Exam #1

Principles of Microeconomics

Name: __________________________  Date: _____________

Table 1.1 shows the hypothetical tradeoff between different combinations of Stealth bombers
and B-1 bombers that might be produced in a year with the limited U.S. capacity, ceteris
paribus.  Complete the table by calculating the required opportunity costs for both the B-1
and Stealth bombers.  Then answer the indicated questions.

Table 1.1

Production possibilities for bombers

1. Refer to Table 1.1.  In the production range of 7 to 9 Stealths, the opportunity cost of
producing 1 more Stealth bomber in terms of B-1s is:
A) 0.
B) 3.
C) 0.5.
D) 2.
Figure 1.3

2. A movement from point F to point D in Figure 1.3 results in:

A) Less efficient production.
B) Permanent unemployment of workers producing automobiles.
C) A reallocation of resources from automobile production to tank production.
D) More efficient production.
3. The opportunity cost of studying for an economics test is:
A) Negative, since it may improve your grade.
B) Zero, because you knew when you registered for the class that studying would be
required.
C) The money you spent on tuition for the class.
D) The best alternative use of your time.
4. Which of the following events would cause the production-possibilities curve to shift
inward?
A) A decrease in the available labor.
B) An increase in the number of factories.
C) A technological breakthrough occurs which makes production of all goods more
efficient.
D) An increase in the unemployment rate.
5. Which of the following is not a basic decision that all nations must confront?
A) Should we have economic growth?
B) How should we produce goods and services?
C) For whom should goods and services be produced?
D) What goods and services should we produce?

Figure 1.5
6. Using Figure 1.5, if an economy has the capacity to produce represented by PP2 then
point E represents:
A) A constant tradeoff between CDs and video games.
B) A combination of CDs and video games that is not attainable.
C) An efficient use of resources.
D) The unemployment of resources.
7. Which of the following is a predictable effect of price ceilings?
A) A decrease in the quantity supplied.
B) A market surplus.
C) A decrease in the quantity demanded.
D) All of the above.
Complete Table 3.2. Then answer the indicated questions.

Table 3.2

Demand and supply for trucks (millions of trucks per year)

8. In Table 3.2, the equilibrium quantity demanded in the international truck market
would be:
A) 30 million trucks per year.
B) 100 million trucks per year.
C) 60 million trucks per year.
D) 15 million trucks per year.
9. If bagels and donuts are substitutes, then a decrease in the price of donuts will result
in:
A) An increase in the demand for donuts.
B) An increase in the demand for bagels.
C) A decrease in the demand for donuts.
D) A decrease in the demand for bagels.
10. Opportunity cost is:
A) Only measured in dollars and cents.
B) The dollar cost to society of producing the goods.
C) The difficulty associated with using one good in place of another.
D) The alternative that must be given up in order to get something else.
Figure 3.3

Supply and demand

11. Figure 3.3 indicates that:

A) The lowest price at which sellers are willing and able to supply 40 units is $4.
B) The highest price at which buyers are willing and able to buy 40 units is $4.
C) A surplus of 40 units would result if the market price were $4.
D) All of the above.
12. A buyer is said to have a demand for a good only when:
A) The buyer wants to own the good.
B) The buyer is both willing and able to purchase the good at alternative prices.
C) The price of the good is low enough.
D) An adequate supply of the good is available for purchase.
13. The production-possibilities curve shifts outward in response to:
A) Better technology or fewer resources or both.
B) Better technology or more resources or both.
C) Declining technology or fewer resources or both.
D) Declining technology or more resources or both.
14. A point on a nation's production-possibilities curve represents:
A) An undesirable combination of goods and services.
B) Combinations of production that are unattainable, given current technology and
resources.
C) Levels of production that will cause both unemployment and inflation.
D) The full employment of resources to achieve a particular combination of goods and
services.
 15. A production-possibilities curve indicates the:
A) Combinations of goods and services an economy is actually producing.
B) Maximum combinations of goods and services an economy can produce given its
available resources and technology.
C) Maximum combinations of goods and services an economy can produce given
unlimited resources.
D) Average combinations of goods and services an economy can produce given its
available resources and technology.
16. Capital, as economists use the term, refers to:
A) The money needed to start a new business.
B) The costs of operating a business.
C) Shares of stock issued by businesses.
D) Final goods that are used to produce other goods and services.
17. In economics, what does scarcity mean?
A) That a shortage of a particular good will cause the price to fall.
B) That a production-possibilities curve cannot accurately represent the tradeoff between
two goods.
C) That society's desires exceed the want-satisfying capability of the resources available
to satisfy those desires.
D) That the market mechanism has failed.
18. A shift in supply is defined as a change in:
A) Price.
B) Quantity supplied because of a change in price.
C) Equilibrium quantity.
D) Supply because of a change in a non-price determinant.
19. A change in demand means there has been a shift in the demand curve, and a change
in the quantity demanded:
A) Corresponds to a movement along the demand curve.
B) Means a shortage or surplus will result from holding prices constant.
C) Results from a change in price of other goods.
D) Also means demand has shifted.
20. Ceteris paribus, which of the following would generally cause an increase in the
demand for automobiles?
A) A decrease in the price of automobiles.
B) An increase in consumers' income.
C) The new models are perceived as ugly compared with old models.
D) Consumer expectations that the price of automobiles will be lower next year.

For the following questions, choose the letter of the diagram in Figure 3.7 that best describes
the type of shift that would occur in each situation for the U.S. farming market, ceteris
paribus.

Figure 3.7

Shifts of supply and demand

21. OPEC raises oil prices, which causes a significant increase in the cost of fuel for
tractors and other farm vehicles.
A) A
B) B
C) C
D) D
Choose the letter of the diagram in Figure 3.1 that best describes the type of shift that would
occur in each situation for the market listed at the left, ceteris paribus.

Figure 3.1

Shifts of supply and demand

22. Housing: The cost of lumber decreases because less expensive lumber is imported
from Canada.
A) A
B) B
C) C
D) D
23. Which of the following is not held constant along a given supply curve for a good?
A) The cost of factors of production.
B) Price.
C) Technology.
D) Taxes.

For the following questions, choose the letter of the diagram in Figure 3.7 that best describes
the type of shift that would occur in each situation for the U.S. farming market, ceteris
paribus.
Figure 3.7

Shifts of supply and demand

24. The U.S. population becomes more weight conscious and consumes less of all foods.
A) A
B) B
C) C
D) D
25. Which of the following is a predictable effect of price ceilings?
A) An increase in the quantity supplied.
B) A market surplus.
C) An increase in the quantity demanded.
D) All of the above.
26. A change in the price of a good:
A) Causes a shift in the supply curve.
B) Results in a change in supply.
C) Results in a change in quantity supplied.
D) Is a determinant of supply.
27. The market supply curve of a particular product indicates the:
A) Total quantities that are actually sold during a given time period.
B) Total quantities that buyers are willing to purchase at alternative prices.
C) Total quantities that sellers are willing and able to offer for sale at alternative prices
in a given time period, ceteris paribus.
D) Specific quantities that an individual seller will make available at a given price in a
given time period, ceteris paribus.
28. In a market economy, which of the following is an incentive for producers to produce
efficiently?
A) Government laws and regulations.
B) The production-possibilities curve.
C) Profits.
D) The public's welfare.

Choose the letter of the diagram in Figure 3.1 that best describes the type of shift that would
occur in each situation for the market listed at the left, ceteris paribus.

Figure 3.1
Shifts of supply and demand

29. All goods and services: The level of income increases for all consumers.
A) A
B) B
C) C
D) D
30. Market supply and market demand curves are similar in that both:
A) Involve the willingness and ability of a supplier to sell a product or service.
B) Involve the willingness and ability of a buyer to buy a product or service.
C) Have price on the x-axis and quantity on the y-axis.
D) Can be derived by adding horizontally all the curves of the individuals in the market.

For the following questions, choose the letter of the diagram in Figure 3.7 that best describes
the type of shift that would occur in each situation for the U.S. farming market, ceteris
paribus.
Figure 3.7

Shifts of supply and demand

31. Improvements in crops allow farmers to use fewer pesticides and other chemicals,
which reduces costs.
A) A
B) B
C) C
D) D

Figure 3.3

Supply and demand

32. If the actual market price were fixed at $10 per unit in Figure 3.3:
A) There would be a surplus of 40 units.
B) There would be a shortage of 10 units.
C) There would be a surplus of 20 units.
D) There would be a shortage of 20 units.
33. A rightward shift in a demand curve and a rightward shift in a supply curve both
result in a:
A) Lower equilibrium price.
B) Higher equilibrium price.
C) Lower equilibrium quantity.
D) Higher equilibrium quantity.
34. Tennis balls and tennis rackets are commonly used together. A decrease in the price
of tennis rackets will result in:
A) An increase in the demand for tennis balls.
B) A decrease in the demand for tennis balls.
C) An increase in the demand for tennis rackets.
D) A decrease in the demand for tennis rackets.
35. Which of the following determinants might change in the consumer-goods market as
a result of an increase in unemployment?
A) Income.
B) Buyer expectations.
C) Tastes.
D) All of the above.
36. If Dell computers and HP computers are substitutes, then an increase in the price of
Dell computers will result in:
A) A decrease in demand for HP computers.
B) A decrease in the quantity demanded of HP computers.
C) An increase in demand for HP computers.
D) An increase in the quantity demanded of HP computers.
Figure 3.3

Supply and demand

37. The equilibrium price and quantity in Figure 3.3 are, respectively:
A) $6 and 30 units.
B) $4 and 20 units.
C) $8 and 20 units.
D) $8 and 40 units.
38. The equilibrium price in a market is found where:
A) The market supply curve intersects the market demand curve.
B) The market supply curve intersects the y-axis.
C) The market demand curve intersects the y-axis.
D) The market supply curve intersects the x-axis.
Figure 3.6

Shifts of supply and demand

39. Which panel of Figure 3.6 represents the changes in the market for beef when the
price of corn (cattle feed) falls and the surgeon general reports that red meat
contributes to heart disease?
A) A
B) B
C) C
D) D
40. Which panel of Figure 3.6 represents the changes in the market for textbooks when
the cost of paper increases and the government ceases to make student loans?
A) A
B) B
C) C
D) D
Answer Key

1. C
2. C
3. D
4. A
5. A
6. C
7. A
8. C
9. D
10. D
11. B
12. B
13. B
14. D
15. B
16. D
17. C
18. D
19. A
20. B
21. A
22. B
23. B
24. C
25. C
26. C
27. C
28. C
29. D
30. D
31. B
32. A
33. D
34. A
35. D
36. C
37. A
38. A
39. B
40. D