ECON 2105 Fall 2014 Exam #1 Chapters 2-4 and 6 VERSION A

Exam Date: Thursday, 09/18/2014

Format: 30 Multiple-choice questions
Resources Allowed: calculator (no cell phones); 4 pages of notes [2 sheets of paper, front
and back only]. Use of notes in excess of page limit will result in a grade of 0 awarded to
your exam.
Name: __________________________ Date: _____________
Use the following to answer question 1:
Figure: Production Possibility Frontier

1. (Figure: Production Possibility Frontier) Look at the figure Production Possibilities

Frontier. If the economy is producing 8 cars and 12 computers per period:
A) something must be done to reduce the amount of employment.
B)
C)

the economy is still efficient but has made a decision not to buy as much as it
could.
this is an attainable choice but involves unemployment or inefficiency.

D) the notion of increasing opportunity cost is invalidated.

2. If the demand for tires goes down when the price of gas goes up, then tires and gas are:
A) complements.
B)

both inexpensive.

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C)

substitutes.

D) both expensive.

3. An increase in supply is caused by:

A) suppliers' expectations of higher prices in the future.
B)

an increase in input prices.

C)

an advancement in the technology for producing the good.

D) a decrease in the number of sellers in the market.

4. A binding price ceiling is designed to:

A) prevent shortages.
B)

keep prices low.

C)

increase efficiency.

D) increase the quality of the good.

5. Suppose Indiana produces only steel and corn, with fixed amounts of land, labor, and
capital resources. Which of the following best creates potential economic growth?
A) The United States imports more and more low-cost steel from Asian countries.
B)

The percentage of Indiana residents with a college degree rises from 25% to 30%.

C)

The unemployment rate in Indiana rises from 5% to 6%.

D) The Midwestern United States has a devastating drought.

6. A recent news story reported that OPEC is expected to decrease the supply of oil next
summer. Summer is traditionally a time of increased demand for oil because of the
many families driving and flying to vacation sites. What would be the combined effect
of these two events on the summer market for gasoline?
A) an increase in the price and an unpredictable change in the quantity
B)

an unpredictable change in the price and a decrease in the quantity

C)

an increase in the price and the quantity

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D) an unpredictable change in both the price and the quantity

7. An ambiguous change in price and a decrease in quantity are most likely caused by:
A) a shift to the left in supply and a shift to the right in demand.
B)

no shift in supply and a shift to the left in demand.

C)

a shift to the left in supply and a shift to the left in demand.

D) a shift to the right in supply and a shift to the left in demand.

8. Which of the following is most likely to shift the supply of milk to the right?
A) a decrease in the price of feed given to dairy cows
B)

the bankruptcy of many small dairy farms

C)

an increase in household income and milk is a normal good

D) a tax on each gallon of milk produced

9. The most painful consequence of a recession is:

A) increasing aggregate output.
B)

higher interest rates.

C)

increasing inflation.

D) rising unemployment.

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Use the following to answer questions 10-12:

Figure: The Demand and Supply of Wheat

10. (Figure: The Demand and Supply of Wheat) Look at the figure The Demand and Supply
of Wheat. If a price of $8 temporarily exists in this market:
A) a surplus of 6,000 bushels will result.
B)

a shortage of 2,000 bushels will result.

C)

a surplus of 4,000 bushels will result.

D) a shortage of 4,000 bushels will result.

11. (Figure: The Demand and Supply of Wheat) Look at the figure The Demand and
Supply of Wheat. What is the equilibrium quantity in this wheat market?
A) 2,000 bushels
B)

10,000 bushels

C)

6,000 bushels

D) 12,000 bushels

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12. (Figure: The Demand and Supply of Wheat) Look at the figure The Demand and Supply
of Wheat. If there were an increase in demand of 2,000 bushels at each price, the
equilibrium price and quantity would be ________ and ________ bushels, respectively.
A) $6; 7,000
B)

$7; 7,000

C)

$8; 8,000

D) $5; 5,000

Use the following to answer question 13:

Figure: Wine and Wheat

13. (Figure: Wine and Wheat) Look at the figure Wine and Wheat. If this economy is
producing at point A and it wants to produce at point B, it needs to:
A) decrease production.
B)

trade with another country.

C)

use its existing resources efficiently.

D) increase its resources.

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Use the following to answer questions 14-15:

Figure: Strawberries and Submarines II

14. (Figure: Strawberries and Submarines II) Look at the figure Strawberries and
Submarines II. Suppose the economy is now operating at point A. The first submarine,
which is achieved at point B, would have an opportunity cost of ________ million tons
of strawberries.
A) 150
B)

950

C)

50

D) 400

15. (Figure: Strawberries and Submarines II) Look at the figure Strawberries and
Submarines II. Suppose the economy is now operating at point B. Achieving production
at point F would require that the economy:
A) improve its technology or increase the amount of resources it has.
B)

reduce its production of submarines.

C)

achieve full employment and an efficient allocation of resources.

D) reduce its production of strawberries.

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16. The cost of sensors used in making digital cameras falls, while a successful ad campaign
makes digital cameras more fashionable. As a result, the equilibrium relative price of
digital cameras ________ and the equilibrium quantity ________.
A) decreases; increases
B)

may increase, decrease, or stay the same; increases

C)

increases; increases

D) increases; may increase, decrease, or stay the same

17. What is the difference between a shortage and scarcity?

A) A shortage will exist when a good is scarce.
B)

There is no distinction between the two. They are the same thing.

C)

Scarcity is a result of two or more alternative uses, and quantities of supply and
demand adjusting to flexible prices will create shortages.
D) Scarcity will almost always exist, but a shortage will exist only if the price is kept
below the equilibrium level.
Use the following to answer question 18:

18. (Table: Supply of Lemonade) Look at the table Supply of Lemonade. If the price of
lemonade is $1 per cup, the total quantity of lemonade supplied will be:
A) 90 cups.
B)

25 cups.

C)

50 cups.

D) 80 cups.

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Use the following to answer question 19:

Figure: Comparative Advantage
Eastland and Westland produce only two goods, boxes of peaches and boxes of oranges, and this
figure shows each nation's production possibility frontier for the two goods.

19. (Figure: Comparative Advantage) Look at the figure Comparative Advantage. Westland
has a comparative advantage in producing:
A) peaches only.
B)

both oranges and peaches.

C)

neither oranges nor peaches.

D) oranges only.

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Use the following to answer question 20:

Figure: The Business Cycle

20. (Figure: The Business Cycle) The movement from point B to C is called:
A) a depression.
B)

a peak.

C)

an expansion,

D) a trough.

21. Inflation affects people adversely because:

A) inflation causes money to lose its value over time if the overall price level is rising.
B)

nominal income falls during inflation.

C)

purchasing power tends to increase during inflation.

D) budget deficit increases during inflation.

22. Suppose the market for gasoline is in equilibrium. You have heard that the price of crude
oil is falling because of new oil discoveries. You are also aware that the number of car
and truck drivers is steadily rising. Knowing this, you predict that the price of gasoline
will ________ and the quantity of gasoline bought and sold will ________.
A) rise or fall; rise
B)

rise; rise

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C)

rise or fall; fall

D) rise; fall

23. The difference between the demand price and the supply price at the quota limit is:
A) the opportunity cost of using or buying a good, subject to an import quota.
B)

usually large enough to cause a surplus.

C)

the rent received by landlords who own rent-controlled apartments.

D) the quota rent.

24. A price that the government guarantees farmers will receive for a particular crop is:
A) an export price (export subsidy).
B)

a deficiency price.

C)

a price ceiling.

D) a price floor (price support).

25. The process observed when an economy's production possibility frontier is shifted
outward is:
A) economic growth.
B)

specialization.

C)

comparative advantage.

D) full employment.

26. A binding price floor causes:

A) a surplus in the market and wasted resources.
B)

a shortage in the market.

C)

a surplus in the market.

D) wasted resources.

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27. Fiscal policy attempts to affect the level of overall spending in the economy by making
changes in:
A) the money supply.
B)

banking regulations.

C)

taxes and spending.

D) the interest rate.

Use the following to answer question 28:

28. (Table: The Market for Chocolate-Covered Peanuts) Look at the table The Market for
Chocolate-Covered Peanuts. If the price of chocolate-covered peanuts is $0.50, there is:
A) a shortage of 70 bags per month.
B)

a surplus of 35 bags per month.

C)

a shortage of 35 bags per month.

D) a surplus of 70 bags per month.

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Use the following to answer question 29:

Figure: Demand and Supply of Gasoline

29. (Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of
Gasoline. The initial equilibrium price and quantity (at intersection of S1 and D) of
gasoline are:
A) $2.00 and 200 gallons.
B)

$2.50 and 300 gallons.

C)

$1.50 and 400 gallons.

D) $2.00 and 450 gallons.

30. A new wonder diet that results in a dramatic weight loss sweeps through America. The
key to the diet is to eat unlimited amounts of red meat (beef) but no poultry or
carbohydrate-rich foods. As millions of Americans switch to the new diet, we can
expect:
A) a decrease in the supply of beef, leading to a shift to the left in the supply curve for
beef and higher beef prices.
B) an increase in the demand for beef, leading to a shift to the right in the demand
curve for beef and higher beef prices.
C) a decrease in the demand for beef, leading to a shift to the left in the demand curve
for beef and higher beef prices.
D) an increase in the demand for beef, leading to a shift to the right in the demand
curve for beef and lower beef prices.

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Answer Key
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30.

C
A
C
B
B
A
C
A
D
C
C
B
C
C
A
B
D
A
A
C
A
A
D
D
A
A
C
A
B
B

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