Midterm Exam #1 10 February 2002 Econ sections 1 & 4MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.1) In every economic system, choices must be made because resources A) are limited, and so are human desires and wants. B) are unlimited, and so are human desires and wants. C) are unlimited, but human desires and wants are limited. D) are limited, but human desires and wants are unlimited. 2) A normative statement concerns A) a value judgment. B) what is incorrect. C) what is provable. D) what is correct. 3) An example of a question that might be explored in microeconomics is to determine A) savings by the household sector. B) why the U.S. economy has grown more rapidly than the Japanese economy. C) employment at General Motors. D) the total employment within the U.S. economy. 4) The problem of "scarcity" applies A) only in economic systems that are just beginning to develop because specialized resources are scarce. B) only in industrially developed countries because resources are scarce in these countries. C) to all economic systems, regardless of their level of development. D) only in underdeveloped countries because there are few productive resources in these countries. 5) The level of consumption that people enjoy, on the average, is A) standard of living. B) entrepreneurship. C) cost of living. D) scarcity. 6) When an economist refers to choices made "at the margin" the economist is referring to A) decisions based on the marginal benefits and marginal costs of small changes in a particular activity. B) an individual's all-or-nothing choice concerning a specific good or activity. C) an individual's margin account with a stockbroker that allows part of a stock purchase to be made with borrowed money. D) all of the above Production possibilitiespossibility Pizza (per hour)Soda (cases per hour)A 0 100B 1 95C 2 80D 3 60E 4 35F 5 07) In the above table, the production of 3 pizzas and 80 cases of soda is A) feasible but would involve unemployed or misallocated resources. B) possible only if the economy produces with maximum efficiency. C) impossible unless more resources become available or technology improves. D) possible only if there is inflation.8) Suppose a scientific breakthrough made free solar power available in unlimited quantities in the United States. The effect of this invention would be to move the A) U.S. production possibilities frontier outward. B) U.S. production possibilities frontier inward. C) United States inside its production possibilities frontier. D) United States beyond its production possibilities frontier. 9) In the figure above, both Joe and Jill initially produce at point . If Joe and Jill realize that they each possess a comparative advantage, which outcome can we expect? A) Joe will specialize in shirts, and Jill will specialize in pants. B) Joe will specialize in pants, and Jill will specialize in shirts. C) Joe and Jill each will be able to consume more than 2 shirts and 2 pairs of pants. D) Both answers B and C are true. 10) Throughout the 1990s, the price of four-wheel drive vehicles rose and each year more were purchased. This experience suggests that A) there must have been rightward shifts in the demand curve for four-wheel drive vehicles. B) there must have movements leftward along the supply curve of four-wheel drive vehicles. C) there must have been tremendous technological advances in the way four-wheel drive vehicles are produced. D) none of the above11) Consider the market for soft drinks shown in the figure above. Suppose the economy is at point . What would result in a movement to point ? A) a decrease in the relative price of a soft drink. B) an increase in the price of bottled water. C) an increase in the opportunity cost of soft drinks. D) a decrease in the price of bottled water. 12) If the money price of wheat increases and no other prices change, A) the relative price of wheat is unaffected. B) the demand for wheat will increase too. C) the relative price of wheat will fall. D) the opportunity cost of wheat rises. 13) Suppose Frosty Pops cereal is an inferior good. An increase in income A) has no impact on the demand for Frosty Pops. B) leads to a decrease in the demand for Frosty Pops. C) has no income effect. D) leads to an increase in the demand for Frosty Pops. 14) If a 20 percent increase in the price of a used car results in a 10 percent decrease in the quantity of usedcars demanded, then the price elasticity of demand equals A) 1.0. B) 2.0. C) 0.5. D) 10.0. 15) Suppose inter-city bus travel is a substitute for transportation by train. Which of the following could then be true? A) The cross elasticity between bus and train travel could equal 0.65. B) The cross elasticity between bus and train travel could equal 1.25. C) The cross elasticity between bus and train travel could equal 1.0. D) All of the above could be true. 16) If the price of a burger decreases by 5 percent and as a result the quantity of burgers demanded increases by 8 percent, the price elasticity of demand equals A) 0.40. B) 0.625. C) 0.60. D) 1.60.17) The relative price of a good . I. shows the number of dollars' worth of other goods and services that must be given up to obtain one more unit of the good. II. is the same value as the money price. A) I and II B) II only C) neither I nor II D) I only 18) Suppose that Hot Dog House produces hot dogs for $0.25 each. If the Hot Dog House can sell hot dogsfor $0.50 each, then definitely A) the Hot Dog House will allow consumers to earn a consumer surplus. B) the Hot Dog House will raise the price of hot dogs. C) the Hot Dog House can earn a producer surplus. D) there will be no producer surplus. 19) Consider the market for soft drinks. If we produce one more bottle of soft drinks, A) the price of soft drinks must rise. B) we cannot be acting efficiently. C) we must move away from market equilibrium. D) we incur a marginal cost. 20) A normal good is defined as a good for which A) the demand curve is perfectly price elastic. B) the demand curve shifts leftward as income increases. C) the demand curve slopes downward to the right. D) the demand curve shifts rightward as income increases. 21) ________ is the difference between the value placed on the good and the price paid for it. A) Shortage B) Producer surplus C) Consumer surplus D) Surplus 22) The demand curve in the figure above illustrates the
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