Sample Test Questions

Sample Test Questions - 1 -

The lead article in the February 12, 1996 Business section of the New York Times was titled ``The Meteoric Rise of Web Site Designers.'' Part of the point of the article is that more and more businesses are hiring people to design web sites. Using simple supply and demand analysis what will happen in the short run to the wages paid to and numbers employed as web-site designers? (In the sort run in this case the supply curve does not have time to shift.)
1. Wages will fall and numbers employed will fall.
2. Wages will rise and numbers employed will increase.
3. Wages will remain constant and numbers employed will increase.
4. Wages will rise and numbers employed will fall.
5. Wages will fall and numbers employed will increase.
  Answer to Question 1
The city of Myopia has only one eyeglass store. A market study done in Myopia determined that the price elasticity of demand for eyeglasses there is 0.2. You, as the business manager recommend a price increase of 10%. You predict the following will occur.
1. Sales decline by 10%.
2. Sales increase by 20%.
3. Sales remain unchanged since demand is inelastic.
4. Sales decline by 2%.
5. Sales increase by 2%.
  Answer to Question 2
A recent study conducted at the Jack Daniels Institute for Advanced Studies determined that consumption of beets is beneficial in reducing hangover symptoms. Using simple supply and demand analysis you predict that when the findings are published:
1. The equilibrium beet price will rise and quantity will fall.
2. The equilibrium beet price will fall and quantity will rise.
3. The equilibrium beet price will fall and quantity will remain constant.
4. The equilibrium beet price will rise and quantity will rise.
5. The equilibrium beet price will fall and quantity will fall.
  Answer to Question 3
As digital audio tape decks become more affordable, what will probably happen to the own price elasticity of demand for standard cassette decks?
1. demand will become more inelastic due to the availability of a new substitute.
2. demand will become more elastic due to the availability of a new substitute.
3. demand will become more inelastic due to the availability of a new complement.
4. demand elasticity will remain unchanged.
5. demand will become more elastic due to the availability of a new complement.
  Answer to Question 4
Assuming the alternative is summer employment, the opportunity cost of taking a course during the summer session at the university is:
1. forgone earnings only.
2. only the expense of taking the course (including the tuition and books).
3. the difference between forgone earnings and course-related expenses.
4. course related expenses minus forgone earnings plus expenditures on entertainment.
5. the total of forgone earnings and course-related expenses.
  Answer to Question 5
You observe that the quantity sold of VCRs over the last 3 year has increased but that price has remained roughly constant. The best explanation for this is:
1. The price of televisions has risen and the popularity of VCRs has increased.
2. The cost of video tape rentals has fallen and consumer tastes have remained unchanged.
3. VCR manufacturing costs have decreased and the popularity of VCRs has increased.
4. Production technology has remained unchanged and the popularity of VCRs has increased.
5. Manufacturing costs have risen and more and more consumers think VCRs are only for mindless jerks.
  Answer to Question 6
During some period of time it is observed that the price of pre-recorded cassette tapes has fallen but the quantity bought and sold has remained about constant. The best explanation for this is:
1. Manufacturing costs of cassette tapes has fallen and the price of compact disks (CDs) has risen.
2. Manufacturing costs of cassette tapes has fallen and the price of CDs has fallen.
3. Manufacturing costs of cassette tapes has risen and the price of CDs has fallen.
4. Manufacturing costs of cassette tapes has risen and the price of CDs has risen.
5. Manufacturing costs of cassette tapes has fallen and the price of tape decks has fallen.
  Answer to Question 7
Suppose a simple market can be represented by the demand equation Q_D = 40 - 2P and the supply equation Q_S = 5 + 3P. For this market, what will happen if the market price is initially $5?
1. Price will rise, quantity demanded will fall.
2. Demand will increase.
3. Supply will decrease.
4. Price will fall, quantity demanded will fall.
5. Price will fall, quantity supplied will rise.
  Answer to Question 8
Consider the following data for some firm for the year 1991, which had total revenues equal to$1,000,000. Total Expenses: 680,000
Net income (total revenue minus total expenses): 320,000
Corporate Income tax:70,000
Net Income After tax: 250,000

The owner of this firm earned an $80,000 salary at her previous job. She also pays $40,000 a year rent for a town house, and has $500,000 of her own money invested in the firm. The economic profit for 1991 is equal to:
1. the accounting profit of $250,000
2. a loss of $330,000
3. $130,000
4. a loss of $370,000
5. $170,000 minus the forgone interest on her $500,000 investment.
  
  Answer to Question 9
Of the attainable points shown in the figure above, which do we know would be the best choice for any society that likes both Liverwurst and Spam.
1. A.
2. B.
3. C.
4. G.
5. there is insufficient information to determine which point is best.
  Answer to Question 10
Again considering the figure above, putting currently unemployed resources to work can be illustrated by:
1. shifting the production possibility boundary outward.
2. movements up and to the left along a given production possibility boundary.
3. movements down and to the right along a given production possibility boundary.
4. moving from a point on the boundary of the production possibilities frontier to a point beyond the boundary.
5. moving from a point inside the boundary of the production possibilities frontier to a point on it.
  Answer to Question 11
Again considering a society with the production possibilities depicted above, we know that a point like G is:
1. efficient but not necessarily best, it all depends on social preferences.
2. not currently attainable by the society whatever its preferences.
3. the result of underemployed resources
4. better than points A or B but we can't compare it to C.
5. better than point C but we can't compare it to A or B.
  Answer to Question 12
Again considering a society with the production possibilities depicted above, we know that a point like C, the opportunity costs of spam in terms of liverwurst is:
1. 20
2. 50
3. 2/5
4. 0
5. 1
Answer to Question 13
Consider the market shown above. If an effective price floor is imposed at a price of 10 the result will be:
1. a surplus of 9 units.
2. a shortage of 9 units.
3. a surplus of 12 units.
4. a shortage of 3 units.
5. a surplus of 3 units.
  Answer to Question 14
Again consider the market shown above. If an effective price ceiling is imposed at a price of 5 the result will be:
1. a surplus of 9 units.
2. a shortage of 9 units.
3. a surplus of 12 units.
4. a shortage of 3 units.
5. a surplus of 3 units.
  Answer to Question 15
Suppose you observe that the equilibrium price and quantity of ``sports sandals'' has risen in the last year. A possible explanation for this would be:
1. An increase in the "hipness quotient" of ``sports sandals''.
2. A reduction in the cost of materials used in making the sandals.
3. A decrease in the price of other kinds of shoes.
4. An increase in the wages of shoe factory workers.
5. A decrease in the wages of shoe factory workers.
  Answer to Question 16
Consider the market for wool sweaters. Suppose you know that, due to a problem with lice, the wholesale price of wool will increase next year. Suppose you also know that fashion designers will be showing lots of wool sweaters in their fall shows. From this information you predict that:
1. both equilibrium price and quantity of wool sweaters will increase this fall relative to last fall.
2. the equilibrium price of wool sweaters will decrease this fall relative to last fall and the equilibrium quantity will increase.
3. both equilibrium price and quantity of wool sweaters will decrease this fall relative to last fall.
4. quantity of wool sweaters will increase, but you cannot accurately predict the direction of a price change.
5. price of wool sweaters will increase, but you cannot accurately predict the direction of a quantity change.
  Answer to Question 17
Suppose the state legislature is considering levying an excise tax on two goods that are not currently taxed. Demand for one of the goods is inelastic, while demand for the other is elastic. Suppose the state budget office estimates revenue from these new taxes by multiplying the amount of the tax by the current level of consumption of each of the goods. Their estimates will be:
1. more accurate for the good with elastic demand since we know that its demand is more responsive to a change in price.
2. more accurate for the good with inelastic demand since we know that its demand is more responsive to a change in price.
3. equally accurate for both goods.
4. more accurate for the good with elastic demand since we know that its demand is less responsive to a change in price.
5. more accurate for the good with inelastic demand since we know that its demand is less responsive to a change in price.
  Answer to Question 18
As opposed to a shift in supply, quantity supplied will be increased by:
1. a fall in the cost of factors of production.
2. an increase in price.
3. a fall in demand.
4. new firms entering the industry.
5. an increase in consumer's incomes for an inferior good.
  Answer to Question 19
Market Data

Price Quantity Supplied Quantity Demanded

0 0 10

1 3 8

2 6 6

3 9 4

4 12 2

5 15 0
In the market represented by the chart above, the market equilibrium occurs where:
1. price = 2 and quantity = 9.
2. price = 4 and quantity = 7.
3. price = 2 and quantity = 6.
4. price = 5 and quantity = 15.
5. price = 2 and quantity = 12.
  Answer to Question 20
If hot dogs are an inferior good:
1. the income and substitution effects work in the same direction.
2. the law of demand is violated.
3. hot dogs are Giffen goods.
4. there is no income effect due to a price change.
5. the income elasticity of demand for hot dogs is negative.
  Answer to Question 21
If a 15% reduction in the price of airline tickets leads to a 10% increase in the quantity of plane trips demanded, then:
1. airline tickets must be normal goods.
2. airline tickets must be inferior goods.
3. the demand for airline tickets is elastic.
4. the demand for airline tickets is inelastic.
5. the demand curve for airline tickets must have a positive slope.
  Answer to Question 22
Supply and Demand for Ben and Jerry's Ice Cream in Pints

Price Quantity Demanded Quantity Supplied

$1.00 100 25

$2.00 95 50

$3.00 90 75

$4.00 85 100

$5.00 80 125
Based on the information given in the table above what is the market equilibrium price for Ben and Jerry's Ice Cream?
1. The equilibrium price can not be estimated with the given information.
2. Approximately $ 2.40
3. Approximately $ 3.40
4. Approximately $ 4.40
5. Exactly $ 3.00
  Answer to Question 23
Which of the following will NOT reduce actual consumption of Ben and Jerry's Ice Cream?
1. An excise tax of $0.50 on every pint of ice cream.
2. Increased consumer fears about the danger of sugar.
3. An effective price ceiling of $1.00 imposed by the government.
4. An effective price floor of $5.00 imposed by the government.
5. An increase in the price of frozen yogurt, (a substitute for ice cream).
  Answer to Question 24
The original question 25 has been removed and replaced with the following question. I apologize for any inconvenience or confusion this may cause.
If you observe that the current market price for Ben and Jerry's Ice Cream is about $2.50 a pint you should expect that in the near future:
1. price will rise and actual quantity consumed will fall.
2. price will fall and actual quantity consumed will rise.
3. price will rise, but actual quantity consumed will not change.
4. price will rise and actual quantity consumed will rise.
5. price will fall and actual quantity consumed will fall.
  Answer to Question 25
If the cross price elasticity between kale and broccoli is positive, we can conclude that
1. an increase in the price of kale, will lead to an increase in the quantity of kale demanded.
2. an increase in the price of kale, will lead to a decrease in the quantity of broccoli demanded.
3. an increase in the price of kale, will lead to an increase in the quantity of broccoli demanded.
4. a decrease in the price of kale, will lead to an increase in the price of broccoli.
5. an increase in the price of kale, will lead to a decrease in the quantity supplied of kale.
  Answer to Question 26
A price elasticity of demand of one-half means that a 8% decrease in price will result in
1. a 8% decrease in the quantity demanded.
2. a 4% increase in the quantity demanded.
3. a 4% decrease in the quantity demanded.
4. a 16% increase in the quantity demanded.
5. a 16% decrease in the quantity demanded.
  Answer to Question 27
During the past month in Russia, milk prices have increased nearly eight fold. These higher prices, however, have had almost no effect on the supply of milk. One possible explanation for this seeming paradox is that
1. there is an excess supply of milk.
2. milk is an normal good.
3. milk is an inferior good.
4. the short run supply curve for milk is almost perfectly inelastic.
5. the short run demand curve for milk is almost perfectly elastic.
  Answer to Question 28
Suppose you observe that the equilibrium price and quantity of athletic shoes has risen in the last year. A possible explanation for this would be:
1. A reduction in the cost of materials used in making the shoes.
2. An increase in the fashionability of athletic shoes.
3. A decrease in the price of other kinds of shoes.
4. An increase in wages of shoe factory workers.
5. An increase in the price of athletic socks.
  Answer to Question 29
Using simple supply and demand analysis what is the most likely explanation for an increase in equilibrium price and reduction in equilibrium quantity of paperback books.
1. A decrease in the popularity of recreational reading.
2. An increase in the cost of hardback books.
3. An increase in the cost of binding and printing paperback books.
4. An increase in the number of books made into movies.
5. in increase in the popularity of movies.
  Answer to Question 30

Market Data
Price	Quantity Supplied	Quantity Demanded
0	0	10
1	3	8
2	6	6
3	9	4
4	12	2
5	15	0

Supply and Demand for Ben and Jerry's Ice Cream in Pints
Price	Quantity Demanded	Quantity Supplied
$1.00	100	25
$2.00	95	50
$3.00	90	75
$4.00	85	100
$5.00	80	125