Exam Code: 104 - University of Alberta

1. What do economists mean when they state that a good is scarce?a. There is a shortage of the good at the current price.b. It is impossible to expand the availability of the good.c. People will want to buy more of the good regardless of the price.d. Our wants exceed our limited resources.22. The branch of economics that studies the aggregate decisions of all households and firms is called:a. positive economics.b. normative economics.c. microeconomics.d. macroeconomics.3. “When one hockey team spends a large sum of money acquiring better players, it is better off. If all teams dothe same thing, all of them are better off.”These statements demonstrate:a. the fallacy of composition.b. confusing correlation with causation.c. a misunderstanding of the direction of causation.d. the ceteris pairbus condition.4. Which of the following is motivated by an efficiency concern?a. In December 2006, the Bush administration restarted a short term housing assistance program for victimsof Hurricane Katrina.b. Each year, the University of Notre-Dame conducts a lottery to parcel out the 30,000 seats available tocontributors, former athletes and parents in the 80,000 seat stadium.c. The United Network for Organ Sharing advocates a system of rationing scarce kidneys that would favouryoung patients over old in an effort to wring more life out of donated organs.d. The U. S. federal government’s housing choice voucher program assists very low income families, theelderly, and the disabled to afford decent, safe, and sanitary housing in the private market.5. Ken Cleanairsystems paid $300 to take a course on flower arranging. The course meets 30 times, for onehour a class, over a four month period. Instead of attending class, Ken could either flip hamburgers for $8 anhour or wait tables $6 per hour. The opportunity cost of attending each class sessiona. $300.b. $8.c. $6.d. $14.e. $240.6. Suppose that the economy of Elbe is operating at some point inside of the PPF. One possible explanation isa. the Elbian economy has very poor technology.b. resources are being used inefficiently.c. the Elbian economy has very few resources.d. the Elbian economy is operating at maximum efficiency.Refer to the table below when answering the next question concerning the production possibilities data forAnviliania.A B C D EKaldors 0 4 8 12 16Lupines 60 54 42 24 07. Suppose that Freedonia is currently producing combination B. What is the opportunity cost of 1 moreKaldor?

a. approximately 1 Lupine.b. 3 Lupines.c. 4 Lupines.d. 12 Lupines.e. 54 Lupines.38. Which of the following is an incorrect statement concerning the law of increasing costs?a. It is observable only in market-based economies.b. It is a theoretical extreme that almost all economists say has never been tested.c. It is characterized by a straight line for a nation’s production possibilities curve.d. All of the above.e. None of the above.9. For a market economy to properly function, it requiresa. the existence of money.b. a system of property rights.c. freedom from government action of any kind.d. all of the above.e. a and b.10. Refer to Figure 1.1. In that circular flow diagram which arrow shows the flow of sales revenue?a. A.b. E.c. F.d. G.e. H.Figure 1.111. Suppose the price of gasoline declines sharply. Which of the following will most likely occur as a result oflower gasoline prices?

a. An increase in demand for larger, more powerful automobiles.b. An increase in the demand for solar heating systems.c. an increase in demand for home insulation products.d. an increase in demand for gasoline.412. If consumers are less willing and able to pay for each level of ouput than they were previously, thenapparently:a. demand has increased.b. supply has increased.c. demand has decreased.d. supply has decreased.13. Suppose today buyers of gold expect that the price of gold will fall in May. What happens in the gold market todayholding everything else constant?a. The demand curve shifts to the right.b. The quantity demanded increases.c. The quantity demanded decreases.d. The demand curve shifts to the left.14. If the price of cotton used in making blue jeans increases, which of the following will occur?a. The supply curve for jeans will shift outward.b. There will be a movement along the supply curve for jeans.c. There will be a shifting outward of the supply curve for jeans, followed by a movement alongthe supply curve.d. The supply curve for jeans will kink into an backwards shaped curve.e. The supply curve for jeans will shift inward.15. Which of the following is evidence of a surplus of bananas?a. Firms raise the price of bananas.b. The price of bananas is lowered in order to increase sales.c. The equilibrium price of bananas rises due to an increase in demand.d. The quantity demanded of bananas is greater than the quantity supplied.16. Suppose that the demand for porcelain lupines is given by the equation, P = 1200 – 4Q and the supply is givenby the equation, P = 200 + 5Q. Then the equilibrium quantity will bea. 111 units.b. 156 units.c. 1000 units.d. 1400 units.e. None of the above.17. Suppose you learned that the price of men’s shirts rose from an average of $18 in 2007 to an average of $27 in2008 but that the quantity sold did not change. Which of the following would be the most likely explanation ofwhat happened?a. An increase in consumer incomes.b. A decrease in the price of ties (a complement).c. An improvement in the production technology for making shirts.d. A decrease in the cost of labour of workers in the shirt making industry and the start of a successfuladvertising campaign promoting the purchase of shirts.e. An increase in the price of sweatshirts (a substitute) and an increase in the price offabrics used to make shirts.18. Suppose that Gallows Wine is an inferior good as economists use the term. If the income of the consumersof Gallows Wine increases, you would predict that

a. both equilibrium price and quantity will fall.b. both equilibrium price and quantity will increase.c. equilibrium price will increase and equilibrium quantity will decrease.d. equilibrium quantity will fall but equilibrium price may rise fall or remain constant.e. equilibrium price will fall but equilibrium quantity may rise, fall or remain constant.519. Suppose that in Freedonia, consumer tastes have changed so that smoking cigarettes is considered less sociallyacceptable. However, at the same time, advances in tobacco farming have occurred. The result of theseevents will bea. a decrease in equilibrium price and an increase in equilibrium quantity.b. an increase in equilibrium quantity and price.c. a decrease in the equilibrium quantity and no price change.d. a decrease in equilibrium price and an uncertain change in equilibrium quantity.e. a increase in equilibrium quantity and an uncertain change in equilibrium price.20. The data in box B represent two equilibria in the market for good Y. Select the explanation that is mostconsistent with these data.a. The wages of workers that produce good Y rose.b. The cost of materials used to produce good Z, a substitute for good Y, fell.c. Economic profits earned in the production of good Y induced entry of new producers.d. Incomes fell and good Y is an inferior good.e. The producers of good Y formed a successful cartel.Box BYear Price of good Y Quantity of good Y1 $ 20 1002 $ 10 30021. Political and Legal forces are referred to asa. the Invisible Hand.b. the Invisible Elbow.c. the Invisible Handshake.d. the Invisible Foot.e. the Invisible Headbutt.22. A price floor is aa. price set by the government at which all goods or services must be legally sold.b. maximum price above which sales cannot legally be made.c. price above which there would be no demand.d. price below which there would be no supply.ce minimum price below which sales cannot legally be made.23. A price ceiling set above the equilibrium price results ina. excess demand.b. excess supply.c. the equilibrium price.d. an increase in supply.e. a decrease in demand.24. European Economic Community (EEC) countries have been accumulating butter and cheese mountains andwine lakes. These surpluses are consistent witha. floor prices for agricultural products that are below market prices.

. floor prices for agricultural products that are above market prices.c. ceiling prices for agricultural products that are below market prices.d. ceiling prices for agricultural products that are above market prices.e. quotas for agricultural products.625. If an effective price ceiling is in effect and if the demand for the product increases, one consequence would bea. the quantity exchanged would increase.b. the quantity exchanged would remain constant.c. a decrease in the amount of excess supply.d. an increase in the amount of excess demand.e. b and d.26. The country of Anviliania produces only one product, anvils. Freedonia and Outer Slobovia buys anvils fromAnviliania as well as producing their own anvils. Suppose that the supply of anvils (domestic and foreign) inFreedonia is identical to the supply of anvils (domestic and foreign) in Outer Slobovia. However, inFreedonia, consumers have many substitutes for anvils. Consumers in Outer Slobovia have no substitutes foranvils. Suppose that the governments of Freedonia and Outer Slobovia impose identical quotas on Anvilianiananvils. Then we can conclude that the;a. price of Anvilianian anvils will increase more in Freedonia that it will in Outer Slobovia.b. quantity of Anvilianian anvils will decrease more in Freedonia that it will in Outer Slobovia.c. price of Anvilianian anvils will increase by the same amount in Freedonia and in Outer Slobovia.d. the increase in demand for Outer Slobovian anvils in Outer Slobovia will be greater than theincrease in demand for Freedonian anvils in Freedonia.e. None of the above.27. In an April 2009 edition of the New England Journal of Medicine, a study suggested that for every 10 %increase in the price of soft drinks, consumption drops by 7.8 %. From this information we can conclude thatthe demand for soft drinks isa. elastic.b. inelastic.c. perfectly elastic.d. perfectly inelastic.e. unit elastic.28. Business people often speak about elasticity of demand without using the actual term. Which oneof the following quotes reflects elastic demand for a product?a. “My customers are real bargain hunters. Since I set my prices just a few cents below mycompetitors, customers have flocked to the store and sales are booming.”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 that a price cut will make any difference to my bottom line. What I gain fromselling more, I would lose on eh lower price.”d. “With the recent economic recovery, people have more income to spend and sales arebooming, even at the previous prices.”e. none of the above.29. Suppose the price of a money clip increases from $0.75 to $1.90 and the quantity demanded falls from10,000 units to 8,100 units. Given this information, the arc elasticity of demand isa. 0.82.b. 0.24c. 1.d. 4.16e. None of the above.

30. The short run demand curve for medical services is believed to be highly inelastic. This is most likely theresult ofa. the years of training that doctors must go through before they are licensed to practicemedicine.b. the control the Canadian Medical Association has over the number of students who areadmitted to Canadian medical schools.c. the fact that there are few substitutes for the treatments for which people frequently go to thedoctor.d. the fact that too many physicians are specializing today, leaving too few doctors in general practice.7