Econ Exam 1

When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing Select one: a. scarcity. b. shortages. c. inefficiencies. d. inequities.

A

Which of the following is true of private ownership? Select one: a. Private ownership links responsibility with the right of control. b. Private owners have little incentive to conserve natural resources for the future. c. Private owners have little incentive to develop and use their assets in ways others value. d. Private owners can do anything they want with the things they own regardless of the damage it does to the property of others.

A

Which one of the following is a positive economic statement? Select one: a. An increase in the minimum wage will reduce employment. b. The minimum wage should be increased. c. Social justice will be served by increasing the minimum wage. d. Thoughtful people oppose an increase in the minimum wage.

A

While waiting in line to buy one cheeseburger for $1.50 and a medium drink for $1.00, Sally notices that she could get a value meal that contains both the cheeseburger and medium drink and also a medium order of fries for $2.75. She thinks to herself, "Is it worth the extra 25 cents to get the medium fries?" To an economist, Sally's decision is an example of Select one: a. marginal decision making. b. basing decisions on total, rather than marginal, value. c. an unintended consequence. d. the fallacy of composition.

A

With voluntary exchange, Select one: a. both the buyer and seller will be made better off. b. the buyer will be made better off, while the seller will be made worse off. c. the seller will be made better off, while the buyer will be made worse off. d. both the buyer and the seller will be made worse off.

A

What are the three basic questions faced by every economy? Select one: a. What, how, and for whom will goods be produced? b. When, where, and how much will be produced? c. Why, where, and when will goods be produced? d. How, how much, and why will goods be produced?

A

Suppose Donna can make 12 dozen cookies or 6 pies in an hour. What is Donna's opportunity cost of producing 1 pie, in terms of dozens of cookies?

2

Suppose George can make 16 dozen cookies or 4 pies in an hour. What is George's opportunity cost of making 1 pie, in terms of dozens of cookies?

4

A middleman is a person who Select one: a. specializes in arranging trades and selling, guaranteeing, and servicing items traded. b. acts as a middle person between the top management of a business firm and the hourly employees who actually produce the goods and services. c. adds to the seller's expense and the buyer's buying price without providing a service to either. d. levies a tax on private sector activity and uses the funds to support government activities.

A

A system of economic organization in which the ownership and control of productive capital assets rests with the state and in which resources are allocated through central planning and political decision making is called Select one: a. socialism. b. a market economy. c. a corporate economy. d. capitalism.

A

Because information is costly to acquire, Select one: a. people will rationally choose not to become fully informed when making decisions. b. people will generally choose to become as fully informed as possible when making decisions. c. people will generally choose to acquire no information that would be relevant to their decisions. d. none of the above are true.

A

High transaction costs will tend to Select one: a. reduce the number of mutually beneficial exchanges that occur. b. allow easier specialization according to the law of comparative advantage. c. increase the value created by exchanges in an economy. d. increase the number of mutually beneficial exchanges that occur.

A

In a free market system Select one: a. Even selfish people are incentivized to give others what they want and need b. A central planner allocates scarce resources c. It's difficult to motivate people

A

In economics, transaction costs refer to the Select one: a. time, effort, and other resources needed to search out and negotiate an exchange. b. dollar cost or price of the item traded. c. cost an economy suffers when it allows specialization according to comparative advantage. d. amount by which the price of an item increases due to the presence of a middleman.

A

In the past 200 years, Hans Rosling showed, Select one: a. the world has seen enormous improvements in health and wealth b. rich countries have gotten richer and poor countries have gotten poorer c. health has been more important than wealth

A

Internet sites such as eBay make it easier for sellers and buyers to find one another and, by doing so, Select one: a. reduce transactions costs. b. increase transaction costs. c. reduce the number of exchanges that occur. d. lower the value created by the goods and services available.

A

According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study Select one: a. is positive. b. outweighs the extra cost. c. exceeds the benefits of the previous hour of study. d. will raise your exam score.

B

Air travel from New York to Miami costs $300 and takes 6 hours. A bus ticket between the cities costs $150 and takes 56 hours. Other things constant, the minimum value of one's time that would induce a rational individual to fly rather than drive would be Select one: a. $1 per hour. b. $3 per hour. c. $5 per hour. d. $50 per hour.

B

Beginning in the early 1990s, private landowners in Zimbabwe have started fencing in large areas of land that contain black rhinos, which were on the verge of extinction. These private owners charge fees for a stay at the lodges on the property (eco-tourism) and also sell hunting safaris and photo safaris. As a result, Select one: a. the population of black rhinos has fallen substantially. b. the population of black rhinos has increased. c. many black rhinos are being poached. d. the incomes of residents in Zimbabwe has fallen substantially.

B

Economic thinking suggests that a nation in which middlemen are considered to be unproductive seekers of profit, and where their activities are heavily restricted by law, will Select one: a. gain by channeling people's efforts away from unproductive middleman activity toward physical output. b. lose the potential gains from trade that would result from lower transaction costs emanating from middleman activities. c. find that it is richer because the added transaction costs normally imposed by middlemen will be reduced. d. gain because the value of total output will rise.

B

Ex-London School of Economics student Mick Jagger sang, "You can't always get what you want, but if you try sometime, you just might find you can get what you need." Another statement of the basic economic principle expressed in this lyric is that Select one: a. rational decisions are not always possible. b. you can allocate your resources to what gives you the highest value. c. you can create the supply to meet your own demand. d. you can maximize social welfare by making optimal decisions.

B

Hutch Technology makes computer monitors, which sell for $500 each. What is the opportunity cost of producing ten monitors? Select one: a. $5,000 b. the other goods that could be produced with the resources that produce the ten monitors c. the profits that Hutch earns when it sells the ten monitors d. the profits that Hutch loses if it does not produce the monitors e. All of the above are correct.

B

In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of the population. How would this affect the production possibilities curves for the countries of Europe at that time? Select one: a. The production possibilities curves for these countries would have shifted outward. b. The production possibilities curves for these countries would have shifted inward. c. The production possibilities curves for these countries would have been unaffected. d. This would have been illustrated by a movement along the production possibilities curves for these countries, but it would not have shifted them.

B

In some states, consumers pay a deposit on bottled and canned beverages and receive a refund on that deposit when they recycle the containers. Recycling rates for bottles and cans are much higher in these states. This is an example of: Select one: a. information is costly. b. incentives matter. c. unintended consequences. d. scarce resources.

B

People are willing to pay more for a diamond than for a bottle of water because Select one: a. the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. b. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. c. producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. d. water prices are held artificially low by governments, since water is necessary for life.

B

Santiago wants to buy some milk and a box of cereal. If he buys 2 quarts of milk at $1 per quart, the box of cereal costs 75 cents. If he buys 3 quarts of milk at $1 per quart, the box of cereal is free. For Santiago, the marginal cost of the third quart of milk is Select one: a. zero. b. 25 cents. c. 75 cents. d. $1.

B

Socialism: Select one: a. Is often based on bad intentions b. Does not achieve good outcomes c. Is based on trade d. Ensures everyone has their basic needs met

B

Spontaneous order comes about from Select one: a. a central planner b. price signals c. lumberjacks d. wealth

B

Suppose Donna can make 12 dozen cookies or 6 pies in an hour, and George can make 16 dozen cookies or 4 pies in an hour. If each person spends half an hour on each dessert, how many pies and cookies does each person have? Select one: a. Donna has 12 dozen cookies and 6 pies, and George has 16 dozen cookies and 4 pies. b. Donna has 6 dozen cookies and 3 pies, and George has 8 dozen cookies and 2 pies. c. Donna has 12 dozen cookies and no pies, and George has 16 dozen cookies and no pies. d. Donna has 6 dozen cookies and no pies, and George has no cookies and 2 pies.

B

The rules of the game that best take into account the complexity of producing even something as simple as a pencil are: Select one: a. central planning b. the market system c. experts

B

Which of the following statements about exchange is true? Select one: a. If everyone starts off with the same quantities of each good, it would be impossible to realize gains from trade. b. Exchange tends to move each good toward those individuals who value the good more highly. c. Exchange always results in one party being made better off and the other being made worse off. d. For trade to occur, everyone must start off with the same value of the good that is traded.

B

While waiting in line to buy two tacos at 80 cents each and a medium drink for 90 cents, Kayla notices that the restaurant has a value meal containing three tacos and a medium drink all for $3. For Kayla, the marginal cost of the third taco would be Select one: a. zero. b. 50 cents. c. 80 cents. d. $1.

B

With time, which one of the following strategies will most likely result in an outward shift in an economy's production possibilities curve? Select one: a. passage of legislation reducing the workweek to 30 hours b. institution of a tax policy encouraging research that advances technology c. institution of a tax policy encouraging consumption at the expense of investment d. passage of a law requiring the minimum wage to increase every year

B

Your friend notices that U.S. auto production and U.S. population growth have moved together over several decades. He reasons that one way to slow population growth is for the government to order the auto makers to cut back on production. You gently point out to him that he Select one: a. is correct only when the economy is in a recession b. has mistakenly inferred causation from observed correlation c. has ignored secondary effects d. has committed the fallacy of composition e. is correct only when the United States enjoys economic growth

B

"After every fall election, the weather starts to turn cold, therefore elections cause cold weather." This statement Select one: a. confuses positive and normative analysis. b. commits the fallacy of composition. c. fails to recognize that association is not causation. d. confuses macroeconomics with microeconomics.

C

A ticket to a concert costs $45. You have a ticket and can resell it for $75. Your opportunity cost of actually attending the concert is Select one: a. $30. b. $45. c. $75. d. $120.

C

Based on the idea of opportunity cost, which of the following students would be most likely to drop out of college before completing their degree? Select one: a. a senior mathematics major with a solid B average b. a junior physical therapy student who has just read about the fantastic job offers available to students with degrees in her area c. a star college football player in his junior year that just received a $5 million offer from a professional team d. a junior economics major who wants to attend graduate school

C

If a motorist is stranded in front of a pay phone and has only dollar bills, and he ends up buying a quarter from a passerby for $1, Select one: a. the stranded motorist must not understand that four quarters are worth $1. b. economic theory is unable to explain this transaction. c. both parties have gained from this exchange. d. the passerby was made better off and the motorist worse off.

C

In economics, the term "scarcity" refers to the fact that Select one: a. everything really worthwhile costs money. b. even in wealthy countries like the United States, some people are poor. c. no society can produce enough to satisfy fully the desires of people for goods and services. d. sometimes shortages of a good arise when its price is set below the market equilibrium.

C

Scarcity Select one: a. will not exist in 50 years b. is another word for poverty c. means we have to make choices d. is prevented by rationing

C

Suppose Donna can make 12 dozen cookies or 6 pies in an hour, and George can make 16 dozen cookies or 4 pies in an hour. If they specialize and only produce the dessert that is their comparative advantage, how many cookies and pies do they have? Select one: a. Donna has 12 dozen cookies and George has 4 pies b. Donna has 16 dozen cookies and George has 6 pies c. Donna has 6 pies and George has 16 dozen cookies d. Donna has 4 pies and George has 12 dozen cookies

C

The difference between a positive economic statement and a normative statement is that Select one: 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 proved; a normative statement cannot d. a normative statement can be proved; a positive statement cannot e. a positive economic statement is a moral judgment; a normative economic statement is not a moral judgment

C

The expression "There's no such thing as a free lunch" means Select one: a. if one person gains, someone else must lose. b. each person must pay for exactly what he or she receives. c. the use of resources to produce a good has an opportunity cost because of scarcity. d. you cannot have a free lunch at the expense of someone else.

C

The size of a country's "economic pie" is thought of as the total dollar value of all goods and services produced during some period of time. The economic pie Select one: a. is a fixed total waiting to be divided up among people. b. determines how much wealth an individual can obtain. c. is variable, not fixed, across time periods. d. depends solely upon the natural resources of a country.

C

What is the best test of an economic theory? Select one: a. its eloquence b. the plausibility of its assumptions c. its ability to predict real-world events, patterns, and changes d. whether it produces implications that are favored by the researcher

C

When economists use the term ceteris paribus, they are indicating that Select one: a. the relationship between two economic variables cannot be determined. b. the analysis is true for the individual but not for the economy as a whole. c. all other variables except the ones specified are assumed to be constant. d. their conclusions are based on normative economics rather than positive economic analysis.

C

Check all of the normative statements below. Select one or more: a. The moon is larger than the sun. b. Electricity produced with coal is cheaper than solar electricity. c. High taxes discourage economic growth, so we should reduce taxes. d. Greed is wrong.

C,D

Trade Select one: a. means one person wins and another loses b. rearranges goods without adding value c. creates wealth d. is reduced when there are middlemen

c

Because of a late night out with friends, Ayana decided to sleep in rather than attend her 8 a.m. economics class. According to economic analysis, her choice was Select one: a. irrational, because economic analysis suggests you should always attend classes that you have already paid for. b. irrational, because oversleeping is not in Ayana's self-interest. c. rational only if Ayana has not missed any other classes. d. rational if Ayana values sleep more highly than the benefit she expects to receive from attending the class.

D

Compared to a situation where transaction costs are zero, the existence of transaction costs Select one: a. will reduce the volume of trade. b. will reduce the gains from trade. c. may lead some buyers and sellers to employ middlemen. d. All of the above are correct.

D

Economic choice and competitive behavior are the result of Select one: a. basic human greed. b. poverty. c. private ownership of resources. d. scarcity.

D

For most students attending state universities, the largest cost component of going to college is Select one: a. the cost of books and supplies. b. the cost of room and board. c. tuition. d. the opportunity cost in terms of forgone current income from the time spent attending college.

D

If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the marginal cost per passenger is $100, then it will be profitable for the airline to Select one: a. charge a stand-by passenger no less than the full fare of $500. b. charge a stand-by passenger less than $100. c. charge a stand-by passenger more than $500. d. charge a stand-by passenger more than $100. e. fill the seats at the last minute for any price.

D

In Zimbabwe and Botswana, elephants can be owned by local tribes and trade in ivory is legal, while in countries such as Kenya, it is illegal to trade in ivory and elephants cannot be privately owned but are protected by the government. Which of the following is true regarding the change in the elephant populations since 1979 in these countries? Select one: a. In Zimbabwe and Botswana, elephants are near the verge of extinction, while in Kenya, the population of elephants is growing rapidly. b. There has been a similar decline in the population of elephants in all of these countries. c. There has been a similar increase in the population of elephants in all of these countries. d. In Zimbabwe and Botswana, elephant populations have more than doubled, while in Kenya, the population of elephants has fallen to less than one-third of its previous level.

D

In voluntary exchange, if the seller of a product gains, Select one: a. the buyer will generally lose an amount greater than the gain to the seller. b. the buyer must lose an amount equal to what the seller gains. c. someone else must lose an equal amount. d. the buyer must also gain; mutual gain provides the foundation for exchange.

D

Legislation to protect red-cockaded woodpeckers created incentives that resulted in premature harvesting of trees the woodpeckers like to nest in. This is an example of which of the following? Select one: a. Association is not causation. b. the fallacy of composition c. the use of ceteris paribus conditions in economic analysis d. Good intentions do not always lead to desirable outcomes.

D

Trade creates value by Select one: a. moving goods from people who value the goods less to people who value the goods more. b. permitting trading partners to expand output through specialization in areas where they each have a comparative advantage. c. permitting trading partners to expand output through the adoption of mass production methods. d. all of the above.

D

When deciding whether to buy a second car, the economic way of thinking indicates that the purchaser should compare Select one: a. the benefits expected from two cars with the cost of both. b. the additional benefits expected from a second car with the cost of the two cars. c. the dollar cost of the two cars with the potential income that the cars will generate. d. the additional benefits of the second car with the additional cost of the second car.

D

When economists say goods are scarce, they mean Select one: a. consumers are too poor to afford the goods and services available. b. consumers are unwilling to buy goods unless they have very low prices. c. goods are generally freely available from nature in most countries. d. the desire for goods and services exceeds our ability to produce them with the limited resources available.

D

When private ownership rights are well-defined and enforced, owners Select one: a. can ignore the wishes of others, without bearing the cost. b. have little incentive to take care of things. c. can do anything they want with their property. d. can be held accountable for damage to others through misuse of their property.

D

Which of the following attributes of trade explain why it is important for economic prosperity? Select one: a. Trade moves goods from people who value them less to people who value them more. b. Trade makes it possible to produce a larger output as a result of lower per unit costs that often accompany large-scale production. c. Trade makes it possible to produce a larger output as a result of gains from division of labor and specialization. d. All of the above.

D

Which of the following could be considered to be a secondary effect caused by making drugs such as cocaine illegal? Select one: a. The higher prices that result from making them illegal results in more property theft by users to afford the drugs. b. The usage of police and law enforcement resources to enforce drug laws leads to lower enforcement (and thus a higher amount) of other crimes. c. Without the ability to use the legal system to enforce contracts, violence often results when one party to a drug deal does not live up to their end of the bargain, thus the amount of violence increases by making drugs illegal. d. All of the above would be considered secondary effects of making drugs illegal.

D

Which of the following is a positive economic statement? Select one: a. Too much government spending is the biggest problem facing the U.S. economy. b. Creating jobs is the most serious problem facing the U.S. economy. c. Raising taxes provides additional revenue that should be used to finance health care. d. If taxes are over 50 percent of national income, job creation falls.

D

Which of the following will most likely occur under a system of clearly defined and enforced private property rights? Select one: a. Resource owners will fail to conserve vital resources, even if they expect their supply to be highly limited in the future. b. Resource owners will ignore the wishes of others, including others who would like to use the resource that is privately owned. c. Resource owners will fail to consider the wishes of potential future buyers when they decide how to employ privately owned resources. d. Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.

D

Why is trade an important source of economic progress? Select one: a. It allows the trading partners to produce a larger joint output through specialization in the areas where they have a comparative advantage. b. It allows the trading partners to produce a larger joint output as the result of greater realization of cost reductions that accompany the adoption of mass production methods. c. It makes it possible to realize gains from the discovery and dissemination of innovative products and production processes. d. All of the above are correct.

D

Suppose Dan and Hannah can make ramen and enchiladas. Dan can make 1 bowl of ramen or 4 enchiladas. Hannah can make 6 bowls of ramen or 8 enchiladas. Who has the comparative advantage in enchiladas?

Dan

If Xavier can produce sandwiches at a lower opportunity cost than Kimani, then Select one: a. Xavier has a comparative advantage in the production of sandwiches. b. Kimani has a comparative advantage in the production of sandwiches. c. Xavier should not produce sandwiches. d. Xavier is capable of producing more sandwiches than Kimani in a given amount of time.

a

If the citizens of a country were to work harder and take less leisure time, it would Select one: a. shift the production possibilities curve outward. b. cause an economy to operate inside its production possibilities curve. c. shift the production possibilities curve inward. d. cause an economy to move from one point on the production possibilities curve to another point on the curve.

a

Using a production possibilities curve, a technological advance that increases the amount of output for the same amount of inputs would be illustrated as Select one: a. an inward shift of the curve. b. a movement from one point to another point along the curve. c. an outward shift of the curve. d. a movement from a point on the curve to a point inside the curve.

c

If Mia can either wash 10 cars or wax 2 cars during a day, and Daniel can either wash 17 cars or wax 2 cars during a day, then according to the law of comparative advantage, Select one: a. Daniel's opportunity cost of waxing a car is less than Mia's. b. their total output can be expanded if Mia specializes in waxing and Daniel in washing. c. their total output can be expanded if Mia specializes in washing and Daniel in waxing. d. it would be impossible for Daniel and Mia to increase their total output through specialization and mutual exchange.

b

If a firm or a nation desires to maximize its output, each productive assignment should be carried out by those persons who Select one: a. have the highest opportunity cost. b. have a comparative advantage in the productive activity. c. can complete the productive activity most rapidly. d. least enjoy performing the productive activity.

b

Suppose Eric and Jane can both produce brooms and picture frames. Eric can produce 3 brooms or 2 picture frames. Jane can produce 8 brooms or 1 picture frame. Select one: a. Eric has the absolute advantage b. Jane has the comparative advantage in brooms. c. Eric has the comparative advantage in brooms d. Jane has the comparative advantage in picture frames

b

The production possibilities frontier Select one: a. Indicates barriers to trade b. Shows the tradeoffs between producing two goods c. Shows the minimum amount of the goods that can be produced d. Cannot be shifted outward

b

"Now that Terrance paints the broad surfaces and I do the trim work, we can paint a house in three-fourths the time that it took for each of us to do both." This statement most clearly reflects Select one: a. the importance of secondary effects. b. the fallacy of composition. c. the law of comparative advantage. d. behavior inconsistent with economizing.

c

A point outside the production possibilities curve represents a combination of goods that is Select one: a. inefficient. b. efficient. c. unattainable. d. attainable.

c

A production possibilities curve indicates that when resources are being used efficiently, Select one: a. you can only produce more of one good only if you lower its price. b. you can only produce more of one good only if you produce more of another good. c. you can only produce more of one good only if you produce less of another good. d. it is impossible to expand the total output of goods over time.

c

Darryl can build picnic tables twice as fast as Trevon. Darryl can assemble swing sets three times as fast as Trevon. The law of comparative advantage suggests that Select one: a. Darryl can gain only at Trevon's expense. b. Trevon can gain only at Darryl's expense. c. both can gain if Darryl specializes in assembling swing sets and Trevon in building picnic tables. d. both can gain if Darryl specializes in building picnic tables and Trevon in assembling swing sets.

c

Suppose Donna can make 12 dozen cookies or 6 pies in an hour, and George can make 16 dozen cookies or 4 pies in an hour. a. George has an absolute advantage b. Donna has the comparative advantage in both cookie-making and pie-making. c. Donna has the comparative advantage in pie-making. d. George has the comparative advantage in pie-making.

c

Jeff Bezos, founder and CEO of Amazon, is worth about $90 billion. He: Select one: a. doesn't have to make trade-offs. b. is selfish. c. is normative. d. has limited resources.

d

Suppose Dan and Hannah can make ramen and enchiladas. Dan can make 1 bowl of ramen or 4 enchiladas. Hannah can make 6 bowls of ramen or 8 enchiladas. True or false: Because Hannah is better at everything, there can be no mutually beneficial trade between Dan and Hannah.

false