. According to the law of supply:
A. supply curves slope upward.
. supply curves slope downward.
!. price and +uantity supplied are negatively related.
". price and +uantity supplied are inversely related.

11. /uppose far*ers can use their land to grow either wheat or corn. The law of supply predicts that an increase
in the *ar)et price of wheat will cause:
A. far*ers to substitute wheat for the production of corn.
. far*ers to substitute corn for the production of wheat.
!. far*ers to lower the production of corn and wheat.
". far*ers to raise the production of wheat and corn.

12. :hen the wage rate paid to labor is above e+uilibriu*, the:
A. supply of labor increases.
. de*and for labor decreases.
!. nu*ber of wor)ers see)ing ;obs e4ceeds the nu*ber of ;obs available.
". nu*ber of ;obs available e4ceeds the nu*ber of wor)ers see)ing ;obs.

1&. /uppose a *ar)et has an e4cess de*and and price starts to rise. :hat will the rise in price cause%
A. A fall in both +uantity supplied and +uantity de*anded.
. A rise in both +uantity supplied and +uantity de*anded.
!. A rise in +uantity supplied and a fall in +uantity de*anded.
". A fall in +uantity supplied and a rise in +uantity de*anded.

14. 'rice tends to be in e+uilibriu* where supply and de*and intersect because when +uantity supplied:
A. e+uals +uantity de*anded, prices don<t change.
. e4ceeds +uantity de*anded, prices have a tendency to rise.
!. is less than +uantity de*anded, prices tend to fall.
". e+uals +uantity de*anded, prices will fall.



1#. Refer to the graph above. At a price of ,0 cents per do9en:
A. there is a surplus of 2,000 do9en eggs per wee).
. the *ar)et is in e+uilibriu*
!. there is a shortage of &,000 do9en eggs per wee).
". there is a shortage of 2,000 do9en eggs per wee).



1,. /uppose that the table above shows the de*and and supply schedules for por) bellies. There is a shortage of
1#,000 pounds at a price of:
A. 80.2#.
. 80.#0.
!. 80.0#.
". 80.2#.

10. /uppose that the following table shows the supply and de*and schedules for Arabian light crude oil on the
free *ar)et:

$iven the infor*ation in the table, the only price at which there is neither shortage nor surplus is:
A. 82, per barrel.
. 820 per barrel.
!. 827 per barrel.
". 822 per barrel.

17. The price of a tic)et to the $rateful "ead concert is set at 8&#. All the tic)ets for the concert sell out one
hour after they go on sale and there are still 1000 fans who want to buy tic)ets. (t follows that:
A. the e+uilibriu* price of tic)ets to the concert is 8&#.
. the e+uilibriu* price of tic)ets to the concert is *ore than 8&#.
!. the e+uilibriu* price of tic)ets to the concert is less than 8&#.
". the +uantity of tic)ets de*anded is e+ual to the +uantity supplied at the 8&# price.
12. (n the fall of 2004 the price of to*atoes dra*atically increased. :hich of the following could have caused
this change%
A. .urricanes during the late su**er da*aged the =lorida crop, shifting supply left.
. A reduction in tariffs of to*atoes fro* !entral A*erican, shifting supply right.
!. A news report stating that a pesticide used on to*atoes *ight cause cancer, shifting the de*and to the right.
". Advertising for catsup increased de*and for catsup, shifting the de*and curve to the left.

20. A Wall Street Journal headline reads: >!igar /hortage "raws ?ew rands into 5ar)et.> The shortage
resulted fro* a renewed interest in s*o)ing cigars. :hat best describes the facts behind the headline%
A. 'rice is too low, de*and e4ceeds supply.
. 'rice is too low, +uantity de*anded e4ceeds +uantity supplied.
!. The cigar *ar)et is in e+uilibriu*.
". A shift in supply has e+uilibrated supply and de*and.

21. To )eep the price of gas fro* rising +uic)ly after @atrina, the govern*ent instituted price ceilings on the
price of gasoline in so*e states. These price ceilings caused AAAAAA in the gasoline *ar)et.
A. surpluses
. *ove*ent of the de*and curve
!. *ove*ent along the de*and curve
". shortages

22. An increase in the =ederal *ini*u* wage to 80.2# per hour fro* 8#.1# per hour, assu*ing that 80.2# is an
effective price floor and that all other things re*ain constant, will:
A. reduce the nu*ber of une*ployed.
. increase the nu*ber of une*ployed.
!. shift the supply of labor to the right.
". shift the de*and of labor to the right.

2&. /uppose the e+uilibriu* price of oranges is 80.02, but govern*ent ta)es steps to prevent the price fro*
e4ceeding 80.,0. The li)ely result will be a:
A. lower e+uilibriu* price for oranges as the supply curve for oranges shifts to the right.
. higher e+uilibriu* price for oranges as the de*and curve for oranges shifts to the right.
!. shortage of oranges as the price ceiling )eeps the *ar)et fro* reaching e+uilibriu*.
". surplus of oranges as the price ceiling )eeps the *ar)et fro* reaching e+uilibriu*.

24. Rent control *a)es apart*ents:
A. hard to find.
. easy to find.
!. less desirable.
". be in e4cess de*and.
Microeconomics Summer2011-Practice Exam One @ey

1. Refer to the production possibilities curve for Ricardia below.

The graph indicates that with the resources and technology it has available, Ricardia:
A. can produce either 40 units of rye or 20 units of eggs.
. can produce both 40 units of rye and 20 units of eggs.
!. cannot produce both 20 units of rye and 10 units of eggs.
". cannot produce both 20 units of rye and # units of eggs.
=ro* this graph we can tell that with the given inputs, the following co*binations are possible Beggs, ryeC: D20,
0E, D1#, 10E, D10, 10E, D#, &0E and D0, 40E.


2. Refer to the graph below.

$iven the production possibility curve, which point is unattainable%
A. A
B.
!. !
". "
A production possibility curve shows the co*binations of output than can be obtained fro* a given +uantity of
inputs. All points outside the curve are unattainable, so is unattainable.

&. Refer to the graph below.

'roductive inefficiency occurs at what point%
A. A
.
!. !
D. "
Ffficiency is not achieved at " because resources can be reallocated in such a way as to produce *ore of both
goods.

4. (f a country ta)es advantage of the co*parative advantage of so*e resources over others, then its production
possibility curve is li)ely to be:
A. flat.
. straight.
C. bowed outward.
". bowed inward.
(f a country ta)es advantage of its co*parative advantage, that *eans that it is relatively better at producing one
good over another. An outward6bowed production possibility curve reflects this co*parative advantage. As the
country produces that good for which it does not have a co*parative advantage, it *ust give up ever increasing
a*ounts of that good for which it has a co*parative advantage.

#. The law of de*and states that the +uantity de*anded of a good is inversely related to the price of that good.
Therefore, as the price of a good goes:
A. up, the +uantity de*anded also goes up.
B. up, the +uantity de*anded goes down.
!. down, the +uantity de*anded goes down.
". down, the +uantity de*anded stays the sa*e.
The law of de*and states that *ore of a good will be de*anded the lower its price, other things constant, and
less of a good will be de*anded the higher its price, other things constant.

,. (f the price of *ovies on -./ rises while the price of *ovies on "-" re*ains the sa*e, the law of de*and
predicts that consu*ers will:
A. substitute *ovies on -./ for *ovies on "-".
B. substitute *ovies on "-" for *ovies on -./.
!. buy only *ovies on -./.
". buy only *ovies on "-".
The law of de*and is based on the principle that consu*ers will substitute away fro* products that have
beco*e relatively *ore e4pensiveG this does not *ean that they will necessarily stop buying *ore e4pensive
products.

0. Tuition and fees for four year colleges in the 1nited /tates have risen by an average of #.2 percent in 200,.
3ne cause for the increase in price has been an increase in de*and for college education. (n the standard *odel,
what could be a possible e4planation for the increase in the de*and for college education%
A. 5ore colleges have been established.
. The cost of two6year colleges has declined over the sa*e period.
C. (nco*e in the 1nited /tates has risen.
". The price of all other goods in the econo*y has risen & percent over the sa*e period.
An increase in inco*e shifts the de*and curve to the right. 5ore colleges shifts the supply curve. A decrease in
the price of substitutes would have the opposite effect as the one described. The fact that all other goods has
risen by less than the rise in college tuition *eans that the price of college tuition has still increased relative to
*ost other goods.

7. $as prices rose fro* about 81.0# per gallon to 82.0# per gallon in early 2004. The effect of higher gasoline
prices is *ost li)ely to:
A. increase the de*and for hybrid cars and increase the de*and for the gas gu99ler .u**er.
. decrease the de*and for hybrid cars and decrease the de*and for the gas gu99ler .u**er.
C. increase the de*and for hybrid cars and decrease the de*and for the gas gu99ler .u**er.
". decrease the de*and for hybrid cars and increase the de*and for the gas gu99ler .u**er.
The de*and for hybrids increased enor*ously. /ince the short run supply was inelastic, the increased de*and
caused these cars to sell for *ar)ups of 8#,000 above stic)er price. The de*and for .u**ers, which are gas
gu99lers, fell about 20 percent.

2. !onsider the following de*and table and the graph below.

:hich of the de*and curves best reflects the de*and table%
A. A.
. .
C. !.
". ".
To translate a de*and table to a de*and curve, plot the price, +uantity co*binations and connect the points.
$raph ! correctly reflects the infor*ation in the de*and table.

10. According to the law of supply:
A. supply curves slope upward.
. supply curves slope downward.
!. price and +uantity supplied are negatively related.
". price and +uantity supplied are inversely related.
The law of supply states that, other things constant as the price of a good goes up, the +uantity supplied goes up
and as the price of a good goes down, the +uantity supplied goes down. This is shown graphically by a curve
that slopes upward.

11. /uppose far*ers can use their land to grow either wheat or corn. The law of supply predicts that an increase
in the *ar)et price of wheat will cause:
A. far*ers to substitute wheat for the production of corn.
. far*ers to substitute corn for the production of wheat.
!. far*ers to lower the production of corn and wheat.
". far*ers to raise the production of wheat and corn.
The increase in the price of wheat causes a *ove*ent along the supply curve for wheat Dchange in +uantity
suppliedE, not a shift.

12. :hen the wage rate paid to labor is above e+uilibriu*, the:
A. supply of labor increases.
. de*and for labor decreases.
C. nu*ber of wor)ers see)ing ;obs e4ceeds the nu*ber of ;obs available.
". nu*ber of ;obs available e4ceeds the nu*ber of wor)ers see)ing ;obs.
/upply and de*and do not shift when price changes. A price above e+uilibriu* *eans there will be a surplus,
or *ore wor)ers than ;obs.
1&. /uppose a *ar)et has an e4cess de*and and price starts to rise. :hat will the rise in price cause%
A. A fall in both +uantity supplied and +uantity de*anded.
. A rise in both +uantity supplied and +uantity de*anded.
C. A rise in +uantity supplied and a fall in +uantity de*anded.
". A fall in +uantity supplied and a rise in +uantity de*anded.
This is an application of the law of de*and and the law of supply.

14. 'rice tends to be in e+uilibriu* where supply and de*and intersect because when +uantity supplied:
A. e+uals +uantity de*anded, prices don<t change.
. e4ceeds +uantity de*anded, prices have a tendency to rise.
!. is less than +uantity de*anded, prices tend to fall.
". e+uals +uantity de*anded, prices will fall.
:hen +uantity supplied e+uals +uantity de*anded, prices don<t change. :hen prices are not changing, the
*ar)et is said to be in e+uilibriu*.


1#. Refer to the graph above. At a price of ,0 cents per do9en:
A. there is a surplus of 2,000 do9en eggs per wee).
. the *ar)et is in e+uilibriu*
!. there is a shortage of &,000 do9en eggs per wee).
D. there is a shortage of 2,000 do9en eggs per wee).
At ,0 cents per do9en, +uantity supplied is 1,000 do9en eggs per wee) while +uantity de*anded is &,000 do9en
eggs per wee). There is a shortage of 2,000 do9en eggs per wee).


1,. /uppose that the table above shows the de*and and supply schedules for por) bellies. There is a shortage
of 1#,000 pounds at a price of:
A. 80.2#.
. 80.#0.
!. 80.0#.
". 80.2#.
At 2# cents a pound, +uantity de*anded is 2#,000 and +uantity supplied is 10,000, so there is a shortage of
1#,000.

10. /uppose that the following table shows the supply and de*and schedules for Arabian light crude oil on the
free *ar)et:

$iven the infor*ation in the table, the only price at which there is neither shortage nor surplus is:
A. 82, per barrel.
. 820 per barrel.
C. 827 per barrel.
". 822 per barrel.
F+uilibriu* occurs where +uantity de*anded e+uals +uantity supplied. This occurs at a price of 827 per barrel.
:hen the *ar)et is in e+uilibriu*, there is neither a shortage nor a surplus.

17. The price of a tic)et to the $rateful "ead concert is set at 8&#. All the tic)ets for the concert sell out one
hour after they go on sale and there are still 1000 fans who want to buy tic)ets. (t follows that:
A. the e+uilibriu* price of tic)ets to the concert is 8&#.
B. the e+uilibriu* price of tic)ets to the concert is *ore than 8&#.
!. the e+uilibriu* price of tic)ets to the concert is less than 8&#.
". the +uantity of tic)ets de*anded is e+ual to the +uantity supplied at the 8&# price.
At 8&# per tic)et, +uantity de*anded e4ceeds +uantity supplied, so 8&# cannot be e+uilibriu* price. To
eli*inate the shortage, price would have to rise.
12. (n the fall of 2004 the price of to*atoes dra*atically increased. :hich of the following could have caused
this change%
A. .urricanes during the late su**er da*aged the =lorida crop, shifting supply left.
. A reduction in tariffs of to*atoes fro* !entral A*erican, shifting supply right.
!. A news report stating that a pesticide used on to*atoes *ight cause cancer, shifting the de*and to the right.
". Advertising for catsup increased de*and for catsup, shifting the de*and curve to the left.
A price rise can be caused by either a leftward shift in supply or a rightward shift in de*and. .ere is the for*er,
caused b weather.

20. A Wall Street Journal headline reads: >!igar /hortage "raws ?ew rands into 5ar)et.> The shortage
resulted fro* a renewed interest in s*o)ing cigars. :hat best describes the facts behind the headline%
A. 'rice is too low, de*and e4ceeds supply.
B. 'rice is too low, +uantity de*anded e4ceeds +uantity supplied.
!. The cigar *ar)et is in e+uilibriu*.
". A shift in supply has e+uilibrated supply and de*and.
A shortage results when price is below e+uilibriu* price. The option >de*and e4ceeds supply> is incorrect
because de*and and supply refer to the entire curve.

21. To )eep the price of gas fro* rising +uic)ly after @atrina, the govern*ent instituted price ceilings on the
price of gasoline in so*e states. These price ceilings caused AAAAAA in the gasoline *ar)et.
A. surpluses
. *ove*ent of the de*and curve
!. *ove*ent along the de*and curve
D. shortages
An effective price ceiling creates shortages.

22. An increase in the =ederal *ini*u* wage to 80.2# per hour fro* 8#.1# per hour, assu*ing that 80.2# is an
effective price floor and that all other things re*ain constant, will:
A. reduce the nu*ber of une*ployed.
B. increase the nu*ber of une*ployed.
!. shift the supply of labor to the right.
". shift the de*and of labor to the right.
'ushing up the *ini*u* wage will create a higher price floor which will increase the +uantity of people
loo)ing for wor) as well as reduce the +uantity de*anded. This will increase the nu*ber of une*ployed.

2&. /uppose the e+uilibriu* price of oranges is 80.02, but govern*ent ta)es steps to prevent the price fro*
e4ceeding 80.,0. The li)ely result will be a:
A. lower e+uilibriu* price for oranges as the supply curve for oranges shifts to the right.
. higher e+uilibriu* price for oranges as the de*and curve for oranges shifts to the right.
C. shortage of oranges as the price ceiling )eeps the *ar)et fro* reaching e+uilibriu*.
". surplus of oranges as the price ceiling )eeps the *ar)et fro* reaching e+uilibriu*.
A price ceiling for a good does not shift the de*and or supply curves of that product. A price ceiling below
e+uilibriu* price results in a greater +uantity de*anded than supplied, or a shortage.
24. Rent control *a)es apart*ents:
A. hard to find.
. easy to find.
!. less desirable.
". be in e4cess de*and.
Rent control is a govern*ent6i*posed price ceiling on rent resulting in a shortage of apart*ents.