ECON 1110 Introductory Microeconomics

Practice Prelim Exam #1

Professor Stephanie Thomas

1. The overriding reason why households and societies face many decisions is that
a. Resources are scarce.
b. Resources are not scarce.
c. Incomes fluctuate with business cycles.
d. People, by nature, tend to disagree.

2. Before you started applying for college, a job recruiter offered you a full-time clerical
position at a pharmaceutical company. Your after-tax salary would be $30,000. You turn
down this offer and attend your first year of college. The additional monetary cost of
college to you, including tuition, supplies, and additional housing expenses, is $40,000.
Because you turned down the offer and chose to attend college, what value do you
ascribe to a year of college?
a. Less than $30,000.
b. $30,000.
c. $40,000.
d. At least $70,000.

3. Franklin is studying for his economics exam. One Sunday, he decides to work nonstop
until he has answered 100 practice problems for his economics exam. He starts working
at 8:00 AM and uses a table to keep track of his progress throughout the day. He notices
that as he continues to study, it takes him longer to solve each problem.

Time Total Problems Answered

8:00 AM 0
9:00 AM 40
10:00 AM 70
11:00 AM 90
12:00 PM 100

The marginal gain for Franklin’s third hour of work, from 10:00 AM to 11:00 AM is
a. 10 problems
b. 20 problems
c. 30 problems
d. 40 problems

ECON 1110 Practice Prelim Exam 1 - Thomas

 4. Which of the following is an example of a positive, as opposed to normative, statement?
a. When the minimum wage is increased, unemployment is a predictable
consequence.
b. The income tax rate should be increased to offset the budget deficit.
c. The budget deficit should be kept at zero to minimize income tax rates.
d. The minimum wage rate should be eliminated.

5. Consider the production possibilities frontier for a

country that can produce bushels of apples, sweaters, or
a combination of the two. Referring to the figure to the
right, which production bundle is impossible given
current technology?
a. Point R
b. Point S
c. Point T
d. Point W

6. A production possibilities frontier is bowed outward when

a. The more resources the economy uses to produce one good, the fewer resources
it has available to produce the other good.
b. an economy is self-sufficient instead of interdependent and engaged in trade.
c. the rate of tradeoff between the two goods being produced is constant.
d. The rate of tradeoff between the two goods being produced depends on how
much of each good is being produced.

ECON 1110 Practice Prelim Exam 1 - Thomas

 7. The production possibilities frontiers below show how much cake and ice cream Greg
and Catherine can each produce in 8 hours of time.

Greg Catherine

What is Greg’s opportunity cost of producing 1 cake?

a. The opportunity cost of producing 1 cake is 2 quarts of ice cream.
b. The opportunity cost of producing 1 cake is 1/2 quarts of ice cream.
c. The opportunity cost of producing 1 cake is 2/5 quarts of ice cream.
d. The opportunity cost of producing 1 cake is 5/2 quarts of ice cream.

8. Use the table below to answer the following question:

Production Opportunities
Number of Units Produced
Hours Needed to Make 1 Unit in 40 Hours
Cheese Wine Cheese Wine
England 1 4 40 10
France 5 2 8 20

Assume that England and France each has 40 labor hours available. If each country
specializes in the production of the good in which it has the comparative advantage and
devotes all 40 hours to the production of that good, then how many units of cheese and
wine will be produced?
a. 40 units of cheese and 20 units of wine.
b. 8 units of cheese and 10 units of wine.
c. 40 units of cheese and 10 units of wine.
d. 8 units of cheese and 20 units of wine.

ECON 1110 Practice Prelim Exam 1 - Thomas

 9. Which of the following statements is not true regarding absolute advantage and
comparative advantage in a 2-country economy (Country A and Country B) producing 2
goods (good X and good Y)?
a. Country A can have the absolute advantage in producing both goods X and Y.
b. Country A can have the absolute advantage in producing good X but the
comparative advantage in producing good Y.
c. Country A can have the absolute advantage and the comparative advantage in
producing good X.
reciprocals d. Country A can have the comparative advantage in producing both goods X and Y.

10. The following table shows the number of cases of water each seller is willing to sell at
the prices listed.
Price per case Alpine Springs Brook Mountain Cascade Waters Dew Good
$0.00 0 cases 0 cases 0 cases 0 cases
$3.00 100 cases 40 cases 60 cases 100 cases
$6.00 200 cases 80 cases 120 cases 200 cases
$9.00 300 cases 120 cases 180 cases 300 cases

If all four suppliers operate in this market, at what price will the market quantity
supplied equal 300 cases?
a. Greater than $0.00 but less than $3.00.
b. $3.00.
c. Greater than $3.00 but less than $6.00.
d. $6.00.
11. Using the table above from Question #10, assume that these are the only four suppliers
in this market. Further assume that the function for the market demand is given by the
following:
𝑄𝐷 = 1000 − 100𝑃
If the price is $6.00 per case, what is the size of the shortage or surplus?
a. There is a shortage of 100 cases.
b. There is a shortage of 200 cases.
c. There is a surplus of 100 cases.
d. There is a surplus of 200 cases.

12. Refer to the figure to the right. A decrease in the price of pizza sauce will cause a
movement from Point B on supply curve S2 to:
a. Supply curve S1.
b. Supply curve S3.
c. Point A on supply curve S2.
d. Point C on supply curve S2.

ECON 1110 Practice Prelim Exam 1 - Thomas

 13. Refer to the figure to the right. A decrease in the price of
pizza will cause a movement from Point B on demand
curve D2 to:
a. Point A on demand curve D3.
b. Point C on demand curve D2.
c. Point E on demand curve D1.
d. Any of the above are possible.

14. Refer to the table below.

Price Quantity Demanded
$0 50
$2 40
$4 30
$6 20
$8 10

What is the midpoint price elasticity of demand between prices of $6 and $8?
a. -2.33
b. +2.33
c. -0.43
d. +0.43

15. Refer to the figure to the right. If the government were to

impose a price ceiling of $15, how would the market
outcome change?
a. The equilibrium quantity would increase from 12
units to 15 units.
b. The equilibrium quantity would decrease from 12
units to 9 units.
c. The equilibrium price would increase from $12 to
$15 dollars.
d. The market outcome would not change.

ECON 1110 Practice Prelim Exam 1 - Thomas

 16. Refer to the figure below. If the government imposes a tax of $6 per unit in this market,
who will bear the greater burden of the tax?
a. Sellers will bear the greater
burden of the tax.
less elastic b. Buyers will bear the greater
burden of the tax.
c. Buyers and sellers will share the
burden equally.
d. The government will bear the
greater burden of the tax.

17. Refer to the figure in Question #16 above. If the government imposes a tax of $6 per
unit in this market, how many units will be bought and sold after the tax is imposed?
a. 30 units.
b. 60 units.
c. 90 units.
d. More than 60 units but less than 90 units.

18. Saddle shoes are not popular right now, so very few are being produced. If saddle shoes
become popular, how will this affect the market for saddle shoes?
a. The supply curve for saddle shows will shift right, which will create a shortage at
the current price. Price will increase, which will decrease quantity demanded and
increase quantity supplied. The new market equilibrium will be at a higher price
and a higher quantity.
b. The supply curve for saddle shoes will shift right, which will create a surplus at
the current price. Price will decrease, which will increase quantity demanded and
decrease quantity supplied. The new market equilibrium will be at a lower price
and a higher quantity.
c. The demand curve for saddle shoes will shift right, which will create a shortage
at the current price. Price will increase, which will decrease quantity demanded
and increase quantity supplied. The new market equilibrium will be at a higher
price and a higher quantity.
d. The demand curve for saddle shoes will shift to the right, which will create a
surplus at the current price. Price will decrease, which will increase quantity
demanded and decrease quantity supplied. The new market equilibrium will be
at a lower price and a higher quantity.

ECON 1110 Practice Prelim Exam 1 - Thomas

 19. Assume that when the price of a 16 oz. to-go coffee is $4.25, students purchase 750
cups per day. If the price decreases to $3.75 per cup, which of the following is the most
likely outcome?
a. Students would purchase fewer than 750 cups per day.
b. Students would continue to purchase 750 cups per day.
c. Students would purchase more than 750 cups per day.
d. We do not have enough information to answer this question.

20. If a price ceiling is binding, then

a. There will be a surplus in the market.
b. There will be a shortage in the market.
c. There will be no effect on the market price or quantity sold.
d. The market will be more efficient than it would be without the price ceiling.

21. Starting from the Y intercept of the demand curve, how does total revenue change as
one moves downward and to the right along a linear demand curve?
a. It always increases.
b. It always decreases.
c. It first increases, then decreases.
d. It is unaffected by any movement along the demand curve.

22. Refer to the figure at the right. If there is currently

a shortage of 20 units of the good, then the law
of:
a. Quantity Demanded predicts that the price
will rise by $2 to eliminate the shortage.
b. Quantity Supplied predicts that the price
will rise by $2 to eliminate the shortage.
c. Supply and Demand predicts that the price
will rise by $2 to eliminate the shortage.
d. Supply and Demand predicts that the price
will fall by $2 to eliminate the shortage.

ECON 1110 Practice Prelim Exam 1 - Thomas

 23. If the supply of generators decreases and the demand for generators increases, the
equilibrium price for generators _______ and the equilibrium quantity of generators
_______.
a. May increase, decrease, or stay the same; may increase, decrease or stay the
same
b. May increase, decrease, or stay the same; will increase
c. Will increase; may increase, decrease, or stay the same
d. Will increase; will decrease

24. Which of the following is not a function of prices in the market system?
a. Prices have the crucial job of balancing supply and demand.
b. Prices send signals to buyers and sellers to help them make rational economic
decisions.
c. Prices coordinate economic activity.
d. Prices ensure an equal distribution of goods and services among consumers.

25. Suppose the government imposed a price floor on cellular phones. Which of the
following events could transform the price floor from one that is binding to one that is
not binding?
a. Cellular phones become less popular
b. Traditional land line phones become more expensive
c. The components used to produce cell phones become less expensive
d. Firms expect the price of cellular phones to fall in the future

ECON 1110 Practice Prelim Exam 1 - Thomas

 Question # Answer
1 A
2 D
3 B
4 A
5 B
6 D
7 A
8 A
9 D
10 B
11 D
12 B
13 B
14 A
15 D
16 B
17 A
18 C
19 C
20 B
21 C
22 C
23 C
24 D
25 B

ECON 1110 Practice Prelim Exam 1 - Thomas