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Department of Economics
Midterm Test #1
Instructor: Professor H Holmes
Duration: 1.5 hours
Total Number of Pages: 11
Answer all questions on the scan sheets. USE AN HB PENCIL ONLY. Make sure you carefully fill
in the bubbles. YOU MUST FILL IN YOUR STUDENT NUMBER, AND VERSION NUMBER
ON THE SCAN SHEET OR YOUR GRADE WILL NOT BE RECORDED AND YOU WILL
LOSE THE BONUS MARK.
You may use the Casio FX calculator.
Hand in the scan sheet and this test copy.
TOTAL MARKS AVAILABLE: 45
STUDENT #: _______________________________________________
MUGSI ID: ________________________________________________ Page 2 of 11
Identify the choice that best completes the statement or answers the question.
____ 1. A good is considered scarce in a society when
a. more output of the good is possible.
b. everyone in that society cannot have all they want of the good.
c. the government restricts production of the good.
d. only the richest people in the economy can buy all they want of the good.
____ 2. Economists use the word equity to describe a situation in which
a. each member of society has the same income.
b. society is getting the most it can from its scarce resources.
c. those in society who have the least will receive the most.
d. the benefits of society’s resources are distributedfairly among society’s members.
____ 3. Which of the following is the best example of a marginal change?
a. After graduating college, Audrey’s income increasesfrom $500 per month to $3,000 per
b. Morgan gets a raise at her part-time job and is now paid $7.25 per hour instead of $7.00.
c. Housing prices in an area increase by 40% when a new highway is built in a small town.
d. A hard freeze wipes out half of the tobacco crop in Ontario and the price of orange juice
____ 4. Production possibilities frontiers are usually bowed outward. This is because
a. the more resources a society uses to produce one good, the fewer resources it has available
to produce another good.
b. it reflects the fact that the opportunity cost of producing a good falls as one produces more
and more of it.
c. of the effects of technological change.
d. resources are specialized, that is, some are better at producing particular goods rather than
____ 5. Suppose an economy produces two goods, food and machines. This economy always operates on its
production possibilities frontier. Last year, it produced 50 units of food and 30 machines. This year it
experienced a technological advance in its machine-making industry. As a result, this year the society wants
to produce 55 units of food and 30 machines. Which of the following statements is true?
a. Because the technological advance occurred in the machine-making industry, it will not be
possible to increase food production without reducing machine production below 30.
b. Because the technological advance occurred in the machine-making industry, increases in
output can only occur in the machine industry.
c. In order to increase food production in these circumstances without reducing machine
production, the economy must reduce inefficiencies.
d. The technological advance reduced the amount of resources needed to produce 30
machines. These resources could be used to produce more food.
e. None of the above are correct. Page 3 of 11
____ 6. The production possibilities frontier is a
a. map which shows the frontier beyond which agriculture is unprofitable.
b. map which shows areas of the world in which capitalist production is now possible.
c. graph which shows the various combinations of resources that can be used to produce a
given level of output.
d. graph that shows the various combinations of output the economy can possibly produce
given the available resources and technology.
____ 7. Refer to Figure 2-3. The economy can produce at which point or points?
a. B, D, E
b. A, B, D, E
c. D, C
e. D, E
____ 8. Refer to Figure 2-3. Which point or points are inefficient?
a. A, C
b. D, C
d. D Page 4 of 11
____ 9. Refer to Figure 2-4. The opportunity cost of getting 15 additional toasters by moving from point D to point C
a. 10 toothbrushes.
b. 20 toothbrushes.
c. 30 toothbrushes.
d. It is impossible for the economy to move from point D to point C.
Labour Hours Needed to Make
1 Pound of: Pounds produced in 40 hours:
Meat Potatoes Meat Potatoes
Farmer 8 2 5 20
Rancher 4 5 10 8
____ 10. Refer to Table 3-1. The opportunity cost of 1 pound of meat for the farmer is
a. 1/4 hour of labour.
b. 4 hours of labour.
c. 4 pounds of potatoes.
d. 1/4 pound of potatoes.
____ 11. Refer to Table 3-1. The opportunity cost of 1 pound of potatoes for the rancher is
a. 4 hours of labour.
b. 5 hours of labour.
c. 5/4 pounds of meat.
d. 4/5 pound of meat.
____ 12. Refer to Table 3-1. The Farmer has an absolute advantage in
a. meat, and the Rancher has an absolute advantage in potatoes.
b. potatoes, and the Rancher has an absolute advantage in meat.
c. meat, and the Rancher has an absolute advantage in meat.
d. neither good, and the Rancher has an absolute advantage in both goods. Page 5 of 11
____ 13. Refer to Figure 3-2. For Ben, the opportunity cost of 1 pound of ice cream is
a. 4 pounds of cones.
b. 1/2 pound of cones.
c. 2 pounds of cones.
d. 1/4 pound of cones.
____ 14. Refer to Figure 3-2. Ben has a comparative advantage in
a. cones and Jerry has a comparative advantage in ice cream.
b. ice cream and Jerry has a comparative advantage in cones.
c. neither good and Jerry has a comparative advantage in both goods.
d. both goods and Jerry has a comparative advantage in neither good.
____ 15. Refer to Figure 3-2. Ben and Jerry were currently both producing at point A on their production possibilities
frontier and then Ben decided he would be willing to trade 4 pounds of cones to get 2 pounds of ice cream
from Jerry. If both decided to specialize in what they had a comparative advantage in and trade, the gains
from trade would be
a. 1 pound of cones for Ben and 1 pound of ice cream for Jerry.
b. 1 pound of ice cream for Ben and 1 pound of cones for Jerry.
c. 2 pounds of ice cream for Ben and 2 pounds of cones for Jerry.
d. 2 pounds of ice cream for Ben and 1 pound of cones for Jerry.
____ 16. Which of the following would NOT be a determinant of demand?
a. the price of related goods
e. the prices of the inputs used to produce the good Page 6 of 11
____ 17. If a good is "normal," then an increase in income will result in
a. no change in the demand for the good.
b. an increase in the demand for the good.
c. a decrease in the demand for the good.
d. a lower market price.
____ 18. If the price of a substitute to good X increases, then the
a. demand for good X will decrease.
b. market price of good X will decrease.
c. demand for good X will increase.
d. quantity demanded for good X will increase.
____ 19. Refer to Figure 4-2. The shift from D to D could be1caused by
a. an increase in price.
b. a decrease in the price of a complement.
c. an increase in technology.
d. a decrease in the price of a substitute.
____ 20. Lead is an important input in the production of crystal. If the price