ECON 1013 Practice Quiz 01

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1. In one hour, Sue can produce 40 caps or 4 jackets and Tessa can produce 80 caps or 4 jackets. (a) Calculate Sues opportunity cost of producing a cap. (b) Calculate Tessas opportunity cost of producing a cap. (c) Who has a comparative advantage in producing caps? (d) If Sue and Tessa specialize in producing the good in which each of them has a comparative advantage, and they trade 1 jacket for 15 caps, who gains from the specialization and trade? 2. Suppose that Tessa buys a new machine for making jackets that enables her to make 20 jackets an hour. (She can still make only 80 caps per hour.) (a) Who now has a comparative advantage in producing jackets? (b) Can Sue and Tessa still gain from trade? (c) Would Sue and Tessa still be willing to trade 1 jacket for 15 caps? Explain your answer. 3. As more people buy computers, the demand for Internet service increases and the price of Internet service decreases. The fall in the price of Internet service decreases the supply of Internet service. Is this statement true or false? Explain. 4. Think about the demand for the three popular game consoles: XBox, PS3, and Wii. What is the effect on the demand for XBox games and the quantity of XBox games demanded if, other things remaining the same: (a) The price of an XBox falls? (b) The prices of a PS3 and a Wii fall? (c) The number of people writing and producing XBox games increases? (d) Consumers incomes increase? (e) Programmers who write code for XBox games become more costly to hire? (f) The price of an XBox game is expected to fall? (g) A new game console comes onto the market, which is a close substitute for XBox.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Use the gure below to answer the following questions.

Figure 2.1.1 1) Refer to the production possibilities frontier in Figure 2.1.1. Which one of the following is true about point A? A) It is preferred to point B. B) It is unattainable. C) It is attainable only if the amount of capital goods is increased. D) Resources are either unused or misallocated or both. E) While no more of good Y can be produced, more of good X can be produced. 2) If Harold must decrease production of some other good to increase production of good X, then Harold A) is producing inside his production possibilities frontier. B) has too few capital goods. C) must prefer good X to any other good. D) is producing outside his production possibilities frontier. E) is producing on his production possibilities frontier. 3) A production possibilities frontier is negatively sloped because A) there is not enough capital in the economy. B) of opportunity cost. C) more goods are purchased as price falls. D) of increasing consumption. E) some resources are unused.

4) In one hour, Sue can produce 50 caps or 10 jackets and Tessa can produce 70 caps or 7 jackets. Sue's opportunity cost of producing a cap is ________ jackets and Tessa's opportunity cost of producing a cap is ________ jackets. ________ has a comparative advantage in producing caps. If Sue and Tessa each specialize in producing the good in which they have a comparative advantage and trade 1 jacket for 7 caps, ________. A) 5.0; 10.0; Tessa; Sue loses but Tessa gains B) 0.2; 0.10; Tessa; both Sue and Tessa gain C) 5.0; 10.0; Sue; both Sue and Tessa gain D) 0.2; 0.10; Sue; Tessa gains but Sue loses E) 0.2; 0.10; Sue; both Sue and Tessa gain 5) Suppose John and Joe each have different production possibility frontiers; John specializes in cloth and Joe specializes in corn. John's island unexpectedly has exceptionally good weather, and suddenly he is twice as productive in the production of both corn and cloth. Select the best statement. A) As a result, it is possible that John and Joe will switch what they specialize in. B) There will be no change in what John and Joe specialize in, because John's comparative advantage has not changed. C) As a result, John will have an absolute advantage in both corn and cloth. D) There will be a change in what John and Joe specialize in, because John's opportunity cost of production will have risen. E) This is an example of unemployed resources becoming employed. 6) Which one of the following events shifts the demand curve for grape jelly to the right? A) an increase in the price of peanut butter, a complement of grape jelly B) an increase in income if grape jelly is a normal good C) a decrease in the price of grape jelly D) a decrease in the population E) a decrease in the price of strawberry preserves, a substitute for grape jelly

Use the gure below to answer the following questions.

Figure 3.2.1 7) Point A in Figure 3.2.1 indicates that A) if the price is $1, consumers will plan to buy 4,000 apples. B) consumers will only pay $1 for any apple. C) consumers will not be in equilibrium if the price of an apple is $1. D) $1 is the least that consumers are willing to pay for the 4,000th apple. E) if the price is more than $1, consumers will buy 9,000 apples. 8) Which one of the following would result in a movement from point A to point B in Figure 3.2.1? A) a rise in the price of bananas B) a fall in the price of apples C) a rise in the price of oranges D) public concern about chemicals sprayed on apples E) an increase in population size

Use the gure below to answer the following questions.

Figure 3.4.1 9) At price P3 in Figure 3.4.1, A) equilibrium quantity is Q5. B) there is a shortage in the amount of Q5 - Q1. C) there is a surplus in the amount of Q5 - Q1. D) this market is in equilibrium. E) there is a tendency for the price to rise. 10) At price P2 in Figure 3.4.1, which one of the following is not true? A) The quantity demanded is equal to the quantity supplied. B) The quantity supplied is Q3. C) The quantity demanded is Q1. D) There is no surplus. E) This market is in equilibrium. 11) At price P1 in Figure 3.4.1 A) there is a shortage in the amount of Q4 - Q2. B) there is a tendency for the price to fall. C) there is a surplus in the amount of Q4 - Q2. D) the equilibrium quantity is Q4. E) the equilibrium quantity is Q2.

12) At price P1 in Figure 3.4.1, A) consumers can buy all they want. B) producers are unwilling to sell any goods. C) producers can sell all they plan to sell. D) a surplus exists. E) both sides of the market are able to carry out their desired transactions. Use the gure below to answer the following questions.

Figure 3.2.1 13) Which one of the following statements best characterizes point B in Figure 3.2.1? A) The most that consumers would be willing to pay for the 9,000th apple is $0.50. B) At a price of $0.50, there will be an apple shortage. C) At a price of $0.50, consumers will be unwilling to buy any apples. D) Producers would be unwilling to sell the 9,000th apple for less than $0.50. E) At point B, the market is in equilibrium. 14) Given Figure 3.2.1, under what condition are consumers willing to buy more than 9,000 apples per week? A) if the price is between $1 and $0.50 B) if the price is $0.75 C) if the price is between $1 and $1.50 D) if the price is above $1 E) if the price is below $0.50

Use the gure below to answer the following questions.

Figure 2.1.1 15) Complete the following sentence. In Figure 2.1.1, A) movement from A to B would require a technological advance. B) movement from C to B would require a technological improvement. C) some resources must be unused at point C. D) the concept of decreasing opportunity cost is illustrated. E) point B is a point of production efciency. 16) Refer to the production possibilities frontier in Figure 2.1.1, which one of the following is true about point C? A) It is attainable only if we consume more of good X. B) It is attainable only if we consume more of good Y. C) It is unattainable. D) It is attainable only if we consume less of good Y. E) It is attainable only if we consume less of good X. 17) The price of a good will rise if A) demand for the good decreases. B) supply of the good decreases. C) the good is an inferior good and income increases. D) the price of a substitute for the good decreases. E) there is a surplus of the good.

18) The price of a good will fall if A) there is a surplus of the good. B) if the supply of the good decreases. C) if demand for the good increases. D) if demand for the good does not change. E) there is a shortage of the good. 19) The price of a good will fall if A) supply of the good remains constant. B) supply of the good decreases. C) demand for the good increases. D) supply of the good increases. E) demand for the good remains constant. 20) Suppose we observe a fall in the price of good A and an increase in the quantity of good A bought and sold. Which one of the following is a likely explanation? A) The demand for A decreased. B) The law of supply is violated. C) The demand for A increased. D) The supply of A decreased. E) The supply of A increased.