Econ 220: Exam 1

1. Adam Smith believed that.....can help create wealth and economic growth.

d. the invisible hand of self-interest

2. The most fundamental economic problem is about:

D. Reducing scarcity

3. Scarcity is a problem because

B. Our wants exceed the resources available to satisfy them

4. In market economies, most production and consumption decisions are guided by

D. individual choice under the price system

5. Making choices at the margin

D. All of the above

6. Which of the following is an example of a microeconomies decision?

D. All of the above

7. Which of the following statements represents normative, rather than positive analysis?

A. Government should spend more money on college education.

8. Figure 1 illustrates a production possibility frontier of an economy that produces two goods, Education and Health. Which of the following statement is true?

C. The point D is inefficient, and the point C is unattainable.

9. An incentive

D. is the rewards or punishments that shape people's choices.

10. If a government chooses to spend the tax revenue on space exploration, its choice

B. involves a tradeoff of other goods and services such as education and healthcare spending.

11. The opportunity cost of attending college

C. includes the lost wages that would have been earned if not attending college

12. Assuming a society can produce only two goods - Military Goods and Consumer Goods.

Using Table 1, what is the opportunity cost of increasing the production of Military Goods from 60 units to 80 units?

D. 40 units

13. Which of the following is held constant along the demand curve?

C. Change in income

14. A rise in the price of a good causes consumers to buy less of the good if the factors affecting consumers' desire to purchase remain unchanged. This statement illustrates

C. The law of demand

15. At an income of $500, Adam buys 10 units of clothing. At an income of $250, he buys 5 units of clothing. What kind of good is clothing for Adam?

C. It is a normal good

16. If the price of coffee increases, then

C. Demand for coffee substitute will increase

17. The negative slope of a demand curve implies that as the price

A. Declines, quantity demanded increases.

18. A supply curve will shift with a change in:

A. Production technology

19. The State of Illinois decides to double the minimum wage to $22 an hour. It creates labor ........ Which is an excess……. of labor.

C. Surplus, supply

20. Using Table 2, what is the equilibrium price?

B. $4

21. Government uses its legislative power to set a price ceiling at $2 (in Table 2). As a result,

C. There is a shortage of 780 products.

22. Suppose Figure 2 represents the supply and demand of Insulin, a lifesaving drug. The equilibrium price, is too expensive for low-income patients. Thus, the goverment caps the drug price so that a company cannot charge above The deadweight loss associated with the government policy is:

C. Areas C and E

23. In an efficient market,

D. There is no DWL

24. When the demand for a good or service does not vary when there is a change in price, the good is

B. Perfectly inelastic

25. A 40 percent increase in the quantity demanded of a certain prescription drug results from a 160 percent decline in its price. The price elasticity of demand the drug is

A. 0.25

26. If the price elasticity of demand for oranges is 0.2, which of the following is true?

B. If the price of oranges increases by 1 percent, the quantity demanded decreases by 0.2%.

27. Luxury goods are usually

C. Income elastic

28. If Sam's income decreases, which of the following is a true statement?

A. Sam's budget line shifts inward from the origin, and the slope remains the same.

29. Marginal utility measures

B. Additional satisfaction from consuming one more unit of a good

30. Given the total utility schedule in Table 3, what is the marginal utility of the third unit consumed?

A. 0.9

31. Given the total utility schedule in Table 3, if a person drinks 5 cups of coffee

A. marginal utility decreases and total utility decreases

32. If a good is offered to a rational individual for free, the person will

D. Stop consuming when its marginal utility equals zero

33. What links the decisions of consumers and firms in a market?

B. Prices

34. During COVID-19 pandemic, the demand and supply for restaurant meal decreased. As a result, what happens to the equilibrium price and quantity?

D. Quantity decreases; change in price is unknown

35. Knowledge of price elasticity of demand

C. Tells producers what will happen to total revenue if they change product price

36. The demand and supply functions for MacBook Pro are given, respectively, by the equations: and. The price and quantity are in the thousands. The equilibrium price and quantity are given by:

B. P=2,000 and Q=20,000

37. Using the figure below, given the initial equilibrium of S, and D, any price below _ will exert pressure for the price to

A. $25; rise

38. A price fueling is designed to

A. Keep prices low to help buyers

39. Assume Rob likes coffee and tea equally, and the price of coffee (a normal good) declines. He will most likely purchase more coffee; this illustrates

C. Income and substitution effect

40. The graph shows how supply and demand might shift in response to specific events.

Suppose excessive rainfall destroys one-third of the nation's radish crop. Which panel

BEST illustrates how this will affect the market for radishes?

C.

41. Adam and Eve are the only buyers in the market for apple. Each of their individual demand curves are given, then the market demand curve for apple is:

A. The sum of demand for apples by Adam and Eve.

42. The figure below shows the indifference curves and budget line for a consumer, who buys two goods: Food and clothes. For a rational utility-maximizing individual, what is the best choice.

C. Consumption bundles C

43. During NFL season, suppose you consume two goods: football games and hot wings (Table 4). Your income is 60, the price of football games is 20, and the price of a serving of wings is 10. Why is a consumption bundle of 1 football game and 1 serving of hot wings not an optimal?

D. Not all income is spent

44. When the demand is relatively inclastic, which of the following statements is true?

B. The buyers face greater tax burden.