MOCK TEST 1 (CHAPTERS 1-4)

I. MULTIPLE-CHOICE QUESTIONS
1. Because of their scarcity, the efficient use of resources is
a. an important issue in all economies.
b. an important issue only in centrally planned economies.
c. an important issue only in market economies.
d. not an important issue.
2. Which of the following is an opportunity cost of attending college?
a. the cost of the haircut you do every month
b. the income you could have earned if you didnʹt attend college
c. the cost of the food you consume while attending college
d. the education you gain from college.
3. Which of the following is a resource as the term is used by economists?
a. buildings
b. labor
c. land
d. all of the above
4. You correctly deduce that all resources are fully employed and there are no production
inefficiencies if this economy is currently operating at a point
a. inside the production curve.
b. along the production curve.
c. outside the production curve.
d. either inside or along the production curve.
5. Refer to Figure 1. The economy is currently at Point B. The opportunity cost of moving from
Point B to Point A is the
a. 40 plasma TVs that must be forgone to produce 120 additional LCD TVs.
b. 20 plasma TVs that must be forgone to produce 30 additional LCD TVs.
c. 30 LCD TVs that must be forgone to produce 40 additional plasma TVs.
d. 120 LCD TVs that must be forgone to produce 20 additional plasma TVs.

Figure 1
6. The law of demand implies that as price falls, ________.
a. demand increases
b. demand falls
c. quantity demanded increases

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 d. quantity demanded falls
7. A change in the ________ of a good or service leads to a change in ________ that leads to a
________.
a. supply; demand; change in price
b. demand; quantity demanded; change in supply
c. price; quantity demanded; movement along the demand curve
d. quantity; supply; change in demand
8. A change in ________ leads to a change in demand that causes a ________.
a. income or price of other goods; shift in the demand curve
b. income or price of other goods; movement along the demand curve
c. the price of the original product; shift in the demand curve
d. income or price of the original product; movement along the demand curve

Figure 2
9. Refer to Figure 2. An increase in the wage rate of pizza makers will cause a movement from
Point B on supply curve S2 to
a. Point A on supply curve S2.
b. Point C on supply curve S2.
c. supply curve S3.
d. supply curve S1.
10. Refer to Figure 2. A movement from Point C to Point B on supply curve S2 could be caused
by a(n)
a. decrease in the price of pizza.
b. increase in the price of pizza dough.
c. increase in the demand for pizza.
d. decrease in the price of hamburgers, assuming hamburgers are a substitute for
pizzas.

Figure 3

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11. Refer to Figure 3. Assume hamburgers are a normal good. A decrease in income will cause a
movement from
a. Point A to Point B.
b. Point G to Point F.
c. D2 to D1.
d. S2 to S1.
12. Pineapples and kumquats are substitute goods. A hurricane in Guatemala destroyed a good
portion of the pineapple crop. Ceteris paribus
a. the price of both pineapples and kumquats will increase.
b. the price of both pineapples and kumquats will fall.
c. the price of kumquats will increase and the price of pineapples will fall.
d. the price of kumquats will fall and the price of pineapples will increase.
13. The price elasticity of demand for bottled water in Texas is ‐2, and the price elasticity of
demand for bottled water in California is ‐0.5. In other words, demand in Texas is ________
and demand in California is ________.
a. elastic; inelastic
b. inelastic; elastic
c. elastic; unit elastic
d. inelastic; unit inelastic
14. A government wants to reduce electricity consumption by 5%. The price elasticity of demand
for electricity is ‐0.5. The government must ________ the price of electricity by ________.
a. raise; 10.0%
b. raise; 1.0%
c. raise; 0.1%
d. lower; 0.2%

Figure 4
15. Refer to Figure 4. Assume Tom is on budget constraint AC and the price of a hamburger is
$4.00. Tomʹs monthly income is
a. $20.
b. $60.
c. $80.
d. $100.
16. Refer to Figure 4. The slope of budget constraint AC is
a. ‐5.0.
b. ‐2.0.
c. ‐0.5.

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 d. indeterminate from this information because prices are not given.
17. Ellen is spending her entire income on goods X and Y. Her marginal utility from the last unit
of X is 100 and the marginal utility from the last unit of Y that she consumes is 50. Ellenʹs
utility is only maximized if
a. the prices of X and Y are the same.
b. the price of good X is twice that of good Y.
c. the price of good Y is twice that of good X.
d. We cannot determine whether Ellie is maximizing her utility.
18. Average fixed costs
a. are the costs associated with producing an additional unit of output.
b. provide a per unit measure of costs.
c. fall as output rises.
d. are constant.
19. Marginal cost may be defined as
a. the rate of change in total fixed cost that results from producing one more unit of
output.
b. the change in total cost that results from producing one more unit of output.
c. the change in average variable cost that results from producing one more unit of
output.
d. the change in average variable cost that results from producing one more unit of
output.
20. Other things being equal, if the prices of a firm’s variable inputs were to fall
a. marginal cost, average variable cost, and average fixed cost would all fall.
b. marginal cost, average variable cost, and average total cost would all fall.
c. average variable cost would fall, but marginal cost would remain unchanged.
d. marginal cost would fall, but average variable cost would remain unchanged.
II. EXERCISES
1. (1.5 point) The fruit market has the following supply and demand functions:
QS = 0.2P – 12
QD = 180 – P
where P is the price, QS and QD are the quantity supplied and quantity demanded.
a. Calculate the equilibrium quantity and price in this market.
b. If the government imposes a ceiling price of 100, will there be a shortage or a
surplus in the fruit market?
c. If the government imposes a ceiling price of 220, will there be a shortage or a
surplus in the fruit market?
2. (1.0 point) Suppose that the demand for cakes can be represented by the following function: Q
= 30 – P. Calculate the price elasticity of demand for segment AB where PA = 5 and PB = 10.
3. (2.5 points) Fill in the empty cells in the following table with the appropriate values:
Q FC VC TC AFC AVC ATC MC
0 - - - -
5 3
10 2
15 4 8
20 140

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 ANSWERS
I. MULTIPLE-CHOICE QUESTIONS

1. A 2. B 3. D 4. B 5. B 6. C 7. C 8. A 9. C 10. C
11. C 12. A 13. A 14. A 15. C 16. B 17. B 18. C 19. B 20. B

II. EXERCISES
1.
a. At equilibrium, QD = QS, so we have:
0.2P – 12 = 180 – P
→ 1.2P = 192
→ P = 160
Subtituting P = 160 into the supply function we have
Q = 0.2P – 12 = 0.2 x 160 – 12 = 20
(Note: we can plug P into the demand function instead of the supply function)
The equilibrium price is 160 and the equilibrium quantity is 20.
b. If the government imposes a ceiling price PC = 100 < P* = 160, the market price will be PM =
PC = 100.
The quantity supplied will be:
QS = 0.2P – 12 = 0.2 x 100 – 12 = 8
The quantity demanded will be:
QD = 180 – P = 180 – 100 = 80
Since QS = 8 < QD = 80, there will be a shortage of 72 in the market.
c. If the government imposes a ceiling price PC = 220 > P* = 160, the market price will be the
equilibrium price PM = P* = 160. There will be neither a shortage nor a surplus in the market.

2.
PA = 5, QA = 30 – PA = 30 – 5 = 25
PB = 10, QB = 30 – PB = 30 – 10 = 20

3.
Q FC VC TC AFC AVC ATC MC
0 60 0 60 - - - -
5 60 15 75 12 3 15 3
10 60 25 85 6 2,5 8,5 2
15 60 60 120 4 4 8 7
20 60 140 200 3 7 10 16