Macroeconomics Test 1
If a competitive market operates perfectly, it relies on:
the laws of supply and demand
Firms expect to make money on repeat business because
the management of the firm expects both the firm and their customers to be made better off by their exchange
Suppose that your tuition to attend college is $10,000 per year and you spend $4,000 per year on room and board. If you were working full time instead of attending college, you could earn $20,000 per year. What is your opportunity cost of attending college for one year?
$30,000
If a consumer can buy four DVDs for $44 and five DVDs for $50, then the marginal cost of the fifth DVD is:
$6
Mark quit his job as a salesman where he made $43,000 per year to start his own t-shirt making business. His business expenses are $6,000 per year on rent, $12,000 per year on supplies, and $4,000 per year on parttime help. As for his personal expenses, his apartment costs him $4,800 per year and his personal bills are an extra $1,200 per year. What is Mark's opportunity cost of running the business?
$65,000
If each extra driver on the road makes every other driver commute last one minute longer and there are 600 drivers, then one extra driver costs
10 hours in extra commuting time
Suppose that there are only three consumers of a product. At a price of $3 per unit, the first consumer would buy 6 units of the product, the second consumer would buy 5 units, and the third consumer would buy 7 units of the product. If you drew a market demand curve for this product, the quantity demanded at a price of $3 would be:
18 units
At a price of $1000, Dell Computer Co. is willing to sell 20 laptops and Compaq is willing to sell 40 laptops. IBM will only sell laptops if the price is $1300 or higher. At $1000, the market supply for laptops is
60
Nancy and Melissa both have broken light fixtures in their living rooms. Nancy opts to hire an electrician, while Melissa spends two hours replacing the fixture herself. Which of the following is a possible explanation of this behavior?
A) Nancy dislikes electrical work more than Melissa. B) Melissa is better at doing electrical work than Nancy. C) The opportunity cost of Nancy's time is higher than her cost to hire an electrician. D) All of the above are possible explanations of this behavior. (D)
Which of the following is a macroeconomic question?
A) Should a country adopt policies to encourage personal savings? B) Why do some countries grow faster than others? C) Why do prices tend to increase over time? D) All of the above are macroeconomic questions. (D)
An example of a public good is:
A) a levee. B) national defense. C) space exploration.
Markets exist
A) as an arrangement that allows buyers and sellers to exchange things. B) because people are not self-sufficient. C) because people specialize in the production of one or two products. D) all of the above. Answer: D
Which of the following is not a public good?
A) national defense B) space exploration C) a hamburger D) levees
The market demand curve
A) shows the relationship between the price of a good and the quantity that all consumers together are willing to buy. B) is drawn assuming that variables such as income and tastes are fixed. C) is drawn assuming that the number of consumers is fixed. D) all of the above. Answer: D
Which of the following tend to reduce economic uncertainty?
A) unemployment insurance B) health insurance C) social security D) all of the above are correct. Answer: D
A centrally planned economy has a planning authority that decides:
A) what products to produce. B) how the products are produced. C) who receives the products. D) all of the above. Answer: D
When economists construct economic models:
All but the essential features of the environment are assumed to be held constant
Which of the following is NOT a market
All of the above are markets
Among the roles of the government in a market economy is to:
enforce property rights
Suppose that in the time it takes for him to bake a cake, Bob can sew 5 pairs of jeans. In the time it takes for Joe to bake a cake, he can sew 8 pairs of jeans day. In this example, who has the comparative advantage in baking a cake?
Bob
Economics is best defined as the study of
Choices made by people faced with scarcity
The worldwide recession in 2007 started from:
Easy access to credit in the US Booming housing prices that ultimately dropped A large number of home purchases who where unable to afford the homes ALL OF THE ABOVE
The four elements of the economic way of thinking include all of the following except:
Economic analysis assumes that people act irrationally and that they are not motivated by self interest
Why does the government's role of enforcing contracts facilitate exchange?
Enforcing contracts allows people to trade with confidence that the contracts they enter will be met.
Which of the following is not an example of a marginal question?
How many students borrow money in order to attend college?
Deciding if a company will produce automobiles by manual labor or with the use of robots answers the economic question of:
How will we produce it?
You have an hour between your economics and math classes. What is the opportunity cost of that time if you use it to do math homework?
It depends on what you would do if you had no math homework
Economists use assumption to
Make things simpler Focus on what really matters Simplify decision making ALL OF THE ABOVE
Which of the following is NOT a factor of production
Money
________ is another term for "offshoring."
Outsourcing
____ is a situation in which resources are limited in quantity and can be used in different ways
Scarcity
A variable is
Something that can take on different values
Suppose it costs a firm $200 million to produce and promote a sequel. If the firm follows the marginal principle and decides not to produce the movie, which of the following must be true?
The firm believes that the marginal benefit is less than $200 billion.
In a market economy, what is the role of the government with regards to public goods?
The government has to facilitate the collective decision making in the production of public goods.
The price of oranges has risen dramatically. Which of the following is likely to happen?
The quantity of oranges supplied will increase
Which of the following is a macroeconomic question?
Will a constitutional amendment to balance the federal budget lead to good economic policy?
A small change in a relevant variable is:
a marginal change
Suppose that in the time it takes for him to bake a cake, Bob can sew 5 pairs of jeans. In the time it takes for Joe to bake a cake, he can sew 8 pairs of jeans day. In this example, Bob has ________ advantage over Joe in cake baking.
a comparative
"By how much should the Fed increase the money supply to get the economy out of a recession?" is:
a macroeconomic question
If the price of crude oil (an input to the production of gasoline) decreases, then we will expect to see:
a shift in the supply of gasoline to the right.
) Suppose that the equilibrium rent for apartments in San Francisco is $1200 per month. If the City of San Francisco legislates that apartment owners cannot charge rent higher than $1000, then the apartment market in San Francisco will experience:
a shortage
If the government imposes a price ceiling that is below the equilibrium price, then the market will experience:
a shortage
When the government provides its citizens an unemployment insurance program, it is providing its citizens:
a social safety net.
The ability of one person or nation to produce a good at a lower absolute cost than another is called a(n):
absolute advantage
The Latin phrase ceteris paribus means that when a relationship between two variables is being studied:
all other variables are held fixed
Suppose Bob can produce more jeans than Joe in a day. Bob has ________ advantage over Joe in sewing jeans.
an absolute
When two people engage in voluntary trade
both will expect to be made better off
If the government estimates that the marginal cost of building a bridge is $100 million, while the marginal benefit is $150 million, the marginal principle dictates that the government should:
build the bridge.
Adam Smith is:
considered the founder of economics
As consumers prefer smaller and more fuel-efficient cars, the:
demand for SUVs will decrease
Suppose a product suddenly becomes very popular and the firms producing the product begin to realize large profits. In response, entrepreneurs would
enter the market and increase production
A market failure could be caused by:
firms not bearing the full costs of production.
The law of supply states that:
firms supply more of a product as the price of the product rises.
When the government filed a lawsuit against Microsoft in 1998 alleging that Microsoft illegally bundled Internet Explorer in its operating software, the government's objective was to:
foster competition.
Two goods are substitutes if
he demand for one good decreases when the price of the other decreases.
To think at the margin means to consider:
how a small change in one variable affects another variable.
A market failure could be caused by
imperfect information.
Patents:
increases the profitability of inventions encouraging firms to develop new products
When a specialized worker gains insights into a particular task that leads to better production methods it is called:
innovation.
One of the most obvious clues to the relative scarcity of a product in a market economy is:
its current market price
The reason why the government taxes the gasoline used by pollution-causing automobiles is because it is trying to:
make the drivers face the full cost of their driving decisions.
The extra benefit resulting from a small increase in some activity is called the:
marginal benefit
When the market does not produce the most efficient outcomes, it is known as:
market failure
When economists assume that people are rational and respond to incentives, they mean:
people act in their own self-interest
Adam Smith used the metaphor "invisible hand" to explain that
people acting in their own self interest may actually promote the interest of the society as a whole.
A rich nation will trade with a poor nation because the:
poor nation has the comparative advantage in a product
Minimum wage laws are examples of
price floors.
The principle that "as one input increases while the other inputs are held fixed, output beyond some point will exhibit increases at a decreasing rate" is known as the:
principle of diminishing returns.
Quantity demanded is defined as the:
quantity of a product that consumers are willing and able to buy at a given price
In a market system, prices
signal the relative scarcity of a product.
In a market system profits:
signal to entrepreneur what to produce
If the law of supply holds, then the supply curve can never:
slope downwards
A contract:
specifies the term of exchange facilitating exchange between strangers
The economic view of traffic congestion considers:
that drivers ignore the costs they impose on other drivers by slowing other drivers' commute time
Suppose a car is completely produced and assembled in Germany and is sold to the United States. In this example, the country that imports the car is ________ while the country that exports the car is ________.
the United States; Germany
The law of demand can be defined as:
the higher the price, the smaller the quantity demanded, ceteris paribus
A supply curve is defined as the relationship between:
the price of a good and the quantity that producers are willing to sell.
The law of demand states that the quantity demanded of a product increases as:
the price of the product falls
A change in the quantity demanded of a product is the result of a change in:
the price of the product.
A firm produces its product using both capital and labor. When it does not change its capital usage, but doubles its labor input, its output increases by less than 50%. Which of the following is the most likely explanation of this finding?
the principle of diminishing returns
A student has a D grade average in her accounting course and a B grade average in her economics course. She decides to study an extra hour for her accounting exam and one less hour for her economics exam hoping to improve her accounting grade while not hurting her economics grade. This is an example of:
thinking at the margin
The opportunity cost of something is:
what you sacrifice to get it.
Which of the following is a topic not directly under macroeconomics?
why the price of crude oil is high
