Practice Exam EC201 Name This practice exam is for your benefit Use it to study Pick out topics on this test as well as similar topics that aren t included to study in depth For example monopolistically competitive graphs are on the test but you should also study perfectly competitive graphs Ask yourself WHY answers are correct and why others are not Answers are given on the last page If you get one wrong figure out your mistake You know more econ than you think MULTIPLE CHOICE Choose the one alternative that best completes the statement or answers the question 1 The highest valued alternative that must be given up to engage in an activity is the definition of A marginal cost B opportunity cost C marginal benefit D economic equity 1 2 BMW recently decided to build a manufacturing plant in Shenyang China At this plant BMW is able to take advantage of paying lower wages to its Chinese workers than it pays its German workers but it also sacrifices the high levels of technical training possessed by its German workers In deciding to open the Shenyang plant BMW A adopted a negative technological change because it replaced high skilled workers with low skilled workers B faced no trade offs because employing lower wage workers increased efficiency C faced a trade off between higher cost and lower precision D eroded some of its competitiveness in the luxury car market because of its decreased cost of production 2 3 The production possibilities frontier model shows that A economic growth can only be achieved by free market economies B if all resources are fully and efficiently utilized more of one good can be produced only by producing less of another good C if consumers decide to buy more of a product its price will increase D a market economy is more efficient in producing goods and services than is a centrally planned economy 3 4 Comparative advantage means the ability to produce a good or service A at a lower opportunity cost than any other producer B of a higher quality than any other producer C at a lower selling price than any other producer D at a higher profit level than any other producer 4 TRUE FALSE Write T if the statement is true and F if the statement is false 5 The basis for trade is comparative advantage not absolute advantage 5 6 If a country produces only two goods it is possible to have a comparative advantage in the production of both those goods 6 1 MULTIPLE CHOICE Choose the one alternative that best completes the statement or answers the question Figure 2 2 Figure 2 2 above shows the production possibilities frontier for Spain The country produces two goods meat and vegetables 7 Refer to Figure 2 2 What is the opportunity cost of one pound of meat 1 3 A pound of vegetables B 1 pounds of vegetables 3 4 C 1 6 pounds of vegetables 7 D 16 pounds of vegetables Figure 2 1 8 Refer to Figure 2 1 Point A is A unattainable with current resources B inefficient in that not all resources are being used C technically efficient D the equilibrium output combination 2 8 9 Which of the following is the correct way to describe equilibrium in a market A At equilibrium scarcity is eliminated B At equilibrium demand equals supply C At equilibrium quantity demanded equals quantity supplied D At equilibrium market forces no longer apply 9 10 In 2004 hurricanes damaged a large portion of Florida s orange crop As a result of this many orange growers were not able to supply fruit to the market At the pre hurricane equilibrium price i e at the initial equilibrium price we would expect to see A a shortage of oranges B an increase in the demand for oranges C the quantity demanded equal to the quantity supplied D a surplus of oranges 10 11 Which of the following is evidence of a surplus of bananas A The quantity demanded of bananas is greater than the quantity supplied B The price of bananas is lowered in order to increase sales C The equilibrium price of bananas rises due to an increase in demand D Firms raise the price of bananas 11 Figure 3 5 12 Refer to Figure 3 5 At a price of 5 the quantity sold A is 2 units B is 4 units C is 6 units D cannot be determined 12 13 Which of the following would shift the supply curve for MP3 players to the right A a decrease in the price of an input used to produce MP3 players B an increase in consumer income assuming that all MP3 players are normal goods C an increase in the price of a substitute in production D a decrease in the number of firms that produce MP3 players 13 3 Figure 4 3 Figure 4 3 shows the market for tiger shrimp The market is initially in equilibrium at a price of 15 and a quantity of 80 Now suppose producers decide to cut output to 40 in order to raise the price to 18 14 Refer to Figure 4 3 What is the value of consumer surplus at a price of 18 A 120 B 180 C 60 14 D 240 Figure 4 5 Figure 4 5 shows the market for apartments in Springfield Recently the government imposed a rent ceiling of 1 000 per month 15 Refer to Figure 4 5 With rent control the quantity supplied is 200 apartments Suppose apartment owners ignore the law and rent this quantity for the highest rent they can get What is the highest rent they can get per month A 1 000 B 1 500 C 2 000 D 2 300 15 16 The actual division of the burden of a tax between buyers and sellers in a market is called A tax incidence B tax liability C tax parity D tax bearer 16 4 17 Which of the following activities create a negative externality A graduating from college B keeping a junked car parked on your front lawn C cleaning up the sidewalk on your block D repainting the house you live in to improve its appearance 17 18 What does the phrase internalizing an external cost mean A limiting the extent to which domestic firms can outsource production B finding a way to address cross border pollution C forcing producers to factor into their production costs the cost of the externalities created in the production of their output D prohibiting economic activities that create externalities 18 Figure 5 5 Companies producing toilet paper bleach the paper to make it white The bleach is discharged into rivers and lakes and causes substantial environmental damage Figure 5 5 illustrates the situation in the toilet paper market 19 Refer to Figure 5 5 Let s suppose the government imposes a tax of 50 per ton of toilet paper to bring about the efficient level of production What happens to the market price of toilet paper A It rises by 50 B It rises by less than 50 C …