Economics 202 TAMU Exam 1

Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil?

A twofold increase in the prices of both pens and pencils An increase in the consumer's income A decrease in the consumer's income A twofold increase in the price of pens and a threefold increase in the price of pencils(Correct )

Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil

An increase in the consumer's income A decrease in the consumer's income A twofold increase in the prices of both pens and pencils A twofold increase in the price of pens and a threefold increase in the price of pencils(Correct )

When people invest in a business, those investments

Are efficient if the government backs the investment. Are efficient if they prove to be successful. Are efficient if they are investing their own money.(Correct) Are often inefficient because they don't work out. B and C above.

When trying to assess your economic well-being you should

Compare your situation to that of most of the people alive today. (Correct) Compare your situation to that of most of the people alive today. Compare yourself to Donald Trump. Compare yourself to your neighbors. Compare yourself to your parents. Not compare yourself to others because that is foolish.

A hunter-gatherer society

Is a notable exception to the general proposition that all societies must answer the question of what to produce. Is a notable exception to the general proposition that all societies must answer the question of how to produce it. Is a notable exception to the general proposition that all societies must answer the question of who gets it. All of the above. None of the above. (Correct)

Which of the following is not an economic question:

Do we have enough medical care in the economy? Should we recycle more? Should we make hybrids or SUVs? Is it better for stores to close on Sundays?(Correct) All of the above are economic questions.

When voluntary exchange takes place, both parties gain from the exchange.

False True (Correct)

Hunter-gatherer societies allocated resources by a combination of

Individual decisions. Sharing customs. Organized activity All of the above. (Correct) A and B above.

Which of the following is a positive economic statement?

Raising the tax on gasoline raises the selling price of gasoline. (Correct) The government should ban the production and sale of incandescent light bulbs. The government should revamp its immigration policies. U.S. citizens should only buy products which are produced in the United States

Which of the following is a normative economic statement?

The price of wheat is too low. (Correct) When the price of wheat falls, the cost of wheat-based products falls. When the price of wheat falls, the quantity of wheat purchased rises. The current low price of wheat is the result of increased worldwide supply.

When sellers sell goods in a market they are doing so because

They are trying to get to the efficient market solution. They want the economy to function well, so they can contribute to social welfare. They can make more money selling that good than doing something else. (Correct ) A and B above. A and C above.

Positive analysis is concerned with "what ought to be," while normative analysis is concerned with "what is."

True False (Correct)

"An increase in the price of gasoline will increase the demand for hybrid vehicles." This statement is an example of a positive economic statement.

True (Correct) False

A major question that faced societies 250 years ago was

What would happen if you organized more of the economy with guilds. What would happen if you organized more of the economy with markets. (Correct) What would happen if you organized more of the economy with government. Was there enough BlueBell? A, B, and C above.

Which of the following examples best describes the Law of Demand?

When the price of tea increased, the quantity demanded of tea decreased. (Correct) When Alex received a pay hike, his consumption of all goods increased. When the price of Nokia phones increased, the demand for Samsung phones increased. When the price of gasoline increased, the demand for cars fell.

Using basic assumptions you can determine

Why markets are efficient. When markets are efficient. When government intervention helps or hurts economic performance. All of the above. (Correct ) A and B above.

A change in the slope of a budget constraint indicates:

a change in the consumer's tastes and preferences. a change in the consumer's income. a change in the price of either good without a change in the opportunity cost. a change in the price of either good that causes a change in the opportunity cost.(Correct )

A change in the slope of a budget constraint indicates:

a change in the consumer's tastes and preferences. a change in the price of either good without a change in the opportunity cost. a change in the price of either good that causes a change in the opportunity cost. (Correct ) a change in the consumer's income.

A budget constraint is a straight line because:

a consumer faces a fixed price of both goods that do not change with changes in consumption.(Correct) the opportunity cost of buying each of the goods changes along the constraint. the tastes and preferences of the consumer change along the constraint. a consumer has a limited money income.

An omitted variable is a variable that:

does not cause other variables in a study to change when it changes. has been left out, and if included, would explain why the variables considered in a study are correlated. (Correct) is purposely left out as it does not aid an economic analysis. is removed from a study as it can lead to the problem of reverse causality.

The demand curve for most goods is normally:

downward sloping. (Correct) parallel to the horizontal axis. upward sloping. parallel to the vertical axis.

John is ready to pay $5 for an extra loaf of bread. Due to an ongoing discount in the store, he gets a loaf for $2. John's consumer surplus from the purchase is ________

$10 $2 $3 (Correct) $2.50

The opportunity cost of going to an outdoor music festival is

equal to the highest value of an alternative use of the time and money spent on the festival. (Correct) the cost of the festival ticket only. the value of the time spent at the festival. zero because there are no overhead costs for an outdoor festival. the enjoyment you receive from going to the festival.

In economics, the term ________ means "additional" or "extra."

equity Correct marginal optimal allocative

The extra cost associated with undertaking an activity is called

foregone cost. opportunity cost. marginal cost. (Correct) net loss.

An item has utility for a consumer if it

generates enjoyment or satisfaction.(Correct) is something everyone else wants. has a high price. is scarce.

By definition, economics is the study of

how to make money in the stock market. how to make money in a market economy. the choices people make to attain their goals, given their scarce resources. (Correct ) supply and demand

The French Bakery ran a special which decreased the price of its croissants from $1.50 to $1.00. Although her money income had not changed, Toni decided to buy 2 croissants instead of her usual 1 bagel and 1 croissant. Toni's actions are explained by which of the following?

income and substitution effects (Correct) consumption effect price effect income effect only or substitution effect only but not both effects

The demand schedule for a commodity illustrates how the consumption of a commodity changes with changes in:

income. supply. its price. (Correct ) tastes and preferences.

If the Apple Watch and the Samsung Gear S2 are considered substitutes, then, other things equal, an increase in the price of the Apple Watch wil

increase the quantity demanded for the Gear S2. increase the quantity demanded for the Apple Watch. increase the demand for the Gear S2.(Correct ) decrease the demand for the Apple Watch.

Willingness to pay:

is equal to the price of the highest-priced goods in a consumption bundle. is equal to the price of the lowest-priced goods in a consumption bundle. is the highest price that a buyer is willing and able to pay for a unit of good. (Correct) is the lowest price that a buyer is willing and able to pay for a unit of good

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

maximizing behavior. economizing behavior. the price constraint. the budget constraint.(Correct )

The highest valued alternative that must be given up to engage in an activity is the definition of

opportunity cost (Correct) marginal cost marginal benefit economic equity

The extra cost associated with undertaking an activity is called

opportunity cost. foregone cost. marginal cost. (Correct) net loss.

Suppose the U.S. government encouraged consumers to trade in their old automobiles for more efficient, new models by paying up to $5,000 for the old automobiles. These consumers who did trade in their old automobiles to take advantage of the government offer would be exemplifying the economic idea that

people are rational. people respond to economic incentives. (Correct) optimal decisions are made at the margin. equity is more important than efficiency.

Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets. By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that

people are rational. (Correct) people respond to economic incentives. optimal decisions are made at the margin. equity is more important than efficiency

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that

people with health insurance are more likely to be overweight than people without health insurance. (Correct) people with health insurance are less likely to be overweight than people without health insurance. there is no correlation between having health insurance and being overweight. people with health insurance are equally likely to be overweight as people without health insurance.

If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to:

pivot rightward along the vertical axis. shift to the right. pivot rightward along the horizontal axis.(Correct ) shift to the left.

If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to:

pivot rightward along the vertical axis. pivot leftward along the vertical axis. (Correct) pivot rightward along the horizontal axis. pivot leftward along the horizontal axis.

If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to

pivot rightward along the vertical axis. pivot leftward along the horizontal axis. pivot rightward along the horizontal axis. pivot leftward along the vertical axis.(Correct)

As the ________ increases, ________.

price of a good; its quantity demanded decreases (Correct) quantity demanded of a good; its price increases quantity demanded of a good; its price decreases price of a good; its quantity demanded increases

A decrease in the price of either good will cause a consumer's budget constraint to:

shift rightward. pivot leftward. shift leftward. pivot rightward. (Correct)

If quantity of milk is measured on the horizontal axis and quantity of juice is measured on the vertical axis, a decrease in the price of milk will cause the budget constraint to:

shift to the left. pivot rightward along the vertical axis. shift to the right. pivot rightward along the horizontal axis. (Correct )

If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis, the consumer's budget constraint:

shifts to the left. shifts to the right. pivots leftward without a change in the intercept on the horizontal axis. (Correct) pivots rightward without a change in the intercept on the horizontal axis.

If the price of a good increases, ________.

the budget constraint shifts to the left the consumer surplus decreases (Correct ) the budget constraint shifts to the right the consumer surplus increases

The slope of a budget constraint represents

the price of the good measured along the horizontal axis. the price of the good measured along the vertical axis. the money income of the consumer. the opportunity cost of one good in terms of another (Correct )

The Law of Demand states that:

the quantity demanded of a commodity varies inversely with the price of the commodity. (Correct) the demand for a commodity always equals the supply of the commodity. the quantity demanded of a commodity is the same for all consumers in a perfectly competitive market. the demand for a commodity is mostly influenced by consumers' income.

The law of demand implies, holding everything else constant, that as the price of bagels increases,

the quantity of bagels demanded will increase. the demand for bagels will increase. the demand for bagels will decrease. the quantity of bagels demanded will decrease(Correct )

A correlation between two variables implies that:

there is a cause-effect relationship between the two variables. when one variable changes, the other variable always changes by exactly the same amount. it is impossible to measure one variable without measuring the other. there is a mutual relationship between both the variables. (Correct)

Economists assume that rational people do all of the following except

use all available information as they act to achieve their goals. respond to economic incentives. (Correct) undertake activities that benefit others and hurt themselves. weigh the benefits and costs of all possible alternative actions.

Scarcity means that

A. We must find ways to deal with that scarcity. B. We must make choices and give up things we really want. C. Figure out the best set of social systems to address scarcity. D. All of the above. (Correct) E. A and B above.

________ occurs when the direction of cause and effect is mixed up in a study.

Adverse causality Omitted variable bias Limited information bias Reverse causality (Correct)

Adam Smith's Invisible Hand Theorem indicates that competitive markets are efficient because:

Competitive markets ensure efficient amounts of each good, produce that good at least cost, and allocate the good among consumers in the best way possible. (Correct) Competitive markets ensure efficient amounts of each good and produce that good at least cost Competitive markets allocate goods to consumers in the best possible way, ensure least cost production, and use prices to generate the equilibrium. Competitive markets ensure production by the least cost sellers, and are generally better than government. A and B above.

________ is the difference between the willingness to pay and the price paid for a good.

Consumer surplus (Correct) Producer surplus Revenue Seller's profit

The steps needed to evaluate the best way to organize an economy include

Determining what will be produced, how it will be produced and who gets it, and then evaluating these outcomes. (Correct) Determining whether an economy provides free choice, and an appropriate role for government. Determining what will be produced, how it will be produced and who gets it, and then limiting the role of government. Limiting central power and making the maximum use of markets. C and D above.

Central control of economies

Emerged with governments. Regulated resources like land and water.Correct Emerged when early civilizations came into existence. Was absent when society consisted of just prehistoric clans. None of the above.

Which of the following is a normative economic statement?

Farmers should not be allowed to grow and sell genetically-modified crops. (Correct) The federal government is considering increasing regulations on the use of fossil fuels to promote the use of wind power. Rising corn prices have increased the price of corn-based ethanol. With rising home prices and falling mortgage interest rates, the amount of home foreclosures has decreased.

When buyers and sellers operate in a competitive market, they are

Following their own self-interest, doing whatever serves them best. (Correct) Following their own self-interest, but wanting the economy to operate efficiently. Trying to ensure that markets work. Trying to take advantage of the other person. A and C above.

Economics teaches us that people

Fundamentally do not care about others in society. Fundamentally want more goods and that is the best way to behave. Fundamentally want more goods and that is unfortunate, but real. Fundamentally want more goods.(Correct ) A and B above.

The three fundamental questions that must be answered by any economy include:

How much to produce, why goods are produced, and who gets the goods. Why to produce particular goods, how to produce them, and who gets them. How much to produce, how to produce goods, and who gets the goods. (Correct ) How to produce goods, why to produce them, and who gets them. Why to produce goods, how to produce them, and who gets them.

Which of the following is a positive economic statement?

If the price of iPhones falls, a larger quantity of iPhones will be purchased. (Correct) The U.S. government should not have bailed out U.S. auto manufacturers. The standard of living in the United States should be higher. The government should revamp the health care system.

Advantages of trade include that

It permits specialization. It permits people some people to produce more than they consume. It takes advantage of comparative advantage. All of the above. (Correct) A and C above.

The key advantage of market exchange compared to one-on-one (barter) trade is that

Markets use money, which is generally better. Barter limits trades because each person must want what the other one has. Markets are more efficient. (Correct) All of the above. A and B above.

Which of the following are assumptions needed for simple arithmetic

Numbers exist. Multiplication. Addition. All of the above. A and C above. (Correct)

The video describes the steps in simple arithmetic as proceeding from

Numbers to cardinal numbers to addition to subtraction to division to multiplication. Numbers to addition to subtraction to division to multiplication. Numbers to cardinal numbers to addition to subtraction to multiplication to division. (Correct) Cardinal numbers to numbers to addition to multiplication to subtraction to division. None of the above.

Trade

Only emerged in about 1,000 B.C. Only emerged once markets became established. Has been a feature of nearly all economies. (Correct) Only came into existence when markets developed. None of the above.

Which of the following is a positive economic statement?

People should not buy SUVs. The government should mandate electric automobiles. Scarcity necessitates that people make trade-offs.(Correct ) Foreign workers should not be allowed to work for lower wages than the citizens of a country.

Which of the following can be established using economic analysis

People should work on teams to produce things because there is more job satisfaction. Products should be made more reliably. The government should not be the entity to choose the amounts of goods and services provided. None of the above can be established through economic analysis. All of the above can be established through economic analysis. (Correct )

In which of the following ways did the video not indicate you were rich compared to King George

Power (Correct) Indoor plumbing Travel Music Power Medical treatment

Which of the following is a normative economic statement?

Rising global demand for coal has led to increases in the price of coal. Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable. (Correct ) With rising mortgage rates and rising unemployment rates, the number of unsold homes has increased. The state of Texas is considering increasing funds for light-rail development to promote the use of public transportation.

Economics is the study of

Scarcity

Economics studies

Scarcity. The social institutions used to address scarcity. How much to produce, how to produce it, and who gets it. A and C above. All of the above. (Correct)

Which of the following can be derived from other assumptions of economics

Scarcity. Tradeoffs. Opportunity costs. B and C above. (Correct) A and B above.

Which of the following is not an example of the economic question of what to produce?

Should we urbanize farmland? What is the best type of cell phone?(Correct ) How much should we recycle? Should we make breakfast tacos or waffles? Should we make SUVs or all electric vehicles?

Which of the following can be derived from other assumptions about numbers

Subtraction. Multiplication. Division All of the above. (Correct) B and C above.

Which of the following is a positive economic statement?

The U.S. government should increase regulations on the banking industry. If the price of beef falls, a larger quantity of it will be bought.(Correct ) The government should implement a national consumption tax. The standard of living in the United States is too low.

Which of the following describes the substitution effect of a price change?

The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. (Correct) The change in quantity demanded of a good that results from the change in the price of a substitute for the good. The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant. The change in demand that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

Adam Smith's book, the Wealth of Nations, investigated

The factors affecting economic wealth across countries. The role of wealth played in social well-being. The role of custom in the economy. The role of markets in determining economic efficiency. (Correct ) All of the above.

If you have a competitive equilibrium for a two market economy consisting of tacos and enchiladas then

The market equilibrium quantity of tacos is efficient. The market equilibrium quantity of enchiladas is efficient. The sellers of tacos have higher costs than other potential sellers. All of the above. A and B above. (Correct )

Which of the following is a normative economic statement?

The price of gasoline is too high. (Correct) The current high price of gasoline is the result of strong worldwide demand. When the price of gasoline rises, transportation costs rise. When the price of gasoline rises, the quantity of gasoline purchased falls.

The revenue received from the sale of ________ of a product is a marginal benefit to the firm.

an additional unit (Correct) no units the total number of units only profitable units

Economic models do all of the following except

answer economic questions. portray reality in all its minute details. (Correct ) make economic ideas explicit and concrete for use by decision makers. simplify some aspect of economic life.

Economists assume that individuals

are rational and respond to incentives. (Correct) will never take actions to help others. prefer to live in a society that values fairness above all else. behave in unpredictable ways

Economists assume that rational behavior is useful in explaining choices people make

because irrational people do not make economic choices. even though people may not behave rationally all the time. (Correct) even though people rarely, if ever, behave in a rational manner. because individuals act rationally all the time in all circumstances.

We can derive the market demand curve for gold earrings

by adding vertically the quantity demanded of each gold earring consumed at each price. by adding the prices each gold earring consumer is willing to pay for each quantity. only if the tastes of all gold earring consumers are similar. by adding horizontally the individual demand curves of each gold earring consumer (Correct )

Making "how much" decisions involves

calculating the total benefits of the activity and determining if you are satisfied with that amount. calculating the total costs of the activity and determining if you can afford to incur that expenditure. calculating the average benefit and the average cost of an activity to determine if it is worthwhile undertaking that activity. determining the additional benefits and the additional costs of that activity. (Correct)

Causation occurs when

change in one variable is the reason for the change in another variable. (Correct) change in one variable does not cause any change in another variable. two variables tend to move in the same direction. two variables tend to move in opposite directions.

Economists assume that the goal of consumers is to

consume as much as possible. do as little work as possible to survive. spend all their income. make themselves as well off as possible. (Correct)

If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely.

demand function budget constraint (Correct) indifference curve demand schedule

If a consumer purchases any combination of goods and services on his ________, he will exhaust his income completely

demand function budget constraint(Correct) indifference curve demand schedule

The demand by all the consumers of a given good or service is the ________ for the good or service.

quantity demanded law of demand scheduled demand market demand (Correct)

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.

rationally (Correct) equitably selfishly emotionally

A budget constraint

reflects the desire by consumers to increase their income. refers to the limited amount of income available to consumers to spend on goods and services.(Correct ) shows the prices that a consumer chooses to pay for products he consumes. represents the bundles of consumption that make a consumer equally happy.

Marginal utility is the

satisfaction achieved when a consumer has had enough of a product. total satisfaction received from consuming a given number of units of a product. extra satisfaction received from consuming one more unit of a product. (Correct ) average satisfaction received from consuming a product.

The income effect of an increase in the price of peaches is

the change in the quantity of peaches demanded that results from the effect of the change in price on consumer purchasing power, holding all other factors constant. (Correct) the change in the quantity of other fruit demanded that results from the impact of the price change on purchasing power, holding all other factors constant. the change in the quantity of peaches demanded that results from the price increase, making peaches more expensive than other fruit, holding constant the effect of the price change on consumer purchasing power. the change in the demand for peaches as a result of the change in the price of peaches, holding all other factors constant.

The principle of opportunity cost is that

the economic cost of using a factor of production is the alternative use of that factor that is given up. the cost of production varies depending on the opportunity for technological application. the economic cost of using a factor of production is the alternative use of that factor that is given up. (Correct ) in a market economy, taking advantage of profitable opportunities involves some money cost. taking advantage of investment opportunities involves costs.

A budget constraint is a straight line because:

the opportunity cost of buying each of the goods changes along the constraint. a consumer faces a fixed price of both goods that do not change with changes in consumption.(Correct ) a consumer has a limited money income. the tastes and preferences of the consumer change along the constraint.

Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases

the opportunity cost of buying shirts increases. the opportunity cost of buying sweaters increases. (Correct ) the opportunity cost of buying sweaters decreases. There is no change in the opportunity cost of consuming either good.

Assume that an individual spends his income on sweaters and shirts. If the price of a sweater increases:

the opportunity cost of buying sweaters decreases. There is no change in the opportunity cost of consuming either good. the opportunity cost of buying sweaters increases. (Correct) the opportunity cost of buying shirts increases.

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

the price constraint. the budget constraint.(Correct) maximizing behavior. economizing behavior.