Midterm Test Questions & Answers

Question 1

Suppose a nation produces coffee and doughnuts. In terms of the nation’s production possibilities frontier, assume coffee on the x-axis, doughnuts on the y-axis. If part of the labor force becomes unemployed and sits at home instead of producing coffee and doughnuts, this will best be illustrated by
Question 1 Select one:

a.
the production possibilities frontier shifting in along both axes

b.
the production possibilities frontier shifting out along both axes

c.
production to be at a point outside the production possibilities frontier

d.
production to be at a point inside the production possibilities frontier

Answer 1

D

Question 2

Suppose a nation produces coffee and doughnuts. In terms of the nation’s production possibilities frontier, assume coffee on the x-axis, doughnuts on the y-axis. If a hurricane destroys a portion of the nation’s ability to produce coffee, but does not affect the production of doughnuts, this will best be illustrated by
Question 2 Select one:

a.
the production possibilities frontier shifting in only along the y-axis

b.
the production possibilities frontier shifting in along both axes

c.
production to be at a point inside the production possibilities frontier

d.
the production possibilities frontier shifting in only along the x-axis

Answer 2

D

Question 3

Suppose a nation produces coffee and doughnuts. In terms of the nation’s production possibilities frontier, assume coffee on the x-axis, doughnuts on the y-axis. If the production along the nation’s production possibilities frontier exhibits increasing costs,
Question 3 Select one:

a.
it will have to give up a decreasing amount of coffee as it produces more doughnuts along its production possibilities frontier

b.
it will have to give up an increasing amount of coffee as it produces more doughnuts along its production possibilities frontier

c.
the production possibilities frontier will be a straight line

d.
all of the above

Answer 3

B

Question 4

Consider the production possibilities frontier for an economy that produces only cookies and ice cream, and assume production currently occurs at a point somewhere on the economy’s production possibilities frontier. If a discovery of the remarkable health benefits of ice cream changes consumers preferences, we would expect
Question 4 Select one:

a.
production to be at a point inside the production possibilities frontier

b.
production to move to a different point on the production possibilities frontier

c.
the production possibilities frontier to shift outward

d.
the production possibilities frontier to shift inward

Answer 4

B

Question 5

Assume the U.S. is considering to spend an additional $10 billion on national defense. Also assume the U.S. is considering to spend additional money hiring new teachers as $10 billion could purchase 2,500 teachers for the next 50 years at a salary of $80,000 per year.
If the U.S. decides to spend an additional $10 billion on national defense, what is the opportunity cost of that decision?
Question 5 Select one:

a.
$10 billion

b.
$80,000

c.
the value of new weapons, assuming the $10 billion in national defense spending was spent on new weapons

d.
the value of 2,500 teachers for the next 50 years at a salary of $80,000 per year

Answer 5

D

Question 6

A production possibilities frontier that is a straight line indicates
Question 6 Select one:

a.
constant costs of production

b.
increasing costs of production

c.
diminishing costs of production

d.
decreasing costs of production

Answer 6

A

Question 7

Suppose in an hour’s time, Canada can produce either 1 surfboard or 2 snowboards; Mexico can produce either 9 surfboards or 3 snowboards. Which of the following is true?
Question 7 Select one:

a.
Canada’s opportunity cost of producing snowboards is 2 surfboard per snowboard

b.
Canada’s opportunity cost of producing snowboards is 3 surfboards per snowboard

c.
Mexico’s opportunity cost of producing snowboards is 1/3 surfboard per snowboard

d.
Mexico’s opportunity cost of producing snowboards is 3 surfboards per snowboard

Answer 7

D

Question 8

Suppose in an hour’s time, Canada can produce either 1 surfboard or 2 snowboards; Mexico can produce either 9 surfboards or 3 snowboards. Which of the following is true?
Question 8 Select one:

a.
Canada has the comparative advantage in both snowboards and surfboards

b.
Mexico has the comparative advantage in both snowboards and surfboards

c.
Canada has the comparative advantage in snowboards, Mexico has the comparative advantage in surfboards

d.
Mexico has the comparative advantage in snowboards, Canada has the comparative advantage in surfboards

Answer 8

C

Question 9

Suppose in an hour’s time, Canada can produce either 1 surfboard or 2 snowboards; Mexico can produce either 9 surfboards or 3 snowboards. Which of the following is true for both countries to gain from trade?
Question 9 Select one:

a.
Mexico should import snowboards

b.
Canada should export surfboards

c.
Canada should import snowboards

d.
All of the above

Answer 9

A

Question 10

Which goods will a nation typically import?
Question 10 Select one:

a.
those goods in which the nation has an absolute advantage

b.
those goods in which the nation has a comparative advantage

c.
those goods in which other nations have an absolute advantage

d.
those goods in which other nations have a comparative advantage

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Answer 10

D

Question 11

A change in which of the following will NOT shift the demand curve for Coke?
Question 11 Select one:

a.
the price of Pepsi

b.
the price of Coke

c.
the income of consumers purchasing Coke

d.
the price of snacks purchased along with Coke

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Answer 11

B

Question 12

If the number of firms in the market selling cheese increases, we would likely expect
Question 12 Answer

a.
an increase in the quantity demanded for cheese

b.
an increase in the demand for cheese

c.
an increase in the price for cheese

d.
all of the above

Answer 12

A

Question 13

Which of the following would tend to increase the demand for Coke, shifting its demand curve?
Question 13 Select one:

a.
a decrease in the price of Pepsi, assuming the goods are substitutes

b.
an increase in the price of sugar, an ingredient used to produce Coke

c.
a decrease in the price of Coke

d.
an increase in the income of consumers purchasing Coke, assuming it is a normal good

Answer 13

D

Question 14

Suppose that the price of good A increasing causes the demand for good B to increase. What do we know about these goods?
Question 14 Select one:

a.
these goods are both inferior goods

b.
these goods are both normal goods

c.
these goods are complements

d.
these goods are substitutes

Answer 14

D

Question 15

Suppose Pepsi uses a new ingredient that decreases the cost for them to produce Pepsi. Suppose this also decreases the demand for Pepsi. What are the predicted net effects in the market for Pepsi?
Question 15 Select one:

a.
an increase in the equilibrium price of Pepsi, while the effect on the equilibrium quantity of Pepsi is uncertain

b.
a decrease in the equilibrium price of Pepsi, while the effect on the equilibrium quantity of Pepsi is uncertain

c.
an increase in the equilibrium quantity of Pepsi, while the effect on the equilibrium price of Pepsi is uncertain

d.
a decrease in the equilibrium quantity of Pepsi, while the effect on the equilibrium price of Pepsi is uncertain

Answer 15

D

Question 16

Suppose consumers will buy the same amount of a good no matter what the price. The demand curve is a vertical line. The price elasticity of demand for this particular good would be
Question 16 Answer

a.
perfectly elastic

b.
0

c.
unit elastic

d.
-1.0

Answer 16

B

Question 17

Suppose the price elasticity of demand for pretzels is -0.5. If the price of pretzels increases by 10%, we would expect sales for pretzels to decrease by ______ percent, as the demand for pretzels is _______
Question 17 Select one:

a.
5, inelastic

b.
20, inelastic

c.
5, elastic

d.
20, unit elastic

Answer 17

A

Question 18

A 20% decrease in price causes the quantity demanded of a good to increase by 40 percent. The value for the price elasticity of demand is ___________, and demand is ____________.
Question 18 Select one:

a.
-0.5, elastic

b.
-0.5, inelastic

c.
-2, inelastic

d.
-2, elastic

Answer 18

D

Question 19

Suppose the cross elasticity of demand between good A and good B is -3.0. If the price of good A rises, what would be expected to happen in the market for good B?
Question 19 Answer

a.
an increase in demand for good B

b.
a decrease in demand for good B

c.
an increase in supply for good B

d.
a decrease in supply for good B

Answer 19

B

Question 20

If the cross elasticity of demand between pencils and laptops is 0, then the two goods are
Question 20 Select one:

a.
inferior

b.
substitutes

c.
unrelated

d.
complements

Answer 20

C

Question 21

Which of the following would cause a shortage to exist in a market?
Question 21 Select one:

a.
a price ceiling set below the equilibrium price

b.
a price ceiling set above the equilibrium price

c.
a price floor set below the equilibrium price

d.
a price floor set above the equilibrium price

Answer 21

A

Question 22

Suppose the government levies a tax on the market for avocados. Assuming a normal upward sloping supply curve and a normal downward sloping demand curve for avocados, the price for buyers will _______, price received by sellers will ______, and quantity sold will ______.
Question 22 Select one:

a.
increase, decrease, decrease

b.
increase, increase, decrease

c.
increase, increase, increase

d.
increase, decrease, increase

Answer 22

A

Question 23

A minimum wage is likely to cause unemployment if
Question 23 Answer

a.
set equal to the equilibrium wage

b.
set below the equilibrium wage

c.
set above the equilibrium wage

d.
all of the above

Answer 23

C

Question 24

A price ceiling set above the equilibrium price causes
Question 24 Select one:

a.
a shortage

b.
a surplus

c.
no effect in the market

d.
an increase in supply

Answer 24

C

Question 25

Suppose our federal government wants to enact a tax that will cause a greater burden of expense to producers selling that good, than the burden of expense to consumers purchasing that good. Which would be optimal?
Question 25 Select one:

a.
a good with a relatively elastic demand, and relatively inelastic supply

b.
a good with a relatively inelastic demand, and relatively elastic supply

Answer 25

A

Question 26

Which of the following is the best example of economies of scale?
Question 26 Answer

a.
As a firm produces more of its product, its average costs of production increase

b.
As a firm produces more of its product, its average costs of production decrease

c.
As a firm produces more if its product, its average costs of production stay the same

d.
As a firm increases its supply, more consumers purchase its product

Answer 26

B

Question 27

Suppose you operate a factory producing wrenches. Your current level of output is 1000 wrenches per week. Your weekly fixed cost is $40,000. If your weekly total cost is $100,000,
Question 27 Select one:

a.
average variable cost of production is $80

b.
average total cost of production is $60

c.
average fixed cost of production is $60

d.
average variable cost of production is $60

Answer 27

D

Question 28

If the snowboard factory increases production, the average total cost of production is expected to increase. If the current average total cost is $75, what is most likely the current marginal cost?
Question 28 Select one:

a.
$0

b.
$10

c.
$37.50

d.
$100

Answer 28

D

Question 29

A firm is producing 10 units of output at a total cost of $100. The firm’s average variable cost is $3. Which of the following is true?
Question 29 Select one:

a.
average total cost is $10

b.
average fixed cost is $7

c.
average total cost = average variable cost + average fixed cost

d.
all of the above

Answer 29

D

Question 30

Homer sells cupcakes on Saturdays. He spends $50 for ingredients and sells $190 worth of cupcakes. If he didn’t sell cupcakes, he could work at the local brewery on Saturday and earn $150. In his cupcake business, Homer has an accounting profit of _________ and an economic profit of ________.
Question 30 Select one:

a.
$140, $10

b.
$140, - $10

c.
$40, $50

d.
$190, $50

Answer 30

B