Practice Exam #1 Questions: EC 111
d) raise the price, reduce the quantity, increase total revenues, and increase crime
A drug interdiction program that successful reduced the supply of illegal drugs in the U.S. likely will a) raise the price, reduce the quantity, decrease total revenues, and decrease crime b) lower the price, increase the quantity, increase total revenues, and increase crime c) raise the price, increase the quantity, decrease total revenues, and increase crime d) raise the price, reduce the quantity, increase total revenues, and increase crime
a) a transfer payment
A form of government spending that is not made in exchange for a currently produced good or service is called a) a transfer payment b) consumption c) investment d) none of the above is correct
a) canoes and paddles
A likely example of complementary goods for most people would be a) canoes and paddles b) snow mobiles and sofas c) coffee and tea d) tennis balls and basketballs
a) raises GDP
A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move a) raises GDP b) decreases GDP c) doesn't change GDP because gambling is never included in GDP d) doesn't change GDP because in either case his income is included
a) the overall level of prices in the economy is increasing
The term inflation is used to describe a situation in which a) the overall level of prices in the economy is increasing b) incomes in the economy are increasing c) stock-market prices are rising d) the economy is growing rapidly
a) decreases the demand for the other good
Two goods are substitutes when a decrease in the price of one good a) decreases the demand for the other good b) decrease the quantity demanded for the other good c) increase the demand for the other good d) increase the quantity demanded of the other good
a) the ticket price is below the equilibrium price
UA's home games are always sold out, and students who wait in line for hours may be turned away. This indicates a) the ticket price is below the equilibrium price b) the ticket price is at the equilibrium price c) nothing about the equilibrium price d) the ticket price is above the equilibrium price
c) investment
What word do economists use to refer to the purchase of goods that will be used in the future to produce more goods and services? a) capital b) consumption c) investment d) costs
a) has to spend more dollars to maintain the same standard of living
When the consumer price index rises, the typical family a) has to spend more dollars to maintain the same standard of living b) can spend fewer dollars to maintain the same standard of living c) finds that its standard of living is not affected d) can offset the effects of rising prices by saving more
d) the number of buyers
Which of the following does not affect an individual's demand curve? a) expectations b) income c) prices of related goods d) the number of buyers
b) drug addicts will have an even greater need for quick cash to support their habits
Which of the following statements helps to explain why government drug interdiction increases drug-related crime? a) the direct impact is on buyers, not sellers b) drug addicts will have an even greater need for quick cash to support their habits c) in the short run, both equilibrium quantities and prices will fall in the markets for illegal drugs d) successful drug interdiction policies reduce the demand for illegal drugs
a) demand and supply are both elastic in the long run compared to the short run
Why was OPEC unable to maintain high oil prices in the long run? a) demand and supply are both elastic in the long run compared to the short run b) demand and supply are both inelastic in the long run compared to the short run c) demand is elastic and supply is inelastic in the long run compared to the short run d) demand is inelastic and supply is elastic in the long run compared to the short run
c) supply of bicycles will shift to the left
Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the a) demand for bicycles assembly workers will increase b) supply of bicycles will shift to the right c) supply of bicycles will shift to the left d) firm must increase output to maintain profit levels
b) razors to increase
Suppose the American Medical Association announces that men who shave their heads are less likely to die of heart failure. We could expect the current demand for a) hair gel to increase b) razors to increase c) combs to increase d) shampoo to increase
d) all of the above are correct
The demand for Godiva mint chocolate is likely quite elastic because a) the market is narrowly defined b) this particular type of chocolate is viewed as a luxury by many chocolate lovers c) there are many close substitutes d) all of the above are correct
d) the value of foreign goods purchased exceeded the value of goods sold to foreigners during the year
If net exports is a negative number for a particular year, then a) the value of firms' investors declined over the course of the year b) consumption exceeded the sum of investment and government purchases during the year c) the value of goods sold to foreigners exceed the value of goods purchased during the year d) the value of foreign goods purchased exceeded the value of goods sold to foreigners during the year
d) supply is perfectly inelastic
If sellers do not adjust their quantities supplied at all in response to a change in price, a) advances in technology must be prevalent b) the time period under consideration must be very long c) supply is perfectly elastic d) supply is perfectly inelastic
d) $25.51 purchases today
If the CPI was 127 in 1972 and 324 today, then $10 in 1972 purchased the same amount of goods and services as a) $207.00 purchases today b) $324.00 purchases today c) $3.50 purchases today d) $25.51 purchases today
b) $20 purchased in 1955
If the CPI was 95 in 1955 and 475 today, then $100 today purchases the same amount of goods and services as a) $4.75 purchased in 1955 b) $20 purchased in 1955 c) $95 purchased in 1955 d) $500 purchased in 1955
a) a 10% increase in the price of windows results in a 15% increase in the quantity of windows supplied
If the price elasticity of supply for a window manufacturer is 1.5, a) a 10% increase in the price of windows results in a 15% increase in the quantity of windows supplied b) supply is considered to be inelastic c) the manufacturer is likely operating very near capacity d) all the above
c) the quantity supplied is the same, regardless of price
If the price elasticity of supply is 0, then a) supply is more elastic than it is any other case b) the supply curve is horizontal c) the quantity supplied is the same, regardless of price d) a change in demand will cause a relatively small change in the equilibrium price
b) increase by 6%
If the price elasticity supply is 1.2 and the price increased by 5% quantity supplied would a) increase by 4.2% b) increase by 6% c) decrease by 4.2% d) decrease by 6%
d) increases
In 2016, prostitution was illegal in the state of Alabama. In 2017, prostitution is now legal, then, all things equal, GDP a) doesn't change because both legal and illegal production are included in GDP b) decreases c) doesn't change because these activities are never included in GDP d) increases
a) $39,097.74
Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price index was 160 in 1996 and 266 in 2006. Janelle's 2006 salary in 1996 dollars is a) $39,097.74 b) $43,062.50 c) $68,900.00 d) $108,062.50
b) unmeasured quality change
Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant? a) substitution bias b) unmeasured quality change c) introduction of new goods d) income bias
d) $264
Nate collected Social Security payments of $220 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then his Social Security payments for 1986 should have been a) $228 b) $238 c) $257 d) $264
c) substitution bias
One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of gods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called a) price-change neglect b) unmeasured quality change c) substitution bias d) relative bias
c) fall now
Recent forest fires in the western states are expected to cause the price of lumber to rise in the next 6 months. As a result, we can expect the supply of lumber to a) fall in 6 months but not now b) increase in 6 months when the price goes up c) fall now d) increase now to meet as much demand as possible
a) the value of the good is added to the investment category of 2014 GDP, added to the consumption category of 2015 GDP, and subtracted from the investment category of 2015 GDP
A stove is produced by a firm in 2014, added to the firm's investors in 2014, and sold to a household in 2015. It follows that a) the value of the good is added to the investment category of 2014 GDP, added to the consumption category of 2015 GDP, and subtracted from the investment category of 2015 GDP b) the value of the good is added to the investment category of 2014 GDP, added to the consumption category of 2015 GDP, and not included in the investment category of 2015 GDP c) the value of the good is added to the investment category of 2014 GDP, subtracted from the consumption category of 2015 GDP, and not included in the investment category of 2015 GDP d) the value of the good is added to the investment category of 2014 GDP, subtracted from the consumption category of 2015 GDP, and added to the investment category of 2015 GDP
d) decrease quantity demanded
An increase in the price of a good will a) increase demand b) decrease demand c) increase quantity demanded d) decrease quantity demanded
a) very large changes in quantity supplied
As the price elasticity of supply approaches infinity, very small changes in price lead to a) very large changes in quantity supplied b) very small changes in quantity supplied c) no change in quantity supplied d) none of the above is correct
d) when a new good is introduced, it gives consumers greater choice thus reducing the amount they must spend to maintain their standard of living
Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living a) new goods and services are always of higher quality than existing goods and services b) new goods and services cost less than existing goods and services c) new goods and services cost more than existing goods and services d) when a new good is introduced, it gives consumers greater choice thus reducing the amount they must spend to maintain their standard of living
a) when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living
Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because a) when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living b) new goods and services cost more than existing goods and services c) new goods and services cost less than existing goods and services d) new goods and services are always of higher quality than existing goods and services
a) the economy's overall price level is rising
Economists use the term inflation to describe a situation in which a) the economy's overall price level is rising b) the economy's overall price level is high, but not necessarily rising c) some prices are rising faster than others d) the economy's overall output of goods and services is rising faster than the economy's overall price level
d) $30 million
Fuji Motors is a Japanese owned company that produces automobiles; all of its automobiles are produced in American plants. In 2010 Fuji Motors produced $30 million worth of automobiles, with $17 million in sales to Americans, $9 million in sales to Canadians, and $4 million worth of automobiles added to Fuji Motor's inventory. The transaction just described contribute how much to U.S. GDP for 2010? a) $40 million b) $20 million c) $17 million d) $30 million
c) GDP fails to account for the quality of the environment
GDP is not a perfect measure of well-being; for example, a) GDP incorporates a large number of non-market goods and services that are of little value of society b) GDP places too much emphasis on the value of leisure c) GDP fails to account for the quality of the environment d) all of the above are correct
b) decrease in demand for the good
If a good is inferior, then an increase in income will result in a(n) a) increase in the demand for the good b) decrease in demand for the good c) movement down and to the right along the demand curve for the good d) movement up and to the left along the demand curve for the good
a) increase in the demand for the good
If a good is normal, than an increase in income will result in a(n) a) increase in the demand for the good b) decrease in the demand for the good c) movement down and to the right along the demand curve for the good d) movement up and to the left along the demand curve for the good
a) both the equilibrium price and quantity would decrease
If macaroni and cheese is an inferior good, what would happen to the equilibrium price and quantity of macaroni and cheese if consumers' income rises? a) both the equilibrium price and quantity would decrease b) both the equilibrium price and quantity would increase c) the equilibrium price would increase, and the equilibrium quantity would decrease d) the equilibrium price would decrease, and the equilibrium quantity would increase
b) normal goods
Suppose that when income rises, the demand curve for doctor's visits shifts to the right. In this case, we know the doctor's visits are a) inferior goods b) normal goods c) perfectly competitive goods d) durable goods
