Choose the Single Best Answer in Each Case

Choose the Single Best Answer in Each Case

Econ 101, Section 7, S00

Schroeter

Exam #1, Red

Choose the single best answer in each case.

1. Economics is defined as the study of

a. business.

b. how firms control prices and output.

*. how society manages its scarce resources.

d. government regulation.

2. In most societies, resources are allocated

a. by decree of a central planner.

*. through the combined actions of numerous households and firms.

c. by a relatively few large corporations.

d. by stockbrokers.

3. A "positive sum game" is a game in which

*. the total of the winners' gains exceeds the total of the losers' loses.

b. a benefit to one player has to come at the expense of another.

c. everybody loses.

d. one player comes out ahead and all others break even.

4. Adam Smith's "invisible hand" directs economic activity through

a. subliminal messages.

b. mass media advertising.

*. prices.

d. government regulations.

5. Suppose that the economy's resources can be used to make cars and/or computers. We say that a particular combination of outputs is "efficient" if

a. the economy is maximizing the production of both cars and computers.

b. the economy is operating beyond its production possibility frontier.

c. it is not possible to reduce the opportunity cost of cars (in terms of computers).

*. it is not possible to produce more cars without giving up some computers.

6. The demand curve in a market remains stationary while the supply curve shifts. The resulting changes in equilibrium price and quantity will be

a. positively correlated.

*. negatively correlated.

c. impossible to determine (it depends on whether the supply curve shifts to the left or the right).

d. impossible to determine (it depends on whether the supply curve shifts up or down).

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7. A straight line connects point A, with coordinates X = 8 and Y = 4, with point B, with coordinates X = 2 and Y = 2. (Note that X denotes the horizontal coordinate and Y denotes the vertical coordinate.) What is the slope of the line?

*. 1.000.

b. 0.600.

c. 0.200.

d. none of the above.

Questions 8 through 11 are based on the following information.

Two small countries, Xenia and Yogo, use their labor resources to produce goods of two types: manufactured goods and agricultural goods. The table below gives the number of hours needed to produce one unit of each type of good in each country.

Hours needed to produce one unit of

Manufactured goods Agricultural goods

Xenia 8 4

Yogo 5 3

8. The resource cost of 1 unit of manufactured goods in Xenia is

*. 8 hours.

b. 2 hours.

c. 2 units of agricultural goods.

d. 4 units of agricultural goods.

9. The opportunity cost of 1 unit of manufactured goods in Xenia is

a. 8 hours.

b. 2 hours.

*. 2 units of agricultural goods.

d. 4 units of agricultural goods.

10. Which of the following is true?

a. Yogo has a comparative advantage over Xenia in the production of both goods.

*. Xenia has a comparative advantage over Yogo in the production of agricultural goods.

c. Xenia has an absolute advantage over Yogo in the production of manufactured goods.

d. None of the above are true.

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11. Suppose that Xenia and Yogo were permitted to trade at terms that are fixed by the governments of the two countries. In which of the following cases could Xenia and Yogo engage in a mutually beneficial trade? The terms of trade are

a. 2.5 units of agricultural goods per unit of manufactured goods.

b. 1.5 units of agricultural goods per unit of manufactured goods.

c. 1.0 units of agricultural goods per unit of manufactured goods.

*. None of the above.

12. Which of the following is the most accurate statement about economic models?

a. Economic models attempt to mirror reality exactly.

b. Economic models are useful in the classroom, for pedagogical purposes, but are not useful for policymaking.

c. Economic models can only be tested using controlled experiments.

*. Economic models omit many details of reality in the interest of tractability.

13. Which of the following is a normative statement?

*. Elian Gonzalez should be returned to his father in Cuba.

b. The majority of U.S. citizens believe that Elian Gonzalez should be returned to his father in Cuba.

c. Bills have been introduced in both houses of Congress to make Elian Gonzalez a U.S. citizen.

d. Elian Gonzalez is the youngest person to leave Cuba for the U.S. in the past year.

14. Which of the following is true?

a. A recent survey of economists showed that most believe barriers to international trade reduce general economic welfare.

b. Trade between countries can make both better off if it is based on the principle of comparative advantage.

c. Comparative advantage is determined by a comparison of opportunity costs.

*. All of the above are true.

15. Which of the following would cause a rightward shift in the demand for a good?

a. a decrease in the price of a substitute good.

b. a decrease in income (assuming the good is a normal good).

c. a decrease in the good's own price.

*. none of the above.

16. Holding fixed the price of a good, desired production and sales (that is, the quantity supplied) would change with changes in

a. consumers' tastes and preferences.

*. the prices of factors of production.

c. the quantity demanded of the good.

d. none of the above. (Quantity supplied remains unchanged if price is held fixed.)

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17. Which of the following would cause a rightward shift in the supply of a good?

*. a technological innovation resulting in a new, more efficient production method.

b. an increase in the good's own price.

c. an increase in demand.

d. none of the above.

18. When we say that individual demand (or supply) curves are "horizontally summed" to get the market demand (or supply) curve, we mean that

*. quantities are added at each price.

b. prices are added at each quantity.

c. both prices and quantities are added at each point on every individual demand (or supply) curve.

d. either a or b, depending on whether we're talking about demand or supply curves.

19. Which of the following is true? The Grand Junction beef advertising experiment produced results suggesting that

*. the effect of the test advertising was to slightly reduce household beef purchases.

b. "image" ads are more effective than "informational" ads.

c. beef producers receive approximately $5 in increased revenue for each $1 spent on advertising.

d. the test advertising had a greater impact on household consumption of other meats than it had on consumption of beef.

20. Which of the following is true?

a. The ad copy involved in the Grand Junction experiment is an example of generic commodity advertising.

b. In commodity "checkoff" programs, producers of a given agricultural commodity contribute funds to be spent on advertising or other activities that are intended to promote their interests.

c. A petition drive is currently underway to call a referendum on the pork checkoff.

*. All of the above are true.

21. The market for commodity A is in equilibrium to begin. Then the price of a substitute good decreases. The impact on the market for commodity A will be

a. an increase in equilibrium price and an increase in equilibrium quantity.

b. an increase in equilibrium price and a decrease in equilibrium quantity.

c. a decrease in equilibrium price and an increase in equilibrium quantity.

*. a decrease in equilibrium price and a decrease in equilibrium quantity.

22. The market for commodity A is in equilibrium to begin. Then the price of an important factor of production increases. The resulting change in equilibrium will involve

a. shifts of both demand and supply curves.

b. a shift of the demand curve and a movement along the supply curve.

*. a shift of the supply curve and a movement along the demand curve.

d. movements along both the demand and supply curves.

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23. The market for commodity A is in equilibrium to begin. Then a technological innovation reduces costs of production and, simultaneously, the price of a complement good increases. The equilibrium price of commodity A will

a. increase and the equilibrium quantity will either increase, decrease, or stay the same.

*. decrease and the equilibrium quantity will either increase, decrease, or stay the same.

c. either increase, decrease, or stay the same, and the equilibrium quantity will increase.

d. either increase, decrease, or stay the same, and the equilibrium quantity will decrease.

24. It is widely thought that the demand for personal computers (PCs) has increased significantly over the past 5 years. But, over this same time period, the price of a PC (of given quality) has fallen sharply. How can this be?

a. It can't be. (The belief that the demand for PCs has increased must be wrong.)

b. The increase in demand must have been accompanied by a decrease in supply.

* The increase in demand must have been accompanied by an even bigger increase in supply.

d. The supply curve must be horizontal.

Questions 25, 26, 27, and 28 refer to the following graph of supply and demand curves for a hypothetical market.

25. Equilibrium price and quantity in this market are

a. p1 and Q1.

b. p2 and Q2.

* p2 and Q3.

d. p3 and Q2.

26. If the price in this market were temporarily at the level of p1, we would observe

a. excess demand in the amount of Q2 - Q1.

b. excess supply in the amount of Q4 - Q2.

c. excess demand in the amount of Q3 - Q1.

* none of the above.

27. Suppose that equilibrium in this market were to move to price p2 and quantity Q4. Which of the following could account for such a move?

a. average household income increases (assuming the good is a normal good).

b. a technological innovation reduces production costs.

* the price of a substitute increases and the price of a factor of production decreases.

d. the price of a complement increases and the price of a factor of production increases.

28. Suppose that price in this market were temporarily at the level of p3. The quantity of the good that would actually be traded (bought and sold) is

* Q2.

b. Q3.

c. Q4.

d. Q4 - Q2.

29. When there is excess supply in a competitive market

*. there is downward pressure on price.

b. there is upward pressure on price.

c. sellers are willing to sell a quantity smaller than the quantity buyers are willing to purchase.

d. we could still have equilibrium if sellers refused to reduce price.

30. In market economies, prices

a. guide economic decisions and thereby allocate scarce resources.

b. adjust to bring about a balance between quantity demand and quantity supplied.

c. influence the amount of a good buyers want to purchase, and the amount sellers want to sell.

*. all of the above.