Mock Quiz - Solution

Each Question is for 3 points each. Maximum Total Points: 30

Name:
1. Define opportunity cost and give an example for implicit and explicit costs.
Definition: Opportunity cost is defined as the value of the next best alternative that we forgo, or give
up, when we make a decision.
Implicit cost example: The implicit cost of attending college is the employment opportunity you have
to forgo to take classes.
Explicit cost example: The explicit cost of books, tuition, room and board are the explicit cost of
attending college.
2. Describe the three key features that distinguishes macroeconomics from microeconomics.
(a) Aggregate prices and not just the price of one commodity,
(b) aggregate labor supply and not just the labor supplied by one individual or household, and
(c) aggregate national production and not just the output of one firm or industry.

3. If we believed that event b occurs simply because it follows event a, then we would be trapped by the:
(a) failure to hold other things equal.
(b) fallacy of composition.
(c) Post hoc fallacy.
4. Economic questions that can be answered by examining data and making observations are part of:
(a) Normative economics.
(b) Positive economics.
(c) Macroeconomics.
(d) Microeconomics.

For the next two questions use the supply and demand analysis, illustrate the following graphically and
predict what will happen to Prices (P), Demand (D), Quantity Demanded (Qd ), Supply (S), and
Quantity Supplied (Qs ). Hint start with the equilibrium diagram
5. The price of computer chips just increased by 20%. What happens to P, D, (Qd ), S, and (Qs ) in the
desktop computers, ceteris paribus?
An increase in the cost of input will lead to decrease in supply = Supply curve shifts to the left
(S0 S1 ).
Equilibrium moves to the left (E0 E1 ).
Equilibrium Quantity supplied and demanded will be lower.
Equilibrium Price will be higher.

6. The price of a Budwiser dropped by 20%. what happens to P, D, (Qd ), S, and (Qs ) in the PBR (it is a
comparable cheap beer) market, ceteris paribus?
Budwiser and PBR are substitutes thus demand for PBR will be lower = Demand curve shifts
to the left (D0 D1 ) .
Equilibrium moves to the left (E0 E1 ).
Equilibrium Quantity supplied and demanded will be lower .
Equilibrium Price will be lower

7. If the market price of the product is $36, then the total consumer surplus is how much?
Buyer

Willingness to Pay

Consumer Surplus($)

Billie
$100
100 36 = 64
Glenn
$60
60 36 = 24
Trey
$40
40 36 = 4
Whitney
$20
0*
Paul
$10
0*
Total Consumer Surplus
$92
*Since cost is greater than the willingness to pay they are better off not purchasing the good.

8. What is the formula for calculating GDP? Describe each of the components of the formula. (Hint: There
are four components)

GDP = C + I + G + (X M)
C: is personal consumption or consumer spending,
I: is business investment,
G: is government spending, and
X-M: is export minus import (i.e., the Net Exports)
9. Define GDP deflator?

GDP Deflator =

Nominal GDP
Real GDP


100

10. Demand-pull inflation may be caused by (mark all the correct options):
(a) An increase in costs.
(b) An increase in demand for goods and supply is fixed in the economy.
(c) Recession in the economy.
(d) An increase in money supply.