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Microeconomics/Econ202 Practice Test 1

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Study quiz for UofI's microecon first test of the semester
Lauren Beets
Quiz by Lauren Beets, updated more than 1 year ago
Lauren Beets
Created by Lauren Beets about 4 years ago
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Resource summary

Question 1

Question
Traditionally, most models in Economics analyze policies and offer suggestions that maximize efficiency in the economy (as opposed to maximizing equity). Which statement best explains why this happens:
Answer
  • Efficiency is really the only outcome that matters in society in terms of well-being
  • Maximizing equity requires normative evaluation, while maximizing efficiency does not
  • Economists are not concerned about the level of equity in society
  • . All of the above

Question 2

Question
Suppose that college tuition is higher this year than last year and that more students are enrolled in college this year than last year. Based on this information, we can best conclude that:
Answer
  • The demand curve for a college education must be positively sloped
  • Everything you have ever believed in has been a lie
  • The law of demand is invalid
  • Despite the increase in price, enrollment increased due to some other factor(s) changing in the market

Question 3

Question
Suppose the market for ice cream is in equilibrium. Then a change occurs, and the equilibrium price decreases while the equilibrium quantity also decreases. According to economic theory, what change could have occurred in the market to cause these changes to price and quantity?
Answer
  • Decrease in demand
  • Decrease in supply
  • Increase in demand
  • Increase in supply

Question 4

Question
Which of the following is the best example of the opportunity cost of the (approximately) one hour spent taking this exam?
Answer
  • The stress/anxiety you experience while taking the exam
  • The tuition money spent to enroll in ECON 202
  • The wages you could be earning if you spent this hour working at a job
  • The time spent studying for this exam

Question 5

Question
According to economic theory, if a country decides to reduce restrictions and increases its level of trade with the rest of the world, we predict:
Answer
  • Social surplus in that country to increase
  • Social surplus in that country to remain the same
  • Social surplus in that country to decrease
  • Any of the above is equally likely to occur when a country increases its level of trade

Question 6

Question
Which of the following is true regarding the federal minimum wage in the United States?
Answer
  • The federal minimum wage has been adjusted regularly to account for the increased cost of living over the past 20 years.
  • A full-time worker earning the current federal minimum wage will earn enough income to be above the official poverty line.
  • None of the statements about the federal minimum wage are true.
  • All of the statements about the federal minimum wage are true
  • The majority of workers that earn the minimum wage are teenagers

Question 7

Question
Suppose the market for bananas is in equilibrium. What are the predicted market outcomes if a natural disaster destroys a large percentage of the banana crop in a particular year?
Answer
  • Price will increase, quantity will increase
  • Price will decrease, quantity will decrease
  • Price will decrease, quantity will increase
  • Sad monkeys
  • Price will increase, quantity will decrease

Question 8

Question
Suppose that the market for a good is in equilibrium, then two major factors change. The first change causes the demand to increase. The second change causes the supply to increase. Based on this information, what outcomes do you predict in this market?
Answer
  • The price will decrease, the quantity may increase or decrease
  • The quantity will increase, the price may increase or decrease
  • The quantity will decrease, the price may increase or decrease
  • The price and quantity will both increase
  • The price will increase, the quantity may increase or decrease

Question 9

Question
Which of the following best describes the marginal cost to a company from hiring an additional worker?
Answer
  • The increase in total output (amount produced) of the company after the new worker is hired
  • The total amount paid towards worker wages after the new worker is hired
  • The total output (amount produced) of the company after the new worker is hired
  • The increase in the total amount paid towards worker wages after the new worker is hired

Question 10

Question
In Economics, the definition of an “inferior” good, (for example, Top Ramen) is a good for which people will actually buy more as the price increases.
Answer
  • True
  • False

Question 11

Question
According to economic theory, if a country decides to reduce restrictions and increases its level of trade with the rest of the world, we predict:
Answer
  • Social surplus in that country to decrease
  • Social surplus in that country to remain the same
  • Social surplus in that country to increase
  • Any of the above is equally likely to occur when a country increases its level of trade

Question 12

Question
According to economists, efficiency in the market occurs when:
Answer
  • Producer surplus is maximized
  • Social surplus is maximized
  • Consumer surplus is maximized

Question 13

Question
Suppose the supply curve in the market for milk shifts to the right. Which of the following best describes how the supply and demand model predicts consumers will respond?
Answer
  • The demand curve will shift to the left
  • The demand curve will shift to the right
  • The demand curve remains the same, quantity demanded will decrease
  • The demand curve remains the same, quantity demanded will increase

Question 14

Question
If the price in the market is initially set at $5, what is the result in the market, and what will eventually happen to move the market to equilibrium?
Image:
Chart+#11 (binary/octet-stream)
Answer
  • Shortage, price increase
  • Surplus, price decrease
  • Shortage, price decrease
  • Surplus, price increase

Question 15

Question
Suppose the government sets a binding price floor in the market for milk. Based on this, we would expect the outcome to be a [blank_start]surplus[blank_end] in the market for milk. If a black market for milk develops, then the price in that market will be [blank_start]lower[blank_end] than the price floor.
Answer
  • surplus
  • shortage
  • lower
  • higher

Question 16

Question
In economic terms “producer surplus” is :
Answer
  • A terrible name for a band
  • The opportunity cost of purchasing one particular good
  • The value a buyer receives from purchasing a good minus the price they had to pay for it
  • The amount of money a seller receives from the buyer minus the minimum amount they would have accepted to sell the product
  • The number of units by which supply is greater than demand

Question 17

Question
Suppose the market for a particular good is in equilibrium. Then the demand in the market increases (the demand curve shifts to the right). What do we expect will happen to our welfare calculations?
Answer
  • Producer surplus will increase, consumer surplus may increase or decrease
  • Producer surplus will decrease, consumer surplus may increase or decrease
  • Consumer surplus will increase, producer surplus may increase or decrease
  • Consumer surplus will decrease, producer surplus may increase or decrease

Question 18

Question
According to the graph, what labeled area(s) represent producer surplus before the price floor is put into place?
Image:
Price+Model (binary/octet-stream)
Answer
  • A only
  • A, B, and C
  • B and D
  • C and E
  • D and E

Question 19

Question
According to the graph, what labeled area(s) represent producer surplus after the price floor is put into place?
Image:
Price+Model (binary/octet-stream)
Answer
  • A only
  • A, B, and C
  • B and D
  • C and E
  • D and E

Question 20

Question
If the government’s primary goal in setting tax policy is to minimize the amount of deadweight loss that is created, they should impose the highest amount of sales tax on:
Answer
  • Restaurant meals
  • Groceries
  • Breakfast cereal, specifically
  • The deadweight loss caused will be the same no matter which of these goods is taxed at the highest rate (it does not matter which goods you tax)

Question 21

Question
Suppose the information in the table above reveals the actual willingness to pay for a ticket to watch Dan perform close-up magic and juggle various household items. If there is only 1 ticket left and buyers bid against each other in an auction to purchase it, which of the following is the most likely price?
Image:
Willingness+To+Pay (binary/octet-stream)
Answer
  • $101
  • $99
  • $61
  • $59
  • $35

Question 22

Question
Based on the graph , what is the producer surplus when the market depicted is in equilibrium?
Image:
Price+Model+2 (binary/octet-stream)
Answer
  • 800
  • 300
  • 250
  • 150
  • 30

Question 23

Question
According to the economic concept of thinking incrementally, in general, the efficient level of an activity occurs at the point at which:
Answer
  • There are no opportunity costs
  • The total costs equal the total benefits
  • The marginal costs equal the marginal benefits
  • All of these are true

Question 24

Question
Which of the following would be expected to cause an increase in the supply for a certain good?
Answer
  • An increase in the price of the good
  • A decrease in the price of the good
  • An increase in the cost of raw materials used to produce this good
  • A decrease in the cost of raw materials used to produce this good

Question 25

Question
Suppose that at a price $6 the quantity demanded in a market is 22, and at a price of $8 the quantity demanded in the market is 21. If we use this information to create a linear demand equation, what will that equation be?
Answer
  • P = -5 + (1/2)QD
  • P = -38 + 2QD
  • P = 50 - 2QD
  • P = 17 – (1/2)QD

Question 26

Question
Consider our discussion of the impact of the Coronavirus on the market for respirator masks. The prices of masks are rapidly increasing, and shortages are happening in some countries. If the governments of these countries begin to enforce binding price ceilings for these masks, this is likely to:
Answer
  • Have no measurable impact on the number of people that are able to actually purchase masks
  • Increase the number of people that are able to actually purchase masks
  • Decrease the number of people that are able to actually purchase masks

Question 27

Question
As discussed in class, one main reason a government might impose a non-binding price floor policy is that:
Answer
  • Policymakers want to prevent price-gouging in the case of emergency situations, such as natural disasters
  • Policymakers want to promote competition and protect the interests of producers in the market in case market conditions change
  • Policymakers want to lower the price below current levels to ensure that consumers can afford the good or service
  • Policymakers want to assert their dominance over the citizens in their district

Question 28

Question
Suppose the market in the graph is originally in equilibrium at a price of P2. If the government implements a price ceiling at price P1, what will be the new market outcome?
Image:
Price+Model+3 (binary/octet-stream)
Answer
  • Surplus of 62
  • Shortage of 62
  • Surplus of 30
  • Shortage of 30
  • No impact on market outcomes from the price ceiling (remain in equilibrium)

Question 29

Question
If the government decides to set a price floor at price P1 in this market, how much of this good do you expect will be sold (legally)?
Image:
Price+Model+3 (binary/octet-stream)
Answer
  • 38
  • 50
  • 68
  • 80
  • 100
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