Midterm 1

Which of the following is correct about the economic decisions consumers, firms, and the government have to make?

A) Governments may face the problem of shortages but not scarcity in making economic decisions B) Only individuals face scarcity; firms and the government do not C) Firms and the government face scarcity, individuals only face shortages D) Each faces the problem of scarcity which necessitates trade-offs in making economic decisions

The terms of trade refers to

A) the rules and regulations that countries must adhere to when trading B) the ratio at which a country can trade its exports for imports from other countries C) the role of the government in overseeing international trade D) a legal document that specifies the trade quantities agreed to by two countries

Examples of comparative advantage show how trade between two countries can make each better off. Compared to their pre-trade positions, trade makes both countries better off because in each country

A) total employment is greater B) total consumption of goods is greater C) wages are higher D) total welfare is greater

For each watch that Switzerland produces, it gives up the opportunity to make 50 pounds of chocolate. Germany can produce 1 watch for every 100 pounds of chocolate it produces. Which of the following is true about the comparative advantage between the two countries?

A) Switzerland has the comparative advantage in chocolate B) Switzerland has the comparative advantage in watches C) Germany has the comparative advantage in watches and chocolate.

In recent years the cost of producing wines in the U.S. has increased largely due to rising rents for vineyards. At the same time, more and more Americans prefer wine over beer. Which of the following best explains the effect of these events in the wine market?

A) The supply curve has shifted to the left and the demand curve has shifted to the right. As a result there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price B) Both the supply and demand curves have shifted to the right. As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity C) Both the supply and demand curves have shifted to the right. As a result, there has been an increase in both the equilibrium price and the equilibrium quantity D) The supply curve has shifted to the left and the demand curve has shifted to the right. As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.

If the United States lifted the embargo on Cuban products, what would happen in the U.S. market for Cuban cigars?

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

Which of the following best describes an assumption economists make about human behavior?

A) They believe that individuals act rationally all the time in all circumstances B) They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time C) They assume that people take into account the question of fairness in all decisions they make D) They assume that individuals act randomly

The term "market" refers to:

A) a place where money changes hands B) a legal institution where exchange can take place C) a group of buyers and sellers of a product and the arrangement by which they come together to trade D) an organization which sells goods and services.

Which of the following will not shift the demand curve for a good?

A) an increase in population B) an increase in the price of the good C) a decrease in the price of a substitute good D) an increase in consumer incomes

When Tesla, a U.S. company, purchases Italian-made Pirelli tires for its automobiles, the purchase is

A) both a U.S. and an Italian import B) a U.S. import and an Italian export C) a U.S. export and an Italian import D) neither an export nor an import for either country

If Norwegian workers are more productive than Albanian workers, then trade between Norway and Albania

A) cannot take place because Norwegian goods and services will be less expensive than Albanian goods and services B) will take place so long as each country has a comparative advantage in a good or service that buyers in the other country want C) cannot take place until Albanian workers become more productive D) can take place only if Albania has an absolute advantage in producing a good or service

Increasing opportunity cost along a bowed out production possibilities frontier occurs because:

A) of inefficient production B) of ineffective management by entrepreneurs C) some factors of production are not equally suited to producing both goods or services D) of the scarcity of factors of production

Disposable personal income is defined as

A) personal income less personal taxes plus indirect sales taxes B) personal income less transfer payments plus personal taxes C) personal income less personal taxes D) personal income less depreciation

A critical function of the government in facilitating the operation of a market economy is

A) producing goods and services for low income households B) setting up and enforcing private property rights C) ensuring an equal distribution of income to all citizens D) controlling the market prices of food items.

If the quantity demanded for a product exceeds the quantity supplied, the market price will rise until

A) the quantity demanded equals the quantity supplied. The product will then no longer be scarce B) quantity demanded equals quantity supplied. The equilibrium price will then be greater than the market price C) only wealthy consumers will be able to afford the product D) quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.