ECO231: Exam 1 (Quizzes for Ch 1 - half of Ch 5)

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FLIP ANSWER: U

At which point is this economy producing its maximum possible quantity of doors? T S U R

FLIP ANSWER: R,U

Efficient production is represented by which point(s)? -Q, R, U -S, T -R, U -R, T, U

FLIP ANSWER: T

Inefficient production is represented by which point(s)? -R, U -Q, S -Q, S, T -T

Chapter 1

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Chapter 2

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FLIP ANSWER: Q,S

This economy cannot produce at which point(s)? -Q, S, T -S -Q -Q, S

FLIP ANSWER: R,T,U

This economy has the ability to produce at which point(s)? -R, U -Q, R, T, U -R, T, U -T

FLIP ANSWER: T

Unemployment could cause this economy to produce at which point(s)? -R, U -Q, S, T -T -Q, S

Which of the following statements does not apply to a market economy? a. Government policies are the primary forces that guide the decisions of firms and households. b. Households decide which firms to work for and what to buy with their incomes. c. The "invisible hand" usually maximizes the income of society as a whole. d. Firms decide whom to hire and what to produce.

a. Government policies are the primary forces that guide the decisions of firms and households.

Which of the following statements is correct about the roles of economists? a. In trying to explain the world, economists are scientists; in trying to improve the world, they are policy advisers. b. Economists are best viewed as policy advisers. c. In trying to explain the world, economists are policy advisers; in trying to improve the world, they are scientists. d. Economists are best viewed as scientists.

a. In trying to explain the world, economists are scientists; in trying to improve the world, they are policy advisers.

Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate? a. People respond to incentives. b. Rational people think at the margin. c. Markets are usually a good way to organize economic activity. d. Trade can make everyone better off.

a. People respond to incentives.

Which of the following is an example of a normative, as opposed to positive, statement? a. The federal government's responses to the most recent recession were insufficient. b. To stimulate the economy during the most recent recession, the federal government increased spending. c. In response to the most recent recession, the federal government extended the duration of unemployment benefits. d. Following the most recent recession, the economy is recovering at a slower than usual pace.

a. The federal government's responses to the most recent recession were insufficient.

The "invisible hand" directs economic activity through a. prices. b. central planning. c. government regulations. d. advertising.

a. prices.

In a market economy, economic activity is guided by a. public-interest groups. b. self-interest and prices. c. central planners. d. the government.

b. self-interest and prices.

When constructing a production possibilities frontier, which of the following assumptions is not made? a. The quantities of the factors of production that are available are increasing over the relevant time period. b. The technology available to firms is given. c. Firms produce goods using factors of production. d. The economy produces only two goods or two types of goods.

a. The quantities of the factors of production that are available are increasing over the relevant time period.

Which of the following firms is likely to have the greatest market power? a. an electric company b. a farmer c. a local electronics retailer d. a grocery store

a. an electric company

The production possibilities frontier is a graph that shows the various combinations of output that an economy a. can produce. b. should produce. c. wants to produce. d. demands.

a. can produce.

A macroeconomist — as opposed to a microeconomist — might study the effect of a. changes in the money supply on the inflation rate. b. an increase in the gas tax on fuel consumption. c. a hurricane on prices in the orange industry. d. a technological advance on the natural gas industry.

a. changes in the money supply on the inflation rate.

Positive statements are a. claims about how the world is. b. claims about how the world should be. c. made by economists speaking as policy advisers. d. prescriptive.

a. claims about how the world is.

Economists use the word equality to describe a situation in which a. each member of society has the same income. b. each member of society has access to abundant quantities of goods and services, regardless of his or her income. c. society's resources are used efficiently. d. society is getting the maximum benefits from its scarce resources.

a. each member of society has the same income.

Macroeconomics is the study of a. economy-wide phenomena. b. markets for large products. c. individual decision makers. d. international trade.

a. economy-wide phenomena.

If an electric power plant does not bear the entire cost of the pollution it emits, it will a. emit too much pollution. b. emit lower levels of pollution. c. emit an acceptable level of pollution. d. not emit any pollution so as to avoid the entire cost of the pollution.

a. emit too much pollution.

Which of the following concepts cannot be illustrated by the production possibilities frontier? a. equality b. efficiency c. opportunity cost d. trade-offs

a. equality

Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce a. externalities. b. equality. c. efficiency. d. productivity.

a. externalities.

Microeconomics is the study of a. how individual households and firms make decisions. b. how government affects the economy. c. how money affects the economy. d. how the economy as a whole works.

a. how individual households and firms make decisions.

It costs a furniture company $8,750 to produce 25 tables. The company's total cost will be $9,125 if it produces a 26th table. If the company produces 26 tables, then a. its average cost is less than its marginal cost. b. its average cost is greater than its marginal cost. c. This cannot be determined from the information given. d. its average cost and its marginal cost are equal.

a. its average cost is less than its marginal cost.

Benefits from trade would not include a. less competition. b. a greater variety of goods and services becoming available. c. lower prices. d. the ability of people and nations to specialize.

a. less competition.

Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $40, the hotel manager should rent one of the empty rooms only if a customer is willing to pay a. more than $40, as the marginal benefit will exceed the marginal cost. b. more than $80, as the average benefit will exceed the marginal cost. c. more than $80, as the marginal benefit will exceed the marginal cost. d. more than $40, as the average benefit will exceed the marginal cost.

a. more than $40, as the marginal benefit will exceed the marginal cost.

The production possibilities frontier provides an illustration of the principle that a. people face trade-offs. b. trade can make everyone better off. c. people respond to incentives. d. governments can sometimes improve market outcomes.

a. people face trade-offs.

While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This statement illustrates the principle that a. people face tradeoffs. b. people respond to incentives. c. trade can make everyone better off. d. rational people think at the margin.

a. people face tradeoffs.

Market power refers to the a. power of a single person or small group to influence market prices. b. power of the government to regulate a market. c. ability of a person or small group to successfully market new products. d. importance of a certain market in relation to the overall economy.

a. power of a single person or small group to influence market prices.

Unemployment would cause an economy to a. produce inside its production possibilities frontier. b. produce on its production possibilities frontier. c. produce outside its production possibilities frontier. d. experience an inward shift of its production possibilities frontier.

a. produce inside its production possibilities frontier.

The overriding reason why households and societies face many decisions is that a. resources are scarce. b. goods and services are not scarce. c. incomes fluctuate with business cycles. d. people, by nature, tend to disagree.

a. resources are scarce.

As a result of a successful attempt by government to cut the economic pie into more equal slices, a. the pie gets smaller, and there will be less pie overall. b. it increases the reward for working hard, resulting in people producing more goods and services. c. the pie gets larger, and there will be more pie overall. d. those who earn more income pay less in taxes.

a. the pie gets smaller, and there will be less pie overall.

When computing the opportunity cost of attending a basketball game you should include a. the price you pay for the ticket and the value of your time. b. neither the price of the ticket nor the value of your time. c. the price you pay for the ticket, but not the value of your time. d. the value of your time, but not the price you pay for the ticket.

a. the price you pay for the ticket and the value of your time.

Production Possibilities for Picnicland Hotdogs...............Burgers 1800.............................0 1350..........................450 900............................750 450............................975 0.................................1125 What is the opportunity cost to Picnicland of increasing the production of hotdogs from 450 to 900? a. 450 burgers b. 225 burgers c. 300 burgers d. 150 burgers

b. 225 burgers

Economists, like mathematicians, physicists, and biologists, a. devise theories, collect data, and then analyze these data in an attempt to verify or refute their theories. b. All of the above are correct. c. make use of the scientific method. d. try to address their subject with a scientist's objectivity.

b. All of the above are correct.

Which of the following is an example of a normative, as opposed to positive, statement? a. The federal government should raise taxes on wealthy people. b. All of the above are normative statements. c. Gasoline prices ought to be lower than they are now. d. The social security system is a good system and it deserves to be preserved as it is.

b. All of the above are normative statements.

Suppose Country A has a high average wage level and a high level of output per person, while Country B has a low average wage level and a low level of output per person. Which country can benefit from trade? a. Only Country B can benefit. b. Both Country A and Country B can benefit. c. Only Country A can benefit. d. Neither Country A nor Country B can benefit.

b. Both Country A and Country B can benefit.

Economists face an obstacle that many other scientists do not face. What is that obstacle? a. The scientific method cannot be applied to the study of economics. b. It is often impractical to perform experiments in economics. c. Economics cannot be addressed objectively; it must be addressed subjectively. d. It is often difficult to formulate theories in economics.

b. It is often impractical to perform experiments in economics.

Which of the following is a principle concerning how people interact? a. Rational people think at the margin. b. Markets are usually a good way to organize economic activity. c. People respond to incentives. d. All of the above are correct.

b. Markets are usually a good way to organize economic activity.

Which of the following trade-offs does the production possibilities frontier illustrate? a. For an economy to produce and consume goods, it must sacrifice environmental quality. b. Once an economy has reached the efficient points on its production possibilities frontier, the only way of getting more of one good is to get less of the other. c. If an economy wants to increase efficiency in production, then it must sacrifice equality in consumption. d. For an economy to consume more of one good, it must stop consuming the other good entirely.

b. Once an economy has reached the efficient points on its production possibilities frontier, the only way of getting more of one good is to get less of the other.

Which of the following is an example of a normative - as opposed to a positive - statement? a. The US unemployment rate increased to 10 percent in 2009. b. The government should increase the tax on gasoline. c. The discount rate is the interest rate the Federal Reserve charges banks to borrow funds. d. The US income tax rate increases with the amount of income earned.

b. The government should increase the tax on gasoline.

Production Possibilities for Footville Shoes.............Socks 800......................0 600...................400 400...................700 200...................900 0.......................1000 Which of the following statements is correct? a. Footville's production possibilities frontier is a straight, downward-sloping line. b. The opportunity cost of an additional 200 shoes increases as more socks are produced. c. The opportunity cost of an additional 200 shoes is constant at 200 socks. d. The opportunity cost of an additional 200 shoes is constant at 300 socks.

b. The opportunity cost of an additional 200 shoes increases as more socks are produced.

Which of the following is an example of a normative, as opposed to positive, statement? a. A decrease in the minimum wage would decrease unemployment. b. Universal health care would be good for U.S. citizens. c. A law requiring the federal government to balance its budget would increase economic growth. d. An increase in the cigarette tax would cause a decrease in the number of smokers.

b. Universal health care would be good for U.S. citizens.

The term market failure refers to a. a firm that is forced out of business because of losses. b. a situation in which the market on its own fails to allocate resources efficiently. c. an unsuccessful advertising campaign which reduces demand for a product. d. a situation in which competition among firms becomes ruthless.

b. a situation in which the market on its own fails to allocate resources efficiently.

Rick buys a 1966 Mustang for $3,000, planning to restore and sell the car. He goes on to spend $9,000 restoring the car. At this point he can sell the car for $10,000. As an alternative, he can spend an additional $3,000 replacing the engine. With a new engine the car would sell for $13,000. Rick should a. sell the car now for $10,000. b. be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it. c. never try such an expensive project again. d. complete the repairs and sell the car for $13,000.

b. be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it.

Dale is a guitar teacher and Terrence is a tile layer. If Dale teaches Terrence's daughter to play the guitar in exchange for Terrence tiling Dale's kitchen floor, a. only Terrence is made better off by trade. b. both Dale and Terrence are made better off by trade. c. only Dale is made better off by trade. d. neither Dale nor Terrence are made better off by trade.

b. both Dale and Terrence are made better off by trade.

Annie is an excellent baker and Sam has a plentiful farm. If Sam trades eggs and butter to Annie for some of Annie's bread and pastries, a. only Sam is made better off by trade. b. both Sam and Annie are made better off by trade. c. only Annie is made better off by trade. d. neither Sam nor Annie are made better off by trade.

b. both Sam and Annie are made better off by trade.

Normative statements are a. pessimistic interpretations of the economy. b. claims about how the world should be. c. claims about how variables in the economy normally behave. d. not usually made by economists.

b. claims about how the world should be.

For an economist, the idea of making assumptions is regarded generally as a a. bad idea, since doing so invariably leads to data-collection problems. b. good idea, since doing so helps to simplify the complex world and make it easier to understand. c. bad idea, since doing so leads to the omission of important ideas and variables from economic models. d. good idea, since economic analysis without assumptions leads to complicated results that the general public finds hard to understand.

b. good idea, since doing so helps to simplify the complex world and make it easier to understand.

Economists are particularly adept at understanding that people respond to a. rewards more than punishments. b. incentives. c. punishments more than rewards. d. laws.

b. incentives.

A rational decision maker takes an action only if the a. average benefit is greater than the average cost. b. marginal benefit is greater than the marginal cost. c. marginal benefit is greater than both the average cost and the marginal cost. d. marginal benefit is less than the marginal cost.

b. marginal benefit is greater than the marginal cost.

Positive statements are not a. made by economists speaking as scientists. b. prescriptive. c. claims about how the world is. d. descriptive.

b. prescriptive.

You go to the movieplex where movies ordinarily cost $9. You are intending to see a movie for which you have a $3 off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost? a. $9 b. the amount you value the first movie + $3 c. $3 d. the amount you value the first movie + $9

b. the amount you value the first movie + $3

A macroeconomist - as opposed to a microeconomist - would study a. the effects of rent control on housing in New York City. b. the effects of borrowing by the federal government. c. the effects of foreign competition on the US auto industry. d. the effects of raising the gasoline tax on transit ridership.

b. the effects of borrowing by the federal government.

High-school athletes who skip college to become professional athletes a. usually do so because they cannot get into college. b. understand that the opportunity cost of attending college is very high. c. are not making a rational decision since the marginal benefits of college outweigh the marginal costs of college for high-school athletes. d. obviously do not understand the value of a college education.

b. understand that the opportunity cost of attending college is very high.

Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the money in a bank account for a year and earn 5 percent interest. The opportunity cost of spending the money today, in terms of what you could have after one year, is a. $15. b. $305. c. $315. d. $0.

c. $315.

In a market economy, a. households decide which firms to work for and what to buy with their incomes. b. firms decide whom to hire and what to make. c. Answer Both a and b are correct. d. a central planner makes decisions about production and consumption.

c. Answer Both a and b are correct.

Which of the following is correct concerning opportunity cost? a. To compute opportunity costs, you should subtract benefits from costs. b. Rational people should compare various options without considering opportunity costs. c. Except to the extent that you pay more for them, opportunity costs should not include the cost of things you would have purchased anyway. d. Opportunity costs and the idea of trade-offs are not closely related.

c. Except to the extent that you pay more for them, opportunity costs should not include the cost of things you would have purchased anyway.

Which of the following is an example of a normative, as opposed to positive, statement? a. If the national saving rate were to increase, so would the rate of economic growth. b. If the price of a product decreases, people's willingness to buy that product will increase. c. Reducing tax rates on the wealthy would benefit the nation. d. The elimination of trade restrictions would increase an economy's standard of living.

c. Reducing tax rates on the wealthy would benefit the nation.

Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. This is an example of a. a market failure caused by market power. b. a market failure caused by equality. c. a market failure caused by an externality. d. There is no market failure in this case.

c. a market failure caused by an externality.

When society requires that firms reduce pollution, there is a. no tradeoff, since the cost of reducing pollution falls only on the firms affected by the requirements. b. a tradeoff only if some firms are forced to close. c. a tradeoff because of reduced incomes to the firms' owners and workers. d. no tradeoff, since everyone benefits from reduced pollution.

c. a tradeoff because of reduced incomes to the firms' owners and workers.

One advantage market economies have over centrally-planned economies is that market economies a. provide an equal distribution of goods and services to households. b. solve the problem of scarcity. c. are more efficient. d. establish a significant role for government in the allocation of resources.

c. are more efficient.

College-age athletes who drop out of college to play professional sports a. are concerned more about present circumstances than their future. b. are not rational decision makers. c. are well aware that their opportunity cost of attending college is very high. d. underestimate the value of a college education.

c. are well aware that their opportunity cost of attending college is very high.

Suppose that a country that has a high level of output per person agrees to trade with a country that has a low level of output per person. Which country can benefit? a. neither b. only the one with a low level of output per person. c. both d. only the one with a high level of output per person.

c. both

Normative statements are not a. prescriptive. b. claims about how the world should be. c. descriptive. d. made by economists speaking as policy advisers.

c. descriptive.

Economists make assumptions to a. minimize the number of experiments that yield no useful data. b. minimize the likelihood that some aspect of the problem at hand is being overlooked. c. focus their thinking on the essence of the problem at hand. d. mimic the methodologies employed by other scientists.

c. focus their thinking on the essence of the problem at hand.

The "invisible hand" refers to a. how central planners made economic decisions. b. the control that large firms have over the economy. c. how the decisions of households and firms lead to desirable market outcomes. d. government regulations without which the economy would be less efficient.

c. how the decisions of households and firms lead to desirable market outcomes.

It costs a meat-processing company $50,000 to produce 5,000 pounds of steak. The company's cost will be $50,009 if it produces an additional pound of steak. If the company produces 5,001 pounds of steak then a. its average cost and its marginal cost are equal. b. its average cost is less than its marginal cost. c. its average cost is greater than its marginal cost. d. there is insufficient information to compute average and marginal costs.

c. its average cost is greater than its marginal cost.

It is possible for an economy to increase its production of both goods if the economy a. moves downward and to the right along its production possibilities frontier and the frontier is bowed outward. b. moves upward and to the left along its production possibilities frontier and the frontier is bowed outward. c. moves from a situation of inefficient production to a situation of efficient production. d. moves in either direction along its production possibilities frontier and the frontier is a straight line.

c. moves from a situation of inefficient production to a situation of efficient production.

What you give up to obtain an item is called your a. monetary cost. b. direct cost. c. opportunity cost. d. explicit cost.

c. opportunity cost.

Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so she can only buy one. This illustrates the basic concept that a. rational people think at the margin. b. trade can make everyone better off. c. people face trade-offs. d. decisions made at the margin are not particularly important.

c. people face trade-offs.

John is an athlete. He has $120 to spend and wants to buy either a heart rate monitor or new running shoes. Both the heart rate monitor and running shoes cost $120, so he can only buy one. This illustrates the principle that a. trade can make everyone better off. b. people respond to incentives. c. people face trade-offs. d. rational people think at the margin.

c. people face trade-offs.

Production possibilities frontiers are usually bowed outward. This is because a. of the effects of technological change. b. the opportunity cost of producing a good decreases as more and more of that good is produced. c. resources are specialized; that is, some are better at producing particular goods rather than other goods. d. the more resources a society uses to produce one good, the fewer resources it has available to produce another good.

c. resources are specialized; that is, some are better at producing particular goods rather than other goods.

Resources are a. scarce for households but plentiful for economies. b. plentiful for households but scarce for economies. c. scarce for households and scarce for economies. d. plentiful for households and plentiful for economies.

c. scarce for households and scarce for economies.

The scientific method is a. the use of modern technology to understand the way the world works. b. the search for evidence to support preconceived theories about how the world works. c. the dispassionate development and testing of theories about how the world works. d. the use of controlled laboratory experiments to understand the way the world works.

c. the dispassionate development and testing of theories about how the world works.

Barb's aunt gave her $100 for her birthday with the condition that Barb buy herself something. In deciding how to spend the money, Barb narrows her options down to four choices: Option A, Option B, Option C, and Option D. Each option costs $100. Finally she decides on Option B. The opportunity cost of this decision is a. $100. b. the average of the values to Barb of Options A, C, and D. c. the value to Barb of the option she would have chosen had Option B not been available. d. the value to Barb of Options A, C and D combined.

c. the value to Barb of the option she would have chosen had Option B not been available.

Production Possibilities for Footville Shoes.............Socks 800......................0 600...................400 400...................700 200...................900 0.......................1000 What is the opportunity cost to Footville of increasing the production of shoes from 400 to 600? a. 100 socks b. 400 socks c. 200 socks d. 300 socks

d. 300 socks

In communism, central planners decide which of the following? a. who will produce and consume the goods and services b. how much will be produced c. what goods and services will be produced d. All of the above are correct.