WVU Econ 202 Exam 1

1 - In a command economy, the __________ either makes most economic decisions itself or at least strongly influences how the decisions are made. A. government B. market C. firm D. business sector

A

12- A price floor is: A. a minimum price allowed by law. B. a tool used to increase government revenues. C. able to produce an efficient outcome. D. a maximum price allowed by law.

A

13 - When a price ceiling is in effect, quantity ______ will be greater than quantity ______, creating a ______. A. demanded; supplied; shortage B. supplied; demanded; surplus C. supplied; demanded; shortage D. demanded; supplied; surplus

A

14 - Which statement is TRUE in a market with a price ceiling? A. Buyers and sellers experience unexploited gains from trade. B. Resources are allocated to their most efficient uses. C. The supply of goods is bought by the buyers with the highest willingness to pay. D. The supply of goods is sold by the sellers with the lowest costs.

A

15 - The presence of price floors in a market usually is an indication that: A. sellers of the good or service outnumber the buyers. B. policymakers believe the price floor does not involve inequities. C. the forces of supply and demand are unable to establish an equilibrium price. D. there is an insufficient quantity of a good or service being produced.

A

16 - When price floors are in effect, goods and services: A. are not necessarily supplied by their lowest-cost producer. B. are still allocated efficiently. C. are neither necessarily supplied by their lowest-cost producer nor do they flow to their highest-valued use. D. do not necessarily flow to their highest-valued use.

A

17 - The most fundamental concept in economics is that A. changes in incentives influence behavior in a predictable way—people will be less likely to choose an option as it becomes more expensive. B. changes in incentives generally do not influence human behavior. C. goods that are provided by government are free for society. D. individuals generally do not consider other alternatives when making a choice.

A

18 - As depicted in _______, it is necessary to give up some of one good to gain more of the other good. A. the production possibilities frontier B. allocative efficiency C. scarcity D. utility

A

23 - According to the law of supply: A. there is a direct relationship between price and the quantity supplied. B. there is an inverse relationship between price and the quantity supplied. C. there is a direct relationship between price and quantity demanded. D. there is an inverse relationship between price and quantity demanded.

A

24 - Interpret the following statement: "An increase in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market." A. The statement is correct. B. The statement would be correct if "quantity of wheat demanded" were substituted for "quantity of wheat supplied." C. The statement is incorrect because it confuses a change in quantity supplied with a change in supply. D. The statement would be correct if it read that a "decrease in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market."

A

25 - Consumer surplus A. is the difference between total willingness to pay and the total amount paid. B. guarantees that the market value of a good in money is equal to the total economic value of the good. C. is always negative because of diminishing marginal utility. D. is the total area under a consumer's demand curve.

A

26 - According to the law of supply, A. producers are willing to supply larger amounts of a good as its price increases. B. a direct relationship exists between the price of a good and the amount buyers choose to buy. C. an inverse relationship exists between the price of a good and the amount buyers wish to buy. D. an inverse relationship exists between the price of a good and the amount producers supply.

A

27 - Saccharin and aspartame are both low-calorie substitutes for sugar. If saccharin is found cause cancer, A. the price of aspartame will increase. B. the price of sugar will decrease. C. the price of saccharin will increase. D. the demand curves for aspartame and sugar will shift leftward.

A

36 - Rent controls tend to cause persistent imbalances in the market for housing because A. Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage. B. Quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus. C. Quantity supplied exceeds quantity demanded but price cannot rise to remove the shortage. D. Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus.

A

38 - When prices of products are set below equilibrium, A. society's resources are inefficiently allocated. B. firms expand output to increase profits. C. firms earn excessively high profits. D. consumers benefit from surpluses of cheap goods.

A

39 - Which is a normative economic statement? A. Tests should always be hard to ensure that students are challenged. B. Quantity demanded for steak will fall if the price of steak rises. C. Hot dogs and hot dog buns are generally complementary goods. D. Each of these three statements uses normative economics.

A

4 - The economic way of thinking stresses that A. changes in personal costs and benefits will exert a predictable influence on the choices of human decision makers. B. only direct monetary costs matter in making decisions. C. if a good is provided free to an individual, its production will not consume valuable scarce resources. D. secondary effects are not important to consider when making decisions.

A

42-During a recession, we expect that the opportunity cost of attending college: A. falls. B. cannot be determined from the information given. C. rises. D. remains the same.

A

49 - The choice on a production possibilities set that is socially preferred, or the choice on an individual's budget constraint that is personally preferred, will display _____________________. A. allocative efficiency B. the production possibilities frontier C. trade-offs D. scarcity

A

51 - The law of comparative advantage suggests that A. individuals, states, and nations can all benefit if they trade with others. B. free trade among nations is harmful to an economy. C. each economy should strive to be self-sufficient. D. each country should attempt to produce roughly equal amounts of all goods.

A

53 - The opportunity cost of producing a particular good refers to: A. how much of something else must be given up to produce one additional unit of the good. B. how much of a good can be produced with the existing technology and resources. C. the marginal cost of production. D. the total cost of production, including wages.

A

58 - A decrease in demand refers to: A. a leftward shift of the demand curve. B. a downward movement along the demand curve. C. a rightward shift of the demand curve. D. an upward movement along the demand curve.

A

8 - Marginal thinking is best demonstrated by: A. choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time. B. deciding to never purchase a coat made with animal skins or furs C. acquiring the information relevant to a choice before making that choice D. measuring all of the costs of a meal against all of the benefits when deciding whether to order a second milkshake

A

2 - Specialization: A. leads to greater self-sufficiency. B. can lead to an increase in overall production. C. allows workers to develop skills by working on a large number of tasks D. is always the result of an inefficient use of resources

B

20 - Any given demand or supply curve is based on the ceteris paribus assumption that: A. everything is variable. B. all else is held equal C. no one knows which variables will change and which will remain constant. D. what is true for the individual is not necessarily true for the whole

B

21 - A supply curve is a graphical illustration of the relationship between price, shown on the vertical axis, and, shown on the horizontal axis. A. demand B. quantity C. quantity supplied D. quantity demanded

B

22 - In economics, the demand for a good refers to the amount of the good that people: A. would like to have if the good were free. B. will buy at various prices. C. need to achieve a minimum standard of living. D. will buy at alternative income

B

34 - Which of the following would tend to increase the price of lumber? A. a technological advance that lowers the cost of cutting timber B. an increase in the demand for newly constructed homes C. a decrease in the demand for wooden rocking chairs D. a decrease in the tax imposed on firms who produce lumber

B

43-The opportunity cost of a choice is: A. the opportunity of using the money to buy something else cheaper. B. the value of the next best opportunity foregone. C. the money cost that a person does not have to pay when doing something. D. the money that a buyer has to pay for an item.

B

45 - Which of the following would most likely shift the production possibilities curve inward? A. an increase in the number of hours factories are in use B. a decrease in the average number of hours worked per week as the labor force chooses to enjoy more leisure time C. an increase in the production of capital goods D. technological progress

B

46 - Economists refer to this pattern, the ___________________________________, which means that as a person receives more of a good, the additional or marginal utility from each additional unit of the good declines. A. law of trade-offs B. law of diminishing marginal utility C. production possibilities frontier D. law of increasing marginal utility

B

29 - __________________are enacted when discontented sellers, feeling that prices are too low, appeal to legislators to keep prices from falling. A. Rent controls B. Price ceilings C. Price floors D. Subsidies

C

50 - According to the law of comparative advantage, if a firm or a nation desires to maximize its output, each productive assignment should be carried out by those who A. have the highest opportunity cost. B. have the lowest opportunity cost. C. have an absolute advantage in the productive activity. D. can complete the productive activity most rapidly.

B

54 -How is slope, measured as rise over run, related to the production possibilities frontier? A. Slope measures the fixed costs of producing Good X and Good Y. For a slope of -3, the fixed cost of producing either Good X or Good Y is $3 multiplied by the number of units produced. B. Slope gives the opportunity cost of producing an additional unit of the good on the x-axis. So, if the slope is -3, the country must give up producing 3 units of Good Y for every additional unit of Good X it produces. C. Slope gives the opportunity cost of producing an additional unit of the good on the x-axis. So, if the slope is -3, the country must give up producing one-third of a unit of Good Y for every additional unit of Good X it produces. D. Slope gives the fixed cost of producing an additional unit of the good on the x-axis. So, if the slope is -3, the country must give up producing one-third of a unit of Good Y for every additional unit of Good X it produces.

B

55 -Utilizing comparative advantage can best be exemplified as: A. the president of your university teaching a class again. B. a world-renowned chef hiring someone to cook meals for his family. C. your lawyer word-processing her own legal briefs. D. the CEO of Microsoft programming his own computer.

B

59 - If the price of computers ______, the demand for printers will ______. A. decreases; not change B. increases; decrease C. decreases; decrease D. increases; increase

B

62 - Total producer surplus equals: A. the supply curve. B. the area above the supply curve and beneath the market price. C. the area beneath the supply curve and above the demand curve. D. the market price.

B

70 - The demand curve for oil slopes downward because: A. oil will only be used in its higher-valued uses when the price of oil is lower. B. oil will only be used in its higher-valued uses when the price of oil is higher. C. oil has no substitutes so that buyers do not react to any change in the price of oil. D. oil has many substitutes so that no buyer is willing to pay when the price of oil rises.

B

9 - The opportunity cost of going to college is A. the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses. B. the value of the best opportunity a student gives up to attend college. C. zero for students who are fortunate enough to have all of their college expenses paid by someone else. D. zero, since a college education will allow a student to earn a larger income after graduation.

B

19 - The downward slope of the demand curve again illustrates the pattern that as_______ rises, ___________ decreases. A. quantity demanded, price B. quantity supplied, quantity demanded C. price, quantity demanded D. price, quantity

C

https://drive.google.com/file/d/1ICIhhF6R4I7tlFwMg7wH7XP-YZS2UAqo/view?usp=sharing 10 - If the government sets the price ceiling at $31, there will be: A. a shortage of 15 units. B. no effect on the market. C. a surplus of 15 units. D. a supply of 20 units.

B

28 - If an increase in the price of peaches reduces the demand for cream, this indicates that peaches and cream are: A. normal goods. B. inferior goods. C. complements. D. substitutes.

C

3- The difference between a positive economic statement and a normative statement is that A. a positive statement must be true; a normative statement is often not true B. a normative statement must be true; a positive statement is often not true C. a positive statement can be verified; a normative statement cannot D. a normative statements can be verified; a positive statement cannot

C

31 - Which of the following is a major disadvantage of setting the price of a good below equilibrium and using waiting in line rather than price to ration the good? A. Compared to price rationing, waiting in line is unfair since it is easier for those with higher incomes to wait in line. B. Waiting in line imposes a cost on the consumer; paying higher prices does not. C. Both waiting in line and higher prices are costly to consumers, but unlike the payment of a higher price, waiting in line does not provide suppliers with an incentive to expand future output. D. Waiting in line benefits consumers at the expense of producers.

C

32 - Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that the below-equilibrium prices established by rent controls would A. create a surplus of rental housing. B. promote a rapid increase in the future supply of housing. C. result in poor service and quality deterioration of many rental units. D. lead to a reduction in housing discrimination against minorities.

C

35 - If a government price control succeeds in affecting price, it can be expected to lead to a corresponding A. decrease in the quantity of sales only if the price is forced down. B. decrease in the quantity of sales if the price is forced down and an increase in the volume of sales if the price is forced up. C. decrease in the quantity of sales whether the price is forced up or down. D. increase in the quantity of sales whether the price is forced up or down.

C

37 - A market that operates outside the legal system, either by selling illegal goods or by selling goods at illegal prices is referred to in economics as a A. gray market. B. resource market. C. black market. D. criminal market.

C

41 - Dropping out of college to devote time to a promising business start-up is most directly an application of the principle of: A. marginal thinking. B. gains from trade. C. opportunity cost. D. returns from specialization.

C

47 - The law of _________ explains why people and societies rarely make all-or-nothing choices. A. consumption B. marginal analysis C. diminishing marginal utility D. utility

C

48 - In many cases, it is reasonable to refer to the ________________ as the price. A. budget constraint B. sunk cost C. opportunity cost D. budget constraint

C

56 - A country has an absolute advantage in production if: A. other countries can produce the same good using fewer inputs. B. it has the lowest opportunity cost of producing a good. C. it can produce the same good using fewer inputs than another country. D. it can produce a good using fewer inputs than it takes another country to produce a different good.

C

57- Which of the following statements is TRUE? I. Compared with a modern economy, the division of knowledge is greater in a primitive economy because every family is self-sufficient: growing their own food, making their own clothes, and constructing their own shelter. II. Nobody understands the entire process of producing even the simplest products, like a lead pencil, in a modern economy. III. The collapse of communism and the opening of the Chinese economy to the rest of the world have increased the division of knowledge, leading to increased world output. A. I only B. III only C. II and III only D. I, II, and III

C

61- The equilibrium price is: A. unstable because at this price the quantity demanded exceeds the quantity supplied. B. unstable because at this price the quantity demanded is less than the quantity supplied. C. stable because at this price the quantity demanded equals the quantity supplied. D. stable because at this price all buyers are willing and able to pay.

C

64 - Which statement is FALSE? A. It is possible to have a shortage of a good even if its supplies are abundant. B. Politicians often blame speculators and profiteers for rising prices rather than changes in supply and demand. C. A frost that destroys half the orange crop will create a surplus of oranges. D. To eliminate a shortage, prices must rise.

C

65 - When labor demand decreases, the wage is expected to: A. change in an indeterminate direction. B. increase. C. decrease. D. remain the same.

C

66 - Which of the following statements is TRUE? A. Total consumer surplus is represented graphically by the area beneath the demand curve. B. Total consumer surplus is represented graphically by the area above the demand curve. C. Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good or service and its market price. D. Bill is willing to pay $10 for a pound of clay. If he buys a pound of clay at a market price per pound of $5, his consumer surplus is $2.

C

67 - The supply curve illustrates: A. the total cost of producing a good. B. the relationship between the cost of production and price. C. the relationship between the quantity supplied and the price of a good. D. the willingness to produce a good if the technology to produce it becomes available.

C

68 - Consumer surplus is the amount that consumers: A. are willing to pay for a good. B. are willing to pay for a good plus the amount that they actually pay for it. C. are willing to pay for a good minus what they actually pay for it. D. actually pay for a good.

C

30 - Other things constant, a decrease in the demand for computers will A. increase the price of computers. B. increase the quantity supplied of computers. C. increase the demand for computer manufacturing workers. D. decrease the demand for computer manufacturing workers.

D

33 - When a supply and demand model is used to analyze the market for labor, A. demand is generally no longer downward sloping. B. the wage rate is used on the vertical axis as the market price. C. employment is used on the horizontal axis as the market quantity. D. both b and c.

D

40 - What is thinking on the margin? A. Making choices that are based on historical precedents. B. Making decisions that are of noneconomic importance. C. Making choices that ignore the marginal benefits, but not the marginal costs, of some activity. D. Making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity.

D

5 - For the typical student, taking an introductory course in economics should A. turn the student into an economist. B. teach the student solutions to most social problems. C. teach the student how to answer complex social questions. D. help the student learn to rationally analyze social problems.

D

52 - Which of the following is an implication of the law of comparative advantage? A. Countries with small endowments of labor relative to capital should specialize in producing labor-intensive commodities. B. Since workers in high-income countries utilize larger amounts of capital than workers in less developed nations, trade between capital-rich and capital-poor nations results in the exploitation of labor in the less developed countries. C. Countries that are high cost producers of agricultural products should trade those products for goods they can produce only at a low opportunity cost. D. Countries that are low opportunity cost producers of timber products should trade those products for goods they can produce only at a high opportunity cost.

D

6- Which of the following are scarce? A. time for leisure activities B. crude oil C. automobiles D. all of the above

D

60 - When the price of a good equals the equilibrium price: A. there will still be some wasted resources. B. opportunity cost is minimized. C. gains from trade are minimized. D. there are no unexploited gains from trade.

D

63 - A shortage of a good occurs when: A. the quantity supplied equals the quantity demanded. B. supply does not exist. C. the quantity supplied is greater than the quantity demanded. D. the quantity supplied is less than the quantity demanded.

D

69 - The law of supply states that there is a _____ relationship between price and quantity ______. A. negative; demanded B. negative; supplied C. positive; demanded D. positive; supplied

D

7 - Harold, a delivery man, washes and irons his own shirts. Sarah, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference? A. Harold must enjoy ironing more than Sarah does. B. Harold must be better at ironing than Sarah is. C. The opportunity cost of ironing is greater for Harold. D. Sarah has a higher opportunity cost of laundering her clothes than Harold does

D

https://drive.google.com/file/d/1GC9VWnFD5xa25WZa3rK6ap5MNBGRl4Tz/view?usp=sharing 44 - Along the production possibilities frontier, the most efficient point of production depicted is: A. Point B B. Point C C. Point D D. All points on the production possibilities frontier are equally efficient.

D

https://drive.google.com/file/d/1yztgy6AVsmgIGqvIfOvQX41JmQtNsGBS/view?usp=sharing 11 - If the price in the free market is $2, then a: A. surplus of 50 units would exist, and price would rise. B. shortage of 50 units would exist, and price would fall. C. surplus of 50 units would exist, and price would fall. D. shortage of 50 units would exist, and price would rise.

D