EOC2013 Test 1

Suppose that you have a choice between two activities. The first activity is going to the movies, which costs $10 for a ticket and $15 for popcorn, candy and a drink. The second activity is going to a football game where your ticket is free, but food and drinks cost you $15. What is the opportunity cost of going to the movies?

$10 and the enjoyment from the football game

A price ceiling is presented graphically as:

a price below equilibrium.

In Figure: Labor Market, how many workers are unemployed or what is the surplus of workers in the market at the minimum wage of $12?

30 thousand workers

According to Figure: Apartment Market in which a maximum monthly rent is $1000, there is a _____________ of apartments in Gotham City.

80 thousand-unit shortage

A binding price floor is designed to:

A binding price floor is designed to:

Which of the following is a normative statement?

A camera makes a good wedding gift.

Assume that both auto and jet fuel prices increase significantly due to a war in the Middle East, the impact on Federal Express will be?

A leftward shift in the Federal Express supply curve.

Which of the following is TRUE in terms of a recession?

A recession lowers profits and lowers wages.

If a price floor is imposed above the equilibrium price in a market, what is the effect?

A surplus results.

An increase in the price of a good will cause:

a movement up along a given demand curve.

Which of the following statements is true?

All countries can gain from trade if they all specialize in production according to comparative advantage.

Ashlee can pick 20 pears if she produces no peaches or 10 peaches if she produces no pears. Jessica can pick 10 pears if she produces no peaches or 8 peaches if she produces no pears. Assume that both have straight-line production functions.

Ashlee has an absolute advantage in producing both peaches and pears.

A price floor is presented graphically as

a price above equilibrium.

Why do minimum wage laws in Italy and Spain result in a greater prevalence of workers being hired in unreported jobs "off the books" than do minimum wage laws in the U.S.?

Because the minimum wages in these countries are so far above the equilibrium wage that they have generated significant unemployment

Suppose that both Mexico and Canada produce both steel and beef. If Canada has a lower opportunity cost than Mexico in producing steel and Mexico has a lower opportunity cost than Canada in producing beef then:

Canada has a comparative advantage in producing steel

Suppose you discovered that the equilibrium price of mp3 players was falling and the equilibrium quantity was also falling. Which of the following is the most likely cause of this result?

Demand for mp3 players is falling.

Suppose you hear an economist make an assertion that, between the two countries, France has a comparative advantage in the production of chocolate and that Italy has a comparative advantage in the production of wine. Which of the following statements is another way of stating the same idea expressed in the assertion?

France can produce chocolate at a lower opportunity cost than Italy can.

If Honduras can produce 60,000 tractors and 20,000 bushels of corn and Belize can produce 40,000 tractors and 10,000 bushels of corn, which nation should produce tractors and which nation should produce corn?

Honduras should produce corn and Belize should produce tractors.

There is a growing concern global warming is changing people's tastes such that people are choosing actions to reduce their individual impact of carbon into the atmosphere. How will this change in tastes affect the demand for bicycles?

It will increase the demand for bicycles, all else equal.

If Microsoft cuts the price of its Zune mp3 player by 30%, how would we show the impact of this action on the demand curve for iPods?

It would shift the current iPod demand curve to the left.

Mutt can pick 10 bananas if he produces no papayas or 30 papayas if he produces no bananas. Jeff can pick 20 bananas if he produces no papayas or 5 papayas if he produces no bananas. Assume that both have straight-line production functions.

Mutt has a comparative advantage in producing papayas.

Suppose that in Australia, it takes 2 hours of labor to harvest 10 bushels of apples and 4 hours of labor to harvest 10 bushels of tomatoes. Further, suppose that a worker in Brazil can harvest 10 bushels of apples in 4 hours or 10 bushels of tomatoes in 5 hours. Which of the following statements is true?

Of these two countries, Brazil has a comparative advantage in producing tomatoes.

Which of the following statements is true?

Over the business cycle, the economy's level of output and its unemployment rate move in opposite directions.

Suppose that both Chile and Peru produce both corn and aluminum and do not trade. If Chile has a lower opportunity cost than Peru in producing corn and Peru has a lower opportunity cost than Chile in producing aluminum then:

Peru would be made better off by producing aluminum exclusively and trading with Chile to obtain corn.

Which of the following statements regarding price floors is true?

Price floors are intended to help certain people, but they have side effects that may harm others in predictable ways.

With which one of the following statements would economists most likely disagree?

Resources and inputs used in production are unlimited.

Which group would be most likely to benefit from a binding price floor imposed on wheat?

Sellers of wheat who are seeking higher prices.

Suppose you discovered that the equilibrium price of surfboards was falling and the equilibrium quantity was rising. Which of the following is the most likely cause of this result?

Supply for surfboards is rising.

If air travel to Hawaii becomes less expensive, what is likely to happen in the market for hotel rooms in Hawaii?

The demand curve for hotel rooms will shift rightward

Federal Express and UPS are two firms that compete in providing overnight delivery services. How is the market for UPS affected by an increase in the rates charged by Federal Express?

The demand for UPS services will increase.

Suppose the demand for Manolo Blahnik shoes rises, but the supply rises as well. What can you conclude will happen in the market for Manolo Blahnik shoes?

The equilibrium quantity Manolo Blahnik shoes in the market will definitely rise.

Arnold can pick 10 mangos if he produces no papayas or 20 papayas if he produces no mangos. Palmer can pick 30 mangos if he produces no papayas or 5 papayas if he produces no mangos. Assume that both have straight-line production functions.

The opportunity cost of a mango for Arnold is 2 papayas.

Suppose you get a scholarship to go to college so that tuition is free. The college education will increase your income by $500,000 over your lifetime. Your other alternative is to work in a job after high school. You would be paid $35,000 per year. Room and board in both cases costs you $20,000 per year. Compare the opportunity costs of the two activities.

The opportunity cost of college is less than the opportunity cost of working.

If the price of Sharffen Berger Chocolate rises, what will happen in the market for Dagoba Chocolate? (Both are high quality specialty artisan chocolates.)

The price of Dagoba Chocolate should rise.

If beef and leather are complements in production, when the price of beef increases, what happens in the market for leather?

The price of leather decreases

Which of the following is a likely result of a price floor imposed on providers of a particular service?

The service providers will offer an inefficiently high quality.

What describes the competitive market best?

There are many buyers and sellers of the same good

If a price ceiling is imposed above the equilibrium price, what is the effect?

There is no visible effect on the market outcome

Suppose that one person working in Mexico can produce either 20 yards of cloth or 80 baskets, and that one person working in Turkey for the same length of time can produce either 15 yards of cloth or 30 baskets. Which of the following statements is then true?

Turkey has a comparative advantage in cloth; Mexico has a comparative advantage in baskets.

Which of the following would be considered a question that is about macroeconomics and not microeconomics?

Which policy change (raising government spending or decreasing taxes) is more effective in decreasing the overall unemployment rate in a recession?

Which of the following changes would cause a decrease in the demand for DVD rentals?

a decrease in the price of movie admissions

If fast food dining is considered an inferior good, then as incomes fall we would expect that a decrease in incomes due to a recession would cause:

a shift to the right of the demand curve for Taco Bell

The condition of scarcity means that:

choices must be made in the allocation of productive resources.

The all other things being equal assumption means that:

all other relevant factors must remain unchanged

The purpose of an economic system is to:

allocate scarce resources.

The long-run effect of macroeconomic growth is to

allow for a higher standard of living.

Which of the following will definitely increase equilibrium quantity?

an increase in demand and an increase in supply

If the demand curve shifts to the left, and the supply curve does not change, then the equilibrium price:

and quantity both will decrease

Economists generally agree that people are most likely to change their behavior when they:

are given incentives to do so.

Why did the U.S. experience a gasoline shortage in 1979?

because the price of gas was legally prevented from rising to its equilibrium level

A recession

causes the unemployment rate to increase sharply.

The downward slope of the demand curve indicates that, all else equal:

consumers will buy more of a good when its price decreases.

A worker has a comparative advantage in producing a good when that worker:

has a lower opportunity cost of producing the good as compared to other people.

The law of demand says:

people will demand a smaller quantity of a good, the higher its price, all other things equal.

If tennis rackets and tennis balls are complements, an increase in the price of tennis rackets will cause the equilibrium price of tennis balls to ________ and the equilibrium quantity of tennis balls to _____ .

decrease; decrease

Suppose that the number of students enrolled at Big University decreases. In the local market for college textbooks

demand will decrease.

Two nations can maximize their consumption by:

each nation producing only those goods in which they have a comparative advantage and then trading.

Which of the following is not one of the categories of the factors of production?

economic aggregates

Which of the following is not a predictable result of a price ceiling?

exorbitant profits for producers of the good

A business cycle peak is the point of the business cycle where the economy turns from ______ to ______.

expansion; recession.

A recession is a period of time when output is _______ and employment is _______.

falling; falling

Macroeconomics is the branch of economics studying:

fluctuations in the overall level of business activity.

The result of free trade between nations is that:

goods can be produced in the location where their opportunity cost is the lowest.

A binding minimum wage is a type of:

price floor.

Most economists agree that government intervention in the economy is beneficial

in smoothing out short-term economic fluctuations

If the price of a pound of Kenyan coffee decreases from $12 a pound to $10 a pound, we can expect a(n):

increase in the quantity demanded of Kenyan coffee

If coffee sold at Starbucks is a normal good, then an increase in income will:

increase the demand for Starbucks coffee.

All economic activities involve:

individual choice.

The focal point of economic inquiry is:

individual choice.

Standards of living can be made the highest in an economy if:

individuals divide tasks and trade with each other.

If a country specializes according to its own comparative advantage and then trades with other nations:

it can consume at a higher level than the domestic production possibility frontier.

A binding price ceiling is designed to:

keep the price below the equilibrium price.

Consider two competing gas stations located on opposite corners: BP and Shell. If BP lowers the price per gallon that it charges customers, and Shell does not reduce its price, the effect on Shell is a:

leftward shift in demand for Shell's gas and a lower price for Shell's gas

Consider a BP gas station. As a result of an economic recession and decreases in consumer incomes, there will be a:

leftward shift in the station's demand curve and lower gas prices.

Scarcity of resources:

means that choices have to be made.

After finishing high school, LeBron James decided to enter the NBA rather that going to college to begin his studies to become a doctor. This choice between the two careers can best be described by:

opportunity cost.

The graphical result of a price ceiling is:

quantity demanded exceeds the amount at the equilibrium price and quantity supplied is less than the amount at the equilibrium price.

The graphical result of a price floor is:

quantity supplied exceeds the amount at the equilibrium price and quantity demanded is less than the amount at the equilibrium price.

What is the name given to the wedge that occurs between the supply price and the demand price of the transacted quantity when a good is subject to quantity restrictions?

quota rent

Gains from trade arise because of

specialization

In his book The Wealth of Nations, Adam Smith used the example of pin-making to illustrate the advantages of:

specialization.

The widely-held view that the government should take an active role in the macroeconomy dates back to

the Great Depression

The most important consequence of a recession is its effect on:

the ability of workers to find jobs.

The most important effect of a recession is its effect on

the ability of workers to find jobs.

If consumers expect that the price of coffee will be higher in the future

the demand for coffee will decrease and the demand curve will shift to the left

Long-run growth refers to

the growth of the economy over several decades

If the production possibility curve for an economy producing fish and coconuts is a straight line, we can say:

the opportunity cost of producing more fish is constant.

Which of the following is NOT a key element of the supply and demand model?

the production possibilities frontier

If the price of e-book textbooks decreases from $60 to $55, then:

the quantity demanded of e-books will increase.

The business cycle is

the short-run alternation between economic recessions and expansions.

Which of the following could account for the fact that ice cream prices have recently increased and that consumption of ice cream has declined?

the supply of ice cream has decreased

A competitive market is one in which:

there are many buyers and sellers of the same good or service.

Most individuals choose careers in which they specialize in producing only one type of good or service, yet as consumers they have access to a wide variety of goods and services. What principle allows for this?

trade

Modern policy makers

try to "smooth out" the business cycle.

Overall output

typically declines during recessions.

An opportunity cost arises:

whenever any choice is made

Economic theory asserts that people will behave in ways that:

will enhance their own overall well-being.

If the supply curve shifts to the left, and the demand curve does not change then the equilibrium price

will increase, and the quantity will decrease.