BINARY CHOICE QUESTIONS:
Question 1. A new technology called f racking makes it easier to ge t natural gas out of the ground. This natural gas can then be used to heat homes and generate electricity. Given this information and holding everything else constant, in the market for natural gas this will result in
a. An increase in the su pply of natural gas.
b. An increase in the demand for natural gas.
Question 2. Suppose that new fracking technology has led to a lower equilibrium price for natural gas. The result of the lower price is
a. An increase in demand.
b. An increase in the quantity demanded.
The next TWO (2) questions use the following PPF:
Question 3. The United States can produce Fireworks or Satellites according to the above PPF. The opportunity cost of producing more Satellites is higher at:
a. Point A .
b. Point B .
Question 4. Fireworks are consumed for entertainment, while Satellites are capital, or investment goods. Holding everything else equal, w hich production point will expand the PPF more in future years?
a. Point A
b. Point B
Question 5. The government imposes a price ceiling on the price of milk. Suppose this price ceiling is effective in the market for milk and results in an excess demand of 9 units of milk. If the demand for milk is given by the equation P = 30 – 2Q, and the supply of milk is given by the equation P = Q, the n the price ceiling must be equal to
a. $4.
b. $16 .
Question 6. Yoshi is taking the first 75 - minute mid term exam for Econ 101. The exam consists of 15 binary choice questions and 20 multiple choice questions. Suppose Yoshi knows that if he only answers binary choice questions he can finish 35 binary choice questions in 75 minutes; and Yoshi also knows that if he only answers multiple choice questions he can finish 25 multiple choice questions in 75 minutes . Ass ume that Yoshi’s PPF for these two goods is linear. What is Yoshi ’s opportunity cost of solving one binary choice question?
a. 4/3 multiple choice questions.
b. 5/7 multiple choice questions.
Question 7. Suppose Praxiteles and Antipater each can produce two goods: marble statues and lyric poems. The table below describes their production possibilities if they only carve statues or only write poems. Assume constant opportunity costs.
Statues Poems
Praxiteles 6 3
Antipater 2 6
If Praxiteles and Antipater specialize in their respective comparative advantages, what will be the trading range for the price of one statue?
a. between 1/3 of a poem and 2 poems
b. between 1/2 of a poem and 3 poems
Question 8. True or False? If an individual has comparative advantage in the production of a good, then she necessarily has absolute advantage in the production of that good.
a. True
b. False
Question 9. Madison has recently seen the demand for candy increase. New candy stores on State Street have also opened, increasing the supply of candy. Given these changes, which of the following statements must be true?
a. The quantity of candy sold has increased.
b. The price of candy has increased.
Question 10. Water is an absolute necessity for survival. Yet we see that the price of water is lower than the price of diamonds. An economic explanation of this price difference is that
a. Diamonds are a luxury, so people should pay more for diamonds.
b. The available supply of water is much larger than the available supply of diamonds.
Question 11. Consider a market with a downward sloping demand curve and an upward sloping supply curve, which intersect one another at some point in the first quadrant. Excess demand in this market always implies prices above equilibrium and excess supply in this market always implies prices below equilibrium.
a. True b. False
Question 12. Josie loves nachos and apples. She notices that when her income falls her consumption of nachos increases and her consumption of apples decreases. From this information and holding everything else constant, which of the following statements is correct?
a. Apples are an inferior good and nachos are a norm al good for Josie .
b. Apples are a normal good and nachos are an inferior good for Josie .
Question 13. A farmer comes to the Madison farmers’ market to sell green beans. He normally charges $2/pound of green beans. But today it is raining heavily, and there are not nearly as many customers as normal. What can we predict about the equilibrium price of green beans at the farmers’ market today?
a. The equilibrium price today should be less than $2/pound.
b. The equilibrium price today should be more than $2/pound.
Question 14. Every month, the Burea u of Labor Statistics reports new updated data on the unemployment rate. We would classify this as
a. Cross - sectional data.
b. Time - series data.
MULTIPLE CHOICE QUESTIONS (20 QUESTIONS)
Question 15. Suppose initially Moshi's opportunity cost of grading one Econ101 homework equals solving 1/10th of an Econ 711 problem. But, then he decides to grade more carefully, so that his opportunity cost of grading one Econ 101 homework now equals solving 1/5 th of an Econ 711 problem. His opportunity cost of solving one Econ 711 problem
a. Increases by 1/5 Econ 101 homeworks .
b. Decreases by 1/5 Econ 101 homeworks .
c. Decreases by 5 Econ 101 homeworks .
d. Increases by 5 Econ 101 homeworks .
Use the following graph to answer the next THREE (3) questions . The graph depicts the sugar market where P is the price per pound of sugar and Q is the quantity of sugar in pounds.
Question 16. Suppose that initially the sugar market is in equilibrium and the government decides to impose a minimum price (a price support) of P = $ 3 per pound of sugar in the sugar market. The change in consumer surplus induced by this policy can be measured as the
a. Decrease of (Area A + Area B + A rea F + Area G)
b. Increase of (Area C + Area H)
c. Decrease of (Area A + Area B)
d. Decrease of (Area B + Area C)
Question 17. To implement this minimum price, the government itself must
a. Sell sugar to consumers .
b. Buy sugar from producers .
c. Begin growing its own sugar cane in order to produce more sugar.
d. Ban the sale of candy .
Question 18. When the government implements the price support, producers’ revenues
a. Increase by $ 50 relative to their initial revenue before the implementation of the price support.
b. Increase by $ 1 50 relative to their initial revenue before the implementation of the price support.
c. Increase by $25 0 relative to their initial revenue before the implementation of the price support.
d. Increase by $450 relative to their initial revenue before the implementati on of the price support.
Question 19. Clay Mathews, a star football player, is known for his long hair. All his fans in Wisconsin decide they want to look like Clay, and stop getting haircuts. Given this information and holding everything else constant, in the market for haircuts in Wisconsin , this causes
a. A decrease in the supply of haircuts, and a decrease in the quantity of haircuts demanded.
b. An increase in the quantity of haircuts supplied.
c. An increase in the price of haircuts.
d. A decrease in the demand for haircuts, and a decrease in the quantity of haircuts supplied.
Use the following information to answer the next FOUR (4) questions: Consider the market for the long - a waited iPhone 6 Plus, which was released in September. Suppose the supply curve for this phone is given by the following equation where QS is the quantity of phones supplied and P is the price per phone:
QS = 2P
You are also told that the market demand for the iPhone 6 Plus is given by the following set of equations where QD is the quantity of iP hone 6 Pluses demanded and P is the price per iP hone 6 Plus:
QD = 2000 – 2P for 0 ≤ P ≤ 1000, Q D = 0 for P ≥ 1000
Question 20. Given this information and holding everything else constant, w hat is the market equilibrium price and quantity for the iPhone 6 Plus ?
a. $ 300 per iPhone 6 Plus and 600 iPhone 6 Plus es
b. $ 500 per iPhone 6 Plus and 1000 iPhone 6 Pluses
c. $ 500 per iPhone 6 Plus and 500 iPhone 6 Pluses
d. $ 300 per iPhone 6 Plus and 1400 iPhone 6 Pluses
Suppose that a new group of consumers, a group of older people , now demand the iPhone 6 Plus as well because of its bigger screen . The demand for this new group of consumers is given by the following information where QDO is the quantity of iPhone 6 Pluses demanded by these older consumers and P is the price per iPhone 6 Plus :
QDO = 1500 – P for 0 ≤ P ≤ 1500,
QDO = 0 for P ≥ 1500
Question 21. Given the above information and holding everything else constant, what is the aggregated market demand (this includes all the potential consumers that have been described) for the iPhone 6 Plus ? In the answers below QDT refers to the to tal quantity demanded of iPhone 6 Plus es .
a. QDT = 2000 – 2P for P ≥ 0
b. QDT = 3500 – 3P for 0 ≤ P ≤ 1000,
QDT = 5000/3 – ( 2/ 3 ) P for 1000 ≤ P ≤ 15 00,
QDT = 0 for P ≥ 15 00
c. QDT = 3500 – 3P for 0 ≤ P ≤ 1000,
QDT = 1500 – P for 1000 ≤ P ≤ 1500,
QDT = 0 for P ≥ 1500
d. QDT = 2000 – 2 P for 0 ≤ P ≤ 1000,
QDT = 1500 – P for 1000 ≤ P ≤ 15 00,
QDT = 0 for P ≥ 1500
Question 22. Given the above information and holding everything else constant, how would the market equilibrium quantity for the iPhone 6 Plus change after older people join the market ?
a. The market equi librium quantity would increase .
b. The market equilibrium quantity would decrease.
c. There would be no change in the equilibrium quantity due to these changes.
d. There is not enough information provided to answer this question with certainty.
Question 23. What is the market equilibrium price after older people join the market for the iPhone 6 Plus ?
a. $ 500
b. $ 450
c. $ 300
d. $ 700
Question 24. When Moshi moved to Madison, Gary helped him by allowing Moshi to stay in his apartment for 2 days. Moshi thought prior to moving to Madison that he would eat lunch (a normal good) every day at the Memorial Union. However when Moshi got here he realized that Gary’s house was a long way from campus and that it would cost him $2 per bus (Moshi got here before the day bus passes were available to students) for each trip to the University and back to Gary’s house . Given this unexpec ted transportation expense, and holding everything else constant, what impact would you predict this had on Moshi’s demand curve for lunch at Memorial Union? Moshi’s demand curve
a. Should shift to the left.
b. Should shift to the right.
c. Should not be affected at all by this situation.
d. May shift to the right or to the left .
Use the following information to answer the next TWO (2 ) questions :
Suppose India and Japan produce only two goods, movies and comic books . B oth countries have the same amount of resources. The table below shows how many movies and comic books each country can produce if they use all their resources on a single good. Assume that both countries have linear production possibility frontiers. The countries can trade with each other.
Movies (max) Comic books (max)
India 1600 480 , 000
Japan 1000 400 , 000
Question 25. Which of the follo wing statements is true?
a. India has the absolute advantage in the production of both movies and comic books.
b. India has the absolute advantage in the production of movies. Japan has the absolute adv antage in the production of comic books .
c. Japan has the absolute advantage in the production of movies. India has the absolute adv antage in the production of comic books .
d. Japan has the absolute advantage in the production of both movies and comic books .
Question 26. Suppose India and Japan trade with each other and each country specialize s in produci ng one good. Which country will specialize in the production of each good?
a. Both India and Japan will specialize in producing comic books.
b. India will specialize in the production of movies. Japan will specialize in the production of comic books .
c. Japan will specialize in the production of movies. India will spec ialize in the production of comic books .
d. There are no gains to either Japan or India from specialization .
Question 27. Consider Paul who owns the Pecan Valley farm in Hollandale, Wisconsin. He plants sweet corn and raises chickens for eggs. Carefully examine the Production Possibility Frontiers (PPFs) shown below. Which of these PPF are equivalent to one another ?
a. PPF #1 and #3
b. PPF #2 and #4
c. PPF #1, #2, and #3
d. PPF #1, #2, #3, and #4
Use the following information for the next THREE (3) questions:
Suppose Wilhelm and Ludwig each can produce two goods: fairy tales and etchings. Assume that both Wilhelm and Ludwig have linear production possibility frontiers and that they each have the same resources. The table below describes two possible production points for each of these individuals.
Possible Production Points for Wilhelm Possible Production Points for Ludwig
(Etchings, Fairy Tales) (Etchings, Fairy Tales)
(2.5, 5) (1, 3/4)
(3, 4) (3, 1/4)
Question 28. Given the above information, w hich of the following statements is true?
a. Wilhelm has the comparative advantage in the production of fairy tales and etchings.
b. Wilhelm has the comparative advantage in the production of fairy tales; Ludwig has the comparative advantage in the production of etchings.
c. Wilhelm has the absolute advantage in the production of fairy tales; Ludwig has the absolute advantage in the production of etchings.
d. Wilhelm has the comparative advantage in the production of etchings; Ludwig has the comparative advantage in the production of fairy tales.
Question 29. Which equation (or set of equations) expresses the joint production possibility frontier for Ludwig and Wilhelm? (Let F be the number of fairy tales and E be the number of etchings.)
a. F = 11 - (9/4)E
b. F = 11 - (1/4)E for 0 ≤ E ≤ 4,
F = 46 - 9E for 4 ≤ E ≤ 5,
F = (9/4) - (1/4)E for 5 ≤ E ≤ 9
c. F = 11 - ( 1/4)E for 0 ≤ E ≤ 4 F = 18 - 2E for 4 ≤ E ≤ 9
d. F = 11 - 2E for 0 ≤ E ≤ 5 F = (9/4) - (1/4)E for 5 ≤ E ≤ 9
Question 30. Given your analysis and the above information, which of the following statements is a normative statement?
a. Wilhelm should only write fairy tales and Ludwig should only cut etchings.
b. Ludwig has the absolute advantage in the production of etchings.
c. Ludwig can produce etchings more cheaply than Wilhelm can.
d. Wilhelm has the comparative advantage in the production of etchings.
Question 31. Suppose Bob produces sandals (S) and brooms (B) according to the following PPF: S = 10 - 2B Is the production of 4 sandals and 2 brooms feasible for Bob, and if so, does it make efficient use of Bob's resources? This production point is
a. Feasible, but not efficient for Bob.
b. Feasible and efficient for Bob.
c. Not feasible and not efficient for Bob.
d. Not feasible , but efficient for Bob.
Use the following information for the next THREE (3) questions : The market for wheat can be described by the following demand and supply curves , where P is the price per bushel of wheat and Q is the quantity of bushels of wheat.
Market Demand: P = 9 – Q D .
Market Supply: P = 3 + 2Q S .
Question 32. Suppose the government sets a price floor in the market for wheat: i.e. , the government implements a policy that says the price of wheat cannot be lower than $8 per bushel. Given this price support and holding everything else constant, find the quantities of wheat that will be demanded and supplied at this new price of $8 per bushel .
a. Quantity demanded = 2 bushels of wheat, Quantity supplied = 4 bushels of wheat
b. Quantity demanded = 1 bushels of wheat , Quantity supplied = 3 bushels of wheat
c. Quantity demanded = 1 bushels of wheat , Quantity supplied = 2.5 bushels of wheat
d. Quantity demanded = 3 bushels of wheat , Quantity supplied = 1 bushels of wheat
Question 33. As a result of the imposition of the price floor described in the previous question, the government decides to purchase the excess supply. Calcula te the total cost of the price support program to the government. Assume that there are no storage costs assoc iated with the government purchasing the excess supply. The total cost of the price support program to the government is
a. $8
b. $10
c. $11
d. $12
Question 34. Suppose the government wan ts suppliers of wheat to earn $8 for each bushel of wheat sold. However the government decides to offer a subsidy f or each bushel sold rather than implementing a price support program. Given the above information and holding everything else constant, how much subsidy does the government have to offer for each bushel of wheat in order for wheat suppliers to earn $8 per bushel of wheat sold ?
a. $1 .00 per bushel of wheat
b. $1 .5 0 per bushel of wheat
c. $2 .00 per bushel of wheat
d. $2 .5 0 per bushel of wheat