Question SECTION I: MULTIPLE CHOICE

08 Jun Question SECTION I: MULTIPLE CHOICE

Question
SECTION I: MULTIPLE CHOICE

1. In the market for a particular good, at a price of $26, the quantity demanded is 300 and the quantity supplied is 450. Which of the following is true?

I. At a price of $26, there is pressure for the price to fall

II. If the price of a substitute for this good decreased, the new equilibrium price would be less than $26

III. At a price of $28, quantity supplied – quantity demanded ≥ 150

a) Only I is true

b) Only II and III are true

c) Only I and III are true

d) Only I and II are true

e) All of them are true

2. The market for a good starts out with an equilibrium price of $15 and an equilibrium quantity of 300. There is a change in the market which results in a new equilibrium at a price of $10 and a quantity of 400. Which of the following could have causes such a change?

I. A decrease in the cost of an input in the production of this product

II. A decrease in the price of a complement to this good

III. A decrease in the price of a substitute for this good

a) None of them could cause the change

b) Only I could cause the change

c) Only II could cause the change

d) Only III could cause the change

e) Both I and II could cause the change

Questions #3 and #4 both refer to the following data:

Rick can produce 18 towels and 0 soap, 0 towels and 9 soaps, or any linear combination in between. Charlie can produce 15 towels and 0 soap or 0 towels and 3 soaps, or any linear combination in between. Any graph of a PPF for a person or the economy has towels on the horizontal axis.

3. Which of the following statements are true?

I. Charlie has the comparative advantage in producing towels

II. Rick cannot benefit from trading with Charlie because he can produce more of both goods

III. A trade of 1 soap for 6 towels could make both Rick and Charlie better off.

a) Only I is true

b) Only I and III are true

c) Only II is true

d) Only III is true

e) None of them are true.

4. At the point on the PPF for the economy with 19 towels and 7 soaps (19,7), the MRT is

a) -5

b) -2

c) -1/2

d) -1/5

e) question won’t work since this point is not on the economy’s PPF.

5. Refer to the figure below. The economy is currently operating at point B. You correctly deduce that the economy

a) is producing inefficiently if it only cares about consumer goods

b) would have a higher opportunity cost of consumer goods if it produced fewer consumer goods

c) recently experienced some type of technological breakthrough.
d) overcome the scarcity problem.

e) reached a point where it can produce more consumer goods and more capital goods.

6. Which of the following must be true about a market with standard shaped supply and demand curves where the demand for the good has increased?

I. There will be a shortage of the good at the original equilibrium price

II. The consumers of this good have more income

III. The new equilibrium price is higher

a) Only III must be true

b) Only I and III must be true

c) All 3 must be true

d) Only II and III must be true

e) None of them are true

7. Which of the following cannot cause a shift in the demand for red sweaters?

a) An increase in violent attacks on people wearing red clothing

b) A decrease in the price of red sweaters

c) Global warming

d) A decrease in the price of ski vacations

e) An increase in income for people in Vermont and Minnesota

8. Consider the following facts about a graph where orange production is measured on the x axis and apple production is measured on the y axis: Point A produces 50 oranges and 20 apples. Point B produces 60 oranges and 40 apples. The economy is capable of producing at point A and point B. Which of the following statements mustbe true about this graph?

I. Point B is on the ppf

II. Point A is inside the ppf

III. The opportunity cost of 10 oranges in moving from A to B is 20 apples.

a) Only I is true

b) Only II is true

c) Only II and III are true

d) Only I and II are true

e) All of them are true

SECTION II

DO ONLY 1 OF THESE 2 QUESTIONS

1. Answer the following questions based on the production possibilities below:

CORN WHEAT