First Midterm Morning

1. Which of the following linear equations passes through the coordinates (y = 9, x = 0) and (y = 0, x = 27)?
a. 3x = 27 - y
b. 3y = 27 - x
c. x = 9 + y
d. x = 9 - y

2. Presume there is another baby boom, so that the number of babies born dramatically increases. There will _____ the price of diapers and ____ the quantity demanded.
a. lower; lower
b. lower; raise
c. raise; lower
d. raise; raise

Use the following information to answer questions 3 and 4.

Demand and supply in the blouse market in Blouseland County are given by the following: If the price of blouses is $10 per unit, the total quantity demanded is 4(thousand). When the price goes up to $15 per unit, the total quantity demanded is 3.5 (thousand). However, on the supply side, when the price of a blouse is $5 per unit, the total quantity supplied is 1.5(thousand). When the price of a blouse increases to $6 per unit, the total quantity supplied is 1.6(thousand). Assume both the demand and the supply curves are linear in this example.

3. The equilibrium quantity in this market is
a. one thousand
b. two thousand
c. three thousand
d. four thousand

4. If the government sets up a price ceiling of $30, what will happen in the market?
a. there will be a surplus of 2000
b. there will be a shortage of 2000
c. there will be a shortage of 0
d. None of the above

5. Which one of the following statements is true?
a. An individual should specialize according to comparative advantage.
b. An individual must be able to produce more of a good or service than someone else before she can have a comparative advantage in the production of that good or service.
c. An individual should trade with parties that have the same opportunity costs for the goods and services produced.
d. Comparative advantage exists whenever one person engaging in an activity incurs the same costs as some other individual.

6. Which of the following statements is not a normative Economic statement?
a. Everybody ought to be paid the same hourly wage, because each person should be rewarded in proportion to his effort.
b. The United States should accept the Hurricane Katrina aid offered by other countries' governments.
c. The price of crude oil reacts to the balance of its demand and supply.
d. The major problem now is that the rich do not pay enough taxes.

7. Consider the figure above. Which of the following statements is true?
a. Points A and D are feasible and efficient.
b. Points A and D are feasible but inefficient.
c. Points B and D are feasible and efficient.
d. Points B and C are feasible and efficient.

8. Which of the following methods would yield the most helpful model for studying an economic issue?
a. Build the simplest model as far as possible regardless of the issue under study.
b. Build a model to capture the main aspects of the issue.
c. Build a complex model that contains all possible details.
d. All of above are true statements.

9. Consider the following table to answer the next question.

"Sweetnest" only produces chocolate cakes and muffins. Their current production is at point A on the Production Possibility Frontier (PPF). If "Sweetnest" reallocates its resources and moves from A to B on the PPF, the opportunity cost of producing one more muffin in terms of chocolate cakes is (assume that the PPF is linear between combinations A to B):
a. 3/2 chocolate cakes
b. 4/9 chocolate cakes
c. 9/4 chocolate cakes
d. 2/3 chocolate cakes

10. Consider the figure above. Curve P1 represents a Production Possibility Frontier, on which points A and B are indicated. Curves P2 and P3 represent the possible Production Possibility Frontiers of the economy after ten years. The economy is more likely to have the production possibilities described by curve P3 instead of P2 if today the economy chooses:
a. Point A on P1.
b. Point B on P2.
c. To consume more and invest less.
d. Answers (a.) and (c.) are both true.

11. The above graph illustrates the PPF for Badgers. As we move from A to B to C, the opportunity cost of Soda
a. Rises.
b. falls.
c. stays constant.
d. rises and then falls.

12. Andrew can make 20 books and zero pencils in one day. Furthermore, he can produce 24 pencils if he produces only 16 books in one day. Assume that Andrew's PPF is linear. The opportunity cost of a book is
a. 20 pencils.
b. 16 pencils.
c. 6 pencils.
d. 4 pencils.

13. Solve for the value of x and y given that 3x + y = 7 and 2x + 4y = 8.
a. x = 3, y = -2
b. x = 1, y = 3/2
c. x = 49/24, y =1/8
d. x = 2, y = 1

Use the following table to answer questions 14,15, and 16.

Possible units produced in one week

Australia and France can both produce Wine and Cars. These goods are produced using only labor. The table above shows how many units can be produced in each country per week at two different production points. We are assuming that the PPFs for both countries are linear between the two production points.

14. Which country has the absolute advantage in producing Wine? And which country has the absolute advantage in producing Cars?
a. France has an absolute advantage in producing both Wine and Cars.
b. Australia has an absolute advantage in producing Wine. France has an absolute advantage in producing Cars.
c. Australia has an absolute advantage in producing both Wine and Cars.
d. France has an absolute advantage in producing Wine. Australia has an absolute advantage in producing Cars.

15. Which country has the comparative advantage in producing Wine? And which country has the comparative advantage in producing Cars?
a. Australia has a comparative advantage in producing both Wine and Cars.
b. France has a comparative advantage in producing both Wine and Cars.
c. Australia has a comparative advantage in producing Wine. France has a comparative advantage in producing Cars.
d. France has a comparative advantage in producing Wine. Australia has a comparative advantage in producing Cars.

a16. Which one of the following statements is true if Australia and France trade Cars and Wine?
a. Australia would be better off producing only Cars.
b. France would be better off producing Cars.
c. Australia can not be made better off through trade.
d. France and Australia should make the same number of cars

17. The above picture illustrates Jim's PPF. The opportunity cost of desks in terms of chairs is
a. ¼
b. 4
c. 100
d. 400

Use the following table to answer the questions 18 and 19.

Fruitland produces only two fruits, apples and bananas. In the following table different feasible production combinations are given for Fruitland. Assume that the Production Possibility Frontier is only linear between combinations A to B, B to C, C to D, etc.

18. If Fruitland is currently producing at combination C, the opportunity cost of producing 40 more bananas is:
a. 30 apples
b. 40 apples
c. 60 apples
d. 100 apples

19. If Fruitland is currently producing at point E, the opportunity cost of producing 10 more bananas is:
a. 10 apples
b. 1/4 apples
c. 1/16 apples
d. none of the above

20. Consider the DVD player market. The market demand for DVD players is given by
P = - 2Q + 12. The market supply of DVD players is given by P = (2/5)Q. P is price and Q is the amount of DVD players. The government mandates a price floor for DVD players of $1 each. What happens?
a. There will be a surplus of 3.
b. There will be a shortage of 3.
c. 5 DVD players are traded.
d. There will be no exchange.

21. John consumes two goods, potatoes and pineapples. When John's income decreases, he buys more potatoes and less pineapple. Which of the following is correct?
a. Pineapple and potatoes are complements.
b. Pineapple and potatoes are substitutes.
c. Pineapples are an inferior good.
d. Potatoes are an inferior good.

22. Two countries, France and Italy, have production possibility frontiers for the production of cheese and wine as given above. Which of the following statements is true?
a. France would benefit from specialization and trade.
b. Italy would benefit from specialization and trade.
c. Neither country would benefit from specialization and trade.
d. Both countries would benefit from specialization and trade.

23. Which of the following graphs would be best to use if you want to depict the data of your height over time?
a. time-series graph
b. scatter diagram
c. pie chart
d. bar graph

Use the following information to answer questions 24, 25 and 26.

Jack can produce 1 TV in 2 weeks, or Jack can produce 1 VCR in 6 weeks. Jill can produce 1 TV in 2 weeks, or Jill can produce 1 VCR in 2 weeks.

24. What are the opportunity costs of 1 VCR for Jack and Jill?
a. Jack: 3 TVs Jill: 3 TVs
b. Jack: 1/3 TV Jill: 1 TV
c. Jack: 1/3 TV Jill: 3 TVs
d. Jack: 3 TVs Jill: 1 TV

25. If Jack and Jill work independently, what is the maximum number of TV-VCR combos (which consist of 1 TV and 1 VCR) that Jack and Jill can produce in 24 weeks if they work independently? (Note: Total TV-VCR combos = Jack's TV-VCR combos plus Jill's TV-VCR combos.)
a. 3
b. 12
c. 6
d. 9

26. What is the maximum number of total TV-VCR combos that Jack and Jill can produce in 24 weeks if they work together and specialize?
a. 9
b. 12
c. 16
d. 18

27. To obtain all the gains available from comparative advantage, countries must trade, but they must also
a. charge tariffs.
b. specialize.
c. increase investment.
d. sign treaties.
Use the following information to answer questions 28, 29, and 30.

Consider the apple cider market. In this market, the linear demand schedule is as follow.

Let Q be the amount of the bottles of apple cider and P be the price.

28. Using the information in the table above, what is the equation of the demand curve? The demand curve for apple cider is a straight line.
a. Q = 3 P + 12
b. Q = -1/3P + 4
c. Q = - 3P + 12
d. Q = 2/3P + 4

29. When the price is $15, what is the quantity demanded?
a. 14
b. -1
c. 0
d. none of the above

30. When the price of ORANGE JUICE increases, the demand curve for apple cider changes to Q = -1/2P + 7. In this case, orange juice and apple cider are most likely
a. inferior
b. complements
c. substitutes
d. normal