Econ 201 Exam 1 F2002
Professor Phil Miller
Student Number: ________________
Multiple Choice (3 points each)
Directions: Identify the letter of the choice that best completes the statement or answers the question. Fill in the circle on
your scantron that corresponds to this letter. Hand in your scantron and this test.
____ 1. Economists use models in order to
a. experiment with alternative circumstances.
b. make educated guesses about real life events.
c. predict outcomes under various hypothetical conditions.
d. increase understanding of how a relationship actually works.
e. All of the above are correct.
____ 2. Economists make assumptions because
a. they need to incorporate value judgments into their models.
b. analysis without assumptions would be extremely complex.
c. they always have imperfect information about reality.
d. assumptions are the final product of careful economic analysis.
e. assumptions allow economists to ignore things that they cannot explain.
____ 3. A shift in the supply curve of bicycles resulting from higher steel prices (an input in making bicycles) will
a. higher prices of bicycles.
b. lower prices of bicycles.
c. a shift in the demand curve for bicycles.
d. larger output of bicycles.
e. no change in the price of bicycles.
____ 4. In Figure 3-18, there would be a surplus of T-shirts if the price were
c. below $8.
d. between $8 and $6. ____ 5. In late 1995 and early 1996, the Federal Reserve System reduced interest rates, the price which borrowers
pay. As a result, economists expected the quantity of money demanded to
d. not change, although the demand schedule itself will shift outward.
____ 6. If the price of a good is below the equilibrium price,
a. suppliers will find inventories building; they will cut output and raise prices.
b. suppliers will find inventories being depleted. They will increase production and raise
c. the demand curve will shift down until an equilibrium is established at the existing price.
d. the supply curve will shift up until an equilibrium is established at the existing price.
____ 7. List the three coordination decisions made by every economy.
a. Where? When? How?
b. How? What? To whom?
c. Why? Where? What?
d. When? To Whom? Where?
____ 8. According to the low-hanging fruit principle, the cost of producing a good increases as more of it is produced.
Therefore, we expect that firms will produce more if
a. the price increases.
b. the price decreases.
c. the opportunity cost is greater than the price.
d. government asks firms to produce more.
e. the income of buyers increases.
____ 9. The demand curve for a good connects points describing how much consumers
a. actually bought at different prices during a particular period.
b. actually bought at different prices in different periods.
c. would have been willing and able to buy at different prices during a particular period.
d. would have been willing and able to buy at different prices in different periods.
____ 10. The price for labor is the wage rate. What happens to the demand for labor if wages increase?
c. It does not change.
d. Uncertain-economic theory has no answer to this question.
____ 11. Equilibrium in a market is
a. a situation in which there are no inherent forces that produce change.
b. is only ensured by government intervention.
c. the best price and quantity that can exist in a market.
d. The fairest price and quantity traded that can exist in the market.
____ 12. When GM advertises its cars, the company is trying to cause a
a. rightward shift in the supply.
b. rightward shift in the demand.
c. leftward shift in the supply.
d. leftward shift in the demand. ____ 13. An upward-sloping supply curve shows that
a. buyers are willing to pay more for a scarce product.
b. suppliers are willing to increase production of their goods if they can receive higher prices
c. buyers are unaffected by sellers' costs of production.
d. the price of a product is not influenced by the price buyers are willing to pay.
____ 14. According to the principle of comparative advantage, a doctor who is also a talented auto mechanic should
a. get a part-time job at a gas station.
b. always do her own auto repairs and those of her neighbors.
c. sometimes hire a professional mechanic to repair her car.
d. only repair the cars of other doctors.
____ 15. Which of the following is a normative statement?
a. George W. Bush is the president.
b. The quantity demanded is inversely-related to the price.
c. The minimum wage should be replaced with a "Living Wage".
d. Minnesota is located north of Iowa.
____ 16. Why does quantity demanded decrease when price increases?
a. People choose to reduce consumption of the item.
b. People "drop out" of the market for the item.
c. People find substitutes for the item.
d. All of the above are correct.
____ 17. The imposition of price ceilings on a market often results in
a. an increase in investment in the industry.
b. a persistent surplus in the market.