5. Which of the following would be most likely to cause an ...



Econ 201, F05: Folland Microeconomic Principles Classroom Quiz 1

1. Which of the following would be most likely to cause a rightward shift of the demand curve for electricity (Hints: Some houses heat with electricity, others with heating oil, yet others with natural gas; while most air conditioners are electric)?

A. a decrease in the price of electricity

B. an increase in the price of air conditioners

(C. an increase in the price of heating oil

D. a decrease in the price of natural gas

Comment: electricity and heating oil are substitutes

2. The slope of the production possibilities frontier (PPF) is

A. the efficiency of production

B. the elasticity

(C. the opportunity cost of one good in terms of the other

D. the feasibility of one good in terms of the other

3. Which of the following would be most likely to cause a rightward shift of the demand curve for eggs?

A. a rise in the price of chicken feed

B. an increased rainfall in egg-farming regions

(C. a surge in popularity of a new cookbook for scrambled eggs

D. a rise in the price of bacon

Comment: A is a move along; B is irrelevant; D bacon is a complement.

4. Which of the following is likely to be an "inferior good" for a typical population?

(A. used clothing (such as one buys at Good Will)

B. BMWs

C. ski trips (package deals to Aspen, Colorado)

D. food (as one might take home in a typical bag of groceries)

5. Which of the following two goods are most plausibly described as complements?

A. hot dogs and hamburgers

B. paperback novels and hardcover novels

(C. hot dogs and hot dog buns

D. leather and vinyl (as used in the production of car seat covers)

6. If Millie the Milliner, who sells ladies hats, finds that her elasticity of demand in absolute value is 0.40, we know that she could raise added revenue net of her costs by choosing which strategy?

raise the quality of her hat selection

A. (raise her prices

B. lower her prices

C. cut back on advertising expenditures

D. increase her floor space

7. Which of the following would be the most likely to cause a rightward shift of the demand curve for apples (a normal good)?

A. a decrease in the price of apples

B. an increase in the price of caramel (the kind used to make carmeled apples)

(C. an increase in the average personal income in the market area

D. a decrease in the price of oranges

Comment: A is a move along; B and D shift the demand to the left.

8. Which of the following is closest to the economist’s definition of scarcity?

A. a good is scarce if it has a zero price

B. a good is scarce if it hard to find in the marketplace

C. (a good is scarce if it has a positive price

D. a good is scarce if is rare, like an unusual postage stamp

E. a good is scarce if there is none in one’s kitchen cupboard

Comment: "Scarcity" means you have to give up something to get the good. Price is an example of something you have to give up, ie money.

9. On scratch paper, draw an economy’s PPF between Guns (on the horizontal) and Butter (on the vertical) and shaped as in economic theory. Insert Points A and B on the PPF curve (somewhat apart), and insert a point X inside the curve. Which of the following is clearly false in theory?

A. Point X produces less of both Guns and Butter compared to at least one point on the

PPF curve

B. the PPF curve is concave (bowed away from you) as viewed from the origin

(C. Point A has more of both Guns and Butter than Point B

D. Point X, being inside the PPF, allows us to infer that this society's resources are not being fully utilized there

E. all of the above

10. Using your drawing from #9 and assuming that your drawing is true of the version in the class lecture, which of the following would occur in theory if the technology of producing Butter were improved with no change in societies resources or other technologies?

(A. the Butter intercept moves upward

B. the Guns intercept moves rightward

C. the Guns and Butter intercepts both move outward

D. the economy moves off its PPF

E. nothing at all changes

11. Cities, like Salt Lake City, which bid for the Winter Olympic Games, are notorious for their bad economic luck. The cost side is often bigger than they expected: the costly building of new stadiums, new roads, and new communications that tend to be underused after the games. But, which of the following reflect logically possible benefits consistent with supply and demand theory?

A. demand for local restaurants increases during the games due to population influx

B. glamour attracts more people, and results in some permanent population increase that the city may want to have

C. continued rental of stadiums afterward the Olympics are over made possible by the building of the stadiums

D. rejuvenation of infrastructure (communication systems, restaurants, roads etc) partly paid for by the games

(E. all of the above

12. According to textbook theory and generally in accord with experience, which tends to happen to the market for apples in the Fall?

A. the prices tend to rise

(B. the supply increases and the equilibrium price drops

C. Fall bonuses (incomes rise) mean less demand for apples, because apples are a normal good

D. the inevitable injuries from bobbing-for-apples results in less demand

E. apples, which are harvested during Spring, tend to rot by the Fall

Comment: Apple harvest occurs in the fall creating a period of ample supply.

13. The concavity of the production possibilities curve is best explained by which of the following?

A. the law of increasing opportunity costs

B. (the specialization of factors

C. all of the above

D. none of the above

14. Suppose two countries, U and J, begin with the identical production possibilities frontiers and J chooses a point on the curve indicating a relatively higher level of capital investment than U. Which of the following outcomes is most likely to occur according to economic theory?

A. nothing, investment is not relevant to growth

(B. J's economy will grow more rapidly

C. U's economy will grow more rapidly

D. it can't be determined from these assumed facts

15. If a hurricane sweeps through North Carolina and a cleanup operation gets going, which of the following best describes the effect of all this on the local market for plywood?

A. the demand shifts left and the supply is unaffected in the short run

B. the short run supply shifts right and the demand is unaffected

(C. the demand shifts right and the short run supply is unaffected

D. the supply and demand both shift left in the short term

16. Suppose that an oil spill curtailed lobster fishing off the Maine coast and then, simultaneously, a recession reduced consumers’ incomes. Compared to the equilibrium price and quantity in the market for lobster before these events, in the new equilibrium

A. the price will be lower and the quantity sold will be lower

B. the price will be higher and the quantity sold will be lower

C. the price will be lower, the effect of the events on quantity cannot be determined without further information

(D. the effect of the events on price cannot be determined without further information; the quantity will be lower

Comment: The oil spill shifts supply to the left, which the income reduction shifts demand (normal good) to the left also. The result is a clear reduction in quantity but the effect on price is ambiguous.

17. Suppose that war in the Middle East caused the world supply of oil to be reduced and that the U.S. had to rely much more heavily on domestic (on U.S. soil or offshore) produced oil. To deal with this crisis, which of the following government policies is the most consistent with economic theoryl?

A. “freeze” the price of domestic oil at its pre-crisis level

B. place taxes on oil substitutes, such as corn-ethanol

(C. discourage nonessential car travel such as through the use of advertising

D. close down domestic oil producers as a retribution against the Arabs

E. eliminate the gasoline tax at the pump

18. If the price in the market is out of equilibrium because it is too high, which of the following results can we predict will happen?

A. there will be a shortage

B. (there will be a surplus

C. the market will be in equilibrium

D. none of the above

19. Which of the following tends to support a firm’s claim that it is not a monopolist in its market area?

(another local firm has a substantial, positive cross-elasticity of demand with it

A. another local firm has a substantial, negative cross-elasticity of demand with it

B. another local firm has a zero cross-elastictiy of demand with it

20. The price elasticity of demand is defined by which of the following?

A. the slope of the demand curve

B. the ratio of the price to the quantity

(C. the ratio of percentage change in quantity demanded to percentage change in price

D. the ratio of the change in quantity to the change in price

21. If the price elasticity of demand in a given case is less than one in absolute value, which of the following strategies would be the most likely to increase firm revenues?

(A. raise price

B. lower price

C. leave price as is

D. one cannot tell given this information

22. Which of the following would likely be the least price elastic?

(A. emergency medical services

B. Breyer's ice cream

C. houses

D. ice cream in general

E. luxury cruises

23. On a linear demand curve, where price is $7 quantity demanded is 20, and where price is $5 quantity demanded is 25. Between these two points, the price elasticity in absolute value when rounded to two digits is

A. 0.14

B. 0.22

(C. 0.67

D. 1.80

E. 2.22

24. Which pair of goods is most likely to have a negative cross elasticity of demand?

(A. sugar and tea

B. paperback novels and hardcover novels

C. pencils and pens

D. coffee and tea

25. The more price inelastic demand for cigarettes is, the more likely that efforts to encourage people to quit smoking, such as increasing the tax on cigarettes, will be able to

A. reduce the total quantity of smoking in the population

B. (increase the tax revenue

C. be effective in curbing smoking

D. cause no increase in taxes collected

Comment: The more that people tend to stay in the market (price inelastic) the more people there are to pay the tax.

26. On a linear demand curve, which of the following best describes the elasticity of demand as one moves along the curve from right to left?

A. (the elasticity in absolute value will increase

B. the elastictiy in absolute value will decrease

C. elasticity is constant along a linear demand curve

27. If Bob goes to buy a pencil at the OU bookstore and finds that the price has increased by 20 percent, he buys it anyway. Which of the following determinants of elasticity of demand best explains his behavior in this case?

A. pencils are a luxury good

B. pencils have many close substitutes

C. (pencils are only a small fraction of his income

28. Suppose that we discovered that the supply of pencils has increased. Which of the following “shifters” is most consistent with this event?

A. the number of sellers has increased

B. the technology of producing pencils has improved

C. the wage of pencil manufacturing workers has fallen

D. (all of the above

E. none of the above

29. Which of the following best represents a demand curve that is perfectly elastic?

A. (a horizontal demand curve

B. a vertical demand curve

C. a downward sloping demand curve

D. an upward sloping demand curve

30. Suppose that we found that the price of shoes rose and also that the quantity of shoes consumed in the market at equilibrium rose. Which of the following shifters could best explain these events?

A. the wage of shoes-workers rose

B. incomes rose and shoes were an inferior good

C. (the practice of hiking for exercise increased

D. the number of shoes-sellers rose

E. the technology for producing shoes improved

Comment: None of the others make sense, assume that the shoes are suitable for hiking.

31. Price controls

a. always produce an equitable outcome.

b. always produce an efficient outcome.

c. (can generate inequities of their own.

d. produce revenue for the government.

32. A binding price ceiling causes

(a. a shortage, which cannot be eliminated through market adjustment.

b. a surplus, which cannot be eliminated through market adjustment.

c. a shortage, which is temporary, since market adjustment will cause price to rise.

d. a surplus, which is temporary, since market adjustment will cause price to rise.

33. When binding price ceilings are imposed to benefit buyers

a. every buyer in the market benefits because of lower prices.

(b. some buyers will not be able to buy any of the product.

c. sellers in the market will equally benefit from a price ceiling.

d. the quantity sellers want to sell will equal the quantity buyers want to buy.

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