Test 1

Economics 224
Chappell
September 15, 2010

First Name _____________________________________

Last Name _____________________________________

Last 5 Digits of Student Number (Social Security Number):

_____________________________________

Instructions: Read These!

You have 50 minutes to complete this test.

Please enter your answers on the Scantron sheet provided, using a number 2 lead
pencil. On that answer sheet fill in your name and the last 5 digits (only 5 digits
please) of your student number (Social Security Number). You must also fill in the
grids under your name and your last 5 digits. Use the first 5 columns (starting on
the left) of the form when you fill in the 5 digits of your student number.

You must return both this test and the Scantron answer form, and both must have
your name and student number. You may write on this test sheet, but your grade
will be determined by the Scantron form.

Note that the Scantron form may have answers indicated by the numbers 1, 2, 3, 4.
On the test, answers are indicated by the letters a, b, c, d. You should match these
up in the logical way:

1 ↔ a
2 ↔ b
3 ↔ c
4 ↔ d

As noted in the syllabus, calculators with the ability to store notes, store formulas,
or communicate with others are prohibited. Use of a mobile phone as a calculator
is also prohibited.

Each question counts for 4 points and the maximum score is 104. There are 26
questions, so you can miss one question and still get a grade of 100.
Multiple Choice
Identify the choice that best completes the statement or answers the question.

Table 3-5

Assume that England and Spain can produce cheese and bread according to the data provided in
the table below.

Number of Units
Produced in 40 Hours
Cheese Bread
England 40 10
Spain 10 5

____ 1. Refer to Table 3-5. Assume that England and Spain each has 40 labor hours
available. If each country divides its time equally between the production of cheese and bread, then
total production is
a. 20 units of cheese and 5 units of bread.
b. 25 units of cheese and 7.5 units of bread.
c. 40 units of cheese and 10 units of bread.
d. 50 units of cheese and 15 units of bread.
____ 2. Refer to Table 3-5. We could use the information in the table to draw a
production possibilities frontier for England and a second production possibilities frontier for
Spain. If we were to do this, measuring cheese along the horizontal axis, then
a. the slope of England’s production possibilities frontier would be -4 and the slope of Spain’s
production possibilities frontier would be -2.
b. the slope of England’s production possibilities frontier would be -0.25 and the slope of
Spain’s production possibilities frontier would be -0.5.
c. the slope of England’s production possibilities frontier would be 0.25 and the slope of
Spain’s production possibilities frontier would be 0.5.
d. the slope of England’s production possibilities frontier would be 4 and the slope of Spain’s
production possibilities frontier would be 2.
____ 3. Refer to Table 3-5. Which of the following combinations of cheese and bread
could Spain produce in 40 hours?
a. 2.25 units of cheese and 4 units of bread.
b. 5.5 units of cheese and 3 units of bread.
c. 7 units of cheese and 1.5 units of bread.
d. 10 units of cheese and 5 units of bread.
____ 4. Refer to Table 3-5. The opportunity cost of 1 unit of bread for England is
a. 1/4 unit of cheese.
b. 1/4 hour of labor.
c. 4 units of cheese.
d. 4 hours of labor.
____ 5. Refer to Table 3-5. The opportunity cost of 1 unit of cheese for Spain is
a. 1/2 unit of bread.
b. 2 hours of labor.
c. 2 units of bread.
d. 4 hours of labor.
____ 6. Refer to Table 3-5. England has an absolute advantage in the production of
a. cheese and Spain has an absolute advantage in the production of bread.
b. bread and Spain has an absolute advantage in the production of cheese.
c. both goods and Spain has an absolute advantage in the production of neither good.
d. neither good and Spain has an absolute advantage in the production of both goods.
____ 7. Refer to Table 3-5. England has a comparative advantage in the production of
a. cheese and Spain has a comparative advantage in the production of bread.
b. bread and Spain has a comparative advantage in the production of cheese.
c. both goods and Spain has a comparative advantage in the production of neither good.
d. neither good and Spain has a comparative advantage in the production of both goods.
____ 8. Refer to Table 3-5. If Spain and England specialize and trade, then England
should specialize in the production of
a. cheese and Spain should specialize in the production of bread.
b. bread and Spain should specialize in the production of cheese.
c. both goods and Spain should specialize in the production of neither good.
d. neither good and Spain should specialize in the production of both goods.
____ 9. In what type of market are buyers and sellers assumed to be price-takers?
a. perfectly competitive markets.
b. monopolistic markets.
c. markets that are regulated by the government.
d. markets in which buyers cannot buy all they want and/or sellers cannot sell all they want.
____ 10. To obtain the market demand curve for a product, sum the individual demand
curves
a. vertically.
b. diagonally.
c. horizontally.
d. and then average them.
____ 11. The supply curve for a good is
a. a line that relates profit and quantity supplied.
b. a line that relates input prices and quantity supplied.
c. a line that relates price and quantity supplied.
d. a line that relates price and profit.
____ 12. A technological advance will shift the
a. supply curve to the right.
b. supply curve to the left.
c. demand curve to the right.
d. demand curve to the left.
Figure 4-11

price
20
S
18
16

14
12
10
8
6
4

2
D

1 2 3 4 5 6 7 8 9 10 quantity

____ 13. Refer to Figure 4-11. At a price of $4, which of the following is correct?
a. there is a surplus of 3 units
b. there is a surplus of 6 units
c. there is a shortage of 3 units
d. there is a shortage of 6 units
____ 14. If the price elasticity of demand for a good is 10.0, then a 4 percent increase in
price results in a
a. 0.4 percent decrease in the quantity demanded.
b. 2.5 percent decrease in the quantity demanded.
c. 4 percent decrease in the quantity demanded.
d. 40 percent decrease in the quantity demanded.
____ 15. When we move upward and to the left along a linear, downward-sloping demand
curve, the absolute value of the price elasticity of demand
a. first becomes smaller, then larger.
b. always becomes larger.
c. always becomes smaller.
d. first becomes larger, then smaller.
____ 16. Suppose that quantity demanded falls by 30% as a result of a 5% increase in
price. The price elasticity of demand for this good is
a. inelastic and equal to 6.
b. elastic and equal to 6.
c. inelastic and equal to 0.17.
d. elastic and equal to 0.17.
____ 17. Consider airfares on flights between New York and Minneapolis. When the airfare
is $250, the quantity demanded of tickets is 2,000 per week. When the airfare is $280, the quantity
demanded of tickets is 1,700 per week. Using the midpoint method,
a. the price elasticity of demand is about 1.43, and an increase in the airfare will cause
airlines' total revenue to decrease.
b. the price elasticity of demand is about 1.43, and an increase in the airfare will cause
airlines' total revenue to increase.
c. the price elasticity of demand is about 0.70, and an increase in the airfare will cause
airlines' total revenue to decrease.
d. the price elasticity of demand is about 0.70, and an increase in the airfare will cause
airlines' total revenue to increase.
____ 18. Get Smart University is contemplating an increase in tuition to enhance revenue. If
GSU feels that raising tuition would enhance revenue, it is
a. ignoring the law of demand.
b. assuming that the demand for university education is elastic.
c. assuming that the demand for university education is inelastic.
d. assuming that the supply of university education is elastic.

Figure 5-11

Price
55

50
45
40

35
30
25

20
15
10

5 Demand

50 100 150 200 250 300 350 400 450 500 550 Quantity

____ 19. Refer to Figure 5-11. When the price is $30, total revenue is
a. $3,000.
b. $5,000.
c. $7,000.
d. $9,000.
Figure 4-14

Panel (a) Panel (b)

price price

S S

Pe' Pe

Pe Pe'

D D' D' D

Qe Qe' quantity Q e' Qe quantity

Panel (c) Panel (d)

price price

S S' S' S

Pe Pe'

Pe' Pe

D D

Qe Qe' quantity Q e' Qe quantity

____ 20. Refer to Figure 4-14. Which of the four panels represents the market for pizza
delivery in a college town as we go from summer to the beginning of the fall semester?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
____ 21. Refer to Figure 4-14. Which of the four panels represents the market for cars as a
result of the adoption of new technology on assembly lines?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
____ 22. Which of the following would not shift the demand curve for mp3 players?
a. a decrease in cost of manufacturing mp3 players
b. a fad that makes mp3 players more popular among 12-25 year olds
c. an increase in the price of CDs, a complement for mp3 players
d. a decrease in the price of satellite radio, a substitute for mp3 players
____ 23. Saddle shoes are not popular right now, so very few are being produced. If saddle
shoes become popular (tastes change), then how will this affect the market for saddle shoes?
a. The supply curve for saddle shoes will shift right, which will create a shortage at the current
price. That will increase price, which will decrease quantity demanded and increase quantity
supplied. The new market equilibrium will be at a higher price and higher quantity.
b. The supply curve for saddle shoes will shift right, which will create a surplus at the current
price. That will decrease price, which will increase quantity demanded and decrease
quantity supplied. The new market equilibrium will be at a lower price and higher quantity.
c. The demand curve for saddle shoes will shift right, which will create a shortage at the
current price. That will increase price, which will decrease quantity demanded and increase
quantity supplied. The new market equilibrium will be at a higher price and higher quantity.
d. The demand curve for saddle shoes will shift right, which will create a surplus at the current
price. That will decrease price, which will increase quantity demanded and decrease
quantity supplied. The new market equilibrium will be at a lower price and higher quantity.
____ 24. An early frost in the vineyards of Napa Valley would cause
a. an increase in the demand for wine, increasing price.
b. an increase in the supply of wine, decreasing price.
c. a decrease in the demand for wine, decreasing price.
d. a decrease in the supply of wine, increasing price.
____ 25. What would happen to the equilibrium price and quantity of coffee if the wages of
coffee-bean pickers fell and the price of tea fell?
a. Price would fall and the effect on quantity would be ambiguous.
b. Price would rise and the effect on quantity would be ambiguous.
c. Quantity would fall and the effect on price would be ambiguous.
d. Quantity would rise and the effect on price would be ambiguous.
Figure 4-5

Firm A Firm B
price price
20 20
18 18
16 16

14 14
S
12 12
10 10
S
8 8
6 6
4 4

2 2

2 4 6 8 10 12 14 16 18 20 quantity 2 4 6 8 10 12 14 16 quantity

____ 26. Refer to Figure 4-5. If these are the only two sellers in the market, then the
market quantity supplied at a price of $6 is
a. 2 units.
b. 10 units.
c. 12 units.
d. 22 units.
Test 1 / Economics 224 / Chappell / 9/15/10
Answer Section

MULTIPLE CHOICE

1. ANS: B PTS: 1 DIF: 2 REF: 3-1

NAT: Analytic LOC: Understanding and applying economic models
TOP: Production MSC: Applicative
2. ANS: B PTS: 1 DIF: 3 REF: 3-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Production possibilities frontier MSC: Analytical
3. ANS: C PTS: 1 DIF: 3 REF: 3-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Production MSC: Analytical
4. ANS: C PTS: 1 DIF: 2 REF: 3-2
NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost
TOP: Opportunity cost MSC: Applicative
5. ANS: A PTS: 1 DIF: 2 REF: 3-2
NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost
TOP: Opportunity cost MSC: Applicative
6. ANS: C PTS: 1 DIF: 2 REF: 3-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Absolute advantage MSC: Applicative
7. ANS: A PTS: 1 DIF: 2 REF: 3-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Comparative advantage MSC: Applicative
8. ANS: A PTS: 1 DIF: 2 REF: 3-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Specialization MSC: Applicative
9. ANS: A PTS: 1 DIF: 2 REF: 4-1
NAT: Analytic LOC: Perfect competition TOP: Perfect competition
MSC: Interpretive
10. ANS: C PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Market demand
MSC: Interpretive
11. ANS: C PTS: 1 DIF: 1 REF: 4-3
NAT: Analytic LOC: Supply and demand TOP: Supply curve
MSC: Definitional
12. ANS: A PTS: 1 DIF: 2 REF: 4-3
NAT: Analytic LOC: Supply and demand TOP: Technology
MSC: Interpretive
13. ANS: D PTS: 1 DIF: 2 REF: 4-4
NAT: Analytic LOC: Equilibrium TOP: Shortages MSC: Applicative
14. ANS: D PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Applicative
15. ANS: B PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Interpretive
16. ANS: B PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Analytical
17. ANS: A PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity
TOP: Midpoint method | Total revenue | Price elasticity of demand
MSC: Applicative
18. ANS: C PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Total revenue | Price elasticity of demand
MSC: Applicative
19. ANS: D PTS: 1 DIF: 1 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Total revenue | Price elasticity of demand
MSC: Interpretive
20. ANS: A PTS: 1 DIF: 2 REF: 4-4
NAT: Analytic LOC: Supply and demand TOP: Number of buyers
MSC: Applicative
21. ANS: C PTS: 1 DIF: 2 REF: 4-4
NAT: Analytic LOC: Supply and demand TOP: Technology
MSC: Applicative
22. ANS: A PTS: 1 DIF: 2 REF: 4-2
NAT: Analytic LOC: Supply and demand TOP: Demand curve
MSC: Applicative
23. ANS: C PTS: 1 DIF: 3 REF: 4-4
NAT: Analytic LOC: Equilibrium TOP: Equilibrium MSC: Analytical
 24. ANS: D PTS: 1 DIF: 2 REF: 4-4
NAT: Analytic LOC: Equilibrium TOP: Equilibrium MSC: Applicative
25. ANS: A PTS: 1 DIF: 2 REF: 4-4
NAT: Analytic LOC: Equilibrium TOP: Equilibrium MSC: Applicative
26. ANS: D PTS: 1 DIF: 2 REF: 4-3
NAT: Analytic LOC: Supply and demand TOP: Market supply
MSC: Applicative