ECON 101 MIDTERM 1 GR A1 Name___________________________________ Number_____________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) If the price of cars falls, the equilibrium price of gasoline (benzene) will ________ and the equilibrium quantity of gasoline (benzene) will ________. A) rise; decrease B) rise; increase C) fall; increase D) fall; decrease 1) Answer: B 2) Suppose that a new technological development increases the amount of corn that can be produced from the same amount of inputs. Suppose also that demand for corn is price inelastic. If the corn farmers apply the new technology, what is the effect of this technological development on the farmers' total revenues? A) farmers' with larger fields gain revenue, but farmers with smaller fields lose revenue B) farmers' revenues decrease C) farmers' revenues do not change D) farmers' revenues increase 2) Answer: B 3) In the figure above, the opportunity cost of moving from point C to point D is A) zero. B) the loss in production in the health care sector. C) the increase in production in the education sector. D) the loss in production in the education sector. Answer: B 1 3) 4) In the figure above, point E could be obtained if A) resources were used more efficiently. B) resources were shifted from education to health care. C) there was an increase in society's resources. D) resources were shifted from health care to education. 4) Answer: C 5) In the figure above, point A is undesirable (=not wanted) because A) point E is a more realistic option in this economy. B) too much health care is being produced. C) the opportunity costs of health care is too high. D) there is an inefficient use of resources. 5) Answer: D 6) Suppose that today people started to expect that price of digital cameras will increase next month. What is the effect of this change on current market conditions of digital cameras? A) increases its demand. B) increases its supply. C) decreases its demand. D) has no effect on either its demand or its supply. 6) Answer: A 7) The primary goal of policy makers who support minimum wage law is to A) increase employment levels among low income workers. B) give small businesses an equal chance in the marketplace with larger businesses. C) reduce the profit levels of giant corporations. D) increase the earnings of low income workers. Answer: D 2 7) 8) In the above figure suppose a minimum wage of $8 per hour is imposed. As a result, the quantity of labor supplied is ________ and the quantity of labor demanded is ________. A) 2,000; 4,000 B) 4,000; 4,000 C) 4,000; 2,000 D) 3,000; 4,000 8) Answer: C 9) For many goods, the price elasticity of demand increases over time because A) inflation causes all prices and incomes to increase over time. B) the ability to find substitutes for a good whose price has risen increases over time. C) people's incomes tend to increase over time. D) None of the above answers is correct. 9) Answer: B 10) "This year, due to an early frost, the average price for a pumpkin increased by 10 percent compared to the average pumpkin price in previous years. As a result, the quantity demanded decreased from 2 million to 1.5 million." Based on this statement, it is certain that the A) price elasticity of demand for pumpkins decreased from its value in previous years. B) demand curve for pumpkins shifted leftward. C) demand curve for Halloween costumes shifted leftward. D) total revenue from the sale of pumpkins decreased. 10) Answer: D 11) Which of the following would NOT shift the demand curve for broccoli? A) an increase in the price of spinach, a substitute for broccoli, B) an increase in the cost of fertilizer used to grow broccoli C) a warning by the Ministry of Health that broccoli causes schizophrenia D) a decrease in the price of spinach, a substitute for broccoli, Answer: B 3 11) 12) Fundamental economic problems basically arise from A) the unequal distribution of income. B) turmoil in the stock market. C) our wants exceeding our scarce resources. D) the fact that society has more than it needs. 12) Answer: C 13) Suppose that there is a strike of all bus drivers that work for the stanbul Municipality (municipality=belediye). So millions of people are driving their own cars to go to work. What is the effect of this strike on the price of gasoline (benzene) and and quantity of gasoline sold? A) increased; increased B) decreased; decreased C) decreased; increased D) increased; decreased 13) Answer: A 14) If a 20 percent increase in the price of used cars results in a 10 percent decrease in the quantity of used cars demanded, then the price elasticity of demand equals A) 2.0. B) 10.0. C) 0.5. D) 1.0. 14) Answer: C 15) The price of the steel used to produce engines increases. How does this price hike affect the demand for cars? A) It does not change the demand, that is, the demand curve does not shift. B) It decreases the demand, that is, the demand curve shifts leftward. C) It increases the demand, that is, the demand curve shifts rightward. D) There is not enough information to tell how the change affects the demand for cars. 15) Answer: A 16) The most advanced free market economies of US, Europe and Japan are currently experiencing a financial crisis. This suggests that A) Market prices fail to signal buyer and seller behavior in financial markets B) Rules, laws, and regulations are necessary in a free market economy C) Free market economy does not work, so Turkey should switch to a centrally planned economy D) The economies that are experiencing crisis are not sufficiently free market economies. They need to be more free. 16) Answer: B 17) Suppose that before the election, President of Turkey promises to produce more defense goods and at the same time open more universities, more hospitals, provide free health insurance to everyone, and give a free apartment to everyone, etc. As a student of economics, you know that the President can fulfil these promises only if A) Turkey can increase its resources or its technology. B) Turkey is currently producing at a point beyond its production possibilities frontier. C) The President can be re-elected in the next election D) Turkey is currently producing at a point on its production possibilities frontier. 17) Answer: A 18) If demand is inelastic, an increase in the price will A) increase the quantity demanded. C) increase total revenue. B) decrease total revenue. D) not change total revenue. Answer: C 4 18) 19) Which of the following can shift the demand curve for digital video disk (DVD) rentals rightward? A) an decrease in the price of DVD rentals B) a decrease in the price of DVD players C) a decrease in the price of cable TV service D) a decrease in the price of renting video cassette (VCR) tapes 19) Answer: B 20) If an increase in price results in no change in total revenue, then demand must be A) elastic. B) inelastic. C) infinitely elastic. D) unit elastic. 20) Answer: D 21) When the price of a movie ticket increases from $5 to $7, the quantity of tickets demanded decreases from 600 to 400 a day. What is the price elasticity of demand for movie tickets? A) 0.83 B) 1.20 C) 2.32 D) 1.00 21) Answer: A 22) Which of the following is the best way to describe equilibrium in a market? At equilibrium, A) the price charged is usually affordable to most people. B) the quantity supplied equals the quantity demanded. C) the price charged is the lowest possible. D) the supply and demand curves can never shift again. 22) Answer: B 23) Some groups of producers can lobby the government and force the government to set a __________ for their products in democratic systems. A) price table B) price floor C) price coach D) price ceiling 23) Answer: B 24) John has two hours of free time this evening. He ranked his alternatives, first go to a concert, second go to a movie, third study for an economics exam, and fourth answer his e-mail. What is the opportunity cost of attending the concert for John? A) attending a movie, studying for an economics exam, and answering his e-mail B) studying for an economics exam C) attending a movie D) answering his e-mail 24) Answer: C 25) During the last decade (decade=ten years) , the price of shoes rose substantially yet people bought more pairs of new shoes each year. This experience suggests that A) the supply curve of shoes shifted leftward. B) the demand curve for shoes shifted leftward. C) the demand curve for shoes shifted rightward. D) the supply curve of shoes shifted rightward. 25) Answer: C 26) When a surplus of houses occurs in the housing market, price of houses _________ and bring the market into _________. A) increase; equilibrium B) decrease; disequilibrium C) decrease; equilibrium D) increase; disequilibrium Answer: C 5 26) 27) A hot dog vendor on a street corner wants to increase the total revenue from selling hot dogs. The price elasticity of demand for the hot dogs is 1.1. Hence the vendor will A) lower the price of a hot dog. B) raise the price of a hot dog as high as possible. C) work harder to reduce the costs of production. D) do whatever it takes to sell as many more hot dogs as possible. 27) Answer: A 28) Every summer, people do more driving than during the winter. Every summer, the price of gasoline (benzene) increases and people buy more gasoline. This experience suggests that A) the "law of supply" does not always hold for necessities like gasoline. B) the "law of demand" does not always hold for necessities like gasoline. C) the laws of supply and demand are both contradicted for gasoline, though only during the summer. D) demand for gasoline increases during the summer 28) Answer: D 29) Between 1982 and 1997, advances in PC production technology increased the supply of PCs sharply. The demand for PCs also increased, but the supply increased much faster than demand. As a result, the market price of a PC ________ and the quantity of PCs sold ________. A) increased; increased B) decreased; decreased C) decreased; increased D) increased; decreased Answer: C 6 29)