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Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
In 2001, Hooverville consumed 205,000 tons of sugar. In 2002, sugar consumption rose to 245,000
tons. Calculate the percentage change in sugar consumption.
1)
A)
19.51%
B)
11.95%
C)
26.33%
D)
8.37%
2)
Making optimal decisions "at the margin" requires
2)
A)
weighing the costs and benefits of a decision before deciding if it should be pursued.
B)
making borderline decisions.
C)
making decisions according to one's whims and fancies.
D)
making consistently irrational decisions.
3)
In Austria a woman can get up to 48 months of pension benefits and is guaranteed a maternity
allowance two months before and after she gives birth. Further, the Austrian government gives
monthly payouts ranging from $132 to $547, depending on the age of offspring and offers generous
tax benefits for families with children. How will these benefits affect a woman's decision to have
children?
3)
A)
These incentives will have no effect on having children; the decision to have children is a
social and psychological decision, not an economic decision.
B)
These incentives will encourage only women with high opportunity costs to have more
children.
C)
These incentives will encourage only less educated women to have more children.
D)
These incentives will encourage women to have children and increase the birth rate.
4)
In a market economy, the question "what goods and services will be produced?" is made by
4)
A)
producers deciding what society wants most.
B)
consumers dictating to firms what they need most.
C)
lawmakers in the government voting on what will be produced.
D)
workers deciding to produce only what the boss says must be produced.
E)
consumers and firms choosing which goods and services to buy or produce.
5)
How are the fundamental economic questions answered in a market economy?
5)
A)
Households and firms interact in markets to decide the answers to these questions.
B)
Large corporations alone decide the answers.
C)
The government alone decides the answers.
D)
Consumers and the government interact in markets to decide the answers to these questions.
6)
Which of the following is a positive economic statement?
6)
A)
If the price of gasoline rises, a smaller quantity of it will be bought.
B)
U.S. firms should not be allowed to outsource production of goods and services.
C)
The government should close income tax loopholes.
D)
Everyone should live at the same standard of living.
7)
How are the fundamental economic decisions determined in Cuba?
7)
A)
Individuals, firms, and the government interact in a market to make these economic
decisions.
B)
The United Nations decides because Cuba is a developing economy.
C)
Primarily, the government decides because Cuba is a centrally planned economy.
D)
These decisions are made by the country's elders who have had much experience in
answering these questions.
8)
When goods and services are produced at the lowest possible cost, ________ occurs.
8)
A)
efficient central planning
B)
productive efficiency
C)
equity
D)
allocative efficiency
9)
Society faces a tradeoff in all of the following situations except
9)
A)
when some previously unemployed workers find jobs.
B)
when deciding who will receive the goods and services produced.
C)
when deciding how goods and services will be produced.
D)
when deciding what goods and services will be produced.
10)
Who receives most of what is produced in a market economy?
10)
A)
people who earn the highest incomes
B)
everyone receives an equal amount
C)
those who are willing and able to buy what is produced
D)
lawmakers and other politically favored groups
11)
Which of the following statements about economic resources is false?
11)
A)
Economic resources are used to produce goods and services.
B)
Some economic resources are human-made while others are found in nature.
C)
Economic resources include financial capital and money.
D)
Economic resources are also called factors of production.
12)
Which of the following is a microeconomics question?
12)
A)
What factors determine the price of carrots?
B)
What will the level of economic growth be in the entire economy?
C)
What determines the average price level and inflation?
D)
How much will be saved and how much will be produced in the entire economy?
13)
Consider the following statements:
a. Car owners purchase more gasoline from a station that sells gasoline at a lower price than other
rival stations in the area
b. Banks do not take steps to increase security since they believe it is less costly to allow some
bank robberies than to install expensive security monitoring equipment
c. Firms produce more of a particular DVD when its selling price rises
Which of the above statements demonstrates that economic agents respond to incentives?
13)
A)
a only.
B)
b only.
C)
c only.
D)
a and b.
E)
a, b, and c.
14)
Human capital refers to
14)
A)
the machines workers have to work with.
B)
the accumulated skills and training workers have.
C)
the money people have.
D)
the wealth people have.
15)
Marginal analysis involves undertaking an activity
15)
A)
only if its marginal costs are greater than its marginal benefits.
B)
until its marginal costs start declining.
C)
until its marginal benefits equal its marginal costs.
D)
only when its marginal benefits are positive.
16)
Which of the following generates productive efficiency?
16)
A)
competition among buyers
B)
government inspectors
C)
government production rules and regulations
D)
competition among sellers
17)
Soo Jin shares a one-bedroom apartment with her classmate. Her share of the rent is $700 per
month. She is considering moving to a studio apartment which she will not have to share with
anyone. The studio apartment rents for $950 per month. Recently, you ran into Soo Jin on campus
and she tells you that she has moved into the studio apartment. Soo Jin is as rational as any other
person. As an economics major, you rightly conclude that
17)
A)
Soo Jin figures that the benefit of having her own place (as opposed to sharing) is at least
$950.
B)
the cost of having one's own space outweighs the benefits.
C)
Soo Jin did not have a choice; her roommate was a slob.
D)
Soo Jin figures that the additional benefit of having her own place (as opposed to sharing) is
at least $250.
18)
Which of the following is a characteristic of a market economy?
18)
A)
voluntary exchange
B)
agreement on equity
C)
environmental protection
D)
an equal income distribution
19)
Consider the following economic agents:
a. the government
b. consumers
c. producers
Who, in a modern mixed economy, decides what goods and services will be produced with the
scarce resources available in that economy?
19)
A)
the government
B)
consumers
C)
consumers and producers
D)
producers
E)
the government, consumers and producers
Table 1-1
Hours
Open
Total
Revenue
(Dollars)
1$35
260
380
492
5100
6105
Eva runs a small bakery in the village of Roggerli. She is debating whether she should extend her hours of operation. Eva
figures that her sales revenue will depend on the number of hours the bakery is open as shown in the table above. She would
have to hire a worker for those hours at a wage rate of $12 per hour.
20)
Refer to Table 1-1. What is Eva's marginal revenue if she decides to stay open for two hours
instead of one hour?
20)
A)
$95
B)
$25
C)
$36
D)
$60
21)
If a graph has a line that shows the amount of outsourcing in the last ten years, it is known as
21)
A)
a time series graph.
B)
a supply curve of outsourcing.
C)
a pie chart.
D)
a demand curve for outsourcing.
22)
Which of the following statements is true about competition in a market?
22)
A)
Competition forces firms to add only low profit margins to their costs of production.
B)
Competition forces firms to produce and sell products as long as the marginal benefit to
consumers exceeds the marginal cost of production.
C)
Competition forces firms to undercut their selling price, thus benefiting consumers who will
be able to purchase products at the lowest price possible.
D)
Competition forces firms to outsource the production of their labor-intensive products.
23)
Which of the following is counted as "capital" in economics?
23)
A)
the accumulated skills and training workers have
B)
the machines workers have to work with
C)
the wealth people accumulate
D)
the money people have
24)
Which of the following is a problem inherent in centrally planned economies?
24)
A)
Production managers are more concerned with satisfying government's orders than with
satisfying consumer wants.
B)
There are no problems and everyone, including consumers, is satisfied.
C)
There is too much production of high-cost, high-quality goods and services.
D)
Unemployment is too high.
25)
Consider the following two factors:
a. A study conducted by Forrester Research estimates that between 2000 and 2015, 3.3 million
jobs in the United States will have been outsourced.
b. Over this same period, the number of jobs expected to be created is more than 450 million and
the number of jobs lost due to all causes is estimated at 430 million.
These statements suggest that
25)
A)
the likelihood that the average person will lose her job due to outsourcing is very small
compared to losing her job due to other causes.
B)
it is highly likely that the average person will lose her job due to outsourcing.
C)
the likelihood that the average person will lose her job due to outsourcing is greater than the
likelihood that she will lose her job due to other causes.
D)
the U.S. is not creating jobs fast enough to offset jobs lost due to outsourcing and other causes.
26)
Which of the following contributes to the efficiency of markets?
26)
A)
Governments play an active role in the day-to-day operations of markets.
B)
Markets are able to bring about an equitable distribution of goods and services.
C)
Markets promote competition and voluntary exchange.
D)
Markets promote equal standards of living.
27)
When production reflects consumer preferences, ________ occurs.
27)
A)
productive efficiency
B)
allocative efficiency
C)
equity
D)
efficient central planning
28)
Cassie's Quilts alters, reconstructs and restores heirloom quilts. Cassie has just spent $800
purchasing, cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once
she is finished. After spending $800, Cassie discovers that she needs some special period fabric that
would cost her $200 in material and time in order to complete the task. Alternatively, she can sell
the quilt "as is" now for $900. What should she do?
28)
A)
It does not matter what she does; she is going to take a loss on her project.
B)
She should not do any more work on the quilt because she has already spent too much time
on it and has not been paid for her time.
C)
She should cut her losses and sell the quilt now.
D)
She should purchase the period fabric, complete the task and then sell the quilt.
29)
All of the following contributed to the downfall of the Soviet Union in 1991 except
29)
A)
lack of a strong dictator who can coordinate economic activities.
B)
public dissatisfaction with low living standards and political repression.
C)
lack of high-quality goods and services.
D)
an inability to produce low-cost consumer goods that households wanted.
30)
Which of the following is a positive economic statement?
30)
A)
Scarcity necessitates that people make trade-offs.
B)
The government should mandate electric automobiles.
C)
Foreign workers should not be allowed to work for lower wages than the citizens of a
country.
D)
People should not buy SUVs.
31)
The term "market" in economics refers to
31)
A)
a place where money changes hands.
B)
an organization which sells goods and services.
C)
a group of buyers and sellers of a product and the arrangement by which they come together
to trade.
D)
a legal institution where exchange can take place.
32)
Which of the following is not an example of an efficiency-equity tradeoff faced by economic
agents?
32)
A)
The growing demand for corn by ethanol producers has led to a surge in the price of tortillas,
a staple in the Mexican diet. To quell public outcry over rising tortilla prices, the Mexican
government released government corn stocks at prices well below the market, and pressured
states to impose price ceilings on tortillas.
B)
Some U.S. colleges cut back on merit scholarships since these programs siphon money from
need-based programs, thus harming lower-income students with greater financial need.
C)
According to an article by in the American Journal of Public Health by Edward Kaplan and
Michael Merson of Yale University School of Medicine, the federal government's current
method of allocating HIV-prevention resources is not cost-effective. Instead of allocating
resources to states in proportion to reported AIDS cases, resources should flow first to those
activities that prevent more infections per dollar and then to less and less effective
combinations of programs and populations until funds are exhausted, even if it means that
some populations would be left without any prevention services.
D)
Concerned about the falling birth rate, the French government has pledged more money for
families with three children, in an effort to encourage working women to have more babies.
33)
Refer to Figure 1-4. Which of the following statements is true?
33)
A)
The slope of the tangent at E and the slope of the tangent at F are negative.
B)
The slope of the tangent at E is negative and the slope of the tangent at F is positive.
C)
The slope of the tangent at E is positive and the slope of the tangent at F is negative.
D)
The slope of the tangent at E and the slope of the tangent at F are positive.
34)
Productive efficiency is achieved when
34)
A)
there are no shortages or surpluses in the market.
B)
firms produce the goods and services that consumers value most.
C)
firms produce goods and services at the lowest cost.
D)
firms add a low profit margin to the goods and services they produce.
35)
Which fundamental economic problem was 3Com, a leading U.S. high-tech firm, addressing when
it decided to move its computer network switch manufacturing operations to China?
35)
A)
for whom to produce?
B)
how to produce?
C)
where to produce?
D)
what to produce?
36)
Which of the following is motivated by an equity concern?
36)
A)
The United States protects intellectual property rights, allowing inventors to prevent others
from using their inventions without payment.
B)
Some U.S. colleges have cut back on merit scholarships since these programs siphon money
from need-based programs, thus harming lower-income students with greater financial need.
C)
Following the removal of subsidies in urban water use, household demand for water
decreased quite significantly in Bogor, Indonesia.
D)
In November 2003, the Federal Communications Commission implemented the "local number
portability" rule which gives cell phone customers the option of keeping their number when
they switch carriers within the same geographic region.
37)
If the price of gasoline was $1.25 a gallon and it is now $2.25 a gallon, what is the percentage
change in price?
37)
A)
8 percent
B)
44 percent
C)
80 percent
D)
4.4 percent
38)
Which of the following statements is false?
38)
A)
A curved line has slope values that change at every point.
B)
An inverse relationship has a negative slope value.
C)
A direct relationship has a positive slope value.
D)
All straight lines have slopes equal to zero.
39)
What does the term "marginal" mean in economics?
39)
A)
illegal
B)
trivial
C)
additional or extra
D)
the edge of a market
E)
secondary
40)
Selling tickets to graduation ceremonies has long been a tradition among students at institutions
that limit the number of guests. Suppose your classmate Heidi purchased two tickets for $40 each.
Is this transaction economically efficient?
40)
A)
It is efficient only from the perspective of the seller, not from the perspective of the buyer.
B)
No, Heidi paid too much for the tickets.
C)
Yes, it was a voluntary exchange that benefited both parties.
D)
No, people should never be allowed to sell items they receive for free.
41)
Which of the following statements best characterizes the disagreements between Paul Samuelson
and Jagdish Bhagwati in their debate about outsourcing?
41)
A)
Their disagreements are grounded in normative economic analysis. They disagree over how
to interpret the relevant economic statistics.
B)
Their disagreements are grounded in normative economic analysis. They disagree over the
types of jobs lost to outsourcing.
C)
Their disagreements are grounded in positive economic analysis. They disagree about the
model and the assumptions used in the model.
D)
Their disagreements are grounded in positive economic analysis. They disagree about the
relevant economic statistics used in the model.
42)
Why is it necessary for all economic systems to not only provide people with goods and services,
but also restrict them from getting as much of these goods and services as they wish?
42)
A)
Failure to do this could lead to an inequitable allocation of goods and services produced.
B)
Failure to do this could lead to drastic shortages of goods and services.
C)
Failure to do this could reduce efficiency and lead to an inequitable allocation of output.
D)
Failure to do this could reduce the efficiency of the system by producing some goods and
services that are not as highly valued as others.
43)
Your roommate, Serafina, a psychology major, said, "The problem with economics is that it
assumes that consumers and firms always make the correct decision. But we know that everyone's
human, and we all make mistakes." Is Serafina's criticism accurate?
43)
A)
No. If we cannot assume that decisions are correct, then we will not be able to examine the
moral implications of these decisions.
B)
No. Economics assumes that economic agents behave rationally, meaning they make the best
decisions given their knowledge of the costs and benefits of these decisions.
C)
Yes. Economic theory should allow for irrational behavior so that we can have more reliable
predictions.
D)
Yes. One cannot make predictions about economic behavior because in reality people make
incorrect choices in many situations.
44)
Which of the following statements is false?
44)
A)
Every individual, no matter how rich or poor, is faced with making tradeoffs.
B)
Tradeoffs do not apply when consumers purchase a product for which there is excess supply,
such as a stock clearance sale.
C)
Economics is a social science that studies the tradeoffs we are forced to make because of
scarcity.
D)
Anytime you have to decide which action to take you are facing an economic tradeoff.
45)
Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury
sedans, pickup trucks and compact cars. What fundamental economic question are they addressing
by making this range of products?
45)
A)
Why produce a variety of automobiles?
B)
What goods and services will be produced?
C)
Who to produce automobiles for?
D)
How to produce goods that consumers want?
46)
How can the influence of a third variable be shown on a two-dimensional graph?
46)
A)
by allowing the relationship to be nonlinear
B)
by allowing the position of the relationship line or curve to shift on the graph
C)
by superimposing the third variable on the two-dimensional graph
D)
by drawing a third axis coming out of the two axes
47)
By definition, economics is the study of
47)
A)
how to make money in the stock market.
B)
the choices people make to attain their goals, given their scarce resources.
C)
how to make money in a market economy.
D)
supply and demand.
48)
Cassie's Quilts alters, reconstructs and restores heirloom quilts. Cassie has just spent $800
purchasing, cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once
she is finished. After spending $800, Cassie discovers that she needs some special period fabric that
would cost her $200 in material and time in order to complete the task. Alternatively, she can sell
the quilt "as is" now for $900. What is her marginal benefit if she sells the quilt "as is" now?
48)
A)
She makes a marginal loss of $600, not a marginal benefit.
B)
$900
C)
$100
D)
The marginal benefit cannot be determined.
49)
What is an economic model?
49)
A)
It is a simplified version of some aspect of economic life used to analyze an economic issue.
B)
It is a description of an economic issue that includes all possible related information.
C)
It is a detailed version of some aspect of economic life used to analyze an economic issue.
D)
It is a description of an economic issue based on official government information.
50)
Refer to Scenario 1-1. Using marginal analysis terminology, what is another economic term for the
incremental cost of producing the last 3,000 cell phones?
50)
A)
explicit cost
B)
operating cost
C)
marginal cost
D)
Any of the above terms are correct.
51)
Which of the following statements is true about scarcity?
51)
A)
Scarcity is only a problem when a country has too large a population.
B)
Scarcity refers to the situation in which unlimited wants exceed limited resources.
C)
Scarcity is not a problem for the wealthy.
D)
Scarcity arises when there is a wide disparity in income distribution.
52)
Which of the following is motivated by an efficiency concern?
52)
A)
In December 2006, the Bush administration restarted a short-term housing assistance
program for victims of Hurricane Katrina.
B)
Each year, the University of Notre Dame conducts a lottery to parcel out the 30,000 seats
available to contributors, former athletes and parents in the 80,000-seat stadium.
C)
The federal government's housing choice voucher program assists very low-income families,
the elderly, and the disabled to afford decent, safe, and sanitary housing in the private
market.
D)
The United Network for Organ Sharing advocates a system of rationing scarce kidneys that
would favor young patients over old in an effort to wring more life out of donated organs.
Scenario 1-1
Suppose a cell-phone manufacturer currently sells 20,000 cell-phones per week and makes a profit of $5,000 per week. A
manager at the plant observes, "Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000
and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are
producing the optimal number of cell phones."
53)
Refer to Scenario 1-1. Had the firm not produced and sold the last 3,000 cell phones, would its
profit be higher or lower, and if so by how much?
53)
A)
Its profit would be $700 lower.
B)
Its profit would be $6,700 higher.
C)
Its profit would be $700 higher.
D)
Its profit would be $6,000 lower.
54)
Refer to Figure 1-1. Using the information in Figure 1-1, calculate the percentage change in sales of
alcoholic beverages between 1999 and 2001.
54)
A)
25.3%
B)
33.9%
C)
19%
D)
13.4%
55)
Which of the following is part of an economic model?
55)
A)
assumptions
B)
preferences of economic agents
C)
opinions
D)
norms
56)
Every society faces economic tradeoffs. This means
56)
A)
not everyone can have enough goods and services to survive.
B)
some people live better than others do.
C)
society's output cannot be made available to all.
D)
producing more of one good means less of another good can be produced.
57)
Technology is defined as
57)
A)
the process of developing and revising models.
B)
the processes a firm uses to produce goods and services.
C)
new innovations and creations.
D)
the process of recycling products.
58)
In economics, the term "equity" means
58)
A)
economic benefits are distributed fairly.
B)
only elected officials have high standards of living.
C)
everyone has an equal standard of living.
D)
the hardest working individuals consume all they want.
59)
Which of the following is a normative economic statement?
59)
A)
The federal government is considering raising the gasoline tax to promote the use of public
transportation.
B)
Rising global demand for diesel and heating oil has led to increases in the price of crude oil.
C)
Fashion designers should be allowed to copyright designs to promote innovation.
D)
With falling home prices and rising mortgage interest rates, the number of foreclosures has
increased.
60)
Allocative efficiency is achieved when
60)
A)
there are no shortages or surpluses in the market.
B)
firms produce goods and services at the lowest cost.
C)
goods and services are fairly distributed among consumers in an economy.
D)
firms produce the goods and services that consumers value most.
61)
Opportunity cost is defined as
61)
A)
the benefit of an activity.
B)
the total value of all alternatives that must be given up to engage in an activity.
C)
the highest valued alternative that must be given up to engage in an activity.
D)
the monetary expense associated with an activity.
62)
Economic models do all of the following except
62)
A)
answer economic questions.
B)
make economic ideas explicit and concrete for use by decision makers.
C)
simplify some aspect of economic life.
D)
portray reality in all its minute details.
63)
Two-dimensional graphs have a horizontal and a vertical axis and are used in economics to
illustrate
63)
A)
one variable.
B)
relationships between two economic variables.
C)
a flow chart.
D)
a pie chart.
64)
The study of economics arises due to
64)
A)
scarcity.
B)
greed.
C)
resources.
D)
money.
65)
The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for
$1.00 each. What is the opportunity cost of buying a cappuccino?
65)
A)
2/5 of a Russian tea cake
B)
$1.00
C)
$2.50
D)
2 1/2 Russian tea cakes
