1. Isabel noted that whenever she wore her green contact lenses, the Chicago White Sox would win that evening. Based on this observation, she developed the "green-eyes-for-White-Sox" theory of winning. It is most likely true that Isabel:
(A) showed good reasoning for the reason the Whitc Sox would win.
(B) committed the ceteris paribus error.
(C) committed the fallacy of composition.
(D) was too quick to conclude that correlation implies causation.

2. The marginal utility of the first cup of coffee that Tom drinks in the morning is worth $2.00. The marginal utility of the 9th cup of coffee he drinks is positive while the marginal utility of the 10th cup of coffee he drinks in the morning is worth $0. This implies that at a price of$0, Tom would drink: (A) zero cups of coffee per morning. (B) more than 10 cups of coffee per moming, but the actual number is indeterminate from this information. (C) an infinite number of cups of coffee each morning. (D) at most 10 cups of coffee per moming.

3. You own a building that has four possible uses: a cafe, a craft store, a hardware store, and a bookstore. The building's value in each use is $2,000； $3,000； $4,000； and S5,000, respectively. You decide to open a hardware store. The opportunity cost of using this building for a hardware store is: (A) $2,000, the value if the building is used as a cafe. (B) $3,000, the value if the building is used as a craft store. (C) $10,000, the sum of the values if the building is used for a cafe, a craft store, or a bookstore. (D) $1,000, the difference in value if the building were used as a bookstore and its actual use.

4. The Pampered Pet Shop operates in a perfectly competitive industry and hires you as an economic consultant. The firm is currently producing at a point where market price equals its marginal cost. Its total revenue exceeds its total variable cost, but is less than its total cost. You advise the firm to: (A) cease production immediately because it is incurring a loss. (B) lower its price so that it can sell more units of output. (C) raise its price until it breaks even. (D) produce in the short run to minimize its loss, but exit the industry in the long run.

5. The owner of Instant Printing, a firm that prints business cards, tells you that as a result of an increase in the wage rate of printer operators he bas reduced the amount of output he produces and the amount of capital he uses. How would you respond to this? (A) You should tell him that this doesn't make any economic sense because according to the factor substitution effect he should have substituted toward capital and away from labor. (B) You should tell him that instead of reducing output and the demand for all factors of production, he should increase output and the demand for all factors of production so that he can meet the higher labor costs by generating more revenue. (C) You tell him that capital must be an inferior input, because he reduced his use of capital when the price of labor increased. (D) This scems logical, because the output effect of a factor price increas& would cause a firm to demand less of all inputs, not just the input whose price increased.

6. A firm can invest in one of two projects: the purchase of new delivery vans or the training of its sales staff in the use of new sales techniques. Both projects cost the same amount of money. The purchase of new delivery vans is expected to reduce costs by $5,000 each year for 10 years. The training of the sales staff in the use of a new sales technique is expected to increase revenues by $5,000 each year for 5 years. Which of the following is TRUE? (A) Each of these projects would have the same expected rate of return, as they both cost the same. (B) The purchase of delivery vans would have the higher expected rate of return, as it will reduce costs for a longer time period than the sales staff training will increase revenues. (C) The training of the sales staff would have the higher expected rate of return, as it increases revenues whereas the purchase of delivery vans only reduces costs. (D) The expected rates of return for these two projects cannot be compared, as one project reduces costs and the other increases revenues.

7. If a restaurant runs a special and sells a lobster dinner for S5.00, Amy buys one lobster dinner a week. If lobster dinners are not on special and the price is S10.00, Amy buys zero lobster dinners per week. Which of the following is TRUE? (A) Amy's dema and for lobster is inelastic. (B) The value of Amy's utility from a lobster dinner is at least $5.00 and less than $10.00. (C) Amy's utility from a lobster dinner is less than $5.00. (D) Amy's utility from a lobster dinner is greater than$10.00.

8. There are 1,000 families in a neighborhood that are affected by noise pollution from a local factory. The noise level is within legal limits, but could be reduced further if the company spent S5,000 on technological improvements. The company agrees to make these improvements if the affected families contribute the S5,000. A committee starts to collect donations to pay for the improvements. Which of the following is most likely to occur? (A) Because there are relatively few families involved and the individual contribution is so small, all families will voluntarily contribute. (B) Because each individual contribution is so small and individuals will benefit from the reduction in noise whether they contribute or not, most people will not contribute and the firm will not make the improvements. (C) Even if the families raise SS,000, the firm will not reduce its noise pollution since it is within legal limits. (D) The courts will force the firm to spend the $5,000 regardless of whether or not the families contribute the money.

9. You and two friends are going to the movies and are going to one of three movies: A, B, or C. You prefer movie A to movie B and movie B to movic C. One of your friends prefers movie B to movie C and movie C to movie A. You other friend prefers movie C to movie A and movie A to movie B. The three of you decide to use majority rule voting to decide which movie you will see. If you first have a vote between movies A and B and then between the winner of that vote and movie C, then movie_________ will win. However, if you first vote between movies A and C and then between the winner of that vote and movie B, then movie _________ will win. This is an example of the_________ . (A) B； C； impossibility theorem (B) C；B；voting paradox (C) A； C； voting paradox (D) A； B； majority rule voting

10. You are in the market for a used 2006 Honda Accord. You know that half of the 2006 Accords are lemons and half are peaches. If you could be assured that the Accord you were buying were a peach, you would be willing to pay up to$10,000. On the other hand, you would only be willing to pay $2,000 for a lemon. You have no ability to discern whether any particular Accord is a lemon or a peach. Sellers of Accords, on the other hand, are likely to know whether their particular car is a lemon or a peach. Suppose sellers of lemons will sell their cars for $1,500 or more and peach sellers will be willing to sell their cars for $8,500 or more. Over time the price in the market for 2006 Accords will: (A) be betwcen $8,500 and $10,000 for peaches and between $1,500 and $2,000 for lemons and both lemons and peaches will be traded. (B) be between S1,500 and $2,000 for lemons and only lemons will be traded. (C) be between S8,500 and $10,000 and only peaches will be traded. (D) be between $1,500 and S10,000 and both lemons and peaches will be traded.

11. In the market for used motorcycles there are high- and low-quality motorcycles. Potential buyers cannot determine prior to purchase whether a motorcycle is high- or low-quality. The following statement that best describes what is likely to happen in this market is: (A) The price of a used motorcycle will be very close to the value of a high-quality motorcycle, which will encourage people to sell high-quality motorcycles. (B) The price of a used motorcycle will be between the buyer and seller values for low-quality motorcycles. This will encourage people to withdraw high-quality motorcycles from the market. (C) This is an example of adverse selection, as the buyer will have more information about the quality of the used motorcycle than the seller will. (D) Over time the market price of a used motorcycle will increase, as there is more of an incentive for owners of high-quality motorcycles to sell than owners of low-quality motorcycles.

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