ECON 102 - Exam #2

The term "invisible hand" was coined by... a. Adam Smith b. David Ricardo c. Karl Marx d. Benjamin Franklin

a. Adam Smith

If the minimum that the Smith family would be willing to sell their house for is $185,000, but they in fact sell it for $210,000, they will receive... a. producer surplus in the amount of $210,000 b. producer surplus in the amount of $25,000 c. consumer surplus in the amount of $210,000 d. consumer surplus in the amount if $25,000

b. producer surplus in the amount of $25,000

Which of the following is TRUE? a. efficiency refers to the size of the economic pie; equality refers to how the pie os divided b. government policies usually improve upon both equality and efficiency c. as long as the economic pie continually gets larger, no one will have to go hungry d. efficiency and equality can both be achieved if the economic pie is cute into equal pieces

a. efficiency refers to the size of the economic pie; equality refers to how the pie os divided

If the demand curve is perfectly elastic, the burden of a tax on supplier is borne... a. entirely by suppliers b. entirely by consumers

a. entirely by suppliers

The terms equality and efficiency are similar in that they both refer to benefits to society. However are different in that... a. equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources b. equality refers to maximizing benefits from scarce resources and efficiency refers to inform distribution of those benefits c. equality refers to everyone facing identical tradeoffs and efficiency refers to the opportunity cost of the benefits d. equality refers to the opportunity cost of the benefits and efficiency refers to everyone facing identical tradeoffs

a. equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources

If the government removes a tax on a good, then the quantity of the good sold will... a. increase b. decrease c. not change d. all of the above are correct

a. increase

Public policies... a. may be able to improve either economic efficiency or equality b. may be able to improve economic efficiency but cannot improve equality c. may be able to improve economic equality but cannot improve efficiency d. cannot improve equality or efficiency

a. may be able to improve either economic efficiency or equality

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

a. opportunity cost

The phrase "no such this as a free lunch" means... a. people must face tradeoffs b. rational people think at the margin c. people respond to incentives d. trade can make everyone better off

a. people must face tradeoffs

Economics deals primarily with the concept of... a. scarcity. b. money. c. poverty. d. banking.

a. scarcity

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct? a. the effective price received by sellers is $0.40 per bottle less than it was before the tax b. sixty percent of the burden of the tax falls on sellers c. this tax causes the demand curve for perfume to shift downward by $1.00 at each quantity of perfume d. all of the above are correct

a. the effective price received by sellers is $0.40 per bottle less than it was before the tax.

The self-interest of the participants in an economy is guided into promoting general economic self-interest by... a. the invisible hand b. market power c. government intervention d. oikonomos

a. the invisible hand

Price ceilings create shortages, but taxes do not... a. true b. false

a. true

When the market is in equilibrium, total surplus is maximized... a. true b. false

a. true

A price floor will be binding only if it is set... a. equal to the equilibrium price b. above the equilibrium price c. below the equilibrium price d. either above or below the equilibrium price

b. above the equilibrium price

If the demand for insulin is highly in elastic, then the burden of a tax on insulin will be borne almost entirely by sellers... a. true b. false

b. false

Economics is the study of... a. production methods. b. how society manages its scarce resources. c. how households decide who performs which tasks. d. the interaction of business and government.

b. how society manages its scarce resources

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

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

The "invisible hand" directs economic activity through... a. advertising b. prices (surplus/shortage) c. central planning d. government regulations

b. prices (surplus/shortage)

If a price ceiling is not binding, then... a. the equilibrium price is above the price ceiling b. the equilibrium price is below the price ceiling c. it has no legal enforcement mechanism d. none of the above are correct

b. the equilibrium price is below the price ceiling

The collapse of communism in the Soviet Union and Eastern Europe took place mainly in the... a. 1960s b. 1970s c. 1980s d. 1990s

c. 1980s

Minimum wage laws dictate... a. the exact wage that firms must pay workers b. a maximum wage that firms may pay workers c. a minimum wage that firm must pay workers d. both a minimum and maximum wage that firms may pay workers

c. a minimum wage that firms must pay workers

Price controls... a. always produce a fair outcome b. always produce and efficient outcome c. can generate inequities of their own d. all of the above are correct

c. can generate inequities of their own

The basic principles of economics suggest that... a. markets are seldom, if ever, a good way to organize economic activity b. government should become involved in markets when trade between countries is involved c. government should become involved in markets when those markets fail to produce efficient or fair outcomes d. all of the above are correct

c. government should become involved in markets when those markets fail to produce efficient or fair outcomes

Suppose government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor. this redistribution of wealth... a. is more efficient and more equal for society b. is more efficient but less equal for society c. is more equal but less efficient for society d. is less equal and less efficient for society

c. is more equal but less efficient for society

Which of the following phrases best captures the notion of efficiency? a. absolute fairness b. equal distribution c. minimum waste d. equitable outcome

c. minimum waste

Which of the following is correct? Price controls... a. always help those they are designed to help b. never help those they are designed to help c. often hurt those they are designed to help d. always hurt those they are designed to help

c. often hurt those they are designed to help

Sophia is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that... a. people respond to incentives. b. rational people think at the margin. c. people face tradeoffs. d. improvements in efficiency sometimes come at the expense of equality.

c. people face tradeoffs

When the government redistributes income from the wealthy to the poor... a. efficiency is improved, but equality is not b. both wealthy people and poor people benefit directly c. people work less and produce fewer goods and services d. the government collects more revenue in total

c. people work less and produce fewer goods and services

Which of the following words and phrases best captures the notion of equality? a. minimum waste b. maximum benefit c. sameness d. efficiency

c. sameness

A tax on sellers will shift the... a. demand curve upward by the amount of the tax b. demand curve downward by the amount of the tax c. supply curve upward by the amount of the tax d. supply curve downward by the amount of the tax

c. supply curve upward by the amount of the tax

Government policies designed to equalize the distribution of economic well-being include... (i) the welfare system (ii) unemployment insurance (iii) progressive income tax a. (i) only b. (ii) only c. (i) and (ii) only d. (i), (ii), and (iii)

d. (i), (ii), and (iii)

If a binding price floor is imposed on the video game market, then... a. the quantity of video games demanded will decrease b. the quantity of video games supplied will increase c. a surplus of video games will develop d. all of the above are correct

d. all of the above are correct

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

d. all of the above are correct

Which of the following could reduce economic efficiency? a. laws that encourage lawsuits b. policies that redistribute income c. policies that impose significant restriction on international trade d. all of the above are correct

d. all of the above are correct

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. establish a significant role for government in the allocation of resources c. solve the problem of scarcity d. are more efficient

d. are more efficient

When a tax is levied on sellers of tea... a. the well-being of both sellers and buyers of tea is unaffected b. sellers of tea are made worse off, and the well-being of buyers is unaffected c. sellers of tea are made worse off, and buyers of tea are made better off d. both sellers and buyers of tea are made worse off

d. both sellers and buyers of tea are made worse off

A legal maximum on the price at which a good can be sold is called a price... a. floor b. subsidy c. support d. ceiling

d. ceiling

Central planning refers to... a. government guiding economic activity. Today many countries that did not have this system have implemented it b. markets guiding economic activity. Today many countries that had this system have abandoned it c. markets guiding economic activity. Today many countries that did not have this system have implemented it d. government guiding economic activity. Today many countries that had this system have abandoned it

d. government guiding economic activity. Today many countries that had this system have abandoned it

Those with more inelastic demands will bear a larger burden of a tax because they... a. have more buying power b. have more income c. will switch to other products with a tax d. have a fewer substitutes for that good

d. have a fewer substitutes for that good

When government policies are enacted... a. equality can usually be enhanced without an efficiency loss, but efficiency can never be enhanced without a reduction in equality b. equality can usually be enhanced without a reduction in equality, but equality can never be enhanced without an efficiency loss c. it is always the case that either efficiency and equality are both enhanced, or efficiency and equality are both diminished. d. none of the above are correct

d. none of the above are correct