ECON EXAM 1

Normative statements can be refuted with evidence. (T or F)

F

Points outside the production possibilities frontier are attainable but inefficient. (T or F)

F

Self-sufficiency is the best way to increase one's material welfare. (T or F)

F

Talented people that are the best at everything have a comparative advantage in the production of everything. (T or F)

F

The European Union will benefit economically if we eliminate trade with Asian countries because its citizens will be forced to produce more of their own cars and clothes. (T or F)

F

The production possibilities frontier is bowed outward because the trade-offs between the production of any two goods are constant. (T or F)

F

The statement, "An increase in inflation tends to cause unemployment to fall in the short run," is normative. (T or F)

F

When a country removes a specific import restriction, it always benefits every worker in that country. (T or F)

F

When the government redistributes income with taxes and welfare, the economy becomes more efficient. (T or F)

F

Workers in the countries of Western Europe have a relatively high standard of living because those countries have relatively high minimum wage rates. (T or F)

F

If an economy is operating on its production possibilities frontier, it must produce less of one good if it produces more of another. (T or F)

T

Economic growth is depicted by a. a shift in the production possibilities frontier outward. b. a movement from inside the curve toward the curve. c. a shift in the production possibilities frontier inward. d. a movement along a production possibilities frontier toward capital goods.

A

In making which of the following statements is an economist acting more like a scientist? a. A reduction in unemployment benefits will reduce the unemployment rate. b. The rate of inflation should be reduced because it robs the elderly of their savings. c. The unemployment rate should be reduced because unemployment robs individuals of their dignity. d. The state should increase subsidies to universities because the future of our country depends on education.

A

Productivity can be increased by a. improving the education of workers. b. raising union wages. c. raising minimum wages. d. restricting trade with foreign countries.

A

The scientific method requires that a. the scientist be objective. b. the scientist use precision equipment. c. only correct theories are tested. d. only incorrect theories are tested. e. the scientist use test tubes and have a clean lab.

A

Which of the following issues is related to microeconomics? a. the impact of oil prices on car production b. the impact of money on inflation c. the impact of technology on economic growth d. the impact of the deficit on saving

A

Which of the following statements about microeconomics and macroeconomics is not true? a. The study of very large industries is a topic within macroeconomics. b. Macroeconomics is concerned with economy-wide phenomena. c. Microeconomics is a building block for macroeconomics. d. Microeconomics and macroeconomics cannot be entirely separated.

A

Economic models are a. usually made of wood and plastic. b. built with assumptions. c. useless if they are simple. d. created to duplicate reality.

B

Since people respond to incentives, we would expect that, if the average salary of accountants increases by 50% while the average salary of teachers increases by 20%, then a. fewer students will take degree courses in accounting and more will take education courses. b. fewer students will take degree courses in education and more will take accounting courses. c. fewer students will attend university. d. none of these answers.

B

Suppose two economists are arguing about policies that deal with unemployment. One economist says, "The government could lower unemployment by one percentage point if it would just increase government spending by 50 billion dollars." The other economist responds, "Nonsense and poppycock! If the government spent an additional 50 billion dollars, it would reduce unemployment by only one tenth of one percent, and that effect would only be temporary!" These economists a. none of these answers b. disagree because they have different scientific judgments. c. really don't disagree at all. It just appears that they disagree. d. disagree because they have different values.

B

Suppose two economists are arguing about policies that deal with unemployment. One economist says, "The government should fight unemployment because it is the greatest social evil." The other economist responds, "Nonsense! Inflation is the greatest social evil." These economists a. really don't disagree at all. It just appears that they disagree. b. disagree because they have different values. c. none of these answers d. disagree because they have different scientific judgments.

B

Suppose you find €20. If you choose to use the €20 to go to a football match, your opportunity cost of going to the game is a.nothing, because you found the money. b.€20 (because you could have used the €20 to buy other things) plus the value of your time spent at the game. c.€20 (because you could have used the €20 to buy other things) plus the value of your time spent at the game, plus the cost of the dinner you purchased at the game. d.€20 (because you could have used the €20 to buy other things). e.none of these answers

B

Which of the following involve a trade-off? a.Taking a nap b.All of these answers involve trade-offs. c.Watching a football game on Saturday afternoon d.Going to university e.Buying a new car

B

Which of the following is most likely to produce scientific evidence about a theory? a. A lawyer employed by Renault addressing the impact of air bags on passenger safety. b. An economist permanently employed at a leading university analysing the impact of bank regulations on lending to small businesses. c. An economist employed by the Trades Union Congress doing research on the impact of trade policy on workers' wages. d. A radio talk show host collecting data from listeners on how capital markets respond to taxation.

B

Which of the following statements is true about a market economy? a. With a large enough computer, central planners could guide production more efficiently than markets. b. Market participants act as if guided by an invisible hand to produce outcomes that maximize social welfare. c. The strength of a market system is that it tends to distribute resources evenly across consumers. d. Taxes help prices communicate costs and benefits to producers and consumers.

B

It is reasonable to assume that the world is composed of only one person when modelling international trade. (T or F)

F

You are planning to run a hot dog stand during a forthcoming fair. You originally estimated that you will generate sales revenue of €2000 and you have already spent €1000 building the hot dog stand. The hot dog stand is nearly completed but now you estimate total sales to be only €800 because the fair clashes with a major music festival in a nearby location.. You can complete the hot dog stand for another €300. Should you complete the hot dog stand? (Assume that there are no other costs - the hot dogs are costless to you.) a. There is not enough information to answer this question. b. Yes. c. No.

B

A rational person does not act unless a.the action is ethical. b.the action produces marginal costs that exceed marginal benefits. c.the action produces marginal benefits that exceed marginal costs. d.the action makes money for the person. e.none of these answers.

C

An increase in the price of beef provides information which a. provides no information because prices in a market system are managed by planning boards. b. tells consumers to buy less pork. c. tells producers to produce more beef. d. tells consumers to buy more beef.

C

Economics is the study of a.how society manages its unlimited resources. b.how to reduce our wants until we are satisfied. c.how society manages its scarce resources. d.how to fully satisfy our unlimited wants. e.how to avoid having to make trade-offs.

C

High and persistent inflation is caused by a. unions increasing wages too much. b. OPEC raising the price of oil too much. c. governments increasing the quantity of money too much. d. regulations raising the cost of production too much.

C

If a nation has an absolute advantage in the production of a good, a. it can benefit by restricting imports of that good. b. it will specialize in the production of that good and export it. c. it can produce that good using fewer resources than its trading partner. d. none of these answers. e. it can produce that good at a lower opportunity cost than its trading partner.

C

In which of the following cases is the assumption most reasonable? a. To address the impact of taxes on income distribution, an economist assumes that everyone earns the same income. b. To address the impact of money growth on inflation, an economist assumes that money is strictly coins. c. To model the benefits of trade, an economist assumes that there are two people and two goods. d. To estimate the speed at which a beach ball falls, a physicist assumes that it falls in a vacuum.

C

Positive statements are a. macroeconomic. b. microeconomic. c. statements of description that can be tested. d. statements of prescription that involve value judgments.

C

Which of the following is not a factor of production? a.labour b.land c. money d. capital e. All of these answers are factors of production.

C

Which of the following products would be least capable of producing an externality? a.inoculations against disease b.cigarettes c.food d.education e.stereo equipment

C

Which of the following situations describes the greatest market power? a. Subaru's impact on the price of cars b. a farmer's impact on the price of corn c. Microsoft's impact on the price of desktop operating systems d. a student's impact on college tuition

C

Which of the following statements is normative? a. Large government deficits cause an economy to grow more slowly. b. People work harder if the wage is higher. c. The unemployment rate should be lower. d. Printing too much money causes inflation.

C

Macroeconomics is concerned with the study of how households and firms make decisions and how they interact in specific markets. ( T or F)

F

Foreign trade a. none of these answers. b. increases the scarcity of resources. c. makes a country more equitable. d. allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home. e. allows a country to avoid trade-offs.

D

Points on the production possibilities frontier are a. inefficient. b. normative. c. unattainable. d. efficient. e. none of these answers.

D

The Phillips curve shows that a. the business cycle has been eliminated. b. an increase in inflation temporarily increases unemployment. c. inflation and unemployment are unrelated in the short run. d. a decrease in inflation temporarily increases unemployment. e. none of these answers.

D

Which of the following activities is most likely to produce an externality? a. A student eats a hamburger in the student union. b. A student reads a novel for pleasure. c. A student sits at home and watches T.V. d. A student has a party in her room in the student hall of residence.

D

Which of the following is not part of the opportunity cost of going on holiday? a. the money you spent on a theatre show b. the money you could have made if you had stayed at home and worked c. the money you spent on airline tickets d. the money you spent on food

D

Which of the following statements regarding the circular-flow diagram is true? a. If Susan works for BAe Systems and receives a salary payment, the transaction takes place in the market for goods and services. b. If BAe Systems sells a military aircraft, the transaction takes place in the market for factors of production. c. None of these answers. d. The factors of production are owned by households. e. The factors of production are owned by firms.

D

Which of the following will not shift a country's production possibilities frontier outward? a. an advance in technology b. an increase in the labour force c. an increase in the capital stock d. a reduction in unemployment

D

Raising taxes and increasing welfare payments a. reduces market power. b. proves that there is such a thing as a free lunch. c. improves efficiency at the expense of equity. d. none of these answers e. improves equity at the expense of efficiency.

E

Trade-offs are required because wants are unlimited and resources are a.economical. b.unlimited. c.efficient. d.marginal. e.scarce.

E

Workers in Western Europe enjoy a high standard of living because a. the countries of Western Europe have set high minimum wage rates. b. unions in Western Europe keep the wage high. c. none of these answers. d. the countries of Western Europe have protected their industries from foreign competition. e. workers in the United States are highly productive.

E

You are planning to run a hot dog stand during a forthcoming fair. You originally estimated that you will generate sales revenue of €2000 and you have already spent €1000 building the hot dog stand. The hot dog stand is nearly completed but now you estimate total sales to be only €800 because the fair clashes with a major music festival in a nearby location.. You can complete the hot dog stand for another €300. Your decision rule should be to complete the hot dog stand as long as the cost to complete the stand is less than a. €300 b. €100 c. €500 d. none of these answers. e. €800

E

A car manufacturer should continue to produce additional cars as long as the firm is profitable, even if the cost of the additional units exceeds the price received. (T or F)

F

A tax on alcoholic drinks raises the price of alcoholic drinks and provides an incentive for consumers to drink more. (T or F)

F

Adam Smith's "invisible hand" concept describes how corporate business reaches into the pockets of consumers like an "invisible hand." (T or F)

F

An individual farmer is likely to have market power in the market for wheat. (T or F)

F

Economic models must mirror reality or they are of no value. (T or F)

F

If Japan has an absolute advantage in the production of an item, it must also have a comparative advantage in the production of that item. (T or F)

F

If a country's workers can produce 5 hamburgers per hour or 10 bags of French fries per hour, absent trade, the price of 1 bag of fries is 2 hamburgers. (T or F)

F

If an advanced country has an absolute advantage in the production of everything, it will benefit if it eliminates trade with less developed countries and becomes completely self-sufficient. (T or F)

F

If trade benefits one country, its trading partner must be worse off due to trade. (T or F)

F

In the short run, a reduction in inflation tends to cause a reduction in unemployment. (T or F)

F

Absolute advantage is a comparison based on productivity (T or F)

T

An advance in production technology would cause the production possibilities curve to shift outward. (T or F)

T

An unintended consequence of public support for higher education is that low tuition provides an incentive for many people to attend state universities even if they have no desire to learn anything. (T or F)

T

Assumptions make the world easier to understand because they simplify reality and focus our attention. (T or F)

T

Comparative advantage is a comparison based on opportunity cost. (T or F)

T

Comparative advantage, not absolute advantage, determines the decision to specialize in production (T or F)

T

High and persistent inflation is caused by excessive growth in the quantity of money in the economy. (T or F)

T

If Germany's productivity doubles for everything it produces, this will not alter its prior pattern of specialization because it has not altered its comparative advantage. (T or F)

T

If a producer is self-sufficient, the production possibilities frontier is also the consumption possibilities frontier. (T or F)

T

If an economy is operating on its production possibilities frontier, it must be using its resources efficiently. (T or F)

T

If an economy were experiencing substantial unemployment, the economy is producing inside the production possibilities frontier. (T or F)

T

If gains from trade are based solely on comparative advantage, and if all countries have the same opportunity costs of production, then there are no gains from trade. (T or F)

T

If producers have different opportunity costs of production, trade will allow them to consume outside their production possibilities frontiers. (T or F)

T

Most economists believe that tariffs and import quotas usually reduce general economic welfare.

T

Rational people act only when the marginal benefit of the action exceeds the marginal cost. (T or F)

T

Sue is better at cleaning and Bob is better at cooking. It will take fewer hours to eat and clean if Bob specializes in cooking and Sue specializes in cleaning than if they share the household duties evenly. (T or F)

T

The gains from trade can be measured by the increase in total production that comes from specialization. (T or F)

T

To a student, the opportunity cost of going to a football match would include the price of the ticket and the value of the time that could have been spent studying. (T or F)

T

When a jet flies overhead, the noise it generates is an externality. (T or F)

T

When economists make positive statements, they are more likely to be acting as scientists. (T or F)

T

When economists say, "There is no such thing as a free lunch," they mean that all economic decisions involve trade-offs. (T or F)

T

When people act as scientists, they must try to be objective. ( T or F)

T