Sample Midterm Exam 1_AK

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Sample Midterm Exam ECON 1100 Fall 2023 1) Which of the following statements provides the best definition of economics ? A) The study of the most equitable distribution of scarce resources. B) The study of the use of scarce resources to satisfy unlimited human wants. C) The study of the production of goods and services. D) The study of the productive capacity of a nation's factors of production. E) The study of production and increasing its efficiency. Answer: B 2) Society's resources are often divided into broad categories. They are A) goods and services. B) factors of consumption. C) land, labour, and capital. D) population and natural resources. E) tangible commodities and intangible commodities. Answer: C 3) Which of the following is NOT considered a "factor of production" in economics? A) the espresso machine at your local cafe B) the barista who makes the coffee C) the espresso drink you purchase D) the coffee beans that the barista uses E) the land on which the cafe sits Answer: C 4) Suppose there are only three alternatives to attending a "free" social event: read a novel (you value this at $10), go to work (you could earn $20), or watch videos with some friends (you value this at $25). The opportunity cost of attending the social event is A) $10. B) $20. C) $25. D) $45. E) $55. Answer: C 5) A small landscaping firm purchases a tractor that, in one day, is capable of drilling 60 fence- post holes or removing 12 tree stumps (or some intermediate combination). For this landscaper, what is the opportunity cost of removing one extra tree stump? A) 1/12th of the cost of the tractor B) 1/5 of the cost of the tractor C) drilling 12 fence-post holes D) drilling 5 fence-post holes E) There is no opportunity cost.

Answer: D 6) It has been observed that university enrollment in Canada is higher during periods of high unemployment. A possible explanation for this is that A) when prospects for getting a job are poor, the opportunity cost of getting a job is lower. B) when prospects for getting a job are poor, the opportunity cost of doing nothing is higher. C) during periods of high unemployment, the opportunity cost of going to university is higher. D) during periods of high unemployment, the opportunity cost is no longer relevant. E) when prospects for getting a job are poor, the opportunity cost of going to university is lower. Answer: E 7) An insight first fully developed by Adam Smith is that A) without benevolence production would not occur. B) all individuals are motivated solely by self-interest. C) self-interest, not benevolence, is the foundation of economic order. D) self-interest undermines effective economic order. E) individual self-interest is the only necessary force for social order. Answer: C 8) A positive statement is one that states A) what is, was, or will be. B) what is and what should be. C) what should be but is not. D) what is desirable. E) non-negative numbers. Answer: A 9) Which of the following is a normative statement? A) The higher is the level of taxes, the lower is consumption spending. B) The higher is the level of taxes, the higher are wage demands. C) A reduction in export taxes on petroleum would result in higher wages. D) Tuition fees should be waived for low-income students. E) A free-trade agreement between two countries will result in an increase in trade. Answer: D 10) An assertion about the desirability of reducing unemployment by lowering payroll taxes is most likely A) a theory. B) a testable proposition. C) a hypothesis. D) a normative statement. E) a positive statement. Answer: D

11) The statement that introducing a policy of legislated rent controls will lead to a housing shortage is an example of a(n) A) assumption. B) prediction. C) theory. D) normative statement. E) model. Answer: B 12) The "law of demand" hypothesizes that other things being equal, A) the lower the price, the greater the demand. B) price and demand vary inversely. C) the higher the price, the lower the quantity demanded. D) the higher the income, the higher the quantity demanded. E) price and quantity demanded are positively related. Answer: C 13) Consider butter and margarine, which are substitutes. When the price of butter falls, the demand curve for margarine is likely to A) shift to the right. B) shift to the left. C) remain stationary. D) remain stationary, although its price will fall. E) remain stationary, although its price will rise. Answer: B 14) If the price of tea falls and, consequently, the demand for sugar rises, then tea and sugar are A) substitute goods. B) complementary goods. C) luxury goods. D) neutral goods. E) independent goods. Answer: B 15) In which statement is the term "demand" used correctly? (1) An increase in the price of eggs will lead to a decrease in the demand for eggs. (2) An increase in the price of eggs will lead to a decrease in the demand for bacon. A) neither statement B) the first statement only C) the second statement only D) both statements E) more information is needed Answer: C

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16) Suppose new medical research suggests that consuming 200 grams of tofu every day helps to prevent heart disease. How is the widespread knowledge of this research, other things being equal, likely to have what impact on the market for tofu? A) shift the whole demand curve to the right B) shift the whole demand curve to the left C) movement along the demand curve to the right D) movement along the demand curve to the left E) there would likely be no effect Answer: A Questions 17 - 20 are based on the Figure 3-1 below. FIGURE 3-1 17) Refer to Figure 3-1. If demand is given by the curve D, the ________ energy-efficient light bulbs is 200 000 at a price of $9. A) demand for B) quantity purchased of C) demand schedule for D) quantity demanded of E) quantity sold of Answer: D

18) Refer to Figure 3-1. The movement along the demand curve, D , from point v to point x , could be caused by A) a change in preferences away from ordinary light bulbs to energy-efficient light bulbs. B) a change in the price of energy-efficient light bulbs. C) an increase in household income, which allows consumers to purchase more light bulbs. D) a change in the price of ordinary light bulbs. E) an expectation that new, government regulations will require the use of energy-efficient light bulbs only. Answer: B 19) Refer to Figure 3-1. A shift of the demand curve for energy-efficient light bulbs from D to D 2 could be caused by A) an increase in the price of ordinary light bulbs. B) a change in preferences away from ordinary bulbs to energy-efficient bulbs. C) an expectation that new government regulation will require the use of energy-efficient light bulbs only. D) a decrease in the price of energy-efficient light bulbs. E) a news bulletin stating that energy-efficient light bulbs emit a harmful gas. Answer: E 20) Refer to Figure 3-1. A shift of the demand curve for energy-efficient light bulbs from D to D 1 could be caused by A) a decrease in the price of ordinary light bulbs. B) a news bulletin stating that energy-efficient light bulbs emit a harmful gas. C) a decrease in the price of energy-efficient light bulbs. D) an expectation that government regulation will soon prohibit the use of ordinary light bulbs. E) a change in preferences toward ordinary light bulbs. Answer: D 21) The positive slope of a supply curve indicates that A) as price goes up, quantity supplied will decrease. B) consumers will want to buy less at higher prices. C) as price goes up, quantity supplied will increase. D) if the costs of production increase, the quantity supplied will increase. E) as price goes up, quantity supplied will remain constant. Answer: C 22) Suppose there is a decrease in the quantity supplied of copper at each price. This change would imply A) a shift to the left of the supply curve. B) a shift to the right of the supply curve. C) a movement up the supply curve. D) a movement down the supply curve. Answer: A

Questions 23-25 are based on Figure 3-2 below. FIGURE 3-2 23) Refer to Figure 3-2. If the supply curve is given by S, the ________ energy-efficient light bulbs is 175 000 when the price is $9. A) quantity supplied of B) quantity purchased of C) quantity sold of D) supply schedule for E) supply of Answer: A 24) Refer to Figure 3-2. A shift of the supply curve from S to S 1 could be caused by A) an increase in the price of energy-efficient light bulbs. B) a decrease in the price of energy-efficient light bulbs. C) an expectation that new government regulations will ban the use of energy-efficient light bulbs. D) a change in consumers' preferences away from ordinary light bulbs toward energy-efficient light bulbs. E) a decrease in the price of glass, a major input in the production of energy-efficient light bulbs. Answer: E

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25) Refer to Figure 3-2. A shift of the supply curve for energy-efficient light bulbs from S to S 2 could be caused by A) an increase in the price of energy-efficient light bulbs. B) a decrease in the price of energy-efficient light bulbs. C) an increase in the number of suppliers. D) the elimination of existing government subsidies to suppliers of energy-efficient light bulbs. E) a change in consumers' preferences away from ordinary light bulbs. Answer: D 26) Choose the best description of an "equilibrium price." A) the price in the middle of supply and demand B) the price at which the quantity demanded is equal to the quantity supplied C) the price that consumers are willing to pay D) the price that producers want to charge E) the price at which demand for the commodity is equal to supply Answer: B 27) Weekend train travel costs less than weekday train travel. If the supply of train service remains the same between weekdays and weekends, then the most likely explanation for this difference in price is that the weekend A) demand curve is to the left of the weekday demand curve. B) demand curve is to the right of the weekday demand curve. C) demand curve is random. D) supply curve is to the right of the weekday supply curve. E) supply curve is to the left of the weekday supply curve. Answer: A 28) Tickets for music concerts that are sold on the Internet are often sold out within minutes, and many unsatisfied fans are unable to purchase tickets (without paying extra to the ticket scalpers). One explanation for this is that A) concert goers are not rational. B) prices for purchasing digital music have increased. C) the market price for concert tickets may be set above its equilibrium price. D) the market price for concert tickets may be set below its equilibrium price. E) the market price for concert tickets is at its equilibrium level. Answer: D 29) Steel is an important input to the production of cars. Tires and cars are used together by consumers. What will occur in the market for tires when there is an increase in the price of steel? A) Price rises; quantity rises. B) Price falls; quantity rises. C) Price rises; quantity falls. D) Price falls; quantity falls. E) No change in price or quantity occurs. Answer: D

30) When the percentage change in quantity demanded is greater than the percentage change in price that brought it about, demand is said to be A) zero elastic. B) unelastic. C) inelastic. D) unit elastic. E) elastic. Answer: E 31) If household income increases by 50% and desired household expenditure on vacation travel increases by 15%, the price elasticity of demand for vacation travel is A) elastic. B) inelastic. C) unity. D) positive. E) not determinable from the information given. Answer: E 32) If the price elasticity of demand is 0.5, then a 10% increase in price results in a A) 50% reduction in quantity demanded. B) 5% increase in quantity demanded. C) 5% decrease in total revenues. D) 5% decrease in quantity demanded. E) 0.5% decrease in quantity demanded. Answer: D 33) Suppose that the quantity demanded of a good rises from 90 units to 110 units when the price falls from $1.20 to 80 cents per unit. The price elasticity of demand for this product is A) 0.5. B) 1.0. C) 1.5. D) 2.0. E) 4.0. Answer: A 34) Suppose egg producers succeed in permanently raising the price of their product by 15%, and as a result, the quantity demanded falls by 15% in the short run. In the long run, we can expect the quantity demanded to fall by A) 0%. B) 15%. C) between 0 and 15%. D) more than 15%. E) 100%. Answer: D

35) When national income falls, sales of vacation packages also fall, even at constant prices. This fact suggests that the ________ elasticity of demand for vacation packages is ________. A) income; positive B) income; negative C) price; positive D) price; negative E) cross; positive Answer: A 36) During the 1970s, OPEC's output restrictions caused gasoline prices to increase sharply. Coincidentally, demand for gas-guzzling cars fell. A likely explanation for these observations is that gasoline and cars had a(n) ________ elasticity of demand that was ________ . A) cross; negative B) cross; positive C) income; negative D) income; positive E) price; negative Answer: A Questions 37-39 are based on Figure 4-2 below. FIGURE 4-2

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37) Refer to Figure 4-2. The price elasticity of demand is continuously decreasing as the price falls in diagram(s) A) 1. B) 2. C) 1, 2, and 3. D) 2, 3, and 4. E) 1 and 2. Answer: A 38) Refer to Figure 4-2. Demand is inelastic A) over the entire demand curve in diagram 1. B) over the entire demand curve in diagram 3. C) over section (a) of the demand curve in diagram 1. D) over section (b) of the demand curve in diagram 1. E) at the midpoint between sections (a) and (b) of the demand curve in diagram 1. Answer: D 39) Refer to Figure 4-2. There is good reason to suppose that, of the four goods whose demand curves are shown in diagrams 1-4 of the figure, the good that has the fewest close substitutes is shown in A) diagram 1. B) diagram 2. C) diagram 3. D) diagram 4. E) There is not enough information to determine this. Answer: B 40) Suppose an increase in demand for web-design service in Canada increases the price from $95 per hour to $105 per hour and hours of service delivered increases from 400 000 hours to 800 000. What is the elasticity of supply of this service? A) 0.15 B) 0.167 C) 4.2 D) 6.67 E) 16.67 Answer: D

Questions 41-45 are based on Figure 4-4 below FIGURE 4-4 Refer to Figure 4-4. There have been proposals that a tax be imposed on sugar-laden soft drinks to reduce their consumption. Assume for simplicity that all bottled soft drinks are the same size. Suppose the initial market equilibrium is P = $2.00 and Q = 1000. 41) Suppose the government imposes a tax of $0.60 per soft drink purchased. The price paid by the consumer becomes A) $1.80. B) $2.00. C) $2.20. D) $2.40. E) $2.60. Answer: D 42) Suppose the government imposes a tax of $0.60 per soft drink purchased. The after-tax price received by the seller becomes A) $1.80. B) $2.00. C) $2.20. D) $2.40. E) $2.60. Answer: A

43) Suppose the government imposes a tax of $0.60 per soft drink purchased. The change in total expenditure by consumers on soft drinks is A) a decrease of $80. B) a decrease of $160. C) an increase of $320. D) an increase of $480. E) No change in total expenditure. Answer: A 44) Consider Canada's production possibilities boundary. During the nineteenth and early twentieth centuries, millions of people immigrated to western Canada. The effect on the Canadian economy was to A) move it to a point beyond its new production possibilities boundary. B) move it inside its new production possibilities boundary. C) shift its production possibilities boundary inward. D) shift its production possibilities boundary outward. E) move it along an unchanged production possibilities boundary. Answer: D 45) Figure 1-7 shows the production possibilities boundary for an economy that produces two goods–cotton and bananas. FIGURE 1-7 Refer to Figure 1-7. A production possibilities boundary is shown for an economy that produces two goods–cotton and bananas, both measured in tonnes produced per year. Suppose this

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economy moves from point D to point F, where it is then producing bananas exclusively. Which of the following explanations best describes the opportunity cost involved in producing this extra 100 tonnes of bananas? A) The opportunity cost is very high in this case because resources that are probably much better suited to producing cotton are now being devoted to producing bananas. B) The opportunity cost is very low in this case because resources that are probably much better suited to producing cotton are now being devoted to producing bananas. C) The opportunity cost is very high in this case because resources that are probably much better suited to producing bananas are now being devoted to producing cotton. D) The opportunity cost is very low in this case because resources that are probably much better suited to producing bananas are now being devoted to producing cotton. E) The opportunity cost of producing the extra bananas is independent of the amount being produced. Answer: A

Sample Midterm Exam 1_AK

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