Untitled Flashcards Set

Microeconomics Name:

Midterm: Practice Test

Units 1, 2, 3 (to 3.5)

Unit 1:

1. The crucial problem of economics is

1. Establishing a fair tax system.

2. Providing social goods and services

3. Developing a price mechanism that reflects the relative scarcities of products and resources.

4. Allocating scarce productive resources to satisfy wants

5. Enacting a set of laws that protects resources from overuse.

2. Which of the following is the best example of physical capital?

A. A $100,000 business loan from a bank 

B. A business hiring 10,000 workers at a factory

C. A truck for a delivery company

D. An oven for a family of four 

E. An increase in construction jobs

3. When making a decision, the next best alternative is called

A. The production possibilities

B. The opportunity cost

C. Scarcity

D. The absolute advantage

E.  Efficiency 

4. Which of the following is true of the concept of increasing opportunity costs?

1. It is unimportant in command economies because of central planning.

2. It suggests that the use of resources to produce a set of goods and services means that as more of one is produced, some of the other must be sacrificed. 

3. It is irrelevant if the production possibilities curve is convex to the origin

4. It suggests that unlimited wants can be fulfilled.

5. It means that resources are plentiful and opportunities to produce greater amounts of goods and services are unlimited.

5. Which of the following must be true if an individual’s next best alternative to a day-trip to the beach is studying for an economics exam?

A. They will decide to study for the exam

B. The opportunity costs is seeing their friends at the beach

C. The person prefers playing volleyball at the beach to study for the exam 

D. The opportunity cost of going to the beach is all the other things they could have done

E. The opportunity cost of going to the beach is being better prepared for the exam

6. If the production possibilities curve is concave from the origin (or bowed out), then economists say that

A. Resources are scarce in the economy

B. Resources are not equally suited for the production of both goods

C. Economic growth is occurring in the economy

D. Resources are being inefficiently used in the economy

E. Resources are equally suited for the production of either good

7. In which way does a straight-line production possibilities curve differ from a concave production possibilities curve?

1. A straight-line production possibilities curve has a decreasing opportunity cost.

2. A straight-line production possibilities curve has a constant opportunity cost.

3. A straight-line production possibilities curve has an increasing opportunity cost.

4. A straight-line production possibilities curve does not show opportunity cos.t

5. Upward-sloping production possibilities curve.

8.   Movement along a production possibilities curve (PPC) shows which of the following:

1. The trade-offs society faces

2. The total amount of available resources

3. The combination of inputs required for a given output

4. The relationship between the price of an input and the quantity demanded

5. The decrease in efficiency

9. A point outside the production possibilities curve would represent

A. An efficient use of resources

B. Future output once producers become more efficient

C. An inefficient use of resources

D. A combination that cannot be achieved due to scarcity

E. Full employment of resources in the economy

10. Which of the following would cause a leftward shift of the production possibilities curve?

1. An increase in unemployment

2. An increase in inflation

3. An increase in capital equipment

4. A decrease in consumer demand

5. A decrease in working-age population

11. An increase in which of the following would cause an outward shift of the production possibilities curve for consumer goods and capital goods?

A. An increase in the demand for consumer goods

B. An increase in taxes on consumers 

C. A decrease in unemployment 

D. An increase in the resources to produce capital goods

E. The efficient production of consumer goods

12. Which of the following is true according to the circular flow model?

A. Firms are suppliers in both the product and factor markets.

B. Firms are demanders in the resource markets and suppliers in the product markets.

C. Households are demanders in both the resource and factor markets.

D. Households are demanders in the resource markets & suppliers in the product markets.

E. The private sector is made up of the households, firms, and the government.

13. Command economies differ from capitalist economies mainly because 

1. Command economies have higher prices for oil.

2. Capitalist economies have higher prices for oil.

3. Command economies have a higher degree of government ownership of resources.

4. Capitalist economies have a higher degree of government ownership of resources.

5. Command economies rely on prices to allocate resources.

14. Marginal analysis suggests that an individual will consume one additional unit of a good if the 

1. Sunk cost can be recovered

2. Total benefit is less than the total cost

3. Total benefit is greater than the total cost

4. Additional benefit is less than the additional cost

5. Additional benefit is greater than the additional cost

15. Mike can make 2 surfboards per hour or 10 bikes per hour, and Joe can produce 4 surfboards per hour and 12 bikes. Which of the following is true?

A. Mike has an absolute advantage in the production of surfboards

B. Mike’s opportunity cost for producing one bike is 5 surfboards

C. Joe has a comparative advantage in the production of both surfboards and bikes

D. Mike has a comparative advantage in the production of surfboards 

E. Joe’s opportunity cost for producing one surfboard is 3 bikes

16. Atlantis can produce either 2 tons of grain or 4 cars with 10 units of labor. Zoltar can produce either 5 tons of grain or 25 cars with 10 units of labor. Based on this information, which of the following is true.

1. Atlantis has an absolute advantage in the production of grain, while Zoltar has a comparative advantage in the production of grain.

B. Atlantis has a comparative advantage in the production of grain, while Zoltar has a comparative advantage in the production of cars.

C. Atlantis has an absolute advantage in the production of grain, while Zoltar has a comparative advantage in the production of cars.

D. Atlantis has a comparative disadvantage in the production of both goods.

E. Neither country has a comparative advantage in the production of either good. 

17. The table below shows the number of hours to complete each effort.  

If tasks are assigned according to comparative advantage, which of the following is true?

A. Kim should perform both tasks.

B. Maria should perform both tasks.

C. Kim should install computers and Maria should paint garages.

D. Kim should paint garages and Maria should install computers.

E. Kim and Maria should both install computers.

18.  A consumer is considering buying a shirt.  His/her choices are a red shirt, a blue shirt, or a green shirt.  Each shirt costs $20 and that is the amount the consumer is willing and able to spend to purchase a shirt.  After considering the choices, the consumer chooses to purchase the green shirt. What is the consumer’s Opportunity Cost of that decision?

1. The red shirt

2. The blue shirt

3. Both the red shirt and the blue shirt

4. Either the red shirt or the blue shirt

19. Which of the following best describes how a consumer maximizes total utility from the consumption of a bundle of goods? (think utility maximization rule)

A. By choosing the quantity of each good such that the quantity demanded of each good is equal to the quantity supplied

B. By choosing the quantity of each good such that the marginal utility from each good is equal to zero

C. By choosing the quantity of each good such that the price is equal to the marginal revenue

D. By choosing the level of output where marginal revenue is equal to marginal cost

E. By choosing the combination of goods such that the marginal utility per dollar spent on the last unit of each good is equal

20. 

Which of the following is true based on Robert’s utility data given in the table provided?

A. Robert’s marginal utility from the fourth cup is 185.

B. Robert’s marginal utility from the fifth cup is 35 utils.

C. Robert’s marginal utility from the third cup is greater than the marginal utility from the second cup.

D. Robert’s marginal utility from the fourth cup is greater than the marginal utility from the third cup.

E. Robert’s total utility and marginal utility both increase as he consumes more cups of milkshake.

21.

Based on a comparison of points X, Y, and Z, the opportunity cost of an additional consumer good is

A. highest at point X

B. highest at point Y

C. highest at point Z

D. lowest at point Y

E. the same at points X, Y, and Z

22. Josephine is buying candy and gum. If she is maximizing her utility for the combination of candy and gum she buys, which of the following must hold (i.e. what is the utility maximization rule:)?)

A.Marginal utility of candy / price of candy = marginal utility of gum / price of gum

B. Total utility of candy / price of candy = total utility of gum / price of gum

C. Marginal utility of candy/total utility of candy = marginal utility of gum/total utility of gum

D. Marginal utility of candy x price of candy = marginal utility of gum x price of gum

E. Total utility of candy x price of candy = total utility of gum x price of gum

23. Carbon Fiber (ounce) to produce one unit

What would be acceptable terms of trade between the United States and Germany, for production of both products?

24. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____.

1. direct, inverse    

2. inverse, direct    

3. inverse, inverse    

4. direct, direct

5. strong, weak 

25. An increase in the price of a product will reduce the quantity demanded for that product because: 

1. supply curves are upward sloping 

2. the higher price means purchasing power has risen

3. consumers will substitute other products for the one whose price has risen

4. consumers get increasing marginal utility for each new unit of a good they consume 

5. more complementary goods will be purchased due to the resultant increase in consumer surplus

26. Which of the following will NOT cause the demand for video games to change? 

1. a change in the price of a close substitute 

2. a change in consumer incomes 

3. a change in the price of video games 

4. a change in consumer tastes

5. a change in consumer preferences 

27. An economist for a computer company predicts that a rise in consumer incomes will increase the demand for computers. This prediction assumes that

1. there are many substitutes for computers

2. there are many complementary goods for computers

3. there are few goods that are substitutes for computers

4. computers are normal goods

5. computers are an inferior good

28. Which of the following statements is correct? 

1. A decrease in the price of X will increase the demand for substitute product Y

2. A decrease in income will decrease the demand for an inferior good

3. An increase in income will decrease the demand for a normal good

4. An increase in the price of X will decrease the demand for complementary product Y

5. An increase in the price of X will increase the demand for complementary product Y

29. A leftward shift of a supply curve for avocados (a normal good) might be caused by: 

1. an improvement in avocado picking techniques

2. a decrease in the wages that must be paid to avocado pickers 

3. an increase in consumer incomes

4. some avocado farmers leaving the market

5. a news report stating that avocados are associated with good health

30. Assuming Ramen noodles are an inferior good, a decrease in income will shift the

1. supply curve for Ramen noodles to the left.

2. supply curve for Ramen noodles to the right.

3. demand curve for Ramen noodles to the left. 

4. demand curve for Ramen noodles to the right 

5. there is no shift

31. Which of the following events will cause the demand curve for hamburgers to shift to the right? 

1. An increase in the price of hamburgers 

2. An increase in the price of pizza, a substitute for hamburgers

3. An increase in the price of French fries, a complement to burgers

4. A decrease in the number of hamburger consumers

5. A decrease in the cost of producing hamburgers 

32. Refer to Figure A. At price $20, which of the following would occur?

1. Shortage of 100

2. Shortage of 150

3. Surplus of 200

4. Surplus of 50

5. Surplus of $100

33. Refer to Figure A. What would be the effect of a price floor at $60?

1. It would ineffective 

2. A shortage of 50 

3. Quantity demanded would increase

4. A shortage of 100

5. A surplus of 100

34. If the cost of producing automobiles increases, the price, equilibrium quantity and consumer surplus will most likely change in which of the following ways? 

 Price        Quantity         Consumer Surplus

1. Increase      Increase          Increase

2. Increase      Increase          Decrease

3. Increase     Decrease        Decrease

4. Decrease    Increase           Decrease

5. Decrease     Decrease            Decrease 

35. Other things equal, if the price of a key resource used to produce product X falls, the:

1. product supply curve of X will shift to the right.

2. product demand curve of X will shift to the right.

3. product supply curve of X will shift to the left.

4. product demand curve of X will shift to the left. 

5. both the supply and demand of X will increase

36. Assume that consumers consider tea and coffee to be substitutes. A significant increase in the supply of tea will affect the coffee market by

1. increasing the demand for coffee and therefore the supply of coffee

2. increasing the demand for coffee and therefore the price of coffee

3. decreasing the demand for coffee and therefore the price of coffee

4. increasing the supply of coffee and therefore the price of coffee

5. decreasing the supply of coffee and therefore the price of coffee

37. Following a severe drought, the price of bottled water normally increases significantly. If cities had passed laws prohibiting price increases for bottled water, during severe droughts such laws would most likely

1. make bottled water more available

2. create a shortage of bottled water

3. shift the demand curve for bottled water to the right

4. shift the supply curve for bottled water to the left

5. have no effect on the availability of bottled water

38. According to the law of diminishing marginal utility, which of the following is true when consuming marshmallows?

1. Total satisfaction decreases as more marshmallows are consumed.

2. The additional satisfaction received from consuming extra marshmallows decreases as consumption of the good increases.

3. The additional satisfaction received from consuming extra marshmallows decreases as consumption of the good decreases.

4. The additional satisfaction received from consuming extra marshmallows increases as consumption of the good increases.

5. When marginal marshmallow utility is decreasing, total marshmallow utility must also be decreasing.

39. Assume that people like sauerkraut with their bratwurst. If the supply of bratwurst increases, the demand for sauerkraut will most likely

1. remain unchanged because bratwurst and sauerkraut are different goods

2. increase because bratwurst and sauerkraut are substitutes

3. increase because bratwurst and sauerkraut are complements

4. decrease because bratwurst and sauerkraut are complements

5. decrease because bratwurst and sauerkraut are substitutes

40. A decrease in the effective minimum wage will have less of an impact on employment if the demand for labor is

1. increasing

2. decreasing

3. relatively elastic

4. relatively inelastic

5. unit elastic

41. Suppose that the market supply curve for milk is upward sloping and the market demand curve is downward sloping. How will the passage of a subsidy for dairy farmers affect the consumer surplus, the producer surplus, and the total surplus?

Consumer Surplus       Producer Surplus         Total Surplus

1. Increase      Increase          Increase

2. Increase      Increase          Decrease

3. Increase     Decrease        Decrease

4. Decrease    Increase           Decrease

5. Decrease     Decrease            Decrease 

42. Citing the epidemic of obesity and type 2 diabetes in America, congress approves a new tax on producers of high fructose corn syrup, one of the key ingredients in soda pop. The price paid by consumers and the quantity of soda pops sold will most likely change in which of the following ways?

Price Quantity

1. Increase      Decrease

2. Increase      Increase 

3. Decrease Increase 

4. Decrease     Decrease 

5. No change No change

43. Which of the following will tend to make the demand for suspenders more elastic? 

1. New firms which produce similar products (such as belts) enter the industry 

2. A very popular celebrity starts wearing suspenders, making the product more desirable

3. Suspenders are necessary for use with a complement 

4. Production of suspenders is protected by a patent

5. Production cost of suspenders decreases