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MULTIPLE CHOICE
 
 

Econ 201, Introduction to Microeconomics, Sec. 2

Zaim
 
 

Midterm I

1/25/2000
 
 

1. Factors of production are

A) the capital used to manufacture goods and services

B) the resources used to produce goods and services

C) the places where goods and services are produced

D) the process used to produce goods and services

E) the trade-offs involved in producing goods and services
 
 

2. When could an economy reach a point that is on its production possibilities frontier?

A) resources are being used efficiently and resources are being fully employed

B) resources are being used efficiently but resources are not being fully employed

C) resources are not being used efficiently but resources are being fully employed

D) resources are not being used efficiently and are not being fully employed

E) all of the above are correct
 
 

3. We can use microeconomic analysis

A) to understand how a national economy works

B) to evaluate the merits of public policies

C) to learn how to balance a checkbook

D) all of the above

E) none of the above
 
 

4. The Latin phrase ceteris paribus means that

A) a variable changes across observations

B) other variables are held fixed

C) a pair of factors are unique

D) all factors are the same for everyone

E) none of the above
 
 

5. Suppose that your tuition to attend college is $8,000 per year and you spend $5,000 per year on room and board. Were you working full time, you could earn $22,000 per year. What is your opportunity cost of attending college?

A) $8,000

B) $27,000

C) $30,000

D) $13,000

E) $35,000
 
 
 
 
 
 

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Use the following information to address question 6:
 
 

The following table presents a production possibilities curve for a country that can produce either computers or space missions in a given year:

Computers (1000s) Space missions

 540 0

530 1

500 2

450 3

380 4

300 5
 
 

6. The opportunity cost of the second space mission in a year is

A) 30,000 computers

B) 50,000 computers

C) 500,000 computers

D) 40,000 computers

E) none of the above, or not enough information to answer
 
 

7. The marginal principle requires that optimal production will occur where

A) marginal benefit exceeds marginal cost

B) marginal benefit equals marginal cost

C) total benefit equals total cost

D) marginal benefit is less than marginal cost

E) none of the above
 
 

8. Fixed costs are

A) costs that change as the level of an activity changes

B) costs in the form of actual cash payments

C) the opportunity cost of nonpurchased inputs

D) costs that do not change as the level of an activity changes

E) all of the above
 
 

9. The principle that when holding one input fixed, after some point output increases at a decreasing rate as additional units of the input are added, is known as

A) the marginal principle

B) the principle of diminishing returns

C) the spillover principle

D) the principle of opportunity cost

E) the reality principle
 
 

10. The principle that what matters to people is the real value or purchasing power of money, is known as

A) the spillover principle

B) the reality principle

C) the principle of diminishing returns

D) the marginal principle

E) the principle of opportunity cost
 
 
 
 
 
 

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11. A spillover is

A) a decision to continue to produce as long as marginal benefit is at least as great as marginal cost

B) a decision made by one person to produce or consume

C) a cost or benefit experienced by people who are external to the decision to produce or consume

D) a cost or benefit experienced by people who make the decision to produce or consume

E) primarily a mathematical construct
 
 
 
 

Use the following information to address questions 12 and 13:
 
 

Consider two individuals, Willy and Blithe, who produce carrots and apples. Willy and Blithe's hourly productivity are as follows
 
 

Apples/hour Carrots/hour

Willy 6 4

Blithe 3 1
 
 

12. Which of the following is true?

A) Willy has a comparative advantage in producing neither good

B) Willy has a comparative advantage in producing both goods

C) Willy has a comparative advantage in producing apples but not carrots

D) Willy has a comparative advantage in producing carrots but not apples
 
 

13. Blithe's opportunity cost of producing one apple is

A) 3/2 carrots

B) 2/3 carrot

C) 1/3 carrot

D) 3 carrots
 
 

14. An import is

A) a good produced in a domestic country and purchased by residents of a domestic country

B) a good produced in a domestic country and purchased by residents of a foreign country

C) a good produced in a foreign country and purchased by residents of a foreign country

D) a good produced in a foreign country and purchased by residents of a domestic country
 
 

15. Judy demands more peanuts as her income increases. From this, we can conclude that

A) Peanuts are a substitute good

B) Not enough information to answer the question

C) Peanuts are a complementary good

D) Peanuts are a normal good

E) Peanuts are an inferior good
 
 

16. Two goods are substitutes if

A) The demand for one good decreases when the price of the other decreases

B) The demand for one good decreases when consumer income increases

C) The demand for one good decreases when the price of the other increases

D) The supply of one good decreases when the price of the other increases

E) The supply of one good decreases when the price of the other decreases
 
 
 
 
 
 

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17. Which of the following is best described by the statement: As the price of a product rises, consumers shift their purchases to other products whose prices are now relatively lower.

A) The income effect

B) The law of supply

C) The substitution effect

D) The law of demand

E) The principle of normal goods
 
 

18. If a technological advance makes it possible to produce bananas at a lower cost,

A) The supply of bananas increases

B) The supply of bananas decreases

C) The demand for bananas increases

D) The demand for bananas decreases

E) None of the above is correct
 
 

19. Peaches and cream are complements. When the price of peaches falls

A) The price of cream falls and the quantity of cream falls

B) The price of cream falls and the quantity of cream rises

C) The price of cream rises and the quantity of cream falls

D) The price of cream rises and the quantity of cream rises

E) None of the above is correct
 
 
 
 

For the next question, please refer to the Figure 4.1.
 
 

20. Refer to the diagram of the market for pizzas. If the price of pizza is $20, which of the following is true?

A) There will be a surplus of 8 pizzas

B) There will be a shortage of 8 pizzas

C) There will be a surplus of 20 pizzas

D) There will be a shortage of 20 pizzas

E) None of the above are correct
 
 

_
 
 

21. The relationship between the price of a good and the quantity that a single consumer is willing to buy during a particular time period is the

A) Market demand curve

B) Individual demand curve

C) Time demand curve

D) Market supply curve

E) Individual supply curve
 
 
 
 
 
 

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22. Rocky spends his income on video games and compact discs. When the price of compact discs increases, the substitution effect implies that:

A) Rocky will purchase more video games and less compact discs.

A) Rocky will purchase less video games and more compact discs.

B) Rocky will purchase less video games and less compact discs.

B) There is not enough information to answer the question.

C) Rocky will purchase more video games and more compact discs.
 
 

23. An increase in the price of a good

A) Increases the opportunity cost of consuming the good

B) Decreases the opportunity cost of consuming the good

C) Does not affect the opportunity cost of consuming the good

D) Increases the opportunity cost of other goods

E) Both A and D are correct
 
 

24. The utility generated by consuming a good is

A) What the consumer is willing to give up in order to consume the good

B) Dependent on the consumer's budget

C) Always equal to the opportunity cost of consuming the good

D) The satisfaction or pleasure the consumer experiences when he or she consumes the good

E) All of the above are correct
 
 

25. The law of diminishing marginal utility states that

A) As more of the good is produced, firms require a higher price to produce additional units

B) As a consumer consumes more of a product, the consumer gets progressively less satisfaction out of each incremental unit of the good

C) As a consumer consumes more of a product, the consumer requires a progressively lower price to consume the good

D) As a consumer consumes more of a product, the consumer is willing to pay more and more for each additional unit of the good

E) Consumers continue to consume the good as long as they derive utility from the good
 
 
 
 
 
 
 
 

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ANSWER KEY FOR TEST - UNTITLED
 
 

1. B

2. A

3. B

4. B

5. C

6. A

7. B

8. D

9. B

10. B

11. C

12. D

13. C

14. D

15. D

16. A

17. C

18. A

19. D

 20. B

21. B

22. A

23. A

24. D

25. B
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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