ECON 201: Economics Exam 1

Double taxation is applicable to: A) Corporations B) Sole Proprietorships C) Both A and B D) Neither

A) Corporations

Principal Agent Problem is mainly related to the governance in: A) Corporations B) Sole Proprietorships C) Limited Partnerships D) All of the Above

A) Corporations

If the United States placed an embargo on Swedish products, what would happen in the U.S. market for Swedish furniture? A) The supply curve would shift to the left. B) The supply curve would shift to the right. C) The demand curve would shift to the right. D) The demand curve would shift to the left.

A) The supply curve would shift to the left.

A firm manufactures 1,000 widgets. The average cost is $5. The marginal cost is $1. So, the cost of manufacturing the 1001stwidget is: A) $5 B) $1 C) $3 D) $2

B) $1

Marginal cost is the ________ associated with a particular increase in an activity. A) average cost B) additional cost C) opportunity cost D) A and B

B) additional cost

The market for smartwatches has begun to grow, due in part to the success of the Apple Watch. Following the successful launch of the Apple Watch in 2015, companies such as Samsung, Sony, and LG have all developed products to compete with the Apple Watch. The smartwatches introduced to compete with the Apple Watch would be considered A) complements to the Apple Watch. B) substitutes for the Apple Watch. C) inferior goods compared to the Apple Watch. D) normal goods compared to the Apple Watch

B) substitutes for the Apple Watch

Examples of financial fraud are: A) Collapse of Enron in 2001-2002 B) Collapse of Housing Market in 2007-2009 C) A and B D) Bankruptcy of Polaroid

C) A and B

Production Possibilities Frontier is: A) Always Linear B) Always Non-Linear C) Linear or Non-Linear depending on the Marginal Opportunity Cost D) None of the Above

C) Linear or Non-Linear depending on the Marginal Opportunity Cost

Production PossibilitiesFrontieris: A) A Trade-off analysis B) Provides insights into Trade C) An analysis of Net Income D) A and B

D) A and B

Economics assumes: A) Consumers are rational B) Consumers make decisions at the margin C) Consumers respond to incentives D) All of the above

D) All of the above

Supply and Demand are impacted by: A) Technological Innovations B) Demographic Changes C) The potential substitutes D) All of the above

D) All of the above

Answer Q4.18 at the end of Chapter 3 (2pts.)

The graph with the vertical demand curve is more likely to represent the market for the life-saving drug. If the price of this good rises, patients are unlikely to reduce the quantity they demand, but if the price of the Tesla automobiles rises, households will reduce the quantity they demand as they switch to buying other cars.

Answer Q 2.4 under Problems and Applications at the end of Chapter 2 (3 pts.)

a. Canada has the comparative advantage in making boots. Canada's opportunity cost of making 1 boot is giving up 1 shirt. In the United States, the opportunity cost of making 1 bootis giving up 3 shirts. The United States has the comparative advantage in making shirts. In the United States, the opportunity cost of making one shirt is giving up 1/3 boot, but Canada's opportunity cost of making 1 shirt is 1 boot. b. Neither country has an absolute advantage in making both goods. The United States has the absolute advantage in making shirts, but Canada has the absolute advantage in making boots. Remember, both countries have the same amount of resources. If each country puts all of its resources into making shirts, then the United States makes 12 shirts, but Canada makes only 6 shirts. If each country puts all of its resources into making boots, then Canada makes 6 boots, but the United States makes only 4 boots. c.If each country specializes in the production of the good in which it has a comparative advantage and then trades with the other country, both will be better off. Let's use the case in which each country trades half of what it makes for half of what the other makes. The United States will specialize by making 12 shirts and Canada will specialize by making 6 boots. Because each gets half of the other's production, they both end up with 6 shirts and 3 boots. They are better off than before trading because they end up with the same number of boots, but twice as many shirts. Other trades will also make them better off.

Answer Q4.15 under Problems and Applications at the end of Chapter 3 (4pts.)

a. Scenario a. is shown in Graph 1. The demand for Pepsi rises because a decrease in the supply of Coke will increase the price of Coke, which is a substitute for Pepsi. The shift in the demand curve for Pepsi results in a movement along the supply curve for Pepsi. b. Scenario b. is shown in Graph 4. The demand for Pepsi falls when incomes fall assuming Pepsi is a normal good. The shift in the demand curve for Pepsi results in a movement along the supply curve for Pepsi c. Scenario c. is shown in Graph 3. An improvement in technology reduces the cost of producing Pepsi and shifts the supply curve for Pepsi to the right. d. Scenario d. is shown in Graph 2. A rise in an input's price shifts the supply curve for Pepsi to the left.