Homework answers / question archive / Michigan State University - EC 201     Sample Test for Midterm #1   EC 201                                                                                                                   Fall, 2014 Michigan State University                                                                                 Kiwon Kang   Choices must made by individuals, firms, and the economy as a whole, because of rationality; scarcity; diminishing returns; competitive market; none of the above

Michigan State University - EC 201     Sample Test for Midterm #1   EC 201                                                                                                                   Fall, 2014 Michigan State University                                                                                 Kiwon Kang   Choices must made by individuals, firms, and the economy as a whole, because of rationality; scarcity; diminishing returns; competitive market; none of the above

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Michigan State University - EC 201

 

 

Sample Test for Midterm #1

 

EC 201                                                                                                                   Fall, 2014

Michigan State University                                                                                 Kiwon Kang

 

1. Choices must made by individuals, firms, and the economy as a whole, because of

1. rationality;
2. scarcity;
3. diminishing returns;
4. competitive market;
5. none of the above.

 

2.  The microeconomic perspective

     a.    involves analysis of the behavior of the economy as a whole;

     b.    studies the rate of productivity growth in each sector;

     c.    is a top-down view of the economy;

     d.    is a bottom-up view of the economy.

     e.    b. and d.

 

3.  Which of the followings is not true when a firm acts as a price taker.

1. A firm cannot influence the price it sells its product;
2. A firm takes the market price as given;
3. A firm make decisions in pursuit of its own self-interest;
4. A firm cannot raise its price without losing all sales.
5. None of the above.

 

4.  Tom decided to spend $100 on CD and cassette tapes.  The price of CD is $10, and the price of cassette tape is $5.  Which of the followings is true?

1. He can choose the combination of 5 CDs and 8 cassette tapes, which is efficient;
2. The opportunity cost of CD is giving up 2 cassette tapes;
3. The slope of the budget constraint shows the opportunity cost of the good in vertical axis.
4. b. and c.

 

5.  Which of the followings is not true when there are diminishing returns?

1. The production possibilities frontier is curved, bowed out from the origin;
2. As the output of the good measured on the vertical axis increases, the slope of the production possibilities frontier becomes flatter;
3. As more inputs are used, output decreases;
4. As the output of the good measured on the vertical axis falls, increases in the output of the good measured on the horizontal axis gets smaller and smaller.

 

 

6.  If Japan has a comparative advantage in the production of computer, then

1. Japan should have an absolute advantage in production of computer;
2. the relative cost of producing computer is lower in Japan;
3. Japan will export computer;
4. a. and c.
5. b. and c.

 

7.  Along an individual demand curve, a decrease in the quantity demanded occurs when

     a.    price has increased;

     b.    price has declined;

     c.    the consumer’s income has fallen;

     d.    the consumer’s income has increased;

     e.    a. and c.

 

8.  A leftward shift in the demand curve can be caused not by

     a.     a decrease in incomes, if the good is a normal good;

     b.    an increase in the price of a substitute good;

     c.     an increase in the price of a complement good;

     d.    expectations of lower prices in the future;

     e.     none of the above.

 

9. An increase in the price of apple is likely to result in

     a.    a rightward shift in the demand curve for apple;

     b.    a decrease in the demand for products that are substitutes for apple, such as  

            orange;

     c.    an increase in quantity demanded of apple;

     d.    a decrease in quantity demanded of apple;

     e.    a leftward shift in the demand curve for apple.

 

10. Given a rise in the price of sugar (an input used in the production of candy bars), the supply curve for candy bars would shift to the ______, the equilibrium quantity would

________, and the equilibrium price would _________.

     a.    left; fall; rise;

     b.    left; fall; fall;

     c.    left; rise; fall;

     d.    right; fall; rise;

     e.    right; rise; fall.

 

 

 

 

 

 

 

 

 

11. Which of the followings is not true?

1. With a more elastic demand curve, a shift in the supply curve has a larger effect on quantity.
2. With a relatively steep demand curve, a shift in the supply curve has a larger effect on price.
3. The elasticity of demand is smaller in the short run;
4. The price elasticity of demand for luxury goods is high.
5. On the supply curve, a point at higher output level has a higher elasticity of supply.

 

12. If a firm raises the price of its product and finds that its total revenues have decreased, that indicates that

1. demand for the product is price-elastic; (product is not worth it at high price)
2. demand for the product has unit price elasticity; (revenue is unchanged-make more, but equally less people are buying it)
3. demand for the product is price-inelastic; (product is worth buying)
4. the demand curve for the product is downward sloping;
5. the demand curve for the product is upward sloping.

 

13. If the price is set below the equilibrium price,

1. there will be a shortage;
2. we call it price ceiling;
3. there will be a surplus;
4. it shift demand curve to right;
5. a and b. 

 

14. If there is excess demand at the existing price,

     a.    the quantity supplied rises, but there is no change in the quantity demanded;

     b.    the price of the good tends to decline;

     c.    sellers enter the market;

     d.    the price of the good tends to increase;

     e.    the quantity demanded rises, but there is no change in the quantity supplied.

 

15. If demand for a product is perfectly price-elastic, the demand curve is

     a.    horizontal;

     b.    upward sloping;

     c.    vertical;

     d.    undefined;

     e.    downward sloping.

 

16. Which of the following is not a possible consequence of rent controls? (rent control is a price ceiling-rent cannot be higher than certain price)

     a.    Incumbent renters enjoy lower rents;

     b.    All those who wish to rent apartments at going rents are able to find           apartments that are available;

     c.    There is a shortage of available apartments;

     d.    The shortage becomes more pronounced in the long run;

     e.    None of the above.

 

17. If the price of a normal good (quantity demanded increases as income increses) decreases, the

     a.    income effect will oppose and dominate the substitution effect, so that

            consumption decreases;

2. income and substitution effects both lead to reduced consumption of the good;
3. substitution effect will oppose and dominate the income effect, so that consumption decreases;
4. income and substitution effects each lead to increased consumption of the good;
5. income and substitution effects will cancel each other out and leave the demand for the good unchanged.

 

18. Which of the followings is not true?

1. According to the substitution effect, consumers will substitute away from the expensive good as the price of good rises;
2. The income effect explains the effect of changing purchasing power;
3. As the price rises, both substitution and income effects for inferior good will work in the same direction;
4. All Giffen goods are inferior goods.

 

19.  Which statement regarding income elasticity of demand is not true?

     a.    Income elasticity is the sensitivity of demand to changes in income;

     b.    Income elasticity for a normal good is greater than zero;

     c.    Income elasticity for an inferior good is less than one;

     d.    Income elasticity of necessities is relatively low.

 

20. A consumer is willing to pay $11 for his first beer, $7 for his second beer, and $4 for his third beer. If the price is $4, his total consumer surplus is (* assume that he purchases his third beer.)

1. $20;
2. $18;
3. $15;
4. $12;
5. $10.