ECON 1 PRACTICE EXAMS 1 - 3

You are thinking of starting a tutoring service. You already have a part-time job on campus that pays $10 per hour. You think you can tutor fellow students for five hours each Saturday at $25 per hour. If you were not tutoring, you could work another five hours at your campus job. How much economic surplus will you generate each week if you start tutoring? $125 $75 None of the answers $65 $50

$75

Which of the following lists only factors that would cause an increase in the supply of an item? A. A decrease in input prices; a technological innovation; a fall in the price of a substitute- in-production B. A rise in the price of a substitute-in-production; an increase in the price of a complement- in-production; an expectation that the price of the item will increase in the future C. A decrease in the number of sellers in the market; a fall in the price of a complement-in- production; a technological setback D. An increase in input prices; a decrease in the number of sellers in the market; an increase in the price of a substitute-in-production E. None of the answers

A. A decrease in input prices; a technological innovation; a fall in the price of a substitute- in-production

Diminishing marginal product leads to A.Rising marginal costs for a seller B. Decreased profitability for a seller C. Increased supply of the item in the market D. Lower opportunity costs of producing the item E. None of the answers

A.Rising marginal costs for a seller

In 2012, Marco Rubio argued that he would be in favor of getting rid of quotas on sugar imports (a trade barrier) only if the United States got something in return from Brazil. Rubio's argument is not economically sound (consistent with economic theory) for which of the following reasons? A. Consumers in the United States would be hurt by the higher price of sugar if the quota was removed. B. U.S. producers that use sugar as an input (for example, Lifesavers) would benefit from a higher price of sugar. C. A proportion of the gains to trade received by Brazil would be used to import U.S. goods and services. D. The United States cannot benefit from trade with a country that is less productive. E. None of these answers

C. A proportion of the gains to trade received by Brazil would be used to import U.S. goods and services.

Which of the following is NOT an example of a corrective tax or subsidy used to address an externality problem? A. The government charges Ku's company a tax equal to the difference between the marginal social cost and the marginal private cost of emissions. B. The government discourages the production of paper products in a suburban community by imposing a unit tax on the production of such products, limiting paper companies' emissions of carcinogenic toxins. C. Marlo's customers have been bothered by the noisy, midday deliveries at the business next door. She arranges to cover part of the delivery costs in order to have the neighbor's deliveries arrive early in the morning rather than at midday. D. The government covers part of the cost of a particular immunization. E. None of these answers

C. Marlo's customers have been bothered by the noisy, midday deliveries at the business next door. She arranges to cover part of the delivery costs in order to have the neighbor's deliveries arrive early in the morning rather than at midday.

Consider your decision to attend class each day or skip it. Which of the four core principles of economics applies to the notion that by attending class you are not doing the next best activity you would prefer to do, such as napping or going to the gym? A. None of the answers B. Cost-benefit principle C. Opportunity cost principle D. Marginal principle E. Interdependence principle

C. Opportunity cost principle

Marie Johnston is a manager at an electronics store and has to decide how many workers to hire. If she hires one worker, her revenue is $800 per day. If she hires another worker, she can make another $600 per day. The marginal benefit of hiring another worker decreases by $200 with each additional hire. Assuming that workers are paid $20 per hour and work eight hours, how many employees should Marie hire, and what will be the total revenue of her store? A. She will hire two workers and the revenue of the store will be $1,400 B.None of the answers C. She will hire three workers and the revenue of the store will be $1,800 D. She will hire four workers and the revenue of the store will be $2,000 E. She will hire five workers and the revenue of the store will be $2,000

D. She will hire four workers and the revenue of the store will be $2,000

If Canadian consumers expect the value of the Canadian dollar to rise against the US dollar, what impact would we expect this to have on Canadians' demand for American made products? A. The demand for American-made items would fall B. None of the answers C. The demand for American-made items would not change D. The demand for American-made items would rise E. The demand for American-made items would double

D. The demand for American-made items would rise

Rose Riley's parents have booked and paid for a family trip to Aspen, Colorado, during her spring break. Rose's friends recently decided to drive to Destin, Florida, for spring break. Rose needs to decide whether to join her parents in Aspen or drive to the beach with her friends. The opportunity costs of joining her friends on the trip to Destin include each of the following EXCEPT A. Her parents' anger if she skips the family trip to Aspen B. Her contribution to gas money for the drive to Destin C. The hotel costs she will split with her friends in Destin D. The ski lift ticket her parents have already purchased for her E. None of the answers

D. The ski lift ticket her parents have already purchased for her

1. A tax on buyers causes which of the following? (i) a leftward shift of the demand curve(ii) a decrease in quantity sold(iii) an increase in the price buyers pay a. (i), (ii), and (iii) b. (i) and (iii) c. (ii) and (iii) d. only (i) e. None of the answers

a. (i), (ii), and (iii)

Countries benefit from trade by exporting goods in which their opportunity costs are relatively _____ and importing goods in which their opportunity costs are relatively _____. a. low; low b. high; high c. low; high d. high; low e. Not enough information to answer this question

c. low; high

Which of the following individuals is LEAST likely to lose their job if the economy is doing poorly? a. Francesca, who works as a computer repair technician b. Mercy, who works as a server in a high-end restaurant c. Kamau, who works at a designer handbag store d. Maruichi, who works as a manager at a fast-food restaurant e. None of the answers

d. Maruichi, who works as a manager at a fast-food restaurant

If demand is _____, a higher price yields _____ total revenue. a. inelastic; lower b. inelastic; no change in c. elastic; higher d. elastic; lower e. none of the answers

d. elastic; lower

As consumers consume more units of an item, the marginal benefit of each additional unit decreases at an increasing rate. This can be seen through: A. demand curves that are flatter at lower quantities and steeper at higher quantities B. demand curves that are steeper at lower quantities and flatter at higher quantities C. demand curves that are vertical D. demand curves that are positively sloped E. None of the answers

B. demand curves that are steeper at lower quantities and flatter at higher quantities

Bae is willing to pay up to $160 for a particular pair of boots. She is able to buy the boots for $120. The marginal cost of producing the boots is $70. Which of the following is TRUE regarding the economic surplus associated with her purchase of the boots? a. Consumer surplus is $40, and producer surplus is $50. b. Consumer surplus is $50, and producer surplus is $40. c. Consumer surplus is $90, and producer surplus is $120. d. Consumer surplus and producer surplus are the same. e. None of these answers

a. Consumer surplus is $40, and producer surplus is $50.

The highest price that Dara would be willing to pay for a particular vase is: a. Her consumer surplus on the vase. b. The marginal benefit she would receive from the vase. c. The most economically efficient price for the vase. d. The most equitable price for the vase. e. None of these answers

b. The marginal benefit she would receive from the vase.

If you look at income tax (only the tax on income) which of the following is true in the United States? a. The poorest 10% of the population pay a lot more than the wealthiest 10% b. The poorest 10% of the population pay a lot less than the wealthiest 10% c. The poorest 10% of the population pay about the same amount as the wealthiest 10% d. None of the answers e. All of the answers

b. The poorest 10% of the population pay a lot less than the wealthiest 10%

Which of the following pieces of advice is consistent with the principle of comparative advantage? a. If someone else is faster than you at a task, trade with them, so they do it for you. b. Focus on what you do best. c. Focus on what you are relatively good at doing, even if you are not the best at it. d. Relative preferences are key to understanding who should do what. e. None of these answers

c. Focus on what you are relatively good at doing, even if you are not the best at it.

Barlow and Rusia own a nail salon. A manicure takes Barlow 60 minutes to complete and takes Rusia 45 minutes to complete. Completing a pedicure takes Barlow 45 minutes and takes Rusia 30 minutes. Who has a comparative advantage in manicures? a. Barlow because he is faster. b. Russia because she is faster. c. Barlow because he has a lower opportunity cost. d. Russia because she has a lower opportunity cost. e. None of these answers

c. Barlow because he has a lower opportunity cost.

What happens to the equilibrium price and quantity when demand decreases and at the same time supply increases, and the demand shift is relatively smaller than the supply shift? a. The equilibrium price rises, and the equilibrium quantity falls. b. Both the equilibrium price and quantity will rise. c. The equilibrium price falls, and the equilibrium quantity rises. d. Both the equilibrium price and quantity will fall. e. None of the answers.

c. The equilibrium price falls, and the equilibrium quantity rises.

Which of the following illustrates a positive externality? a. Martin's company experiences an increase in profits due to his cost-cutting initiatives. b. Artem loses sleep when an airport is built near his home, and planes fly overhead. c. The value of Maria's house rises when the city builds a park nearby, enhancing her view. d. Ella can buy a shirt at half price because someone else returned it. e. None of these answers

c. The value of Maria's house rises when the city builds a park nearby, enhancing her view.

Suppose the percent change in the quantity demanded for water for any price change is zero. The demand curve for water is _____, and the price elasticity of demand is perfectly _____. a. vertical; perfectly elastic b. none of the answers c. vertical; perfectly inelastic d. horizontal; perfectly elastic e. horizontal; perfectly inelastic

c. vertical; perfectly inelastic

Shifts in supply a. always lead to increases in equilibrium price. b. lead to price and quantity to move in the same direction. c. always lead to increases in equilibrium quantity. d. lead to price and quantity to move in opposite directions. e. none of the answers

d. lead to price and quantity to move in opposite directions.