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Midterm Exam
April 10, 2002
Version 1
This
is a multiple-choice test with total of 50 questions. You have 1 hour and 20
minutes at your disposal. Some of the questions require calculations, some help
to check your understanding of definitions and major economics concepts and
tools. Please, be careful in answering these questions. Answer the questions
directly or use the approach of step-by-step elimination. Each of the questions
is worth of 6 points. Good luck!
a)
$1.25
b) $1.80 c)
$2.40
d) $1.50
e) $0.18
1
2
3 4
5
Quantity
a)
The
average cost of production is increasing at a decreasing rate.
b)
If the
quantity of output produced increases, the curve will shift to the right.
c)
The
average cost of production is increasing at an increasing rate.
d)
The slope
of the average cost of production is constant.
e)
The
average cost of production curve is negatively sloped.
3.
Suppose
an old high school friend calls you up and desperately pleads to borrow Georgian
Lari (GEL) 1,000 from you. You have been out working for a few years and have a
little bundle in savings and decide that this is a good friend who really needs
your help. So, you lend him GEL 1,000 with the promise that he will pay you the
GEL 1,000 back, without interest, at the end of the year. In one year after you
are paid back:
a)
In real
terms, the money you will be paid back will be worth less than GEL 1,000 if
inflation was greater than 0%.
b)
In real
terms, the money you will be paid back will be worth more than GEL 1,000 if
inflation was greater than 0%.
c)
In real
and nominal terms, you will be paid back GEL 1,000.
d)
In
nominal terms, the money you will be paid back will be worth less than GEL 1,000
if inflation was greater than 0%.
e) In nominal terms, the money you will be paid back will be worth more than GEL 1,000 if inflation was greater than 0%.
a)
5%; 11%.
b) 14%; 8%. c)
5%; -1%. d)
50%; 45%.
e)5%; 1%.
a)
They
exist because we are not self-sufficient.
b)
They are
places where money is exchanged for goods.
c)
The
factor market is where labor services are bought and sold.
d)
They
allow us to exchange what we have for what we want.
e)
All of
the above.
a)
$125;
dollar. b) $125;
mark. c) $500; dollar. d) $500; mark. e)
$250; dollar
a)
The
demand for Coke will decrease.
b)
The
demand for mineral water will increase (shift right).
c)
The price
of mineral water will fall.
d)
The
equilibrium quantity of mineral water will fall.
e)
(b) and
(c).
a)
Equilibrium
price rises; equilibrium quantity falls.
b)
Equilibrium
price falls; equilibrium quantity rises.
c)
Equilibrium
price = ?; equilibrium quantity falls.
d)
Equilibrium
price rises; equilibrium quantity rises.
e)
Equilibrium
price falls; equilibrium quantity = ?.
Q
Which one of the following statements is true about
the graph?
a)
There is
an excess demand at a price of $4.
b)
There is
an excess supply at a price of $4.
c)
At a
current price of $1, there is a pressure for the equilibrium price to fall.
d)
If the
price fell from $4 to $2, quantity supplied would increase.
e)
If the
price fell from $4 to $2, demand would shift right.
10.Which one of the following is the correct formula
for the elasticity of demand?
a)
ΔPx/ΔQdx
b)
%ΔQdx/%ΔPx
c)
ΔQdx/ΔPx
d)
%ΔPx/%ΔQdx+%Qsx
e)
%ΔPx/%ΔQdx
11.Suppose the elasticity of demand for bowling is
1.5 and the manager of the bowling alley decides to raise the price of a game by
5%. By what percentage will quantity demanded change?
a)
Decline
by 7.5%.
b)
Rise by
7.5%.
c)
Decline
by 3%.
d)
Rise by
3%.
e)
Not
enough information to answer.
12. Which one of the following defines an INELASTIC
demand?
a)
Ed >
1;
b) Ed = 1;
c) Ed < 1;
d) Ed > 0;
e) Ed < 0
13. Which one of the following factors would reduce
the elasticity of demand for a particular product?
a)
More time
to shop around.
b)
No close
substitutes.
c)
Big part
of budget.
d)
Luxury
item.
e)
All of
the above reduce the elasticity of demand.
14. In consumer theory, the term “rational”
means:
a)
A
consumer compares total costs to total benefits in making a purchase decision.
b)
A
consumer compares marginal costs to marginal benefits in making a purchase
decision.
c)
Consumers
prefer to pay the lowest price possible for a good.
d)
Consumers
do not spend all of their income; they save a portion, too.
e)
Consumers
are not influenced by advertising in making purchase decisions.
15. An efficient market outcome is one in which:
a)
Consumer
surplus is greater than producer surplus.
b)
There are
spillover benefits but no spillover costs.
c)
Consumer
and producer surplus are equal.
d)
A third
party can benefit from a transaction.
e)
No buyer,
seller, or third party can benefit from any further transactions.
16. At the equilibrium price and quantity, consumer
surplus is measured as the area:
a)
Above the
demand curve.
b)
Below the
demand curve.
c)
Below the
demand curve but above the equilibrium price.
d)
Above the
demand curve out to the equilibrium quantity.
e)
Below the
demand curve and above the supply curve.
17. Suppose you are given a monthly income of $200 to
spend on food while at college. Further, suppose the price of a single-serving
pizza is $4 and the price of a sandwich is $2. Which one of the following
consumption combinations is possible given these prices and income.
a)
40
pizzas, 50 sandwiches.
b)
15
pizzas, 80 sandwiches.
c)
20
pizzas, 60 sandwiches.
d)
10
pizzas, 100 sandwiches.
e)
50
pizzas, 20 sandwiches.
18. Which one of the following terms is used in
economics to describe the satisfaction that individuals receive from their
consumption of goods and services?
a)
Utility.
b)
Opportunity
cost.
c)
Totality.
d)
Plaisir.
e)
Hedonity.
19. Which one of the following would be considered an
implicit cost by a firm?
a)
Monthly
electricity bill.
b)
Monthly
rent for use of a warehouse.
c)
Weekly
wages paid to workers.
d)
Foregone
interest income because an entrepreneur must use her own money to start up a
business.
e)
Payment
for installation of a fax line.
20. In the long run, a firm can:
a)
Alter the
number of workers it hires.
b)
Alter the
amount of raw materials it uses.
c)
Alter the
size of the factory.
d)
Open up
new factories or close down factories.
e)
All of
the above.
21. Suppose you are told that the average total cost
of producing 200,000 dartboards is $4 and that the total fixed costs of
operation are $100,000. Based on this, you know that:
a)
Total
variable costs are $700,000
b)
Average
fixed costs are $2.
c)
The
marginal cost of production is $1.
d)
Total
costs are $900,000.
e)
Total
profits will be very low.
22. Which one of the following is the reason for
economies of scale?
a)
Specialization.
b)
Diminishing
returns.
c)
Divisible
inputs.
d)
Rising
marginal costs.
e)
Comparative
advantage.
23. Economic analysis is based on all of the
following EXCEPT:
a)
Simplifying
assumptions.
b)
Individuals
acting in their self-interest.
c)
People
making informed decisions.
d)
The need
for government intervention.
e)
All of
the above.
24. Which one of the following is NOT an example of
trade barrier?
a)
Tariffs.
b)
Quotas.
c)
Health
and safety laws.
d)
The
General Agreement on Trade and Tariffs.
e)
Slow and
inefficient customs systems.
25. A decrease in the demand for product X will:
a)
Cause the
equilibrium price of product X to rise.
b)
Cause the
equilibrium price of product X to fall.
c)
Cause the
equilibrium quantity of product X to rise.
d)
Cause the
equilibrium quantity of product X to fall.
e)
(b) and
(d).
26. Which one of the following statements is correct
about the Law of Supply?
a)
As the
price of cigarettes decreases, the supply of cigarettes increases.
b)
As the
price of cigarettes increases, the supply of cigarettes increases.
c)
As the
price of cigarettes decreases, the quantity of cigarettes supplied decreases.
d)
As the
price of cigarettes increases, the quantity of cigarettes supplied decreases.
e)
As the
price of cigarettes increases, the supply of cigarettes shifts right.
27. Consider the market for mattresses. If the price
of foam used in making mattresses declines, which one of the following might be
an outcome?
a)
The
supply of mattresses will increase (shift right).
b)
The
demand for mattresses will increase.
c)
The price
of mattresses will rise.
d)
There
will be a shortage of mattresses.
e)
(a) and
(b).
28.Which one of the following would be true of an
increase in demand for cameras?
a)
Equilibrium
price rises and the supply of cameras increases.
b)
Equilibrium
price rises and the supply of cameras decreases.
c)
Equilibrium
price falls and the quantity of cameras supplied decreases.
d)
Equilibrium
price rises and the quantity of cameras supplied increases.
e)
Equilibrium
price falls and the supply of cameras falls.
29. Suppose product X’s price is reduced by 5% and
the quantity demanded increases by 2%. Based on this information, demand for
product X would be:
a)
Unitary
elastic.
b)
Inelastic.
c)
Elastic.
d)
Tertiary.
e)
Second-order
elastic.
30. What is the elasticity of the supply of cows if
the price of a cow increases from $500 to $550 and the quantity supplied rises
from 100,000 to 130,000?
a)
3.33
b) 3.0 c) 5.0
d) 6.0
e)
Cannot be determined without information on percentages.
31. Which one of the following statements is correct?
a)
As a
consumer consumes more of a good, marginal utility increases.
b)
Marginal
utility is always positive.
c)
Consumer
choice is limited by income.
d)
Consumer
choice depends on the relative price of goods.
e)
(c) and
(d).
32. Which one of the statements based on the
following table is true?
|
Number of sweaters purchased |
Total Utility |
|
1 |
25 utils |
|
2 |
40 utils |
|
3 |
50 utils |
|
4 |
55 utils |
|
5 |
58 utils |
a)
The
marginal utility of the fifth sweater is 33 utils (58-25).
b)
Total
utility is diminishing.
c)
Total
utility is increasing but at a decreasing rate.
d)
Marginal
utility is negative.
e)
Marginal
utility cannot be computed without more information.
33. Which one of the following is true of
indifference curves?
a)
They
represent the combination of two goods that generate the same level of income.
b)
Combinations
of goods above the indifference curve generate more satisfaction.
c)
A lower
point along an indifference curve yields less satisfaction than a higher point.
d)
The slope
of the indifference curve gets bigger (steeper) as you move down the
indifference curve.
e)
(b) and
(c).
34. Which one of the following statements is true?
a)
Short run
total cost = variable cost – fixed cost.
b)
Short run
total cost = variable cost + fixed cost.
c)
Average
total cost = average variable cost/average fixed cost.
d)
Fixed
cost = average fixed cost/output.
e)
Average
variable cost = variable cost x output.
35. Which one of the following statements is correct?
a)
A
firm’s average fixed costs increase as output increases.
b)
In the
short run, a firm’s marginal cost curve is negatively sloped because of
diminishing marginal returns.
c)
In the
long run, a firm’s average total cost curve is U-shaped.
d)
If the
marginal cost of production is less than the average total cost of production,
the average total costs will be decreasing.
e)
Average
total costs = average fixed cost – average variable cost.
36. Use the following information to answer the
question below.
Output = 100 units.
Average fixed cost = $3 per unit.
Short run total cost = $800.
Marginal cost = $60.
The firm’s total variable cost must be:
a)
$500
b) $770 c)
$77
d) $7,700
e) Cannot be calculated without more information.
37. Which of the following factors can cause the
supply curve to shift?
a)
Change in
income of households.
b)
Increase
in population.
c)
Decrease
in price of complementary goods.
d)
Change in
the quantity of labor.
e)
Decrease
in input costs.
38. Given that the demand curve is a negatively
sloped straight line what is true about elasticity?
a)
Elasticity
is the same along the line.
b)
Elasticity
is higher in the upper left side of the curve, than elsewhere.
c)
Elasticity
is higher in the lower right side of the curve, than elsewhere.
d)
The curve
is inelastic in upper right side and lower left side of curve and unit elastic
in the middle.
e)
None of
the above.
39. Which one of the following statements is true of
utility?
a)
A
consumer is able to maximize his/her utility indefinitely.
b)
Utility
is maximized where indifference curve and budget line intersect.
c)
Utility
is maximized where indifference curve is tangent to the budget line.
d)
Utility
is never maximized.
e)
None of
the above.
40. Which one of the following statements is true?
a)
A firm’
short run average variable cost first increases and then decreases as output
increases.
b)
A
firm’s short run average total cost curve is shaped like a “W”.
c)
A
firm’s average fixed cost always decreases as output increases.
d)
Average
variable cost increases as output increases because each additional worker
becomes less and less productive in the short run.
e)
(c) and
(d).
41. Which one of the following is NOT an example of a
quantity restriction (control)?
a)
A quota
on aircraft imports.
b)
A
voluntary export restraint on automobiles.
c)
Subsidized
housing.
d)
Licensing
liquor stores.
e)
A ban on
oil imports.
42. Suppose a licensing scheme is used in the market
depicted below. The scheme has the effect of the reducing the quantity supplied
to 300 units. Use the graph to complete the following statement:
Before the licensing scheme, consumer surplus was
_____ and after the licensing scheme, consumer surplus is _____.
quota
P
S a
g e b
i h f c
k d
D j
300
500 Q
a) a+b+e; a.
b) a+b+e; a+b.
c) a+b+e; e.
d) g; e.
e) b+e; a.
43. Using the graph from question (42) above,
complete the following statement:
Before the licensing scheme, producer surplus was ___
and after the licensing scheme, producer surplus is ____.
a) c+d+f; d.
b) c+d+f; d.
c) c+d+f; b+c+d.
d) c+d; b+c+f;
e) c+f; b.
44. Using the graph from question (42) above,
complete the following statement:
The loss in total surplus is ____.
a) g+h+i.
b) e+f.
c) b+c+e+f.
d) e+f+g+h+i.
e) h+i+j+k.
45. Which one of the following defines the long run
average cost of production?
a)
Total
cost divided by the quantity of output when the firm cannot alter the number of
workers it hires.
b)
Total
cost divided by the quantity of output when the firm can choose a production
facility of any size.
c)
Total
cost multiplied by the quantity of output when the firm can choose a production
facility of any size.
d)
Total
cost divided by the quantity of output when the firm cannot alter the size of
its facilities.
e)
Total
cost divided by the quantity of output when the firm cannot change the number of
factories it operates.
46. Use the following information to answer the
question below.
Output = 250 units.
Fixed cost = $1,000.
Average variable cost = $6 per unit.
Average total cost = $10 per unit.
Marginal cost = $12.
Which of the following statements is true based on
the information above?
a)
Average
fixed cost = $4 per unit and total cost = $25,000.
b)
Variable
cost = $1,500 and average fixed cost = $4 per unit.
c)
Variable
cost = $2,500 and total cost = $1,500.
d)
Average
fixed cost = $4 per unit and total cost = $22.
e)
Total
cost = $1,006 and variable cost = $18.
47. Which one of the following statements is NOT
true?
a)
The
minimum efficient scale for production is that output level where average costs
are neither increasing nor decreasing, i.e. the long run average cost curve is
horizontal.
b)
Diseconomies
of scale may arise from the use of indivisible inputs.
c)
Diseconomies
of scale may occur because of coordination problems that arise as more and more
output is produced.
d)
Diseconomies
of scale may occur because input costs increase as a firm produces more and more
output.
e)
In the
long run, a firm does not encounter diminishing returns.
48. Which one of the following would NOT cause the
supply of bananas to decrease?
a)
A
technological advance in banana production.
b)
A
decrease in the number of producers of bananas.
c)
An
increase in the price of a fertilizer used in growing bananas.
d)
A severe
rain shortage.
e)
A tax
placed on banana producers.
49. Which item list below is most likely to carry
with it a positive spillover?
a)
Riding a
motorcycle.
b)
Education.
c)
Nuclear
power production.
d)
Reading War
and Peace.
e)
Eating
burgers.
50. Which one of the following would cause the
production possibilities curve (PPC) to shift to the left?
a)
A
technological advancement.
b)
An
increase in the skill level of workers.
c)
A
deterioration in the road system.
d)
A
discovery of more oil.
e)
An
increase in the amount of plant and equipment.