Answer Key to Sample MC Questions for Test 1

This is the key to the sample problems you can find on the I-drive. Need help finding the I-drive from an off campus computer?

1-C, 2-D, 3-A, 4-B, 5-B, 6-B,
7-C, 8-C, 9-B, 10-B,
11-B, 12-A, 13-D, 14-D*, 15-B, 16-B, 17-B,
18-D, 19-A, 20-B, 21-D, 22-B,
23-C, 24-A, 25-C, 26-A or D**, 27-A, 28-B, 29-B, 30-C,
31-B, 32-A, 33-A, 34-B, 35-D,
36-C, 37-D, 38-C, 39-C, 40-C, 41-B, 42-C,
43-A, 44-C, 45-B, 46-B, 47-D.

Some comments:
* When on a PPF, to get more of one good you must give up another. However to get more of one good, in this problem "oil" the output of the other good, helmets, decreases at an increasing rate, not decreasing.

**The circular flow problems on this sample test reflect the model previously used in my course (due to a different book). Although both are acceptable, A may look more like the diagram in the Taylor text.

For you test the wording will be chosen to reflect the material as presented in class and in the Taylor text.

For problems 41, 45, and 47: Both demand and supply shift. When both shift it is important to note that one variable (P or Q) will clearly change in a particular direction, but while one clearly moves the other can move up or down, ultimately uncertain.

41: Demand falls, pushing down P and Q. Supply increases, pushing down P and increasing Q. In sum, P falls but Q can go down or up or stay the same.

45: Supply will fall, pushing P up and Q down. Demand increases, pushing P up and Q up. Price will clearly go up, but the movements in Q can be somewhat offsetting, depending on the magnitude of the shifts of the curves.

47: The costly ad program raises costs of producing milk. Supply decreases. But the ad campaign successfully increases demand. Price will rise due to both, but Q could go up or down or remain the same.

Hint: For these market problems, you should draw S and D curves, shift them appropriately, and see how P and Q ultimately change.

Let me know if you think there are any errors on the key.
Good luck.