THE UNIVERSITY OF WESTERN ONTARIO LONDON CANADA ...
R. Wintrobe
THE UNIVERSITY OF WESTERN ONTARIO LONDON CANADA Economics 1021A-001 Review 1
October, 2011
1) The night before a history test, you decide to go to the movies instead of reviewing your notes. You get 60 percent on your test compared with the 75 percent that you normally score. You ________ a tradeoff ________, and the opportunity cost of your evening at the movies was ________. A) did not face; because your roommates agreed you should go to the movies and not study; zero B) faced; between a higher test score and an evening at the movies; the 15 percent fall in your grade C) did not face; because you made the best choice; zero D) faced; between a higher test score and an evening at the movies; the mark of 60 percent on your test E) did not face; most students get 60 percent on history tests; the mark of 60 percent on your test Use the figure below to answer the following question.
Figure 1 2) Complete the following sentence. In Figure 1, A) some resources must be unused at point C. B) movement from A to B would require a technological advance. C) point B is a point of production efficiency. D) movement from C to B would require a technological improvement. E) the concept of decreasing opportunity cost is illustrated.
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Use the information below to answer the following question. Fact 1 In an eight-hour day, Andy can produce either 24 loaves of bread or 8 kilograms of butter. In an eight-hour day, Rolfe can produce either 8 loaves of bread or 8 kilograms of butter. 3) Given Fact 1, the opportunity cost of producing 1 loaf of bread is A) 1/3 kilogram of butter for Andy and 1 kilogram of butter for Rolfe. B) 20 minutes (1/3 hour) for Andy and 1 hour for Rolfe. C) 8 kilograms of butter for both Andy and Rolfe. D) 3 kilograms of butter for Andy and 1 kilogram of butter for Rolfe. E) not calculable from the given information. Use the figure below to answer the following question. Table 1 The planets of Vulcan and Romulus each produce goods X and Y. The following table gives points on their production possibilities frontiers. Vulcan Good X Good Y 0 16 2 12 4 8 6 4 8 0
Romulus Good X 0 2 4 6 8
Good Y 12 9 6 3 0
4) Refer to Table 1. Which one of the following is true? A) Romulus has both an absolute advantage and a comparative advantage in the production of Y. B) Romulus has a comparative advantage in the production of X. C) Romulus has both an absolute advantage and a comparative advantage in the production of X. D) Vulcan has a comparative advantage in the production of X. E) Vulcan should specialize in the production of X.
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Use the figure below to answer the following question.
Figure 2 5) Which one of the following statements best characterizes point B in Figure 2? 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) Producers would be unwilling to sell the 9,000th apple for less than $0.50. D) At point B, the market is in equilibrium. E) At a price of $0.50, consumers will be unwilling to buy any apples. 6) Suppose we observe a rise in the price of good A and a decrease in the quantity of good A bought and sold. Which one of the following is a likely explanation? A) The demand for A increased. B) The supply of A increased. C) The demand for A decreased. D) The law of supply is violated. E) The supply of A decreased. 7) If demand increases and supply decreases, then the A) equilibrium price rises but the effect on the equilibrium quantity is unknown. B) equilibrium quantity increases but the effect on the equilibrium price is unknown. C) effect on both equilibrium price and quantity is unknown. D) equilibrium quantity decreases but the effect on the equilibrium price is unknown. E) equilibrium price falls but the effect on the equilibrium quantity is unknown.
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8) Suppose the government of Nova Scotia wants to reduce the consumption of electricity by 5 percent. The price elasticity of demand for electricity is 0.40. You advise the Nova Scotia government to A) raise the price of electricity by 2 percent. B) lower the price of electricity by 2 percent. C) stay away from the market for electricity and let the market mechanism fix the problem. D) lower the price of electricity by 12.5 percent. E) raise the price of electricity by 12.5 percent. Use the table below to answer the following question. Table 2 Demand schedule for good A. Price Quantity demanded (dollars per unit) (units) 9.00 0 8.00 2,000 7.00 4,000 6.00 6,000 5.00 8,000 4.00 10,000 3.00 12,000 2.00 14,000 1.00 16,000 0 18,000 9) Refer to Table 2. The price elasticity of demand when the price rises from $6 a unit to $7 a unit is A) 2.0. B) 2.6. C) 1.0. D) 0.5. E) 1.3. 10) Business people speak about price elasticity of demand without using the actual term. Which one of the following statements reflects elastic demand for a good? A) "With the recent economic recovery, people have more income to spend and sales are booming, even at the previous prices." B) "A price cut won't help me. It won't increase sales, and I'll just get less money for each unit." C) "I don't think a price cut will make any difference to my bottom line. What I may gain from selling more I would lose on the lower price." D) "My customers are real bargain hunters. Since I set my prices just a few cents below my competitors, customers have flocked to the store, and sales are booming." E) none of the above
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11) Fred's income increases from $840 per week to $1,160 per week. As a result, he decides to purchase 24 percent more bubble gum each week. The income elasticity of Fred's demand for bubble gum is A) 0.24. B) 0.75. C) 1.33. D) 24. E) 0.32. 12) Except for the very last unit of a good sold, the price paid by consumers of that good for an additional unit is A) less than the marginal social cost of producing that unit. B) less than the opportunity cost of producing that unit. C) more than the marginal social benefit from that unit. D) less than the marginal social benefit from that unit. E) equal to consumer surplus. 13) When the efficient quantity is produced A) the quantity demanded equals the quantity supplied. B) marginal social benefit equals marginal social cost. C) the sum of consumer surplus and producer surplus is maximized. D) resources are used in the activities in which they are most highly valued. E) all of the above. Use the information below to answer the following question.
Figure 3 14) Consider the demand and supply curves in Figure 3. If the market is at the competitive equilibrium, which area in the diagram indicates producer surplus? A) EBC B) 0ECD C) AEC D) ABC E) 0BCD
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Use the figure below to answer the following question.
Figure 4 15) Refer to Figure 4. If the level of output is 100 units, the deadweight loss is area A) ACH. B) HCG. C) BCF. D) ACG.
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E) DCE.
THE UNIVERSITY OF WESTERN ONTARIO LONDON CANADA Economics 1021A-001 Review 1
October, 2011
1) The night before a history test, you decide to go to the movies instead of reviewing your notes. You get 60 percent on your test compared with the 75 percent that you normally score. You ________ a tradeoff ________, and the opportunity cost of your evening at the movies was ________. A) did not face; because your roommates agreed you should go to the movies and not study; zero B) faced; between a higher test score and an evening at the movies; the 15 percent fall in your grade C) did not face; because you made the best choice; zero D) faced; between a higher test score and an evening at the movies; the mark of 60 percent on your test E) did not face; most students get 60 percent on history tests; the mark of 60 percent on your test Use the figure below to answer the following question.
Figure 1 2) Complete the following sentence. In Figure 1, A) some resources must be unused at point C. B) movement from A to B would require a technological advance. C) point B is a point of production efficiency. D) movement from C to B would require a technological improvement. E) the concept of decreasing opportunity cost is illustrated.
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Use the information below to answer the following question. Fact 1 In an eight-hour day, Andy can produce either 24 loaves of bread or 8 kilograms of butter. In an eight-hour day, Rolfe can produce either 8 loaves of bread or 8 kilograms of butter. 3) Given Fact 1, the opportunity cost of producing 1 loaf of bread is A) 1/3 kilogram of butter for Andy and 1 kilogram of butter for Rolfe. B) 20 minutes (1/3 hour) for Andy and 1 hour for Rolfe. C) 8 kilograms of butter for both Andy and Rolfe. D) 3 kilograms of butter for Andy and 1 kilogram of butter for Rolfe. E) not calculable from the given information. Use the figure below to answer the following question. Table 1 The planets of Vulcan and Romulus each produce goods X and Y. The following table gives points on their production possibilities frontiers. Vulcan Good X Good Y 0 16 2 12 4 8 6 4 8 0
Romulus Good X 0 2 4 6 8
Good Y 12 9 6 3 0
4) Refer to Table 1. Which one of the following is true? A) Romulus has both an absolute advantage and a comparative advantage in the production of Y. B) Romulus has a comparative advantage in the production of X. C) Romulus has both an absolute advantage and a comparative advantage in the production of X. D) Vulcan has a comparative advantage in the production of X. E) Vulcan should specialize in the production of X.
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Use the figure below to answer the following question.
Figure 2 5) Which one of the following statements best characterizes point B in Figure 2? 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) Producers would be unwilling to sell the 9,000th apple for less than $0.50. D) At point B, the market is in equilibrium. E) At a price of $0.50, consumers will be unwilling to buy any apples. 6) Suppose we observe a rise in the price of good A and a decrease in the quantity of good A bought and sold. Which one of the following is a likely explanation? A) The demand for A increased. B) The supply of A increased. C) The demand for A decreased. D) The law of supply is violated. E) The supply of A decreased. 7) If demand increases and supply decreases, then the A) equilibrium price rises but the effect on the equilibrium quantity is unknown. B) equilibrium quantity increases but the effect on the equilibrium price is unknown. C) effect on both equilibrium price and quantity is unknown. D) equilibrium quantity decreases but the effect on the equilibrium price is unknown. E) equilibrium price falls but the effect on the equilibrium quantity is unknown.
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8) Suppose the government of Nova Scotia wants to reduce the consumption of electricity by 5 percent. The price elasticity of demand for electricity is 0.40. You advise the Nova Scotia government to A) raise the price of electricity by 2 percent. B) lower the price of electricity by 2 percent. C) stay away from the market for electricity and let the market mechanism fix the problem. D) lower the price of electricity by 12.5 percent. E) raise the price of electricity by 12.5 percent. Use the table below to answer the following question. Table 2 Demand schedule for good A. Price Quantity demanded (dollars per unit) (units) 9.00 0 8.00 2,000 7.00 4,000 6.00 6,000 5.00 8,000 4.00 10,000 3.00 12,000 2.00 14,000 1.00 16,000 0 18,000 9) Refer to Table 2. The price elasticity of demand when the price rises from $6 a unit to $7 a unit is A) 2.0. B) 2.6. C) 1.0. D) 0.5. E) 1.3. 10) Business people speak about price elasticity of demand without using the actual term. Which one of the following statements reflects elastic demand for a good? A) "With the recent economic recovery, people have more income to spend and sales are booming, even at the previous prices." B) "A price cut won't help me. It won't increase sales, and I'll just get less money for each unit." C) "I don't think a price cut will make any difference to my bottom line. What I may gain from selling more I would lose on the lower price." D) "My customers are real bargain hunters. Since I set my prices just a few cents below my competitors, customers have flocked to the store, and sales are booming." E) none of the above
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11) Fred's income increases from $840 per week to $1,160 per week. As a result, he decides to purchase 24 percent more bubble gum each week. The income elasticity of Fred's demand for bubble gum is A) 0.24. B) 0.75. C) 1.33. D) 24. E) 0.32. 12) Except for the very last unit of a good sold, the price paid by consumers of that good for an additional unit is A) less than the marginal social cost of producing that unit. B) less than the opportunity cost of producing that unit. C) more than the marginal social benefit from that unit. D) less than the marginal social benefit from that unit. E) equal to consumer surplus. 13) When the efficient quantity is produced A) the quantity demanded equals the quantity supplied. B) marginal social benefit equals marginal social cost. C) the sum of consumer surplus and producer surplus is maximized. D) resources are used in the activities in which they are most highly valued. E) all of the above. Use the information below to answer the following question.
Figure 3 14) Consider the demand and supply curves in Figure 3. If the market is at the competitive equilibrium, which area in the diagram indicates producer surplus? A) EBC B) 0ECD C) AEC D) ABC E) 0BCD
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Use the figure below to answer the following question.
Figure 4 15) Refer to Figure 4. If the level of output is 100 units, the deadweight loss is area A) ACH. B) HCG. C) BCF. D) ACG.
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E) DCE.
