Exam 4, 17 - 20 Microeconomics

44. Suppose that Canada can produce 100,000 hockey sticks or 10,000 gallons of maple syrup in a typical workweek, while Germany can produce 90,000 hockey sticks or 10,000 gallons of maple syrup in a typical workweek. From these numbers, we can conclude: A. Canada has a comparative advantage in the production of hockey sticks. B. Germany has a comparative advantage in the production of hockey sticks. C. Canada has an absolute advantage in the production of maple syrup. D. Germany has an absolute advantage in the production of maple syrup.

A. Canada has a comparative advantage in the production of hockey sticks

35. In the U.S. political arena, _____________________ may tend to emphasize the virtues of markets and the limitations of government, while _____________________ may tend to emphasize the shortcomings of markets and the need for government programs. A. conservatives; liberals B. politicians; economists C. economists; politicians D. liberals; conservatives

A. Conservaties; Liberals

4. A ________ is a direct payment from a firm to its shareholders. A. dividend B. bond C. capital gain D. share

A. Dividend

42. In India one person can produce 330 pounds of rice or 110 shirts in one year. In China one person can produce 400 pounds of rice or 200 shirts in one year. Which of the following statements is true? A. India has a comparative advantage in the production of rice. B. China has a comparative advantage in the production of rice. C. China has both an absolute and comparative advantage in the production of rice. D. India has an absolute advantage in the production of rice.

A. India has a comparative advantage in production of rice

* 66. It is sometimes argued that nation should not depend too heavily on other countries for supplies of certain key products. This argument is commonly known as the _______________. A. National Interest Argument B. Import Limitation Argument C. Anti-Dumping Argument D. Buy-American Argument

A. National Interest Arguement

45. The underlying reason why trade benefits both sides of a trading arrangement are rooted in the concept of . A. opportunity cost B. specialization C. absolute advantage D. maximum production

A. Opportunity Cost

30. Why are politicians more likely to focus their political actions on individuals with higher incomes and higher levels of education? A. research shows this group has greater informed voter participation B. research shows this group has a higher percentage of conservatives C. research shows this group has a higher percentage of liberals D. research shows members of this group have employment concerns

A. Research shows this group has greater informed voter participation.

* 19. XYZ Corporation plans to open a manufacturing plant in China, but the company has not retained any of its yearly profits for this purpose. How will XYZ Corporation likely raise the money to finance its offshore expansion? A. Sale of bonds to institutional investors B. Sale of bonds to municipal households C. By issuing Treasury bills D. By encouraging momentum selling of its stock

A. Sale of bonds to institutional investors.

* 62. A rule that every imported product must be opened by hand and inspected with a magnifying glass, by one of just three government inspectors available at any given time might be referred to as __________________. A. a non-tariff barrier B. a quota C. a government bureaucracy D. an import quota

A. a non-tariff barrier

22. Since stock prices will shift in response to unpredictable future news, these prices will tend to follow what mathematicians call _________________. A. a random walk with a trend B. momentum trading C. long-term fundamental value D. unpredictable changes in expectations

A. a random walk with a trend

57. An import quota or tariff on French wine that raises the prices for wine will probably: A. hurt domestic wine drinkers but help domestic wineries, which will gain from the higher prices. B. hurt both domestic wine drinkers and domestic wineries, but this will be more than offset by a reduction in driving fatalities. C. hurt both domestic wine drinkers and domestic wine producers because of a reduction in competition. D. hurt domestic wineries, which will lose business as a result of the higher prices.

A. hurt domestic wine drinkers but help domestic wineries, which will gain from the higher prices.

56. Tariffs are taxes imposed on _________________. A. imported products B. exported products C. hazardous goods D. surplus goods

A. imported products

52. The reasons that nations trade includes the fact that: A. no one country produces all of what citizens within the country want. B. the wants of their citizens exceeds their productive capacity. C. different countries have different levels of greed. D. labor costs are too high in some countries to efficiently produce goods.

A. no one country produces all of what citizens within the country want

27. The theory of _____________________ holds that people won't bother incurring the costs of becoming informed and voting, because they know that their vote _____________________. A. rational ignorance; won't be decisive in the election B. imperfect competition; has little impact on election outcomes C. inequality of incomes; won't be decisive in the election D. democracy by majority rule; won't impact election outcomes

A. rational ignorance; won't be decisive in the election

31. Political institutions play a role in allocating the _____________________, and economists have played an active role along with other social scientists in analyzing _____________________. A. scarce resources of society; how such political institutions work B. single political district spending: the impossibility of the majority deciding what it prefers C. resources to pork-barrel projects; the impossibility of deciding on spending limits D. funding to 51 tuition-free colleges and universities; disadvantages of price controls

A. scarce resources of society; how such political institutions work

54. Some nations that seek to produce all of their own needs face the problem that: A. some industries are too small to be efficient if restricted to their domestic markets alone. B. they can deplete their natural resources as a result. C. the opportunity cost of producing some of their own goods is lower than that of trading with others for them. D. they will not be able to satisfy the wants of all of their citizens.

A. some industries are too small to be efficient if restricted to their domestic markets alone.

* 14. Bill and Cathy built a new home in 1985 at a cost of $90,000.00. They paid 20% of the cost to build the home themselves and financed the remainder by way of a mortgage. They paid the mortgage off in 15 years. They used $35,000 from Bill's inheritance to upgrade the home in 2004. When they sold the home for $335,000.00 in 2006, what was the value of their equity? A. $35,000 B. $245,000 C. $210,000 D. $335,000

B. $245,000

12. The term __________ refers to the _________ that a bond is expected to pay at the time of purchase. A. rate of interest; yield rate B. bond yield; rate of return C. rate of interest; rate of return D. yield rate; bond rate

B. Bond yield; rate of return

5. A financial gain earned by purchasing stock in a publicly traded company and subsequently selling the investment at higher price is commonly referred to as a _____________. A. dividend B. capital gain C. interest payment D. rate of return

B. Capital Gain

13. In the investment industry, the principle of _______________ supports investing in a wide range of companies to reduce the level of risk. A. subprime loans B. diversification C. fundamentals trading D. buying low and selling high

B. Diversification

60. ____________ means selling goods below their cost of production. A. Protectionism B. Dumping C. Import quotas D. Non-tariff barriers

B. Dumping

67. The acronym GATT stands for: A. General Association for Trade and Tariffs. B. General Agreement on Tariffs and Trade. C. General Accounting for Tariff and Trade. D. General Association on Technology and Trade.

B. General Agreement on Tariff and Trade

18. The City of Washington needs to upgrade its levies and its water drainage systems. The cost will exceed the amount of tax revenue the City expects to receive over the next 10 years. How will the City be able to raise the funds needed to finance this upgrade? A. Issue Treasury Bonds B. Issue municipal bonds C. Borrow from Banks D. Borrow from large corporations

B. Issue municipal bonds

25. _____________________ occurs when a group of legislators all agree to vote for a package of otherwise unrelated laws that they individually favor. A. Pork-barrel spending B. Logrolling C. Competitive spending D. Politically conservative spending

B. Logrolling

* 61. __________________ are ways that a nation can draw up regulations, inspections, and paperwork to make it more costly or difficult to import products. A. Tariffs B. Nontariff barriers C. Quotas D. Import ceilings

B. Nontariff barriers

23. _____________________ are numerically small, but well-organized groups that are able to exert a disproportionate effect on political outcomes. A. Bipartisan reform organizations B. Special interest groups C. Social Scientists organizations D. Bipartisan campaign reformers

B. Special Interest Group

64. ________________________ is theoretically possible, even sensible: give an industry a short-term indirect subsidy through protection, and then reap the long-term economic benefits of having a vibrant healthy industry. A. Protectionism B. The infant industry argument C. Dumping D. Import quotas

B. The infant industry argument

15. Why do business firms need financial capital? A. to lend to other businesses B. to make real physical capital investments C. to provide an alternate source of revenue for households D. to make diversified capital investments

B. To make real physical capital investments

* 58. Which of the following is the best example of a quota? A. a tax placed on all small cars sold in the domestic market B. a limit imposed on the number of men's suits that can be imported from a foreign country C. a subsidy from the American government to domestic manufacturers of men's suits so they can compete more effectively with foreign producers of men's suits D. a $100-per-car fee imposed on all small cars imported

B. a limit imposed on the number of men's suits that can be imported from a foreign country

39. When one nation can produce a product at lower cost relative to another nation, it is said to have a(n)____________________in producing that product. A. relative advantage B. absolute advantage C. economy of scale D. production efficiency

B. absolute advantage

* 17. Which of the following is not an ironclad rule in the financial markets? A. borrowing from a bank works better for large, well-known corporations B. banks fund small business loans and large firms issue bonds to raise money C. a bank can monitor a large established firm better than a new small business D. relatively large and well-known firms typically never borrow from banks

B. banks fund small business loans and large firms issue bonds to raise money.

2. During the recent U.S. recession, some large automakers required bailouts from the federal government to avoid being forced into bankruptcy by their _________________. A. shareholders B. bondholders C. Chief Executive Officer D. Board of Directors

B. bondholders

* 59. The infant industry argument for protectionism suggests that an industry must be protected in the early stages of its development so that: A. firms will be protected from subsidized foreign competition. B. domestic producers can attain economies of scale to allow them to compete in world markets. C. there will be adequate supplies of crucial resources in case they are needed for national defense. D. it will not be subjected to a takeover from a foreign competitor

B. domestic producers can attain the economies of scale to allow them to compete in world markets.

* 50. The concept of ____________________ means that as the measure of output goes up, average costs of production decline—at least up to a point. A. relative advantage B. economies of scale C. absolute advantage D. comparative advantage

B. economies of scale

46. According to international trade theory, a country should: A. import goods in which it has an absolute advantage. B. import goods in which it has a comparative disadvantage. C. export goods in which it has an absolute advantage. D. import goods in which it has an absolute disadvantage.

B. import goods in which it has a comparative disadvantage

51. Intra-industry trade between similar trading partners allows the gains from ________________ that arise when firms and workers specialize in the production of a certain product. A. comparative advantage B. learning and innovation C. creating the value chain D. relative advantage

B. learning and innovation

* 38. The slope of the production possibility frontier is determined by the _________ of expanding production of one good, measured by how much of the other good would be lost. A. absolute advantage B. opportunity cost C. relative advantage D. specialization

B. opportunity cost

21. The old proverb: "Don't put all your eggs in one basket" is synonymous with which of the following? A. An average rate of return B. Predicting value of tangible assets C. Diversified investments D. A flexible rate of return

C. Diversified Investments

11. ________________ are a form of _______ bonds that offer relatively high interest rates to compensate for their relatively high chance of default. A. Bonds; government B. High-yield bonds; municipal C. Junk bonds; corporate D. Certificates of deposit; bank

C. Junk bonds; corporate

8. The _________ of an investment is determined by how easy it is to sell an asset at any given time. A. profitability B. expected profitability C. liquidity D. sustainable outcome

C. Liquidity

33. Which of the following is an oversimplified term that is sometimes used to describe the meaning of democracy? A. voting cycles B. majority opinion C. majority rule D. majority vote

C. Majority rule

24. _____________________ is a particular type of spending that mainly benefits a single political district. A. Logrolling B. Special interest spending C. Pork-barrel spending D. An appropriate spending programs

C. Pork-Barrel Spending

6. In order to be classified as a _______________, a firm must be owned by the people who run it on a day-to-day basis. A. business firm B. public company C. private company D. corporation

C. Private Company

* 65. The race to the bottom scenario of global environmental degradation is explained roughly like this: A. Companies seek to reduce their costs of operations on plant and equipment design and this results in higher levels of pollution. B. Companies seek the lowest market prices on products in order to gain market share, resulting in inferior goods and increased waste and pollution. C. Profit-seeking multinational companies shift their production from countries with strong environmental standards to countries with weak standards, thus reducing their costs and increasing their profits. D. Companies seek to influence environmental legislation standards are set to the lowest possible standards in the USA in order to maximize profits.

C. Profit-seeking multinational companies shift their production from countries with strong environmental standards to countries with weak standards, thus reducing their costs and increasing their profits.

7. A _____________ is a firm that has sold its stock by making it available to be bought and sold by outside investors. A. business entity B. private company C. public company D. public proprietorship

C. Public Company

29. In the United States, which of the following would be most likely to participate in an election by informing themselves and casting their vote? A. single people B. newcomers C. the employed D. the socially isolated

C. The employed

16. What do stocks, bonds, securitized mortgage assets and other financial investments all have in common? A. they are all forms of investments bought by demanders of capital B. they all guarantee rates of return C. they can only be purchased in financial markets D. their values are tracked by the Dow Jones Industrial Average

C. They can only be purchased in financial markets.

1. Treasury bonds are issued by the federal government through the _____________________. A. Federal Reserve B. Central Bank C. U.S. Department of the Treasury D. U.S. Office of the Comptroller of Currency

C. U.S. Department of Treasury

49. Jethro has a(n) ________________ in all aspects of camping: he is faster at carrying a backpack, gathering firewood, paddling a canoe, setting up tents, making a meal, and washing up. A. relative advantage B. opportunity cost C. absolute advantage D. comparative advantage

C. absolute advantage

47. When nations increase production in their area of _____ and trade with each other, both sides can benefit. A. relative advantage B. absolute advantage C. comparative advantage D. opportunity cost

C. comparative advantage

34. Economists readily admit that in settings that involve a monopoly or negative externalities, a potential role exists for _____________________. A. scare resources B. economically wise programs C. government intervention D. economically wise projects

C. government intervention

10. A checking account typically pays __________________, but gives easy access to your money, either by writing a check or by using ______________. A. no interest; a credit card B. between 3% and 5% interest; a credit card C. little or no interest; a debit card D. between 2% and 4% interest, a debit card

C. little or no interest; a debit card

32. Australian law may require people to vote, but mandatory voting laws are unlikely to mean that each vote cast in an election _____________________. A. will matter less than it does in a free society B. is worth the loss of freedom not to vote C. will be an informed or a thoughtful vote D. was cast by voters who don't care who wins

C. will be an informed or a thoughtful vote

43. Which of the following is true? A. A nation can have a comparative advantage in the production of a good only if it also has an absolute advantage. B. A nation can have a comparative advantage in the production of every good, but not an absolute advantage. C. A nation cannot have an absolute advantage in the production of every good. D. A nation cannot have a comparative advantage in the production of every good.

D. A nation cannot have a comparative advantage in the production of every good

53. What matters most in determining the efficient distribution of production over the world is: A. absolute advantage. B. efficiency. C. the allocation of resources. D. comparative advantage.

D. Comparative advantage

26. The absence of which of the following best explains why government agencies are slower to correct mistakes than private firms. A. imperfect information B. discrimination in wealth distribution C. monopoly over the economy D. competition or a threat of new entry

D. Competition or a threat of new entry

9. How has the widespread adoption of debit cards as the preferred method of payment for consumer purchases likely affected bank administration costs? A. the cost of bank administration is unaffected by widespread use of debit cards B. costs increased due to high cost of developing and maintaining debit card technology C. administration costs increased because the cost of electricity means high cost for electronic transactions D. costs are reduced because the cost of purchase is immediately debited from purchaser's checking account

D. Costs are reduced because the cost of purchase is immediately debited from purchaser's checking account.

3. Which of the following will provide an investor with a legally valid claim of partial ownership of a firm? A. entitlement to bond interest B. ownership of a treasury bond C. entitlement to dividends D. ownership of stock

D. Ownership of Stock

28. Which of the following is not one of the proposals that have been offered to encourage greater voter turnout? A. making it easier to register to vote B. keeping the polls open for more hours C. moving election day to a weekend D. tax incentives for active voters

D. Tax incentives for active voters

* 63. Which of the following is the best example of a tariff? A. a tax placed on all small cars sold in the domestic market B. a limit imposed on the number of small cars that can be imported from a foreign country C. a subsidy from the American government to domestic manufacturers of small cars so they can compete more effectively with foreign producers of small cars D. a $1000-per-car fee imposed on all small cars imported

D. a $1000-per-car fee imposed on all small cars imported

55. A tariff differs from a quota in that a tariff is: A. levied on imports, whereas a quota is imposed on exports. B. levied on exports, whereas a quota is imposed on imports. C. a tax levied on exports, whereas a quota is a limit on the number of units of a good that can be exported. D. a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.

D. a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.

40. Colombia produces coffee with less labor and land than any other country; it therefore necessarily has: A. a comparative advantage in coffee production. B. both a comparative and absolute advantage in coffee production. C. an absolute advantage and comparative disadvantage in coffee production. D. an absolute advantage in coffee production

D. absolute advantage in coffee production

* 48. The theory of comparative advantage shows that the gains from international trade do not just result from the absolute advantage of producing at lower cost, but also from pursuing comparative advantage and producing at a lower . A. opportunity cost B. absolute cost C. relative cost D. comparative cost

D. comparative cost

* 41. The idea behind comparative advantage reflects the possibility that one party: A. may be able to produce everything relatively more efficiently than another party. B. may be able to produce something at a lower dollar cost than another party. C. with an absolute advantage in producing two different may export goods both of those goods to the other party. D. may be able to produce something at a lower opportunity cost than another party.

D. may be able to produce something at a lower opportunity cost than another party

20. The ownership in a company is represented by ________________ and those who are legally recognized as having ownership in a company are called _____________. A. ownership of the shares with voting rights; shareholders B. shares with voting rights; stockholders C. ownership of stock; stockholders D. ownership of shares in the company's stock; shareholders

D. ownership of shares in the company's stock; shareholders

36. A practical approach to microeconomic policy will need to take a realistic view of the specific strengths and weaknesses of markets and _____________________. A. rational ignorance that encourages a preference for uninformed voting B. the difficulties that arise when electors have three or more ballet choices. C. lobbying efforts that encourage pork-barrel spending D. the specific strengths and weaknesses of the government

D. the specific strengths and weaknesses of the government

37. Which of the following characteristics differentiates the private economy from government? A. public policy with appropriate incentives B. self-correcting mechanism C. spending programs and unwanted results D. moderate future behavior

self-correcting mechanism