ECON1001: Macroeconomics
Exam 1
Instruction: Please choose the most appropriate answer.

1. Tom bought a new Honda CRV, Mary traveled to Acadia National Park, and Jack watched an exciting NBA game. By consuming those goods and services, they got pleasure, happiness, or satisfaction, which is called:
2. marginal cost.
3. rational outcome.
4. status fulfillment.
5. utility.

 

1. Jack sold a baseball card collection for $2,500 that he bought a year ago for $2,500. He says, “At least I didn’t lose any money on my investment in this baseball card.” His economist friend points out that in effect he did lose money because he could have received a 3 percent return on the $2,500, which is $75, if he had deposited the money in a bank. The economist’s analysis in this case incorporates the idea of:

1. opportunity costs among alternatives, which is $75 here.
2. opportunity costs among alternatives, which is $2575 here.
3. marginal costs that exceed marginal benefits.
4. marginal benefits that exceed marginal costs.

 

1. Economics can best be described as the:

1. consumers balancing the macro and micro considerations.
2. social science concerned with how economic agents make optimal choices under the condition of scarcity.
3. empirical study of value judgments of people.
4. study of the reasons for people being rational.

 

1. You should go to a Red Sox game:

1. if the marginal cost of the Red Sox game exceeds its marginal benefit.
2. if the marginal benefit of the Red Sox game exceeds its marginal cost.
3. if your income will allow you to buy a ticket.
4. because Red Sox game is enjoyable.

 

5. If GE produces too few aviation turbines, this would suggest that:
6. GE is making the rational choice.
7. the aviation turbines are produced when its marginal benefit exceeded its marginal cost.
8. GE doesn’t care about producing too many or too few.
9. the aviation turbines are produced where its marginal cost exceeded its marginal benefit.
10. Mary was out jogging and, despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Mary:
11. loved running.
12. decided that the marginal benefit of running one more mile would be higher than its marginal cost.
13. decided that the marginal cost of running one more mile would outweigh the benefit of the additional mile.
14. was still full of strength, so the marginal cost was very low.

 

7. Ben says that “an increase in the tax on beer will raise its price.” Holly argues that “taxes should be increased on beer because college students drink too much.” We can conclude that:
8. Ben’s statement is normative, but Holly’s is positive.
9. Holly’s statement is normative, but Ben’s is positive.
10. Both statements are normative.
11. Both statements are positive.

 
Use the graph to answer questions 8 through 10
 

8. Refer to the budget line shown in the diagram. If the consumer’s money income is $40, then:
9. no enough information to determine the prices of tea and coffee.
10. coffee is $4 each and tea is $8 each.
11. a combination of 5 units of both coffee and tea is affordable.
12. coffee is $8 each and tea is $4 each.

 

9. Refer to the budget line shown in the diagram. If the consumer’s money income is $40, which of the following combinations of goods is unattainable?
10. 3 units of coffee and 5 units of tea.
11. 5 units of coffee and no units of tea.
12. 4 unit of coffee and 2 units of tea.
13. 2 units of coffee and 6 units of tea.

 

1. Refer to the budget line shown in the diagram. The absolute value of the slope of the budget line is:

3. 1/3.
4. 1/2.
5. P_T/P_C.
6. P_C/P_T.

 
Use the graph to answer question 11
 

11. The shift of the budget line from ab to cd in the figure is consistent with:
12. lower prices of both books and CDs.
13. a higher price of books and a lower price of CDs.
14. a higher income.
15. a lower income.

 
Use the graph to answer question 12.

1. Refer to the graphs. In which of the graphs is the opportunity cost of two bagel equal to two muffin?

1. Graph A.
2. Graph B.
3. Graph C.
4. Graph D.

Use the graph to answer question 13

1. In the graphs above. In which of the graphs is the opportunity cost of a bagel the highest?

1. Graph A.
2. Graph B.
3. Graph C.
4. Graph D.

 

1. The production possibilities curve (PPC) indicates that:

1. the production of more of one good requires smaller and smaller sacrifices of other goods.
2. an economy will automatically reach full employment of its resources.
3. if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.
4. an economy’s capacity to produce increases in proportion to its population size

 

1. Country A’s production possibilities curve (PPC) is bowed out from the origin because:

1. resources are not generally equally efficient in producing every good.
2. Originally it was drawn that way and remained unchanged afterwards.
3. available resources are scarce.
4. human wants are unlimited.

Use the graph to answer questions 16

16. Refer to the graph above, the opportunity cost of producing the third unit of clothe is:
17. 2 units of foods.
18. 6 units of foods.
19. 8 units of foods.
20. 4 units of foods.

 
 
Use the graph to answer questions 17

1. Refer to the diagram for cars. The optimal output of cars is:

1. Q1.
2. Q2.
3. Q3.
4. greater than Q3.

 
 
 
 
 
 
 
Use the following table to answer questions 18 through 19

Number of bananas	Total utility
1	$0.30
2	0.45
3	0.55
4	0.63
5	0.70

18. Suppose the table above show the total utility a consumer can get from buying and eating bananas. How much is his marginal utility from consuming the 3^rd
19. $0.45
20. $0.20
21. $0.15
22. $0.10

 

19. If the market price of banana is $0.08 each, based on the optimal decision rule, how many bananas should he buy?
22. 3

 
Use the following table to answer questions 20 through 21

Number of pairs of shoes	Total cost
1	$25
2	45
3	70
4	100
5	135

20. Suppose the table above shows the total cost of shoe maker. How much is the marginal cost of producing the 4^th pair of shoes?
21. 90
22. 60
23. 30
24. 35

 

21. If the market price of shoes is $35, how many pairs of shoes is the optimal amount for him to produce?
22. 2
23. 3
24. 4
25. 5

 
 
 
 

22. If U.S. government changes its immigration law to limit the amount of foreign workers to work in the U.S., what is the effect of this policy change on the Production Possibility Curve?
23. No effect
24. Shift outward (up)
25. Shift inward (down)
26. Either inward or outward

 

23. During early 2000s, U.S. economy experienced information technology improvement, which can be used widely in the economy. What is the effect of this technology improvement on U.S. PPC?
24. No effect
25. Shift inward (down)
26. Shift outward (up)
27. Either inward or outward

 

24. The main characteristic of Laissez-faire capitalism is:
25. very limited government role in the economic decision making process
26. very active government intervention in the economic activities
27. consumers and business be regulated by a central planner
28. equal income distribution

 

25. A market economy has all of the following characteristics except:
26. government makes most of economic decisions and controls the market prices for goods and services
27. the market prices are very important signals to buyers and sellers
28. the allocation of resources is mainly determined by private sectors
29. the interaction of buyers and sellers creates market prices for most of products.

 

26. According to economist, an economic system:
27. consists of some correlated private markets.
28. consists of a set of institutional arrangements and a coordinating mechanism used to link different economic agents in their decision making process.
29. includes a centralized authority (such as government) to coordinate all economic activities.
30. is an arrangement for someone to make money at the cost of someone else

 

27. If a competitive industry is neither expanding nor contracting, it implies that:
28. this industry has zero revenue.
29. this industry has zero economic profit.
30. this industry has zero opportunity cost.
31. this industry will draw more resources to it.

 
 
 
 
The following table illustrates alternative production techniques for producing 18 cups that can be sold for $1 each for a total revenue of $18.

		Technique
Resources	Resource price	Unit input for each technique
	Per unit	A	B	C	D
Land	2	3	2	1	2
Labor	1	2	1	3	1
Capital	4	1	2	2	3
Entrepreneurship	3	1	2	1	1

 

28. Based on the data given in the table above, the most economically efficient production technique is:
29. A
30. B
31. C
32. D

 

29. The idea of “invisible hand” explains that society’s interests are satisfied because:
30. individuals pursuing their self-interest will direct the resources to the production of goods and services that people want and are willing to purchase.
31. individuals are altruistic, or unselfish, and they will produce goods and services for others.
32. it guarantees that individuals will win in competition.
33. government sets the right amount of goods and services to be produced.

 

30. According to the circular flow graph, if businesses pay $150 for the resources and households get $50 for wage, and $40 for interest, and $30 profit for entrepreneurship. How much is the rent?
31. $10
32. $20
33. $30
34. none of above.

 

31. The demand curve of iphone7:
32. indicates the relationship between the price and quantity supplied of iphone7.
33. indicates the quantity demanded of iphon7 at each price.
34. is upward sloping.
35. indicates the relationship between consumers’ income and expenditure.

 

32. Marginal utility of consumption is:
33. decreasing and explains the law of supply.
34. decreasing and explains the income effect.
35. increasing and explains why the supply curve is upward sloping.
36. decreasing and explains why the demand curve is downward sloping.

 

33. When the price of Nike soccer balls decreased, Jack purchased more Nike soccer balls and fewer Adidas soccer balls. Which of the following explains Jack’s decision?
34. The substitution effect.
35. The income effect.
36. An increase in the demand for Nike soccer balls.
37. The price effect.

 

34. On his visit to Six Flags, John planned to spend $10 on a bag of popcorn for $8 and a bottled drink for $2. Later on he noticed the popcorns were on sale for $4 a bag, so John bought two bags of popcorns and a bottled drink. John’s response to the lower price of popcorn can be best explained by:
35. the substitution effect.
36. the income effect.
37. the price effect.
38. a rightward shift in the demand curve for hamburgers.

 

35. Which of the following would not shift the demand curve for beef?
36. New scientific study shows eating beef may raise one’s cholesterol level.
37. the cost of raising cattle is lower.
38. the pork producers launched a very successful commercial.
39. the usual beef buyers have higher income.

 

36. When the price of product A gets lower, the demand curve for product B shifts to the right, then:
37. A and B are both inferior goods.
38. A and B are substitutes.
39. A is an inferior good and B is a superior good.
40. A and B are complementary goods.

 

37. When the price of A declines, the demand curve for product B shifts to the left, then:
38. both A and B are inferior goods.
39. A is a superior good and B is an inferior good.
40. A and B are substitutes.
41. A and B are complementary goods.
42. Which of the following is likely to increase the gasoline demand today?
43. Consumers expect that gasoline will be more expensive in the near future.
44. Consumers expect that gasoline will be less expensive in the near future.
45. SUVs is losing its popularity to hybrid cars.
46. Public transportation is getting cheaper.
47. Which of the following is not held constant, when the point is moving along a demand curve?
48. The price of the product for which the demand curve is relevant.
49. The price expectations of consumers.
50. The income of consumers.
51. The price of substitute goods.

 

40. Which of the following statements uses the terms “demand” and “quantity demanded” correctly?
41. When the price of ice cream rose, the demand for both ice cream and ice cream toppings fell.
42. When the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream toppings fell.
43. When the price of ice cream rose, the demand for ice cream fell, and the quantity demanded of ice cream toppings fell.
44. None of these statements use the terms correctly.

 

41. South America as a major producer of coffee beans is experiencing a drought. Weather forecast states that the drought situation is getting worse in the next 3 months, we can expect the demand curve for coffee beans today
42. shifts to the right
43. shifts to the left.
44. does not shift.
45. none of above.

 

42. In crude oil production, the increasing marginal cost explains:
43. the law of demand.
44. the income effect.
45. why the supply curve is upward sloping.
46. why the demand curve is downward sloping.

 

43. Engineers in Ford improve the efficiency of assembly lines used in the production of Ford Escape (SUV). This improvement will:
44. increase equilibrium price of Escape.
45. shift the supply curve of Escape to the left.
46. shift the supply curve of Escape the right.
47. shift the demand curve of Escape to the left.

 
 

44. Mississippi is one of the home states for farming catfish in the U.S. A severe flooding damages plenty of catfish farms. We can expect the supply curve of catfish in Mississippi
45. shifts to the right
46. shifts to the left.
47. does not shift.
48. none of above.

 

45. In order to provide better financial support for the state highway system, RI state legislature plans to raise the excise tax on gasoline, we should expect the supply curve of gasoline:
46. shifts to the right.
47. shifts to the left.
48. does not shift.
49. none of above.

 

46. Other things equal, if the price of electronic circuit board, a key resource used to produce digital cameras, falls, the:
47. supply curve of digital camera will shift to the right.
48. demand curve of digital camera will shift to the right.
49. supply curve of digital camera will shift to the left.
50. supply curve of digital camera will not shift.

 
Use the graph below to answer question 47 and 48

47. The diagram above is a market for coffee. What are the equilibrium price and quantity in the coffee market?
48. $1.00 and 200.
49. $1.60 and 130.
50. $0.50 and 130.
51. $1.60 and 290.
52. In the diagram above, a surplus of 160 units of coffee will exist in the market when the price is:
53. $1.10, that is, $1.60 minus $.50.
54. $1.60.
55. $1.00.
56. $0.50.

 

49. At market equilibrium, it:
50. provides productive efficiency
51. provides allocative efficiency
52. clears the market.
53. all of above.

 
Use graph below to answer questions 50 and 51

50. The graph above is a market for shirt. The government regulation sets the price of $60 in this market and it will result in a:
51. price ceiling and a shortage of 50 units.
52. price ceiling and a shortage of 100 units.
53. price floor and a surplus of 100 units.
54. price floor and a surplus of 50 units.

 

51. The graph above is a market for shirt. The government regulation sets the price of $20 in this market and it will result in a:
52. a price ceiling and a shortage of 50 units.
53. a price ceiling and a shortage of 100 units.
54. a price floor and a surplus of 100 units.
55. a price floor and a surplus of 50 units.
56. When the market price is above the equilibrium level, competition among sellers will:
57. push down the price, increase quantity demanded, decrease quantity supplied, and thus reduce market surplus.
58. raise the price, decrease quantity demanded, increase quantity supplied, and thus reduce market shortage.
59. push down the price, decrease quantity demanded, increase quantity supplied, and thus increase surplus.
60. raise the price, increase quantity demanded, decrease quantity supplied, and thus increase shortage.

 
 
Use graph below to answer question 53

53. Refer to the diagram, which shows demand and supply conditions in the competitive market for HP laptops. Given D0, if the supply curve moved from S0 to S1, then:
54. supply has increased and equilibrium quantity has decreased.
55. supply has decreased and equilibrium quantity has decreased.
56. there has been an increase in the quantity supplied.
57. supply has increased and price has risen to G.

Use the graph below to answer question 54

54. The graph above shows different market situation for cars, which panel shows the effect of a lower wage for auto workers on the market for cars?
55. A only.
56. B only.
57. C only.
58. D only.

 
Use graph below to answer question 55

55. The graph above shows different market situations for software, which panel shows the effect of higher price of personal computers on the market for software?
56. A only.
57. A and D.
58. B only.
59. D only.

 
 
Use the graph below to answer question 56

56. The graph above shows different market situation for corns, which panel shows the effect of a higher price of irrigation equipment on the market for corn?
57. B only.
58. C only.
59. B and C.
60. D only.
61. When Hawaii’s Mt. Kiluea erupts violently, the demand on the part of tourists for sightseeing flights increases but the supply of pilots willing to provide these dangerous flights decreases. We can expect that, in this tourism market, the equilibrium
62. price must rise and equilibrium quantity may rise, fall, or remain unchanged.
63. price must fall, but equilibrium quantity may rise, fall, or remain unchanged.
64. quantity must increase but equilibrium price may rise, fall, or remain unchanged.
65. quantity must decrease but equilibrium price may rise, fall, or remain unchanged.

 

58. In a hot area of Arizona where they generate a lot of their electricity with wind turbines, the demand for electricity falls on windy days as people switch off their air conditioners and enjoy the breeze. But at the same time, the amount of electricity supplied increases as the wind turbines spin faster. We can expect that, on a windy day in this electricity market, the equilibrium
59. price must rise and equilibrium quantity may rise, fall, or remain unchanged.
60. price must fall, but equilibrium quantity may rise, fall, or remain unchanged.
61. quantity must increase but equilibrium price may rise, fall, or remain unchanged.
62. quantity must decrease but equilibrium price may rise, fall, or remain unchanged.
63. On a hot day, both the demand for lemonade and the supply of lemonade increase. We can expect, on a hot day in the lemonade market, the equilibrium
64. price must rise and equilibrium quantity may rise, fall, or remain unchanged.
65. price must fall, but equilibrium quantity may rise, fall, or remain unchanged.
66. quantity must increase but equilibrium price may rise, fall, or remain unchanged.
67. quantity must decrease but equilibrium price may rise, fall, or remain unchanged.

 

60. Refer to the table below for a market for corns, the equilibrium price is

Quantity demanded (bushels)	Price	Quantity supplied (bushels)
100	$ 3	50
90	$4	60
80	$5	70
75	$6	75
60	$7	90
50	$8	100

 

6. $6. At price $4, there is a shortage of 30 bushels of corn
7. $5. At price $4, there is a surplus of 20 bushels of corn
8. $6. At price $7, there is a shortage of 30 bushels of corn
9. $5. At price $7, there is a surplus of 20 bushels of corn