General Instruction: This examination is good for one hour. This questionnaire consists of six pages.

Check if you have received a complete set. If ever your copy is incomplete,
approach your instructor right away. This is a 100-point examination. Write your
name, schedule, and date for today on the topmost part of this test paper.
Refrain from talking when taking the exam. Talking would be construed as
cheating. If you have any question or clarification, approach the proctor.
Manage your time properly. Don’t stay long on one item. You can now start
answering. God Bless You.

I. Multiple Choice. Encircle the letter of your choice. ( 2 points each)

1. If the point lies inside the Production Possibility Frontier, this means that:
a. the resources are unemployed or underemployed
b. there is production inefficiency
c. there is output inefficiency
d. both a and b
e. both a and c

2. It refers to a state in which a given mix of outputs is produced at a least cost.

a. Production Efficiency
b. Output Efficiency
c. Market Efficiency
d. Demand Efficiency

3. According to the law of demand,

a. there is a positive relationship between quantity demanded and price
b. as the price rises, demand will shift to the left
c. there is a negative relationship between quantity demanded and price
d. as the price rises, demand will shift to the right
e. as the price rises, consumers switch their purchases to substitute goods

4. Each point along the market demand curve shows

a. the quantity of the good that firms would be willing and able to supply at a specific price
b. the relationship between the price of the good and total quantity demanded at a series of prices
c. the opportunity cost of supplying a given quantity of goods to the market
d. the quantity of the good that consumers would be willing and able to purchase at a specific price
e. how population changes affect the quantity demanded at a specific price

5. A decrease in the price of a particular good, ceteris paribus, causes

a. a shift to a different demand schedule with higher quantities demanded
b. a shift to a different demand schedule with lower quantities demanded
c. a movement along a given demand curve to a lower quantity demanded
d. a movement along a given demand curve to a higher quantity demanded
e. no movement along a given demand curve unless supply also changes

6. We would not need to economize if

a. the government prints more money
b. there was no scarcity
c. there was less output of goods and services
d. everyone received a big pay increase

7. Human wants are

a. relatively limited
b. relatively unlimited
c. easily satisfied
d. about equal to our productive capacity

8. Individuals are forced to make choices because

a. wants are satiable
b. the supply of resources is infinite
c. wants are insatiable and resources are scarce
d. resources are insatiable
e. resources are satiable

9. As price declines, quantity demanded goes __________ and quantity supplied goes __________.
a. up, up
b. down, down
c. up, down
 d. down, up

10. In general demand curve slope _________ and supply curve slope __________.
a. downward to the right, downward to the right
b. upward to the right, upward to the right
c. downward to the right, upward to the right
d. upward to the right, downward to the right

11. The relationship between quantity supplied and price is __________ and the relationship between
quantity demanded and price is __________.
a. direct, direct
b. inverse, inverse
c. inverse, direct
d. direct, inverse

12. When we go from one demand curve to another, there has definitely been
a. a change in quantity demanded
b. a change in demand
c. an increase in demand
d. a decrease in demand

13. Changes in demand are caused by each of the following except

a. changes in income
b. changes in the prices of related goods and services
c. changes in taste and preferences
d. changes in supply

14. As income falls, the demand for normal goods __________ and the demand for inferior goods
__________.
a. falls, falls
b. rises, rises
c. falls, rises
d. rises, falls

15. Suppose that the price of a service falls and people buy more of that service. What has happened is
that
a. quantity demanded has changed
b. demand has changed
c. demand has increased
d. demand has decreased

16. A move from E to F represents

a. an increase in quantity demanded
b. a decrease in quantity demanded
c. an increase in demand
d. a decrease in demand

17. A move from F to G represents

a. a change in quantity demanded
b. a change in demand
c. an increase in demand
d. a decrease in demand

18. If good A and good B are substitutes and the price of good A decreases, the demand for good B will
a. not change
b. decrease
 c. increase
d. become nonexistent

19. If good J and good Z are complements and the price of good J increases, the demand curve for good Z
will
a. shift to the left
b. become horizontal
c. not change
d. shift to the right

20. Statement 1: A change in demand may be caused by changes in income.

Statement 2: A change in the demand for automobiles may be caused by a change in the price of
gasoline.
a. Statement 1 is true and statement 2 is false
b. Statement 2 is true and statement 1 is flase
c. Both statements are true
d. Both statements are false

21. For inferior goods, an increase in income will cause the

a. demand to fall
b. quantity demanded to fall
c. demand to increase
d. quantity demanded to increase.

22. An improvement in technology will cause

a. the supply to increase
b. the supply to decrease
c. the demand to increase
d. the demand to decrease

23. If we went from one supply curve to another curve that lay entirely to the right, this would represent
a. a change in quantity supplied
b. a change in supply
c. an increase in supply
d. a decrease in supply

24. The slope of the Production Possibility Frontier is what you term as ___________.
a. Marginal Rate of Transformation
b. Marginal Rate of Utility
c. Marginal Rate of Reformation
d. None of the Above

25. Statement 1: The firms are the primary consuming units in an economy while the households are the
primary producing units.
Statement 2: An Entrepreneur isa person who organizes, manages, and assumes the risks of a firm,
taking a new idea or a new product and turning it into successful business.

a. Statement 1 is true and statement 2 is false

b. Statement 2 is true and statement 1 is flase
c. Both statements are true
d. Both statements are false

26. Which of the following could explain a movement from point F to point G in the above figure?
Assume that the good represented is an inferior good.
 a. an increase in buyers' incomes
b. a decrease in the expected future price of the good
c. an increase in the price of the good
d. an increase in the price of a complement

27. If automobiles are a normal good and the price of automobiles rises, then holding all else constant,
the
a. demand for automobiles will rise
b. quantity demanded of automobiles will fall
c. demand for automobiles will fall
d. quantity demanded of automobiles will rise
e. supply of automobiles will fall

28. Suppose that initially the market for cassette tapes is at point A on demand curve D 1 in the figure
above. If the price of cassette tapes decreased,
a. the demand curve will shift to D3
b. the market will move to point B on demand curve D1
c. the market will move to point C on demand curve D 1
d. there will be no change from point A
e. the demand curve will shift to D2
29. The demand curve for a product will shift rightward when the price of a substitute decreases.
a. True
b. False

30. If the price of jelly (a complement with peanut butter) decreases, both the demand and supply curves
of peanut butter will shift rightward
a. True
b. False

31. All of the following except one would increase the amount of a particular model of a Ford automobile
that buyers would like to buy. Which is the exception?
a. an increase in buyers' incomes
b. increased prices of other Ford models
c. an expected future increase in the price
d. an increase in the U.S. population
e. a decrease in the price of steel

32. If the price of orange juice rises, the demand for grapefruit juice will
a. increase because the two goods are substitutes
b. increase because it is a complement
c. decrease because the two goods are substitutes
d. decrease because the two goods are complements
e. not change unless the price of grapefruit juice also changes

33. Which of the following would increase the amount of an inferior good that buyers would like to
purchase?
a. an increase in buyers' incomes
b. an increase in the price of a complement
c. a decrease in the price of a substitute
d. a decrease in buyers' incomes
e. a decrease in its expected future price

34. Which of the following is assumed constant along the demand curve for gasoline?
a. the price of gasoline and the prices of related goods
b. the price of gasoline, buyers' incomes, and tastes
c. all variables affecting demand other than the price of gasoline
d. all variables affecting demand other than the supply of gasoline
 e. buyers' incomes and tastes, but not the prices of related goods

35. In the figure above, a movement from point G to point H would represent ( a )
a. a change in demand
b. the impact of a decrease in the price of a substitute good
c. higher prices for the inputs used to produce this product
d. a change in demand plus a change in quantity demanded
e. a change in quantity demanded

36. Betsy graduates from college, where she earned $3,000 a year working part-time, and takes a job as a
third grade teacher, where she now earns $30,000 per year. After receiving her first paycheck, she
gaveaway her bicycle and purchased a new car. Therefore,
a. bicycles are a normal good for Betsy
b. automobiles are an inferior good for Betsy
c. automobiles are a normal good for Betsy
d. Betsy's supply curve for automobiles is upward-sloping
e. bicycles and automobiles are complementary goods for Betsy

37. If buyers expect the price of a good to rise in the future, the result is
a. a decrease in supply today
b. an increase in supply today
c. a decrease in quantity demanded today
d. an increase in demand today
e. an increase in quantity demanded today

38. Procter & Gamble Co. is a major soap producer. All of the following, except one, would shift its
supply curve of liquid soap inward. Which is the exception?
a. an increase in the price of bar soap
b. an increase in the price of a key ingredient of liquid soap
c. environmental regulations force Procter & Gamble to use a more costly technology to produce
liquid soap
d. a decrease in the price of liquid soap
e. an increase in the wage rate for factory workers who produce liquid soap

39. Which is a characteristic of a demand curve?

a. The slope of a demand curve is always negative
b. The curve intersects at the y-axis due to diminishing marginal utility
c. The curve intersects at the x-axis due to limited income or wealth.
d. All of the above

40. Assuming there would be increases in tax, there would be

a. increase in supply
b. increase in quantity supplied
c. decrease in supply
d. decrease in quantity supplied
II. Identify whether the following goods are complementary or substitute goods. (1 point each)

1. Shampoo and conditioner

2. Printers and ink cartridges
3. Margarine and butter
4. Rice and corn
5. Paper and pencil
6. Coffee and Sugar
7. Flashlight and battery
8. Detergent bar and powder
9. Raincoats and boots
10. Tea and Coffee

III. Illustrate the flow of economic activity. (10 points)

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Things attained with hardships

are longer attained.