Econ 2106 Exam 1 Practice Problems (Chapters 1-4) Feb 9, 2019 1. Economics is the study of a. how to make money. b. how to allocate resources to satisfy wants and needs. c. capitalism. d. how to make workers more productive and firms more profitable. e. markets. 2. Entrepreneurs are willing to take risks because a. technology provides a way to sidestep the patent and copyright system. b. the patent and copyright system provides an exclusive right to sell the product for a period of time. c. the patent and copyright system offers entrepreneurs money. d. technology always increases costs and prevents competitors from entering the market. e. the legal system is a mess and does not provide any incentives to change behavior. 3. What is the opportunity cost of taking an exam? a. all of the things that someone could have done by not studying b. each of the questions that someone misses on the exam c. the highest valued alternative that someone gave up to prepare for and attend the exam d. the money someone spent purchasing the textbook and other materials with which he or she studies e. the money someone spent on tuition 4. Comparative advantage emerges because of the presence of a. trade. b. differing opportunity costs. c. marginal benefits that equal marginal costs. d. scarcity. e. incentives. 5. Which of the following is a w? a. The current exchange rate is 0.7 British pounds per U.S. dollar. b. In January, the average temperature in Fargo, North Dakota, is 56 degrees. c. Winters in Arkansas are too cold. d. On average, people save 15 percent when they switch to GEICO. e. University of Virginia graduates earn more than Duke University graduates. Refer to the following table to answer the questions below. New York Pizzas Philly Cheesesteaks Jay-Z 40 120 Solange 50 125 6. Given the same quantity of resources, what is Jay-Z’s opportunity cost of producing a New York pizza? a. 5/2 Philly cheesesteaks d. 120/125 New York pizza b. 1/3 Philly cheesesteak e. 4/5 New York pizzac. 3 Philly cheesesteaks 7. According to the law of demand, all other things being equal, a. the quantity demanded falls when the price falls, and the quantity demanded rises when the price rises. b. the quantity demanded falls when the price rises, and the quantity demanded rises when the price falls. c. the demand falls when the price falls, and the demand rises when the price rises. d. the demand falls when the price rises, and the demand rises when the price falls. e. price and quantity are always positively correlated. 8. After Mary lost her job, she found that she was going to the movies less often. How would she describe this to an economist? a. Movies are a normal good and, as my income decreased, my demand curve shifted to the right. b. Movies are an inferior good and, as my income decreased, my demand curve shifted to the right. c. Movies are a normal good and, as my income decreased, my demand curve shifted to the left. d. Movies are an inferior good and, as my income decreased, my demand curve shifted to the right. e. Attending movies is a necessity. 9. The price of Good X increases by 25 percent, causing the quantity consumed of Good Y to decrease by 10 percent. If everything else is held constant in the economy, we can say with certainty that Good X and Good Y are a. substitutes. d. normal. b. inferior. e. unrelated. c. complements. Refer to the following figure to answer the next two questions. 10. Which of the quantity (Q) and price (P) combinations in the accompanying figure represents the market at competitive equilibrium? a. (15, $10) d. (30, $6) b. (15, $6) c. (22, $8) e. (30, $10) 11. According to the accompanying figure, if the price is $10, there is a ________ of ________ units. a. shortage; 15 d. surplus; 30 b. surplus; 15 e. surplus; 22 c. shortage; 3012. In one year, 15 bowling alleys opened in California. During that same year, ESPN started broadcasting professional bowling on TV, which sparked more interest in the sport. What would we expect to happen to the price and quantity of a game of bowling in California during that year? a. Equilibrium price will be indeterminate and equilibrium quantity will go down. b. Equilibrium price will go up and equilibrium quantity will go up. c. Equilibrium price will go down and equilibrium quantity will be indeterminate. d. Equilibrium price will be indeterminate and equilibrium quantity will go up. e. Equilibrium price will go up and equilibrium quantity will be indeterminate. 13. What does the price elasticity of demand measure? a. what direction the demand curve shifts when the income changes b. what direction the demand curve shifts when the price changes c. how much the demand curve shifts when the price changes d. a producer’s sensitivity to a price change e. a consumer’s sensitivity to a price change 14. Chad is a devoted Coca-Cola consumer, whereas Devin can drink either Coca-Cola or Pepsi products. Chad’s demand for Coca-Cola will be relatively more ________, while Devin’s demand will be relatively more ________. a. elastic; inelastic d. inelastic; elastic b. unrelated to price; elastic e. unitary elastic; inelastic c. perfectly elastic; elastic 15. When the price of scooters drops by 5 percent, the quantity demanded changes by 20 percent. We know that the price elasticity of demand for scooters is a. perfectly inelastic. d. elastic. b. inelastic. c. unitary elastic. e. perfectly elastic. 16. If the elasticity of demand for Nutella is -3, a 33 percent decrease in quantity demanded of Nutella results from a(n) ________ in the e of Nutella. a. 99 percent decrease d. 11 percent increase b. 99 percent increase e. 33 percent decrease c. 11 percent decrease 17. Winged Treasures is a specialty store that sells butterfly ornaments. The owner wants to increase her total revenue and knows that the price elasticity of demand for her product is -0.4. What should she do to her price? a. lower the price b. leave the price unchanged and use another way to increase sales c. decrease the price to zero d. raise the price e. the owner cannot raise revenue Consider the following scenario to answer the next two questions: Two friends, Monica and Chandler, enjoy baking bread and making apple pies. Monica takes two hours to bake 1 loaf of bread and one hour to make 1pie. Chandler takes four hours to bake 1 loaf of bread and four hours to make 1 pie. 18. What is Chandler’s opportunity cost of