Final Review

1. Suppose Combo is an inferior good. Which of the following would

cause both the
equilibrium price and the equilibrium quantity of Combo to increase?
(1) an increase in consumer income.
(2) a decrease in consumer income.
(3) An increase in the price of the okra used in the production of
Combo.
(4) A decrease in the price of Jambalaya, a substitute.

2. Which of the following is true about Production Possibilities Frontiers

(curves)?
(1) They show the combinations of output that the economy can
possibly produce
given the available factors of production and the available production
technology.
(2) They are usually bowed outward because of increasing opportunity
cost.
(3) They may be a straight line. That happens when resources can be
moved from one
sector of production to another at a constant cost.
(4) All of the above.

3. Consider the following graph:

What is the correct designation of point B?

(1) (2, 0)
(2) (0, 3)
(3) (2, 3)
(4) (3, 2)

4. Consider the graph in the previous question. Which of the following

is more likely
to be true for most people?1
(1) X = hours you spent partying last weekend and Y = your score on
this test.
(2) X = hours you spent studying last weekend and Y = your score on
this test.
(3) Y = hours you spent partying last weekend and X = your score on
this test.
(4) Y = hours you spent studying last weekend and X = your score on this test.

5. Which of the following is least elastic?

(1) the demand for mustard
(2) the demand for brown mustard
(3) the demand for spicy brown mustard
(4) the demand for spicy brown mustard at Gerbes

6. Economists are
(1) scientists in the sense that they are trying to explain the world and
policy advisers
in the sense that they are trying to help improve it.
(2) scientists in the sense that they are trying to help improve the
world and policy
advisers in the sense that they are trying to explain it.
(3) scientists because they make normative statements
(4) both (1) and (3) are correct.

7. According to the law of demand

(1) an increase in the price of a good would cause the demand for that
good to shift to
the right.
(2) an increase in the price of a good would cause the demand for that
good to shift to
the left.
(3) an increase in the price of a good would cause the supply of a
substitute to shift to
the right.
(4) none of the above.

8. Microeconomics is the study of

(1) the behavior of consumers.
(2) how governments allocate welfare payments.
(3) how the economy as a whole works.
(4) how individual households and firms make decisions and how they
interact in
markets.

9. What is the following figure?

(1) a production Possibilities Frontier.

(2) an input-output matrix.
(3) a market.
(4) none of the above.

10. Look at the previous picture. Suppose households work 2000 hours
per year and the
annual rate of return on their capital is 5%. Then households’ annual
income is
(1) $2,500
(2) $25,000
(3) $5,200
(4) $52,000

11. Look at the same picture. Suppose firms sell 100,000 bushels of
wheat and 15, 000
computers per year. What is their annual total revenue?
(1) $71,000,000
(2) $12,000,000
(3) $17,000,000
(4) $21,000,000

12. Consider the following figure

What is the price elasticity of demand between A and B?

(1) -13/15
(2) -31/15
(3) -15/13
(4) -15/31

13. The following figure shows how many sheep and camels David and
Goliath can
“produce” in one day of work

Who has an absolute advantage in the production of sheep?

(1) Neither, because absolute advantage doesn’t matter.
(2) Goliath because he can “produce” more sheep per day than David.
Look at that
30!
(3) David because he is being more efficient. Look at that 20 – 20!
(4) We can’t tell. We need more information.

14. Based on the theory of comparative advantage and according to

the previous
picture,
(1) David should give up and buy both sheep and camels from Goliath
who is simply
more productive in everything. The guy is just big.
(2) David should specialize in sheep and trade with Goliath to get
camels.
(3) Goliath should refuse to trade with David. There is no point. The
guy is bad at
everything.
(4) Goliath should specialize in sheep and trade with David to get
camels.

15. An increase in the price of a good would

(1) increases the supply of that good.
(2) increases the amount that buyers are willing and able to buy.
(3) gives producers of that good an incentive to produce more.
(4) decreases the supply of that good.

16. Consider the market for tattoos. Suppose there is a significant

increase in the
number of tattoo shops and, at the same time, a team of researchers
from the
University of Minnesota just discovered that tattoos are closely related
to a serious
condition that causes severe, prolonged, and sometimes irreversible
depression. We
would expect the equilibrium price of tattoos to
(1) fall and the equilibrium quantity to fall.
(2) fall and the change in equilibrium quantity to be ambiguous.
(3) rise and the change in equilibrium quantity to be ambiguous.
(4) rise and the equilibrium quantity to fall.

17. To calculate price elasticity of demand, we divide

(1) change in quantity demanded by change in price.
(2) percentage change in price by percentage change in quantity
demanded.
(3) percentage change in quantity demanded by percentage change in
quantity
supplied.
(4) none of the above.

18. What is the most credible story behind the following picture?

(1) An economic advance in the computer industry shifts the

production possibilities
frontier outward, increasing the number of cars and computers the
economy can
produce.
(2) An economic advance in the car industry shifts the production
possibilities
frontier outward, increasing the number of cars and computers the
economy can
produce.
(3) An economic advance in both the computer and the car industry
shifts the
production possibilities frontier outward, increasing the number of cars
and
computers the economy can produce.
(4) Sorry, no story can explain that picture. It just doesn’t make sense.
6

19. Look at the picture below

How many bad movies DVDs are sold when the price is 8 dollars?
(1) 72
(2) 100
(3) 125
(4) 53

20. Still look at the same picture. How many bad movies DVDs are
bought when the
price is 8 dollars?
(1) 72
(2) 100
(3) 125
(4) Forget it. No DVDs is bought since there is no equilibrium.

21. An inverse relationship between two variables

(1) can be illustrated by a downward sloping curve.
(2) cannot be represented graphically.
(3) means that a decrease in the independent variable causes the
dependent variable to
fall.
(4) means that an increase in the independent variable causes the
dependent variable
to rise.

22. Here is another picture

Which of the following statements is false about the market for stuffed
crabs?
(1) If the price is 5 dollars, the quantity that sellers want to sell is
exactly the same as
the quantity that buyers want to buy. Everybody will go home happy.
The market
for stuffed crabs will stay like this until an external shock disturbs that
equilibrium.
(2) If the price is 3 dollars, there will be a surplus of 50 stuffed crabs.
By virtue of the
law of demand and supply, there will be upward pressures on the price
of stuffed
crabs until the price reaches 5 dollars.
(3) If the price is 3 dollars, there will be a shortage of 50 stuffed crabs.
By virtue of
the law of demand and supply, there will be upward pressures on the
price of
stuffed crabs until the price reaches 5 dollars.
(4) If the price is 5 dollars, sellers as a group will have total revenue of
500 dollars.

23. If an economist develops a theory about international trade based

on the assumption
that there are two countries and two goods in the world,
(1) the theory can be useful only in situations involving two countries
and two goods.
(2) it is a total waste of time, since the actual world has many
countries trading many
goods.
(3) the theory can be useful in helping economists understand the
complex world of
international trade involving many countries and many goods.
(4) the theory can be useful in the classroom, but has no use in the real
world.

24. In the following figure the demand curve shifts from D0 to D1

because of an
increase in income from 120 dollars to 200 dollars (it’s a normal good).
What is the
income elasticity of demand?

(1) 11.7
(2) 1.71
(3) 17.1
(4) 7.17

25. Robinson Crusoe can gather 30 coconuts or catch 2 fish per hour.
His friend Friday
can gather 10 coconuts or catch 1 fish per hour. Who should specialize
in catching
fish?
(1) Friday, because he has a comparative advantage in catching fish.
(2) Robinson Crusoe, because he has an absolute advantage in
catching fish.
(3) Both of them, because everyone is better off when they specialize
in everything.
(4) None of them, because at the end of the day being independent is
what really
counts.

26. It is summer. You go home and start selling baby sitting services.
When the kids go
to bed, you get bored and try to keep yourself busy by calculating the
price
elasticity of the demand for your service. You find it to be equal to
-0.25. Assuming
your calculation is correct, you decide to finally turn that nightmarish
econ class
into something good: you decide to increase your revenue by
(1) raising your price since the demand for your service is elastic.
(2) lowering your price since your product is a good substitute for real
parenting.
(3) raising your price since the demand for your service is inelastic.
(4) lowering your price since your service is a complement to what
moms and dads
do.
9

27. Warrensburg, MO, is a small college town in the state of Missouri.

What would you
expect to happen in the market for fast food in Warrensburg at the end
of August
each year (when classes resume)?
(1) Equilibrium price falls and equilibrium quantity rises.
(2) Equilibrium price rises and equilibrium quantity falls.
(3) Both equilibrium price and quantity rise.
(4) Both equilibrium price and quantity fall.

28. Which of the following supply curves is the most elastic?

(1) S0
(2) S1
(3) S2
(4) S3

29. The price of tea increases and, as a result, the demand for coffee
shifts to the left.
Therefore tea and coffee are
(1) normal goods.
(2) complements.
(3) substitutes.
(4) inferior goods.
10

33. Consider the following figures that show the Production possibilities
Frontier for
two countries, Acadia (A) and Britanica (B), producing two goods,
Yogurt (Y) and
Xerox machines (X):

Which of the following statements is true?

(1) In Acadia the opportunity cost of producing a Xerox machine is
equal to 4.666
Yogurts.
(2) In Britanica the opportunity cost of producing a Xerox machine is
equal to 3.75
Yogurts.
(3) According to the theory of comparative advantage Acadia should
specialize in the
production of Yogurts and Britanica should specialize in the production
of Xerox
machines.
(4) All of the above.

1. ____________ questions have to do with explanations and predictions,

____________ questions have to do with what ought to be.
(1) Positive; negative
(2) Negative; positive
(3) Affirmative; positive
(4) Positive; normative

2. Consider the following figure showing the production possibility

frontier of
Joylandia. What is the opportunity cost of producing one car in
Joylandia?

(1) 100 cars

(2) 4 computers
(3) 1⁄4 car
(4) None of the above
3. In making what of the following statements is an economist acting
more like a
scientist, as opposed to a policy adviser?
(1) Affirmative action in public universities should be illegal
(2) The Enron’s collapse is a sign that Corporate America is corrupted
and should be
the object of more public scrutiny
(3) Spending more public money in private schools would indeed raise
students’
scores on all standardized tests
(4) Creating a Department of Homeland Security is a political move
that has nothing to do with the war on terrorism

4. Economics models are

(1) useless if they are simple
(2) built with assumptions
(3) created to duplicate reality
(4) always right when predicting the future

5. Consider the graph in question 2. What is the opportunity cost of

producing a
computer in Joylandia?
(1) 25 computers
(2) 4 cars
(3) 1⁄4 car
(4) 124.666 cars

6. Suppose an economy is operating on its production possibility

frontier, then
(1) the scarcity problem is solved
(2) wants are no longer unlimited
(3) some resources are left unused
(4) None of the above

7. A simple circular flow diagram does not include

(1) the fact that businesses sell to each other
(2) a flow of money
(3) transactions between workers and employers
(4) a flow of goods and services

8. Consider the following figure showing the production possibility

frontier in
Sadlandia. What is the opportunity cost of producing a car in
Sadlandia?
(1) 0.34 computer
(2) 3.40 computers
(3) 4.30 computers
(4) 0.43 computer

9. What would happen to the equilibrium price and quantity of peanut

butter if the
price of peanut went up?
(1) Price would all and quantity would rise
(2) Price would rise and quantity would fall
(3) Both price and quantity would fall
(4) Both price and quantity would rise

10. In the circular-flow diagram,

(1) income from factors of production flows from firms to households
(2) goods and services flow from households to firms
(3) factors of production flow from firms to households
(4) spending on goods and services flows from firms to households

11. Robinson Crusoe can gather 10 coconuts or catch 1 fish per hour.
His friend
Friday can gather 30 coconuts or catch 2 fish per hour. Who should
specialize in
catching fish?
(1) Robinson Crusoe, because he has a comparative advantage in
catching fish
(2) Friday, because he has an absolute advantage in catching fish
(3) Both of them, because everyone is better off when they specialize
in everything
(4) None of them, because autarky is better than specialization and
trade

12. What would happen to the equilibrium price and quantity of corn
flakes if the
price of corn went down?
(1) Price would fall and quantity would rise
(2) Price would rise and quantity would fall
(3) Both price and quantity would rise
(4) Both price and quantity would fall

13. Absolute advantage refers to the comparison among producers of a

good
according to their
(1) opportunity cost
(2) market power
(3) location
(4) productivity

14. If a shortage exists in a market, we know that the actual price is

(1) above equilibrium price and quantity demanded is greater than
quantity supplied
(2) below equilibrium price and quantity demanded is greater than
quantity supplied
(3) below equilibrium price and quantity supplied is greater than
quantity demanded
(4) above equilibrium price and quantity supplied is greater than
quantity demanded

15. Which of the following concepts is not illustrated by the PPF?

(1) Efficiency
(2) Opportunity Cost
(3) Equity
(4) Tradeoffs

16. Frosted Flakes and Raisin Brand are substitutes. Therefore, we

know that an
increase in the price of Frosted Flakes will lead to
(1) a decrease in the demand for Frosted Flakes
(2) an increase in the demand for Raisin Brand
(3) a decrease in the demand for Raisin Brand
(4) an increase in the demand for Frosted Flakes

17. The supply of a good is negatively related to the

(1) price of inputs used to make the good
(2) demand for the good by consumers
(3) price of the good itself
(4) amount of profit a firm can expect to receive from sale of the good

18. To calculate price elasticity of demand we divide

(1) Percentage change in price by percentage in quantity demanded
(2) percentage change in quantity demanded by change in price
(3) change in quantity demanded by percentage change in price
(4) percentage change in quantity demanded by percentage change in
price

19. What will happen to the equilibrium price and quantity of new
textbooks if paper
becomes cheaper and more students attend college?
(1) Price will fall and the effect on quantity will be ambiguous
(2) Quantity will rise and the effect on price will be ambiguous
(3) Price will rise and the effect on quantity will be ambiguous
(4) Quantity will fall and the effect on price will be ambiguous

20. Peanut butter and jelly are complements. Therefore, as the price of
peanut butter
increases one would expect
(1) the demand for peanut butter to shift to the left
(2) the demand for peanut butter to shift to the right
(3) the demand for jelly to shift to the left
(4) the demand for jelly to shift to the right

21. When the going price is higher than the equilibrium price,
(1) a shortage will occur
(2) buyers will want to purchase more than is produced
(3) quantity demanded will be equal to quantity supplied
(4) sellers will want to produce and sell more than buyers wish to
purchase

22. Consider the graphs in questions 2 and 8. Which of the following

statements is
true?
(1) Joylandia has an absolute advantage in cars and Sadlandia has an
absolute
advantage in computers
(2) Joylandia has an absolute advantage in computers and Sadlandia
has an absolute
advantage in cars
(3) Joylandia has an absolute advantage in both cars and computers
(4) Sadlandia has an absolute advantage in both cars and computers

23. Suppose you are a wheat farmer. If you know that the demand for
wheat is
inelastic, what should you do to increase your total revenue?
(1) plant more wheat so that you would be able to sell more each year
(2) spend more on fertilizer in order to produce more on the acres you
farm
(3) reduce the number of acres you plant in wheat
(4) use better machinery

24. You lose your job and as a result you buy more Potatoes chips. This
shows that
you consider Potatoes chips to be a / an
(1) Normal good
(2) Inferior good
(3) Luxury good
(4) Complementary good
25. A car manufacturer is expected higher prices for cars in the near
future. We would
expect
(1) the car manufacturer to supply more cars now
(2) the car manufacturer to supply fewer cars now
(3) the demand for this manufacturer’s cars to fall
(4) no changes in the car manufacturer’s current supply

26. The income elasticity of demand for Brussels sprouts is equal to

5.5. From this,
we know that Brussels sprouts are
(1) normal goods
(2) inferior goods
(3) complimentary goods
(4) substitutes

27. Comparative advantage refers to the comparison among producers

of a good
according to their
(1) opportunity cost
(2) market power
(3) location
(4) productivity

28. Suppose Charley, Ivan, Frances, and Jeanne (these are hurricanes)
have destroyed
most of the tomatoes fields in Florida and, as a result, the total
revenue of
tomatoes producers increases. From this we know that the demand for
tomatoes is
(1) elastic
(2) inelastic
(3) unit elastic
(4) perfectly elastic

29. Consider the graphs in questions 2 and 8. Which of the following

statements is
true?
(1) Joylandia has a comparative advantage in cars and Sadlandia has a
comparative
advantage in computers
(2) Joylandia has a comparative advantage in computers and Sadlandia
has a
comparative advantage in cars
(3) Joylandia has a comparative advantage in both cars and computers
(4) Sadlandia has a comparative advantage in both cars and
computers

30. The following table provides information about Esmeralda and

Quasimodo’s
productivity in writing lyrics and novels. According to the principle of
comparative advantage, who should specialize in writing novels?

Lyrics in 0ne year Novels in one year

Esmeralda 25 3
Quasimodo 5 1

(1) Esmeralda
(2) Quasimodo
(3) Both
(4) We cannot tell. We need more information

31. Trade can __________ everyone in society because it allows people

to specialize
in activities in which they have ____________ advantage.
(1) hurt; comparative
(2) benefit; an absolute
(3) hurt; an absolute
(4) benefit; a comparative

32. According to the law of demand

(1) price and quantity demanded are positively related
(2) price and demand are negatively related
(3) Quantity demanded and demand are negatively related
(4) None of the above

1. Suppose Combo is an inferior good. Which of the following would

cause both the
equilibrium price and the equilibrium quantity of Combo to increase?
(1) an increase in consumer income.
(2) a decrease in consumer income.
(3) An increase in the price of the okra used in the production of
Combo.
(4) A decrease in the price of Jambalaya, a substitute.

2. Which of the following is true about Production Possibilities Frontiers

(curves)?
(1) They show the combinations of output that the economy can
possibly produce
given the available factors of production and the available production
technology.
(2) They are usually bowed outward because of increasing opportunity
cost.
(3) They may be a straight line. That happens when resources can be
moved from one
sector of production to another at a constant cost.
(4) All of the above.

3. Consider the following graph:

What is the correct designation of point B?

(1) (2, 0)
(2) (0, 3)
(3) (2, 3)
(4) (3, 2)

4. Consider the graph in the previous question. Which of the following

is more likely
to be true for most people?1
(1) X = hours you spent partying last weekend and Y = your score on
this test.
(2) X = hours you spent studying last weekend and Y = your score on
this test.
(3) Y = hours you spent partying last weekend and X = your score on
this test.
(4) Y = hours you spent studying last weekend and X = your score on this test.

5. Which of the following is least elastic?

(1) the demand for mustard
(2) the demand for brown mustard
(3) the demand for spicy brown mustard
(4) the demand for spicy brown mustard at Gerbes

6. Economists are
(1) scientists in the sense that they are trying to explain the world and
policy advisers
in the sense that they are trying to help improve it.
(2) scientists in the sense that they are trying to help improve the
world and policy
advisers in the sense that they are trying to explain it.
(3) scientists because they make normative statements
(4) both (1) and (3) are correct.

7. According to the law of demand

(1) an increase in the price of a good would cause the demand for that
good to shift to
the right.
(2) an increase in the price of a good would cause the demand for that
good to shift to
the left.
(3) an increase in the price of a good would cause the supply of a
substitute to shift to
the right.
(4) none of the above.

8. Microeconomics is the study of

(1) the behavior of consumers.
(2) how governments allocate welfare payments.
(3) how the economy as a whole works.
(4) how individual households and firms make decisions and how they
interact in
markets.

9. What is the following figure?

(1) a production Possibilities Frontier.

(2) an input-output matrix.
(3) a market.
(4) none of the above.

10. Look at the previous picture. Suppose households work 2000 hours
per year and the
annual rate of return on their capital is 5%. Then households’ annual
income is
(1) $2,500
(2) $25,000
(3) $5,200
(4) $52,000

11. Look at the same picture. Suppose firms sell 100,000 bushels of
wheat and 15, 000
computers per year. What is their annual total revenue?
(1) $71,000,000
(2) $12,000,000
(3) $17,000,000
(4) $21,000,000

12. Consider the following figure

What is the price elasticity of demand between A and B?

(1) -13/15
(2) -31/15
(3) -15/13
(4) -15/31

13. The following figure shows how many sheep and camels David and
Goliath can
“produce” in one day of work

Who has an absolute advantage in the production of sheep?

(1) Neither, because absolute advantage doesn’t matter.
(2) Goliath because he can “produce” more sheep per day than David.
Look at that
30!
(3) David because he is being more efficient. Look at that 20 – 20!
(4) We can’t tell. We need more information.

14. Based on the theory of comparative advantage and according to

the previous
picture,
(1) David should give up and buy both sheep and camels from Goliath
who is simply
more productive in everything. The guy is just big.
(2) David should specialize in sheep and trade with Goliath to get
camels.
(3) Goliath should refuse to trade with David. There is no point. The
guy is bad at
everything.
(4) Goliath should specialize in sheep and trade with David to get
camels.

15. An increase in the price of a good would

(1) increases the supply of that good.
(2) increases the amount that buyers are willing and able to buy.
(3) gives producers of that good an incentive to produce more.
(4) decreases the supply of that good.

16. Consider the market for tattoos. Suppose there is a significant

increase in the
number of tattoo shops and, at the same time, a team of researchers
from the
University of Minnesota just discovered that tattoos are closely related
to a serious
condition that causes severe, prolonged, and sometimes irreversible
depression. We
would expect the equilibrium price of tattoos to
(1) fall and the equilibrium quantity to fall.
(2) fall and the change in equilibrium quantity to be ambiguous.
(3) rise and the change in equilibrium quantity to be ambiguous.
(4) rise and the equilibrium quantity to fall.

17. To calculate price elasticity of demand, we divide

(1) change in quantity demanded by change in price.
(2) percentage change in price by percentage change in quantity
demanded.
(3) percentage change in quantity demanded by percentage change in
quantity
supplied.
(4) none of the above.

18. What is the most credible story behind the following picture?

(1) An economic advance in the computer industry shifts the

production possibilities
frontier outward, increasing the number of cars and computers the
economy can
produce.
(2) An economic advance in the car industry shifts the production
possibilities
frontier outward, increasing the number of cars and computers the
economy can
produce.
(3) An economic advance in both the computer and the car industry
shifts the
production possibilities frontier outward, increasing the number of cars
and
computers the economy can produce.
(4) Sorry, no story can explain that picture. It just doesn’t make sense.
6

19. Look at the picture below

How many bad movies DVDs are sold when the price is 8 dollars?
(1) 72
(2) 100
(3) 125
(4) 53

20. Still look at the same picture. How many bad movies DVDs are
bought when the
price is 8 dollars?
(1) 72
(2) 100
(3) 125
(4) Forget it. No DVDs is bought since there is no equilibrium.

21. An inverse relationship between two variables

(1) can be illustrated by a downward sloping curve.
(2) cannot be represented graphically.
(3) means that a decrease in the independent variable causes the
dependent variable to
fall.
(4) means that an increase in the independent variable causes the
dependent variable
to rise.

22. Here is another picture

Which of the following statements is false about the market for stuffed
crabs?
(1) If the price is 5 dollars, the quantity that sellers want to sell is
exactly the same as
the quantity that buyers want to buy. Everybody will go home happy.
The market
for stuffed crabs will stay like this until an external shock disturbs that
equilibrium.
(2) If the price is 3 dollars, there will be a surplus of 50 stuffed crabs.
By virtue of the
law of demand and supply, there will be upward pressures on the price
of stuffed
crabs until the price reaches 5 dollars.
(3) If the price is 3 dollars, there will be a shortage of 50 stuffed crabs.
By virtue of
the law of demand and supply, there will be upward pressures on the
price of
stuffed crabs until the price reaches 5 dollars.
(4) If the price is 5 dollars, sellers as a group will have total revenue of
500 dollars.

23. If an economist develops a theory about international trade based

on the assumption
that there are two countries and two goods in the world,
(1) the theory can be useful only in situations involving two countries
and two goods.
(2) it is a total waste of time, since the actual world has many
countries trading many
goods.
(3) the theory can be useful in helping economists understand the
complex world of
international trade involving many countries and many goods.
(4) the theory can be useful in the classroom, but has no use in the real
world.

24. In the following figure the demand curve shifts from D0 to D1

because of an
increase in income from 120 dollars to 200 dollars (it’s a normal good).
What is the
income elasticity of demand?

(1) 11.7
(2) 1.71
(3) 17.1
(4) 7.17

25. Robinson Crusoe can gather 30 coconuts or catch 2 fish per hour.
His friend Friday
can gather 10 coconuts or catch 1 fish per hour. Who should specialize
in catching
fish?
(1) Friday, because he has a comparative advantage in catching fish.
(2) Robinson Crusoe, because he has an absolute advantage in
catching fish.
(3) Both of them, because everyone is better off when they specialize
in everything.
(4) None of them, because at the end of the day being independent is
what really
counts.

26. It is summer. You go home and start selling baby sitting services.
When the kids go
to bed, you get bored and try to keep yourself busy by calculating the
price
elasticity of the demand for your service. You find it to be equal to
-0.25. Assuming
your calculation is correct, you decide to finally turn that nightmarish
econ class
into something good: you decide to increase your revenue by
(1) raising your price since the demand for your service is elastic.
(2) lowering your price since your product is a good substitute for real
parenting.
(3) raising your price since the demand for your service is inelastic.
(4) lowering your price since your service is a complement to what
moms and dads
do.
9

27. Warrensburg, MO, is a small college town in the state of Missouri.

What would you
expect to happen in the market for fast food in Warrensburg at the end
of August
each year (when classes resume)?
(1) Equilibrium price falls and equilibrium quantity rises.
(2) Equilibrium price rises and equilibrium quantity falls.
(3) Both equilibrium price and quantity rise.
(4) Both equilibrium price and quantity fall.

28. Which of the following supply curves is the most elastic?

(1) S0
(2) S1
(3) S2
(4) S3

29. The price of tea increases and, as a result, the demand for coffee
shifts to the left.
Therefore tea and coffee are
(1) normal goods.
(2) complements.
(3) substitutes.
(4) inferior goods.
10

33. Consider the following figures that show the Production possibilities
Frontier for
two countries, Acadia (A) and Britanica (B), producing two goods,
Yogurt (Y) and
Xerox machines (X):

Which of the following statements is true?

(1) In Acadia the opportunity cost of producing a Xerox machine is
equal to 4.666
Yogurts.
(2) In Britanica the opportunity cost of producing a Xerox machine is
equal to 3.75
Yogurts.
(3) According to the theory of comparative advantage Acadia should
specialize in the
production of Yogurts and Britanica should specialize in the production
of Xerox
machines.
(4) All of the above.

Econ Final Review

1. What primarily motivates a body of knowledge like exonomics is how

a. Society creates wealth
b. How household and firms have different objectives
c. Society deals with scarcity
d. All of the above
2. For most students the largest costs of going to college is
a. The money they spend on tuition and books
b. The money they spend on room and board
c. The wages they give up to attend college
d. Measured by the difficulty level of the introductory courses
3. Economics assumes that rational people
a. Systematically and purposefully do the best they can to achieve their
objectives
b. Pursue no objectives as long as they act logically
c. Will achieve their objectives even if they act erratically
d. Constitute an ideal catefory that facilitate the understanding of economuc
theories, but they do not exist in real life.
4. Refer to graph
5. Refer to graph

6. If labor in Mexico is less productive than labor in the US in all areas of

production
a. Neither nation can benefit from trade
b. Mexico can benefit from trade but the US cannot
c. The US will have a comparative advantage relative to Mexico in the
prduction of all goods
d. Both mexico and the US can still benefit from trade
7. Refer to graph
8. Refer to graph
9. The negative relationship between price and quantity demanded
a. Applies to most foods in the economy
b. Is represented by a downward-sloping demand curve
c. Is referred to as the law of demand
 d. All of the above
10. Ford Motor Compant announces that it will offer $3,00 rebates on new Mustangs
starting next month. As a result of this information, today’s demand curve for
Mustangs,
a. Shifts to the right
b. Shifts to the left
c. Shifts either to the right or to the left but we cannot determine the
direction of the shift from the given information
d. Will not shift; rather the demand curve for Mustangs will shift to the right
next month
11. Which of the following events could shift the demand curve for gasoline to the
left
a. Income of gasoline buyers rises, and gasoline is a normal good
b. Income of gasoline buyers falls and gasoline is an inferior good
c. Public service announcements are on television, encouraging people to
walk or ride bikes instead of driving cars
d. The price of gasoline rises
12. Refer to graph

13. Refer to graph

14. If a surplus exists in a market we now that the actual price is
a. Above the equilibrium price and quantity supplied is greater than quantity
demanded
b. Above equilibrium price and quantity demanded is greater than quantity
supplied
c. Below equilibrium price and quantity demanded is greater than quantity
supplied
d. Below equilibrium price and quantity supplied is greater than quantity
demanded
15. Which of the following events will definitely cause equilibrium quantity to fall?
a. Demand increases and supply decreases
b. Demand and supply both decrease
c. Demand decreases and supply increases
d. Demand and supply both increase
16. Suppose the number of buyers in a market increases and a technological
advancement occurs also. What would we expect to happen in the market?
a. The equilibrium price would increase, but the impact on the amount sold
in the market would be ambiguous
b. The equilibrium price would decrease, but the impact on the amount sold
in the market would be ambiguous
c. Equilibrium quantity would increase, but the impact on equilibrium price
would be ambiguous
d. Both equilibrium price and quantity would increase
17. Suppose buyers of computers and printers regard those two goods as
complements. Then an increase in the price of computers will cause
 a. A decrease in the demand for printers and a decrease in the quantity
supplied of printers
b. A decrease in the supply of printers and a decrease in the quantity
demanded of printers
c. A decrease in the equilibrium price of printers and an increase in the
equilibrium quantity of printers
d. An increase in the equilibrium price of printers and a decrease in the
equilibrium quantity of printers
18. What will happen to the equilibrium price of new textbooks if more students
attend college, paper becomes cheaper, textbook authors accept lower royalties
and fewer used textbooks were sold?
a. Price will rise
b. Price will fall
c. Price will stay same
d. The price change will be ambiguous
19. Suppose the incomes of buyers in a market for a particular normal good decrease
and there is also a reduction in input prices. What would we expect to occur in
this market?
a. The equilibrium price would increase, but the impact on the amount sold
in the market would be ambiguous
b. The equilibrium price would drecrease but the impact on the amount sold
in the market would be ambiguous
c. Both equilibrium price and equlibirum quantity would increase
d. Equilibrium quantity would increase, but the impact on the equilibrium
price would be ambiguous

20. If, for two goods, the cross-price elasticity of demand is 1.25, then
a. The 2 goods are luxuries
b. The 2 goods are substitutes
c. One of the goods is normal and the other food is inferior
d. The demand or one of the goods conforms to the law of demand and the
demand for the other good violates the law of demand
21. Holding all other factors constant and using the midpoint method, idf a pencil
manufacturer increases production by 20 percent when the market price of pencils
increases from $.50 to $.60, then supply is
a. Inelastic, since the price elasticity of supply is equal to .91
b. Inelastic, since the price elasticity of supply is equal to 1.1
c. Elastic, since the price elasticity of supply is equal to .91
d. Elastic, since the price elasticity of supply is equal to 1.1
22. Refer to graph
23. A minimum wage that is set below a market’s equilibrium wage will result in
a. An excess demand for labor – unemployment
b. An excess demand for labor – shortage of workers
c. An excess supply of labor – unemployment
d. None of the above
24. Which of the following would be the least likely result of a price ceiling imposed
in the market for rental cars
a. An accumulation of dirt in the interior of rental cars
b. Poor engine maintenance in rental cars
c. Free gasoline given to people as an incentive to rent a car
d. Slow replacement of old rental cars with new ones
25. Refer to graph
26. If a tax is imposed on a market with inelastic demand and elastic supply,
a. Buyers will bear most of the burden of the tax
b. Sellers will bear most of the burden of the tax
c. The burden of the tax will be shared equally between buyers and sellers
d. It is impossible to determine how the burden of the tax will be shared
27. Refer to graph
28. Refer to graph
29. Noah drinks Dr. Pepper. He can buy as many Dr. Peppers as he wishes at a price
of $.50 per can. On a particular day, he is willing to pay $.95 for the first can, $.80
for the second can, $.60 for the third can and $.40 for the fourth can. Assume
Noah is rational in deciding how many cans to buy. His consumer surplus is
a. $.50
b. $.85
c. $1.05
d. $1.20
30. Efficiency in a market is achieved when
a. A social planner intervenes and sets the quantity of output after evaluating
buyers’ willingness to pay and sellers costs
b. The sum of producer surplus and consumer surplus is maximized
c. All firms are producing the good at the same low cost per unit
d. No buyer is willing to pay more than the equilibrium price for any unit of
the good.
31. Refer to graph
32. Total surplus in a market is the total area
a. Below the demand curve and above the price
b. Below price and up to the point of equilibrium
c. Below the demand curve and above the supply curve, up to the
equilibrium quantity
d. Below the demand curve and above the horizontal axis, up to the
equilibrium quantity
33. Refer to graph
34. The distinction between efficiency and equity can be describe as follows
a. Efficiency refers to maximizing the number of trades among buyers and
seller; equity refers to maximizing the gains from trade among buyers and
sellers
b. Efficiency refers to minimizing the price paid by buyers; equity refers to
maximizing the fains from trade among buyers and sellers
c. Efficiency refers to maximizing the size of the pie; equity refers to
producing a pie of a given size at the least possible cost.
 d. Efficiency refers to maximizing the size of the pie; equity refers to
distributing the pie fairly among members of society
35. Which of the following is true about tax on a good and resulting deadweight loss?
a. The greater are the price elasticities of supply and demand, the greater is
the deadweight loss
b. The greater is the price elasticities of supply and the smaller is the price
elasticity of demand, the greater the deadweight loss
c. The smaller are the decreases in quantity demanded and quantity supplied,
the greater the deadweight loss
d. The smaller is the wedge between the effective price to sellers and the
effective price to buyers, the greater is the deadweight loss
36. The Laffer curve relates
a. The tax rate to tax revenue raised by tax
b. The tax rate to the deadweight loss of the tax
c. The price elasticity of supply to the deadweight loss of the tax
d. Government welfare payments to the birth rate
37. Refer to graph
38. Refer to graph
39. Refer to graph
40. Refer to graph
41. Refer to graph
42. John owns a shoeshine business. His accountant most likely includes which of the
following costs on his financial statements
a. Wages john could earn washing windows
b. Dividends john’s money was earning in the stock market before john sold
his stock and bought a shoe-shine booth
c. The cost of the shoe polish
d. Both b and c are correct
43. On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he
hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3
workers. Which of the following possibilities is consistent with the property of
diminishing marginal product?
a. The farmer is able to produce 5600 bushels of wheat when he hired 4
workers
b. The farmer is able to produce 5800 bushels of wheat when he hired 4
workers
c. The farmer is able to produce 6000 bushels of wheat when he hired 4
workers
d. All of the above
44. Refer to graph
45. Suppose a firm in a competitive market received 1000 in total revenue and had a
marginal revenue of $10 for the last unit produced and sold. What is the average
revenue per unit, and how many units were sold?
a. $5 and 50
b. $5 and 100
c. $10 and 50
 d. $10 and 100
46. refer to graph
47. if marginal cost exceeds marginal revenue, the firm
a. is most likely to be a profit-maximizing level of output
b. should decrease the level of production to maximize its profit
c. should increase the level of production to maximize its profit
d. not enough information available to make any conclusions