Exam 1

What is more important to economists, the average or the margin?

A. average

B. margin

Are people rational all of the time?

A. Yes

B. No

If Ali’s opportunity cost is lower than Ahmed’s opportunity cost, who has the comparative advantage?

A. Ali

B. Ahmed

C. they are equal

All trade is based on _________________

A. absolute advantage

B. comparative advantage

C. win-lose propositions

D. exploitation

Who is considered the father of economics?

A. Karl Marx

B. Adam Smith

C. Greg Mankiw

D. David Ricardo

In every transaction there is one price and _____ values.

A. one

B. two

C. three

D. infinite

If the price of a Big Mac is 15 riyals today and it was 12 riyals last year, what is the percentage change from last year to this year?

A. 12%

B. -12%

C. 25%

D. 3%

Who decides what gets made in a market economy?

A. individuals

B. government employees

C. politicians

D. sellers

Who was the first to write about the idea of an invisible hand in economics?

A. Adam Smith

B. Karl Marx

C. Milton Friedman

D. Steve Jobs

Positive economic statements are?

A. opinions

B. facts

C. utility

D. happiness

 What do households sell in the circular flow diagram?

A. finished goods and services

B. haircuts

C. factors of production

D. candy bars

Do you have to have an absolute advantage to make a profit?

A. yes

B. no

Is your time ever free?

A. yes

B. no

What do you give up if you trade and specialize?

A. profit

B. independence

C. utility

D. dependence

What is the production possibilities frontier?

A. a graph that shows combinations of output with current resources and technology

B. a graph that shows how household and firms interact

C. a graph showing percent change in comparative advantage

D. a formula for calculating percentage change

If you know someone’s _________________, you can predict their behavior.

A. weight

B. incentives

C. goals

D. intentions

If the price increases from 10 to 15 and the quantity demanded decreases from 100 to 90, is the demand elastic or inelastic?

A. elastic

B. inelastic

What are property rights?

A. your comparative advantage

B. your absolute advantage

C. your utility

D. the ability of an individual to own and control resources

What are the three things economists assume about people?

A. they are rational, respond to incentives, and make decisions at the margin

B. they are irrational, respond to innovations, and make decisions with good intentions

C. they are rational, have good intentions, and always have an absolute advantage.

D. they always make good decisions and are predictable.

Are intentions more important than results?

A. yes

B. no

What is your opportunity cost?

A. lowest-valued alternative

B. highest-valued alternative

C. absolute advantage

D. rational margin

 If the price of a pizza is 16 riyals today and it was 20 riyals last year, what is the percentage change from last year to this year?

A. 4%

B. -20%

C  25%

D. -25%

Use the following chart and answer the next two questions:

Candy bar              Total Utility

1                             10

2                             15

3                             19

4                             23

5                             25  

After eating five candy bars, what was the average utility per candy bar?

A. 18.4

B. 5

C. 19

D. 2

What was the marginal utility from candy bar number 3?

A. 19

B. 4

C. 5

D. 15

Is there more than one possible efficient combination of products on a production possibilities frontier?

A. yes

B. no

If the price increases from 20 to 24 and the quantity demanded decreases from 200 to 120, what is the elasticity of demand?

A. 0.5

B. 2.50

C. 2.75

D. 20

If your income goes up by 10% and your demand for Snickers goes down by 5%, what is a Snickers to you?

A. normal

B. substitute

C. luxury

D. inferior

If your income increases from 1000 to 1200, and your quantity demanded for Applebees increases from once a month to twice a month, what is Applebees to you?

A. normal

B. substitute

C. luxury

D. inferior

If the price of Big Macs increases by from 15 to 18, and the quantity demanded for French fries decreases from 10 to 9, what is the cross price elasticity?

A. -0.5

B. 0.5

C. 2.0

D. -2.0

If the price of product A increases by 10% and the quantity demanded of product B increases by 8%, what is the relationship between the two products?

A. complements

B. substitutes

C. no relationship

D. normal

If your income increases and Big Macs are a normal good to you, what will happen to your demand curve for Big Macs?

A. move up

B. shift left

C. shift right

D. move down

If population increases, what happens?

A. demand increases

B. demand decreases

C. supply increases

D. supply decreases

If prices go up, what happens to the quantity demanded?

A. increases

B. decreases

C. no change

D. becomes more elastic

What happens if there is a new technological innovation?

A. supply shifts to the right

B. supply shifts to the left

C. demand shifts to the right

D. demand shifts to the left

If demand increases and supply decreases, what will happen to prices?

A. increase

B. decrease

C. no change

D. unknown

If demand decreases and supply decreases, what will happen to the equilibrium quantity?

A. increase

B. decrease

C. no change

D. unknown

Are price and quantity supplied inversely or directly related?

A. inversely

B. directly

How do you eliminate a shortage or surplus?

A. have the government set the price

B. allow the price to increase or decrease

C. subsidize sellers

D. subsidize buyers

What does Ceteris Paribus mean?

A. supply equals demand

B. all things equal

C. equilibrium

D. government price controls

If the government price ceiling is above the equilibrium price what will happen?

A. shortage

B. surplus

C. no effect

D. shift in demand

ECON 101                                                                                                                                            Test Version: A

Name_____________________________________  ID ______________________________________

5 short answer questions. Each question is worth 4 points. 20 points potential

1. Name two goods that are complements and explain why.

Complements complete

Much better used together.

AND

2. Name two goods that are substitutes and explain why.

Subsititutes offer similar utilty 

OR

3. Name four reasons the supply curve shifts.

Input prices
Technology
Expectations
Number of Sellers
Natural/Social Factors

4. Name five reasons the demand curve shifts.

Income
Price of related goods
Tastes
Expectations
Population

5. What three steps do economists follow in analyzing how an event will affect market equilibrium?

1. Identify which curve or curves

2. Determine the direction of the shift.

3. Determine new equilibrium