Econ Midterm

A

For a self-sufficient producer, the production possibilities frontier A. is the same as the consumption possibilities frontier. B. is greater than the consumption possibilities frontier. C. is less than the consumption possibilities frontier. D. is always a straight line.

D

A circular-flow diagram is a model that A. helps to explain how consumers and the government interact with one another. B. explains how countries trade with each other. C. incorporates all aspects of the real economy. D. helps to explain how the economy is organized.

C

Absolute advantage is found by comparing different producers' A. opportunity costs. B. payments to land, labor, and capital. C. input requirements per unit of output. D. locational and logistical circumstances.

A

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events could prompt you to reverse this decision? A. The marginal benefit of going to Spain increases. B. The marginal cost of going to Spain increases. C. The marginal benefit of going to Ireland increases. D. The marginal cost of going to Ireland decreases.

B

An increase in the overall level of prices in an economy is referred to as A. the income effect. B. inflation. C. deflation. D. the substitution effect.

C

Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation? A. Consumers have experienced an increase in income, and beef-production technology has improved. B. The price of chicken has risen, and the price of steak sauce has fallen. C. New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy. D. The demand curve for beef must be positively sloped.

A

Both Ryan and Sachi produce ankle bracelets and rings. However, Ryan is better at producing both goods. In this case, trade could A. benefit both Sachi and Ryan. B. benefit Sachi, but not Ryan. C. benefit Ryan, but not Sachi. D. benefit neither Sachi nor Ryan.

D

If Canada is capable of producing either shoes or toy trains or some combination of the two, then A. Canada should specialize in the product in which it has an absolute advantage. B. it would be impossible for Canada to have an absolute advantage over another country in both products. C. it would be difficult for Canada to benefit from trade with another country if Canada is efficient in the production of both goods. D. Canada's opportunity cost of shoes is the inverse of its opportunity cost of toy trains.

C

If Mike can produce more donuts in one day than Sue can produce in one day, then A. Mike has a comparative advantage in the production of donuts. B. Sue has a comparative advantage in the production of donuts. C. Mike has an absolute advantage in the production of donuts. D. Sue has an absolute advantage in the production of donuts.

D

If a seller in a competitive market chooses to charge more than the going price, then A. the sellers' profits must increase. B. the owners of the raw materials used in production would raise the prices for the raw materials. C. other sellers would also raise their prices. D. buyers will make purchases from other sellers.

C

If muffins and bagels are substitutes, a higher price for bagels would result in A. an increase in the demand for bagels. B. a decrease in the demand for bagels. C. an increase in the demand for muffins. D. a decrease in the demand for muffins.

C

Making rational decisions at the margin means that people A. make those decisions that do not impose a marginal cost. B. evaluate how easily a decision can be reversed if problems arise. C. compare the marginal costs and marginal benefits of each decision. D. always calculate the dollar costs for each decision.

B

People are willing to pay more for a diamond than for a bottle of water because A. the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. B. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. C. producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. D. water prices are held artificially low by governments, since water is necessary for life.

B

Refer to Figure 2-1. Which arrow represents the flow of spending by households? A. B B. A C. C D. D

C

Refer to Figure 2-3. Suppose this economy is producing at point B. Which of the following statements would best explain this situation? A. The economy has insufficient resources to produce at a more desirable point. B. The economy's available technology prevents it from producing at a more desirable point. C. There is widespread unemployment in the economy. D. The economy is experiencing economic growth.

B

Suppose the Federal Reserve announces that it will be making a change to a key interest rate to increase the money supply. This is likely because A. the Federal Reserve is worried about inflation. B. the Federal Reserve is worried about unemployment. C. the Federal Reserve is hoping to reduce the demand for goods and services. D. the Federal Reserve is worried that the economy is growing too quickly.

C

Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth A. is more efficient and more equal for society. B. is more efficient but less equal for society. C. is more equal but less efficient for society. D. is less equal and less efficient for society.

D

Suppose there are only two people in the world. Each person's production possibilities frontier also represents his or her consumption possibilities when A. neither person faces trade-off. B. the frontiers are straight lines. C. the frontiers are bowed out. D. they choose not to trade with one another.

A

Suppose you like to make, from scratch, pies filled with bananas and vanilla pudding. You notice that the price of bananas has increased. As a result, your demand for vanilla pudding would A. decrease. B. increase. C. be unaffected. D. change but you don't know how without more information.

B

Suppose your finance professor has been offered a corporate job with a 25 percent pay increase. He has decided to take the job. For him, the marginal A. cost of leaving was greater than the marginal benefit. B. benefit of leaving was greater than the marginal cost. C. benefit of teaching was greater than the marginal cost. D. benefit of teaching was negative.

C

The line that relates the price of a good and the quantity supplied of that good is called the supply A. schedule, and it usually slopes upward. B. schedule, and it usually slopes downward. C. curve, and it usually slopes upward. D. curve, and it usually slopes downward.

C

The opportunity cost of an item is A. the number of hours that one must work in order to buy one unit of the item. B. always less than the dollar value of the item. C. what you give up to get that item. D. always greater than the cost of producing the item.

C

The outer loop of the circular-flow diagram represents the flow of dollars in the economy. Which of the following is not measured in dollars and therefore does not appear on the outer loop? A. Wages B. Income C. Capital D. Rent

D

The phenomenon of scarcity stems from the fact that A. most economies' production methods are not very good. B.in most economies, wealthy people consume disproportionate quantities of goods and services. C. governments restrict production of too many goods and services. D. resources are limited.

D

The president of the United States receives tax policy advice from economists in the A. Federal Reserve. B. Department of Justice. C. Congressional Budget Office. D. Department of the Treasury.

C

The production possibilities frontier provides an illustration of the principle that A. trade can make everyone better off. B. governments can sometimes improve market outcomes. C. people face trade-offs. D. people respond to incentives.

B

The term used to describe a situation in which markets do not allocate resources efficiently is A. economic meltdown. B. market failure. C. equilibrium. D. the effect of the invisible hand.

A

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. This is an example of: A. a market failure caused by an externality. B. a market failure caused by market power. C. a market failure caused by equality. D. There is no market failure in this case.

D

Which of the following do economists not generally regard as a legitimate reason for the government to intervene in a market? A. To promote efficiency B. To promote equality C. To enforce property rights D. To protect an industry from foreign competition

B

Chloe receives her first paycheck for working as a pretzel vendor. To which of the arrows does this transaction directly contribute? A. A only B. C and D C. C only D. A and B

A

Economists at which of the following government offices help formulate spending plans and regulatory policies? A. Office of Management and Budget B. Department of the Treasury C. Congressional Budget Office D. The Federal Reserve

B

Economists sometimes give conflicting advice because A. graduate students in economics are encouraged to argue with each other. B. economists have different values and scientific judgments. C. economists acting as scientists do not like to agree with economists acting as policy advisers. D. economics is more of a belief system than a science.

C

Efficiency A. and equality both refer to how much a society can produce with its resources. B. and equality both refer to how fairly the benefits from using resources are distributed between members of a society. C. refers to how much a society can produce with its resources. Equality refers to how evenly the benefits from using resources are distributed among members of society. D. refers to how evenly the benefits from using resources are distributed between members of society. Equality refers to how much a society can produce with its resources.

C

Equilibrium price must decrease when A. both demand and supply increase. B. both demand and supply decrease. C. demand does not change and supply increases. D. demand increases and supply does not change.

B

If something happens to alter the quantity supplied at any given price, then A. we move along the supply curve. B. the supply curve shifts. C. the supply curve becomes steeper. D. the supply curve becomes flatter.

B

By definition, exports are A. goods produced abroad and sold domestically. B. goods produced domestically and sold abroad. C. goods produced and consumed domestically. D. goods produced and consumed abroad.

B

If the government were to intervene in a market economy and fix the price of visiting a health care provider below the market price, then we would expect, relative to the market outcome, A. an increase in the number of visits people want to make and an increase in the number of visits health care providers want to provide. B. an increase in the number of visits people want to make and a decrease in the number of visits health care providers want to provide. C. a decrease in the number of visits people want to make and an increase in the number of visits health care providers want to provide. D. a decrease in the number of visits people want to make and a decrease in the number of visits health care providers want to provide.

B

If the supply of a product increases, then we would expect equilibrium price A. to increase and equilibrium quantity to decrease. B. to decrease and equilibrium quantity to increase. C. and equilibrium quantity to both increase. D. and equilibrium quantity to both decrease.

B

In the circular-flow diagram, in the markets for A. goods and services, households and firms are both sellers. B. the factors of production, households are sellers and firms are buyers. C. goods and services, households are sellers and firms are buyers. D. the factors of production, households and firms are both sellers.

D

In the simple circular-flow diagram, which of the following is not true? A. Households own the factors of production. B. Firms buy the factors of production. C. Goods and services flow from firms to households. D. Households are the only decision makers.

C

Refer to Figure 2-3. This economy cannot currently produce 70 washers and 80 dryers because A. it is not using all of its resources. B. it is not using the most efficient production process. C. it does not have the resources and technology to produce that level of output. D. consumers don't want that many washers and dryers.

B

Refer to Figure 2-5. Which of the following events would explain the shift of the production possibilities frontier from A to B? A. A decrease in unemployment B. A general technological advance C. A technological advance in the necklace industry D. An improvement in the allocation of resources

D

Refer to Figure 2-6. Consider the production possibilities frontier for an economy that produces only computers and televisions. The opportunity cost of each computer is A. the slope of the production possibilities frontier, or of a television. B. the reciprocal of the slope of the production possibilities frontier, or 2 televisions. C. the reciprocal of the slope of the production possibilities frontier, or of a television. D. the slope of the production possibilities frontier, or 2 televisions.

A

Refer to Figure 3-1. The rate of trade-off between producing chairs and producing couches depends on how many chairs and couches are being produced in A. Graph (a) only. B. Graph (b) only. C. both Graph (a) and Graph (b). D. neither Graph (a) nor Graph (b).

A

Refer to Figure 3-2. If the production possibilities frontier shown is for 32 hours of production, then how long does it take Peru to make one pound of cashews? A. 2/15 hour B. 1/3 hour C. 3 hours D. 7.5 hours

C

Refer to Figure 3-2. The fact that the line slopes downward reflects the fact that A. for Peru, it is more costly to produce peanuts than it is to produce cashews. B. Peru will produce more peanuts and fewer cashews as time goes by. C. Peru faces a trade-off between producing peanuts and producing cashews. D. Peru should specialize in producing cashews.

B

Refer to Figure 3-3. If Tanek and Barb each divide their time equally between the production of tacos and burritos, then total production is A. 200 tacos and 150 burritos. B. 400 tacos and 250 burritos. C. 400 tacos and 300 burritos. D. 800 tacos and 500 burritos.

C

Refer to Figure 3-4. If Jane produces only pizzas, she can produce A. 150 pizzas per day. B. 350 pizzas per day. C. 300 pizzas per day. D. 450 pizzas per day.

B

Refer to Figure 4-1. The movement from point A to point B on the graph is caused by A. an increase in price. B. a decrease in price. C. a decrease in the price of a substitute good. D. an increase in income.

D

Refer to Figure 4-5. If these are the only two sellers in the market, then the market quantity supplied at a price of $6 is A. 12 units. B. 9 units. C. 8 units. D. 21 units.

B

Refer to Figure 4-6. The shift from S' to S could be caused by A. an increase in the number of sellers. B. an increase in input prices. C. a decrease in the number of buyers. D. an increase in the price of the good.

C

Refer to Figure 4-7. Equilibrium price and quantity are, respectively, A. $35 and 500 units. B. $25 and 300 units. C. $30 and 400 units. D. $40 and 600 units.

D

Refer to Table 2-2. Which of the following statements is correct? A. The opportunity cost of an additional 100 toys is constant at 100 glasses. B. The opportunity cost of an additional 100 toys is constant at 600 glasses. C. Supertown's production possibilities frontier is a straight, downward-sloping line. D. The opportunity cost of an additional 100 toys increases as more glasses are produced.

B

Refer to Table 2-3. What is the opportunity cost of increasing the production of rye from 700 bushels to 1200 bushels? A. 250 bushels of corn B. 500 bushels of corn C. 750 bushels of corn D. 1000 bushels of corn

B

Refer to Table 3-11. Assume that Cuba and Denmark each has 6 days available for production. Originally, each country divided its time equally between the production of coolers and radios. Now, each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output of coolers increased by A. 12. B. 36. C. 72. D. 144.

C

Refer to Table 3-11. Cuba and Denmark would not be able to gain from trade if Denmark's opportunity cost of one radio changed to A. 0 coolers B. 1 cooler C. 2coolers D. Cuba and Denmark can always gain from trade regardless of their opportunity costs

A

Refer to Table 3-9. The values in the table represent the amounts of lemonade and pizzas that Alice and Betty can produce in one week without and with specialization and trade. What are Alice and Betty's gains from specialization and trade? A. Alice gains 9 pitchers of lemonade and 13 pizzas, while Betty gains 12 pitchers of lemonade and 8 pizzas. B. Alice gains 200 pitchers of lemonade and 100 pizzas, while Betty gains 180 pitchers of lemonade and 180 pizzas. C. Alice gains 12 pitchers of lemonade and 8 pizzas, while Betty gains 9 pitchers of lemonade and 9 pizzas. D. Alice gains 113 pitchers of lemonade and 0 pizzas, while Betty gains 0 pitchers of lemonade and 300 pizzas.

B

Tao and Miray are economists. Tao thinks that the wealthiest 10 percent of the U.S. population should be taxed a rate higher than the rest of society because they can better afford it. Miray thinks that everyone should be taxed at the same rate because that is the fairest scenario and the wealthy should not be penalized for their success. In this example, Tao and Miray A. disagree about the validity of a positive theory. B. have different normative views about tax policy. C. must both be incorrect because tax policy is never that simple. D. disagree because they have access to contradicting positive statements.

A

The "invisible hands" ability to coordinate the decisions of the firms and households in the economy can be hindered by A. government actions that distort prices. B. increased competition in markets. C. enforcement of property rights. D. too much attention paid to efficiency.

C

The basic principles of economics suggest that: A. markets are seldom, if ever, a good way to organize economic activity. B. government should become involved in markets when trade between countries is involved. C. government should become involved in markets when those markets fail to produce efficient or fair outcomes. D. government should never become involved in markets.

C

The equilibrium price and quantity are: A. $0.00 and 350 cases. B. $4.00 and 250 cases. C. $2.00 and 300 cases. D. $6.00 and 200 cases.

C

The gains from trade are A. evident in economic models, but seldom observed in the real world. B. evident in the real world, but impossible to capture in economic models. C. a result of more efficient resource allocation than would be observed in the absence of trade. D. based on the principle of absolute advantage.

D

The law of demand states that, other things equal, when the price of a good A. falls, the demand for the good rises. B. rises, the quantity demanded of the good rises. C. rises, the demand for the good falls. D. falls, the quantity demanded of the good rises

B

The law of supply states that, other things equal, when the price of a good A. falls, the supply of the good rises. B. rises, the quantity supplied of the good rises. C. rises, the supply of the good falls. D. falls, the quantity supplied of the good rises.

B

Total output in an economy increases when each person specializes because A. there is less competition for the same resources. B. each person spends more time producing that product in which he or she has a comparative advantage. C. a wider variety of products will be produced within each country due to specialization. D. government necessarily plays a larger role in the economy due to specialization.

D

When constructing a production possibilities frontier, which of the following assumptions is not made? A. A country produces only two goods or types of goods. B. The amount of available resources does not change. C. Technology does not change. D. The quantities of the factors of production that are available are increasing over the relevant time period.

B

Which of the following changes would not shift the demand curve for a good or service? A. A change in income. B. A change in the price of the good or service. C. A change in expectations about the future price of the good or service. D. A change in the price of a related good or service.

A

Which of the following events could cause an increase in the supply of ceiling fans? A. The number of sellers of ceiling fans increases. B. There is an increase in the price of air conditioners, and consumers regard air conditioners and ceiling fans as substitutes. C. There is an increase in the price of the motor that powers ceiling fans. D. The average temperature rises over time.

B

Which of the following events would cause both the equilibrium price and equilibrium quantity of number two grade potatoes to increase if number two grade potatoes are an inferior good? A. an increase in consumer income B. a decrease consumer income C. greater government restrictions on agricultural chemicals D. fewer government restrictions on agricultural chemicals

A

Which of the following is an example of a capital input? A. A computer B. A share of stock C. The finances necessary for firms to produce their products D. The money households use to purchase firms' output

C

Which of the following is an example of a positive, as opposed to normative, statement? A. If welfare payments increase, the world will be a better place. B. The income tax rate should be increased to offset the budget deficit. C. Prices rise when the government prints too much money. D. Antitrust laws should be used to prevent further concentration in the wireless telephone service market.

D

Which of the following is an important cause of inflation in an economy? A. Increases in productivity in the economy B. The influence of positive externalities on the economy C. Lack of property rights in the economy D. Growth in the quantity of money in the economy

C

Which of the following is not an example of a group responding to an incentive? A. Students attend class because of an attendance policy that reduces their grade for absences. B. Consumers buy more of a product when it is on sale at a reduced price. C. Universities offer fewer online classes when they generate more revenue at the same cost than traditional classes. D. Employees work harder to earn higher commissions.

D

Which of the following is not correct? A. The producer who requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good. B. The producer who gives up less of other goods to produce Good X has the smaller opportunity cost of producing Good X. C. The producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good. D. The gains from specialization and trade are based not on comparative advantage but on absolute advantage.

C

Which of the following is not held constant in a demand schedule? A. Income B. Tastes C. Price D. Expectations

B

Which of the following is not held constant in a supply schedule? A. Production technology B. The price of the good C. The prices of inputs D. Expectations

C

While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This statement illustrates the principle that A. trade can make everyone better off. B. rational people think at the margin. C. people face tradeoffs. D. people respond to incentives.

C

You are considering staying in college another semester so that you can complete a major in finance. In deciding whether or not to stay you should: A. compare the total cost of your education to the total benefits of your education. B. compare the total cost of your education to the benefits of staying one more semester. C. compare the cost of staying one more semester to the benefits of staying one more semester. D. compare the total benefits of your education to the cost of staying one more semester.

A

You go to the movieplex where movies ordinarily cost $8.00. You are intending to see a movie for which you have a $2.50-off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost?: A. The amount you value the first movie + $2.50 B. The amount you value the first movie + $8.00 C. $2.50 D. $8.00