Econ 101 Sample Test 1

A change in which of the following shifts the demand curve for hamburgers? A) an increase in the price of a hamburger B) a fall in the price of french fries, a complement for hamburgers C) an increase in the number of hamburger restaurants D) an increase in the price of the meat used to produce hamburgers

B

A president of the United States promises to produce more defense goods without any decreases in the production of other goods. This promise can be valid A) if the United States is producing at a point on its production possibilities frontier. B) if the United States is producing at a point inside its production possibilities frontier. C) only if the production possibilities frontier shifts rightward. D) if the United States is producing at a point beyond its production possibilities frontier.

B

Country A can produce 1 cello by giving up the production of 5 guitars. Country B can produce 1 guitar by giving up the production of 4 cellos. In which good does country A have a comparative advantage? A) cellos B) guitars C) both goods D) neither good

B

If the money price of hats rises and no other prices change, the I. relative price of a hat rises. II. opportunity cost of a hat rises. A) only I B) both I and II C) only II D) neither I nor II

B

In every economic system, choices must be made because resources are ________ and our wants are ________. A) limited; limited B) limited; unlimited C) unlimited; unlimited D) unlimited; limited

B

In terms of dollars, the marginal benefit of working five days a week instead of four days a week is A) the wages received for 4 days of work. B) the wages received for the fifth day of work. C) the wages received for 5 days of work. D) None of the above answers is correct.

B

Joe pays $8,000.00 in tuition. The 8000-dollar tuition Joe pays is an example of what economists call A) an opportunity price. B) a money price. C) an indexed price. D) a relative price.

B

Macroeconomics is concerned with A) the effects on Ford Motor of a strike by the United Auto Workers. B) economy-wide variables. C) government decision making concerning farm price supports. D) individual consumers.

B

An efficient allocation of resources occurs when we A) cannot produce more of a good or service without giving up some other good or service that we need. B) produce the goods and services that people want. C) cannot produce more of a good or service without giving up some other good or service that we value more highly. D) produce the goods and services that people need.

C

During the summer you have made the decision to attend summer school, which prevents you from working at your usual summer job in which you normally earn $6,000 for the summer. Your tuition cost is $3,000 and books and supplies cost $1,300. In terms of dollars, the opportunity cost of attending summer school is A) $3,300. B) $6,000. C) $10,300. D) $4,300.

C

George and Michael can gain from exchange A) unless they have different opportunity costs. B) unless one has an absolute advantage in all goods. C) if each specializes in the production of the good for which he has the lower opportunity cost. D) if each specializes in the production of the good for which he has the higher opportunity cost.

C

Positive economic statements A) prescribe what should be. B) cannot be tested against the facts. C) can be tested against the facts. D) are related only to microeconomics.

C

The relative price of a good is A) equal to the price of that good divided by the quantity demanded of the good. B) what you get paid for babysitting your cousin. C) an opportunity cost. D) equal to the money price of a good.

C

Which of the following is NOT an example of an opportunity cost? A) By choosing to attend college, Jean was not able to continue working as an electrician; as a result, she gave up more than $85,000 in earnings while she was in college. B) Because David used all of his vacation time to paint his house, he was unable to visit the Caribbean last year. C) Because Mary is now being paid a higher wage, she can afford to buy a new car even though she is moving into a bigger apartment. D) By spending Thursday night studying for an economics exam, a student was unable to complete a homework assignment for calculus class.

C

Which of the following is a microeconomic topic? A) the reasons for a decline in average prices B) the effect of the government budget deficit on inflation C) the reasons why Kathy buys less orange juice D) the reasons why total employment decreases

C

A marginal cost curve A) shows that as more of a good is produced, opportunity costs of producing another unit increase. B) is upward sloping. C) is bowed inward so that its slope can become negative. D) Both answers A and B are correct.

D

All economic questions arise because we A) have an abundance of resources. B) want more than we need. C) have limited wants that need to be satisfied. D) want more than we can get.

D

As a country that has a bowed-out production possibilities frontier produces more of one good, the opportunity cost of a unit of that good ________. A) remains the same B) decreases C) might increase or decrease D) increases

D

Fundamental economic problems basically arise from A) turmoil in the stock market. B) the unequal distribution of income. C) the fact that society has more than it needs. D) our wants exceeding our scarce resources.

D

Human capital is A) all capital owned by individuals or corporations, but not by governments. B) machinery that meets or exceeds federal safety standards for use by humans. C) all capital owned by individuals, but not by corporations or governments. D) the skill and knowledge of workers.

D

If property rights are not clearly defined and enforced, then A) resources are devoted to protecting possessions rather than to production. B) incentives for specialization based on comparative advantage are weakened. C) some potential gains from specialization and trade are lost. D) All of the above answers are correct.

D

Human resources that perform the functions of organizing, managing, and assembling the other resources are called A) productive capital. B) entrepreneurship. C) venture capital. D) physical capital.

B

The "gifts of nature" are included as part of which factor of production? A) capital B) labor C) land D) entrepreneurship

C

In broad terms the difference between microeconomics and macroeconomics is that A) microeconomics studies decisions of individual people and firms and macroeconomics studies the entire national economy. B) macroeconomics studies the effects of government regulation and taxes on the price of individual goods and services whereas microeconomics does not. C) microeconomics studies the effects of government taxes on the national unemployment rate. D) they use different sets of tools and ideas.

A

In markets, people's decisions are coordinated by A) adjustments in prices. B) changes in property rights. C) learning-by-doing. D) specialization according to absolute advantage.

A

In the U.S. economy, which of the following statements is TRUE? (see textbook page 3: "Fig. 1.1: What Three Countries Produce) A) More services are produced than goods. B) Production is divided evenly between goods and services. C) More goods are produced than services. D) The economy is too complex to determine the proportion of production that is devoted to producing services.

A

Laura is a manager for HP. When Laura must decide whether to produce a few additional printers, she is choosing at the margin when she compares A) the extra revenue from selling a few additional printers to the extra costs of producing the printers. B) the total revenue from sales of printers to the total cost of producing all the printers. C) HP's printers to printers from competing companies, such as Lexmark. D) the extra revenue from selling a few additional printers to the average cost of producing the additional printers.

A

Marginal benefit curves slope A) downward, but not because of increasing opportunity cost. B) downward because of increasing opportunity cost. C) upward, but not because of increasing opportunity cost. D) upward because of increasing opportunity cost.

A

The principle of decreasing marginal benefit means that as the quantity of a good consumed A) increases, its marginal benefit decreases. B) increases, its total benefit decreases. C) decreases, its marginal benefit decreases. D) None of the above answers is correct.

A

When firms in an economy start producing more computers and fewer televisions, they are answering the ________ part of one of the two big economic questions. A) "what" B) "for whom" C) "where" D) "when"

A

Which of the following best defines capital as a factor of production? A) instruments, machines, and buildings used in production B) financial assets used by businesses C) the knowledge and skills that people obtain from education and use in production of goods and services D) the gifts of nature that businesses use to produce goods and services

A

Which of the following is a normative statement? A) Low rents are good because they make apartments more affordable. B) Owners of apartment buildings are free to charge whatever rent they want. C) Low rents will restrict the supply of housing. D) Housing costs are rising.

A

Missouri can produce 10,000 tons of pecans per year or 5,000 tons of pears per year. Washington can produce 12,000 tons of pecans per year or 48,000 tons of pears per year. Which of the following statements is TRUE? A) Washington has a comparative advantage in the production of both pecans and pears. B) Washington has an absolute advantage in the production of both pecans and pears. C) Washington has a comparative advantage in producing pecans and Missouri has a comparative advantage in producing pears. D) Both answers A and C are correct.

B

People must make choices because A) there are many goods available. B) of scarcity. C) most people enjoy shopping. D) None of the above answers is correct.

B

Suppose Joe can prepare 10 sandwiches or 5 pizzas in an hour and Beth can produce 12 sandwiches or 9 pizzas. Which of the following is TRUE? A) Joe should produce pizza because he has a higher opportunity cost of producing pizza than does Beth. B) Beth should produce pizza because she has a lower opportunity cost of producing pizza than does Joe. C) Joe should produce pizza because he has a lower opportunity cost of producing pizza than does Beth. D) Beth should produce pizza because she has a higher opportunity cost of producing pizza than does Joe.

B

Suppose a scientific breakthrough made free solar power available in unlimited quantities in the United States. The effect of this invention would be to move the A) United States inside its production possibilities frontier. B) U.S. production possibilities frontier outward. C) United States beyond its production possibilities frontier. D) U.S. production possibilities frontier inward.

B

The tradeoff between current consumption and the production of capital goods also reflects a tradeoff between A) satisfying today the needs of the poor and the wants of the wealthy. B) current consumption and future consumption. C) the future production of capital goods and future consumption of goods. D) economic growth and technological change.

B

Which of the following is a positive statement? A) My favorite dinner is pizza and soda. B) An increase in the price of pizza will lead fewer students to buy pizza. C) The government should spend more on education. D) The government must provide health insurance so that the poor can obtain decent medical treatment.

B

You decide to take a vacation and the trip costs you $2,000. While you are on vacation, you do not go to work where you could have earned $750. In terms of dollars, the opportunity cost of the vacation is A) $750. B) $2,750. C) $1,250 D) $2,000.

B

Missouri can produce 10,000 tons of pecans per year or 5,000 tons of pears per year. Washington can produce 12,000 tons of pecans per year or 48,000 tons of pears per year. If these two states were to engage in trade, which of the following is TRUE? A) Half of both Washington's and Missouri's resources would be devoted to pears and the other half to pecans because that is the comparative advantage. B) Washington would produce both pears and pecans and Missouri would produce neither. C) Missouri would specialize in pear production and trade pears to Washington pecans. D) Missouri would specialize in pecan production and trade pecans to Washington for pears.

D

Normative economic statements A) deal with economic hypotheses that are not well-established laws. B) describe what is rather than what ought to be. C) describe the process of economic policy-making. D) describe what ought to be.

D

The loss of the highest-valued alternative defines the concept of A) entrepreneurship. B) marginal benefit. C) scarcity. D) opportunity cost.

D

The opportunity cost of good A in terms of good B is equal to the A) money price of good B minus the money price of good A. B) ratio of the money price of good B to the money price of good A. C) money price of good A minus the money price of good B. D) ratio of the money price of good A to the money price of good B.

D

The social arrangement that gives John Grisham, the writer of best-selling novels, the ownership of his novels is A) a market. B) dynamic comparative advantage. C) absolute advantage. D) property rights.

D

Twenty years ago a stove cost $300 and a refrigerator cost $1,500. Today a stove costs $600, while a refrigerator costs $1,800. Which of the following statements is TRUE? A) The money price of a refrigerator has fallen. B) The relative price of stoves and refrigerators has not changed. C) The relative price of a refrigerator has increased. D) The relative price of a stove has increased.

D

When the government hires people to serve in the army, these people are no longer available to do other work. This choice illustrates the concept of A) marginal benefit. B) an incentive. C) a social interest/private interest conflict. D) opportunity cost.

D

Which factor of production earns profit? A) money B) land C) human capital D) entrepreneurship

D