ECON EXAM 1

"Entrepreneurship" is a.the talent for organizing the use of la nd, labor and capital, among other things. b.skill in influencing government regulators and legislators. c.accumulated technical knowledge in using labor and capital. d.knowledge of the particular natural resources to be found in a given area.

A

A market is said to be in disequilibrium if a.it exhibits either a surplus or a shortage. b.the number of units that individuals are willing to buy exceeds the number of units they can afford. c.it is a market for an inferior good. d.none of the above

A

A price floor is a government-mandated a.minimum price below which legal trades cannot be made. b.maximum price above which legal trades cannot be made. c.minimum price at which all units of the good must be legally sold. d.minimum price below which legal trades can be made.

A

An example of a tangible good is __________an, example of an intangible good is __________. a.a car, friendship b.friendship, love c.peace, a house d.the flu, love e.a computer, a shirt

A

Attempts to determine "what is" are part of __________ economics. a.positive b.normative c.positive and normative d.neither positive nor normative

A

Choice implies a.opportunity cost. b.efficiency. c.inefficiency. d.utility. e.disutility.

A

If demand rises by a lesser amount than supply falls, then equilibrium price __________ and equilibrium quantity __________. a.rises, falls b.falls, falls c.rises, rises d. falls, rises

A

If there is a fire in a crowded movie theater and you (and only you) run to the exit, you will get out more quickly than if you had walked to the exit. It follows that if you are better off running to the exit, so is everyone else in the theater. This is an example of a.the fallacy of composition. b.opportunity cost. c.association. d.causation.

A

In every economy people vie for the economy's rationing device, a process called a.competition. b.entrepreneurship. c.marginal benefit. d.positive economics.

A

In order to test an economic theory, it is necessary to a.collect data. b.perform controlled experiments on people. c.first delete the ceteris paribus condition. d.none of the above

A

In the supply-and-demand diagram of the market for peanut butter, the equilibrium point has moved down and to the right. What could have caused this? a.a fall in the price of peanuts b.a rise in the price of peanuts c.a rise in income, assuming that peanut butter is an inferior good d.a shift in preferences toward peanut butter e.none of the above

A

One of the effects of a price floor (above equilibrium price) is a.a surplus. b.higher-quality goods are produced. c.more satisfied customers. d.all of the above e.none of the above

A

Opportunity cost is the value of a.the best forfeited alternative. b.the chosen alternative. c.a free good. d.an economic good.

A

Scarcity means a.wants are greater than the limited resources available to satisfy these wants. b.wants are less than the limited resources available to satisfy these wants. c.resources are infinite. d.wants are limited. e.both c and d

A

Several years ago, a bookstore chain extended its closing time from 9 p.m. to 10 p.m. Now it is considering a further extension to 11 p.m. In making this marginal decision, the results of having gone from 9 p.m. to 10 p.m. are a.irrelevant. b.relevant if the marginal costs and benefits were unequal. c.relevant since they are part of the calculation of total costs and benefits. d.relevant if the marginal costs and benefits were equal.

A

Superstitions are generally the result of a.taking association to be causation. b.the fallacy of composition. c.making invalid assumptions. d.holding all other things constant.

A

The terms "theory" and "__________" are synonymous. a.model b.assumption c.utility d.ceteris paribus

A

What is the most prominent rationing device you will find at your campus bookstore? a.price b.limited quantities in stock of each item c.anti-theft tags on the high-priced items d.none of the above

A

Which of the following is a microeconomics topic? a.the study of how prices are determined in the computer industry b.the study of unemployment in the economy c.the study of how changes in the nation's money supply affect the nation's output d.a and c e.b and c

A

Which of the following is a normative macroeconomics statement? a.The central bank should increase the nation's money supply. b.The increase in the nation's money supply helped push the nation's unemployment rate down in the short run. c.Ford Motor Company's new advertising campaign ended up hurting General Motors' sales. d.The local government ought to spend more on recreational facilities.

A

Which of the following statements best represents the law of demand? a.Price and quantity demanded are inversely related, ceteris paribus. b.Price and quantity demanded are inversely related. c.Price and quantity demanded are directly related, ceteris paribus. d.Price and demand are inversely related, ceteris paribus. e.Quantity demanded rises if price rises, ceteris paribus.

A

Which of the following statements is false? a.Positive economists always agree with each other. b.Normative economists do not always agree with each other. c.Normative economics involves value judgments and opinions. d.Positive economics attempts to determine "what is".

A

Which of the following statements is true? a.Evidence can never prove a theory. b.Evidence cannot reject a theory. c.Economists prefer not to test theories. d.If the evidence supports a theory, th e.theory has been proved correct.

A

Which of the following would NOT be considered a macroeconomic topic? a.the reasons for a decline in the price of crude oil b.the cause of a downturn in the economy c.the effect of the government budget deficit on inflation d.the causes of inflation and unemployment

A

A price ceiling is a government-mandated a.minimum price below which legal trades cannot be made. b.maximum price above which legal trades cannot be made. c.minimum price above which legal trades cannot be made. d.maximum price below which legal trades cannot be made.

B

A rightward shift in the demand curve for tennis balls could be caused by a.a fall in the price of tennis balls. b.a fall in the price of tennis rackets. c.a rise in the price of tennis lessons. d.a fall in income, assuming tennis balls are a normal good.

B

An effective price ceiling will a.clear the market. b.result in a shortage. c.result in a surplus. d.induce new firms to enter the industry.

B

An increase in the price of good B caused an increase in the demand for good C. This indicates that a.B and C are complements. b.B and C are substitutes. c.B and C are neither substitutes nor complements. d.B and C are normal goods.

B

Economists believe that people's wants are a.finite. b.infinite. c.irrational. d.unimportant because needs are more important than wants.

B

George broke a mirror on Tuesday, and for the remainder of the week had a run of bad luck. George's friend, Michelle, said that the act of physically breaking the mirror caused George's bad luck. Michelle believes that a.association is not causation. b.association is causation. c.what is good for the individual is good for the group. d.what is good for the individual is not good for the group.

B

If the supply of and demand for a product both decrease, then equilibrium a.quantity and equilibrium price must both decline. b.quantity must decline, but equilibrium price may either rise, fall, or remain unchanged. c.price must fall, but equilibrium quantity may either rise, fall, or remain unchanged. d.quantity must fall and equilibrium price must rise.

B

In economics, a synonym for utility is a.usefulness. b.satisfaction. c.sacrifice. d.a service.

B

Jerry has $50,000 in his savings account and the average new car price is $23,000. Will Jerry buy a new car? a.Yes, since Jerry can afford a new car. b.Not necessarily. Jerry has the ability to buy a new car, but we don't know if he also has the willingness to buy a new car. c.Yes, since Jerry's savings is more than double the average new car price. d.none of the above

B

On a supply-and-demand diagram, consider a price for which the horizontal distance to the supply curve is less than the horizontal distance to the demand curve. There is a __________ at that price and we are clearly __________ the equilibrium price. a.shortage, above b.shortage, below c.surplus, below d.surplus, below

B

Suppose the federal government steps up its program of highway repair and renovation. Millions of people see tangible benefits from this. Economists remind us that those same people eventually must pay higher taxes to fund the highway project, which points out the __________ the project. a.resources used in b.opportunity cost of c.marginal benefits of d.rationing device used in

B

Suppose the government establishes a price floor on a good above its equilibrium price. It can be said that at the price floor, a.although sellers are selling all of the product that they desire at this price, the consumers are not able to buy all that they desire. b.although consumers are purchasing all of the product that they desire at this price, the sellers are not selling all that they desire. c.both sellers and buyers are satisfied with the quantity that is being exchanged. d.both sellers and buyers are exchanging the equilibrium quantity of this good. e.b and d

B

The author of the text defines economics as the a.science of efficiency. b.science of scarcity. c.study of markets. d.study of human activity.

B

The branch of economics that studies the decisions of individuals and firms is called a.macroeconomics. b.microeconomics. c.microeconomics and macroeconomics. d.positive economics. e.normative economics.

B

The latest Blink 182 CD is available for $16.99. Is this price a rationing device? a.No, stores will sell the CD to anyone having the required number of dollars. b.Yes, many will not buy the CD because they are unwilling to sacrifice other things $16.99 will buy. c.No, for price to be a rationing device, it must be so high that only one unit of the item is sold. d.Yes, since that is a reasonable price.

B

The opportunity cost of attending college is a.the money one spends on college tuition, books, and so forth. b.the highest valued alternative one forfeits to attend college. c.the least valued alternative one forfeits to attend college. d.equal to the salary one will ear n when one graduates from college.

B

The rationing function of prices most nearly refers to the a.ability of the price system to generate an equitable distribution of income. b.capacity of a competitive market to equate the quantity demanded and the quantity supplied of a good. c.fact that ration coupons are needed to alleviate wartime shortages of goods. d.tendency of supply and demand to shift in opposite directions.

B

There would be no subject of economics if a.wants and resources were finite. b.wants were finite and resources were infinite. c.wants were infinite and resources were finite. d.wants and resources were infinite.

B

Tickets to the Super Bowl game are generally sold out well in advance of game day. This implies that a.the original ticket price is set above equilibrium. b.the original ticket price is set below equilibrium. c.there is a surplus of tickets at the original ticket price. d.the law of demand does not apply to Super Bowl tickets

B

Variables are magnitudes that a.are constant or fixed. b.can assume different values. c.are always increasing. d.are always decreasing. e.are always positive values.

B

When economists speak of scarcity, they are referring to the a.condition in which society is not employing all its resources in an efficient way. b.condition in which people's wants outstrip the limited resources available to satisfy those wants. c.economic condition that exists in only very poor countries of the world. d.condition in which society produces too many frivolous goods and not enough socially desirable goods.

B

Which of the following is a positive macroeconomics statement? a.The central bank should increase the nation's money supply. b.The increase in the nation's money supply helped push the nation's unemployment rate down in the short run. c.Ford Motor Company's new advertising campaign ended up hurting General Motors' sales. d.The local government ought to spend more on recreational facilities.

B

Which of the following is not one of the categories of resources? a.labor b.government c.capital d.entrepreneurship

B

Which of the following pairs of goods would be most likely to be substitutes? a.pasta and pasta sauce b.butter and margarine c.chips and salsa d.tires and automobiles e.all of the above

B

"What's good for General Motors is good for the nation" is an example of a.taking assumption to be causation. b.opportunity cost. c.the fallacy of composition. d.disguising a normative statement as a positive one.

C

A(n) _______________ good is one in which as income rises or falls, there is no change in the demand for the good. a.normal b.inferior c.neutral d.substitute e.complementary

C

An "increase in demand" means that a.the demand curve has shifted to the left. b.price has declined and consumers want to purchase more of the good. c.the demand curve has shifted to the right. d.the price of the good can be expected to decline, assuming supply stays constant.

C

An "increase in the quantity demanded" means that a.the demand curve has shifted to the right. b.the supply curve has shifted to the left. c.price has declined and consumers therefore want to purchase more of the good. d.given supply, the price of the good can be expected to rise.

C

An economic concept that explains why Disneyland charges less for the second day of admission than for the first day is a.the law of supply. b.the law of demand. c.the law of diminishing marginal utility. d.the law of diminishing returns. e.none of the above

C

An effective price floor on rice will a.force otherwise profitable farmers out of business. b.result in a shortage of rice. c.result in a surplus of rice. d.clear the market for rice. e.both a and b

C

An effective price floor will a.clear the market. b.result in a shortage. c.result in a surplus. d.force some firms in this industry to go out of business.

C

An increase in the expected price of corn would likely a.increase both the demand and supply of corn. b.decrease both the demand and supply of corn. c.increase the demand but decrease the supply of corn. d.increase the supply but decrease the demand for corn.

C

An increase in the number of sellers will, ceteris paribus a.increase equilibrium price and quantity. b.increase equilibrium price and decrease equilibrium quantity. c.decrease equilibrium price and increase equilibrium quantity. d.decrease equilibrium price and quantity. e.increase demand.

C

As Jamal's income rises, his demand for video rentals does not change. It follows that, for Jamal video rentals are a(n) a.normal good. b.inferior good. c.neutral good. d.substitute good. e.complementary good.

C

At the optimal level of an activity, the activity's marginal benefit must a.be zero. b.be greater than zero. c.equal the marginal cost of the activity. d.exceed the marginal cost of the activity.

C

Choice is fundamentally a consequence of a.living in a world where there are both goods and bads. b.how wealthy one is. c.scarcity. d.opportunity cost.

C

Equilibrium price and quantity are established by a.demand only, if the economy is a market economy. b.supply only, if the economy is a socialist economy. c.both demand and supply. d.supply only, if the economy is a capitalist economy.

C

Event X usually occurs a few minutes before event Y. It follows that event X a.is the cause of event Y b.is definitely not the cause of event Y. c.could be the cause of event Y. d.is caused by event Y.

C

Given that frozen yogurt and ice cream are substitutes, a shift in preferences in favor of yogurT would be predicted to do all of the following EXCEPT a.raise the equilibrium price of frozen yogurt. b.increase the quantity supplied of frozen yogurt. c.increase the supply of ice cream. d.increase the demand for frozen yogurt.

C

If an economist says "the higher the price of oranges, the fewer oranges individuals will buy, ceteris paribus," this means that a.individuals don't like high-priced oranges. b.as the price of oranges rises, individuals' preferences change and they no longer like oranges as much as they once did. c.as the price of oranges rises, individuals' preferences do not change, nor does anything else, but individuals buy fewer oranges in response to the higher price of oranges. d.the higher the price of oranges, the fewer oranges individuals will buy, assuming that people have economic motives.

C

On a supply-and-demand diagram, consider a price for which the horizontal distance to the supply curve exceeds the horizontal distance to the demand curve. There is a __________ at that price and we are clearly __________ the equilibrium price. a.shortage, above b.shortage, below c. surplus, above d. surplus, below

C

Produced goods used as inputs for the production of other goods comprise the resource known as a.natural resources. b.services. c.capital. d.entrepreneurship.

C

Some years ago, chemists at 3M Corporation were trying to create a super-strong glue. Somehow they got their molecules twisted and came up with one of the weakest glues ever made. But, rather than pouring it down the drain, they tried coating some paper with it. Voila! The "Post-It Note" was born. In this case, 3M was acting as a.a utility. b.a rationer. c.an entrepreneur. d.an abstraction.

C

Suppose the government imposes a price ceiling on a good above its equilibrium price. Which of the following is a likely result? a.Some other rationing device will emerge to allocate the good among buyers. b.Some buyers and sellers will be willing to risk breaking the law in order to exchange the goods. c.No change will occur in the market. d.There may be buyers who are willing to pay quite high prices so they can consume more than what they are consuming now. e.a, b, and d

C

The condition in an economy that makes a "rationing device" a necessity is the fact that a.the economy is organized around free markets. b.the economy is centrally planned by the government. c.scarcity exists. d.there are fewer types of goods than there are people in the economy.

C

The headline in the newspaper reads "County Supervisors Debate Building New Schools." The headline relates closest to which economic concept? a.goods and bads b.utility c.choice d.ceteris paribus

C

The synonym economists commonly use for "additional" is a.capital. b.rational. c.marginal. d.economic.

C

Theory A predicts that on Tuesday and Thursday the stock market will rise, and on Monday,Wednesday, and Friday the stock market will fall. If an economist tests the theory and finds that over a five-month period the theory predicts accurately, he or she would likely say a.the theory has been proved correct. b.the theory is true. c.the evidence supports the theory. d.the theory is too ridiculous to take seriously.

C

Which of the following best represents the fallacy of composition? a.What is true for one is false for all. b.What is good for one is bad for all. c.What is good (or true) for one is good (or true) for all. d.The more high-calorie food a person eats, the greater his or her weight will be, ceteris paribus.

C

Which of the following is a positive microeconomics statement? a.The central bank should increase the nation's money supply. b.The increase in the nation's money supply helped push the nation's unemployment rate down in the short run. c.Ford Motor Company's new advertising campaign ended up hurting General Motors's sales. d.The local government ought to spend more on recreational activities.

C

Which of the following pairs of goods would be most likely to be complements? a.butter and margarine. b.peanuts and peanut butter. c.DVD's and DVD players. d.hiking boots and tennis shoes. e.All of the above

C

Which of the following would not result from a price ceiling (below equilibrium price)? a.a shortage b.fewer exchanges c.an increase in supply d.nonprice rationing devices

C

Why do societies need rationing devices? a.Because people have too many needs and not enough wants. b.Because price exists. c.Because scarcity exists. d.Because people have opportunity costs.

C

An economic theory is tested by a.the Testing Committee of the American Economic Association. b.examining the realism of its assumptions. c.deriving statistical equations. d.comparing its predictions with the real world events. e.all of the above

D

Buyers prefer lower prices to higher prices a.always. b.never. c.rarely. d.ceteris paribus.

D

Ceteris paribus means a.one variable too many. b.the correct relationship specified. c.assuming economic motives. d.all other things held constant.

D

Decision making "at the margin" means making a choice based on __________ of a decision. a.the total benefits b.the total costs c.comparing the total benefits and costs d.comparing the additional benefits and costs

D

If demand falls by a greater amount than supply falls, then equilibrium price __________ and equilibrium quantity __________. a.rises, rises b.rises, falls c.falls, rises d. falls, falls

D

In moving along a demand curve, which of the following is NOT held constant? a.the prices of substitute goods b.the prices of complementary goods c.consumer incomes d.the price of the good for which the demand curve is relevant

D

In the supply-and-demand diagram of the market for peanut butter, the equilibrium point has moved up and to the right. What could have caused this? a.a fall in the price of peanuts b.a rise in the price of peanuts c.a rise in income, assuming that peanut butter is an inferior good d.a shift in preferences toward peanut butter e.none of the above

D

Minerals, animals, water and forests are all considered to be the resource known as a.capital b.entrepreneurship c.labor d.land e.none of the above

D

Price ceilings and price floors a.shift demand and supply curves and therefore have no effect upon the rationing function of prices. b.interfere with the rationing function of prices. c.make the rationing function of free markets more efficient. d.cause surpluses and shortages, respectively.

D

Something that provides disutility is called a a.good. b.want. c.need. d.bad. e.none of the above

D

The higher the opportunity cost of attending college, a.the more likely an individual will go to college. b.the more economics classes an individual will take at college. c.the fewer economics classes an individual will take at college. d.the less likely an individual will go to college.

D

The physical and mental talents people bring to production processes comprise the resource called a.entrepreneurship. b.natural resources. c.capital. d.labor.

D

The usefulness of a theory is determined by a.the realism of its hypothesis. b.the realism of its assumptions. c.the realism of its variables. d.how well it predicts. e.all of the above

D

Which of the following is an example of a positive statement? a.The U.S. public should devote more resources to education. b.The poor should pay lower taxes and the rich should pay higher taxes. c.Soap operas should be taken off television. d.If you drop a ball from the top of a building, it will fall to the ground.

D

Which of the following pairs of goods would be most likely to be substitutes? a.pasta and pasta sauce b.butter and margarine c.chips and salsa d.tires and automobiles

D

Which of the following statements is false? a.A theory consists of variables, assumptions, hypotheses, and predictions. b.A variable can take on different values. c.A hypothesis is a conditional statement. d.If predictions are logically deduced from assumptions, the predictions are necessarily true. e.none of the above

D

Which of the following statements uses the term ceteris paribus correctly? a.In economics, there are numerous theories, ceteris paribus. b.New York City is a major American city, ceteris paribus. c.The price of pineapples is low in Hawaii, ceteris paribus. d.The more ice cream you eat, the more weight you will gain, ceteris paribus. e.none of the above

D

A theory is a.built on the major factors or variables that the theorist believes explain some event. b.a simplified abstract representation of the real world. c.used to understand the real world. d.a and b e.a, b, and c

E

If the supply curve and the demand curve for lettuce both shift to the left by an equal amount,what can we say about the resulting changes in price and quantity? a.The price will increase, but the quantity may increase or decrease. b.The price will increase, and the quantity will increase. c.The price will decrease, and the quantity will increase. d.The price will stay the same, but the quantity will increase. e.The price will stay the same, but the quantity will decrease.

E

Which of the following items would an economist consider to be a good? a.leisure time b.jeans c.pizzas d.cars e.all of the above

E