Econ 102 Frank Fossen Review for Final
Which of the following is a characteristic of command economies? A. It is difficult to incentivize economic agents. B. The invisible hand functions without any restraint. C. Coordination of economic agents is automatic. D. Rewards to economic agents are based on market prices.
A. It is difficult to incentivize economic agents.
Which of the following correctly identifies the trade-off that a budget constraint represents? A. The amount of one good that has to be given up to purchase an additional unit of the other good B. The amount of income that must be given up to obtain an additional unit of a good C. The optimum combination of goods that a consumer with a given income should purchase D. The maximum amount of two goods that a consumer can purchase given his income
A. The amount of one good that has to be given up to purchase an additional unit of the other good
In a perfectly competitive market, sellers ________. A. are price takers .B. are told the price to charge by the government C. each have the power to set the price D. coordinate to set the market price
A. are price takers
The ________ plots the relationship between prices and the quantity that buyers are willing to purchase. A. demand curve B. marginal cost curve C. budget constraint D. supply curve
A. demand curve
he Principle of Optimization at the Margin states that ________. A. moving toward the optimal alternative makes the decision maker better off and moving away from it makes him worse off B. an optimal alternative has the lowest indirect costs in comparison to other feasible alternatives C. an optimal alternative has the highest net benefits in comparison to other feasible alternatives D. moving toward the optimal alternative makes the decision maker worse off and moving away from it makes him better off
A. moving toward the optimal alternative makes the decision maker better off and moving away from it makes him worse off
The incentive for new firms to enter a perfectly competitive market is primarily the ________. A. positive profits earned by the existing firms in the market .B. existence of a large number of firms in the market C. high level of government intervention in the market D. large number of buyers in the market
A. positive profits earned by the existing firms in the market
The use of government regulations and barriers to control trade is referred to as ________. A. protectionism B. liberalization C. actualization D. globalization
A. protectionism
The net benefit of a particular alternative equals ________. A. the benefits received from the alternative minus the costs incurred when choosing the alternative B. the benefits received from the alternative plus the costs incurred when choosing the alternative C. the benefits received from the alternative divided by the costs incurred when choosing the alternative D. the costs incurred when choosing the alternative divided by the benefits received from the alternative
A. the benefits received from the alternative minus the costs incurred when choosing the alternative
A consumer has $20 that he wants to spend on two goods: pens priced at $2 each and pencils priced at $1 each. Which of the following correctly represents his budget constraint? A. $20 = ($2 times Quantity of pens) + ($1 times Quantity of pencils) Your answer is correct.B. $20 = ($2/Quantity of pens) + ($1/Quantity of pencils) C. $20 = ($3/Quantity of pens + Quantity of pencils) D. $20 = $3 times (Quantity of pens minus Quantity of pencils)
A. $20 = ($2 times Quantity of pens) + ($1 times Quantity of pencils)
When the price of one burger is $4, Kate consumes 2 burgers. When the price of one burger decreases to $2, she consumes 4 burgers. Given the information, what is the absolute value of Kate's arc elasticity of demand for burgers? A. 5 B. 1.0 .C. 1.2 D. 4
B. 1.0
Scenario: Ryan wants to rent an apartment. The following table shows the monthly rent of five apartments and the number of hours per month it takes to commute to work from each apartment. Ryan's opportunity cost of time is $15 per hour. Apartment Commuting Time (hours per month) Rent ($ per month) 1 40 1,500 2 20 1,750 3 10 2,000 4 4 2,210 5 1 2,250 Refer to the scenario above. The total cost per month is the lowest if Ryan chooses to rent Apartment ________. A. 1 B. 2 C. 3 D. 4
B. 2
The table shows the total output produced by different numbers of workers in a shoe factory. Output per Day (pairs) Number of Workers 0 0 50 1 112 2 180 3 225 4 260 5 280 6 What is the marginal product of the third worker? A. 60 pairs of shoes Your answer is not correct.B. 68 pairs of shoes This is the correct answer.C. 112 pairs of shoes D. 180 pairs of shoes
B. 68 pairs of shoes
Which of the following statements correctly describes perfectly competitive market equilibrium? A. There is always excess supply or excess demand when the competitive market is in equilibrium. B. Competitive markets converge to the price at which quantity supplied and quantity demanded are equal. C. Multiple equilibriums are possible for a given set of demand and supply curves in a competitive market. D. Government intervention is necessary for the competitive market to reach equilibrium
B. Competitive markets converge to the price at which quantity supplied and quantity demanded are equal.
In which of the following situations should a profitminusmaximizing firm leave its output unaltered? A. MR < MC and Price < Average total cost B. MR = MC and Total revenue > Total variable cost .C. MR = MC and Total revenue < Total variable cost D. MR > MC and Price > Average total cost
B. MR = MC and Total revenue > Total variable cost
In the long run, a firm should remain in a perfectly competitive industry if ________. A. Price > Average total cost B. Price < Marginal cost C. Price < Average total cost D. Price > Marginal revenue
B. Price < Marginal cost
________ occurs when the direction of cause and effect is mixed up in a study. A. Limited information bias B. Reverse causality C. Adverse causality D. Omitted variable bias
B. Reverse causality
Which of the following is an example of marginal analysis? A. To determine the optimal amount of fertilizer to be used, a farmer calculates the total benefits of using a given amount of fertilizer. B. To determine the optimal number of workers, a firm calculates the net benefits of hiring an extra worker. C. To determine the optimal output that a firm should sell, the manager calculates the total revenue earned by selling different levels of output. D. To choose the optimal apartment to rent, an individual estimates the net benefits of renting an apartment close to his place of work.
B. To determine the optimal number of workers, a firm calculates the net benefits of hiring an extra worker.
Which of the following is the best example of the Law of Supply? A. When the cost of production of cotton increased, all suppliers' willingness to accept decreased. B. When the market price of pens increased, sellers started supplying more pens. C. When the cost of production of cotton fell, the market price of cotton also fell. D. When the market price of pens increased, sellers started supplying fewer pens.
B. When the market price of pens increased, sellers started supplying more pens.
The long run average cost curve connects the lower part of the short run cost curves because ________. A. firms earn positive profits in the long run B. firms have more flexibility to change input combinations in the long run .C. the prices of inputs are less when acquired for a longer time period Your answer is not correct.D. the specialization of inputs increases productivity only in the long run
B. firms have more flexibility to change input combinations in the long run
Willingness to pay ________. A. is equal to the price of the highest priced good in a consumption bundle B. is the highest price that a buyer is willing and able to pay for a unit of good .C. is the lowest price that a buyer is willing and able to pay for a unit of good D. is equal to the price of the lowest priced good in a consumption bundle
B. is the highest price that a buyer is willing and able to pay for a unit of good
The tragedy of the commons occurs because some goods are ________ in consumption. A. non rival B. non excludable but rival C. excludable D. non rival and non excludable
B. non excludable but rival
A maximized social surplus in an economy means that ________. A. there is an even distribution of income among the people in that economy B. the sum of consumer and producer surpluses have the largest possible value C. it is possible to make some people better off without making any other person worse off D. each of the consumer surplus, and the producer surplus have their largest possible values
B. the sum of consumer and producer surpluses have the largest possible value
What does a deadweight loss from a tax consist of? ANSWER INCORRECT Unselected Buyers who enter the market because they can take advantage of the lower price that producers receive, and sellers who enter the market because they can take advantage of the higher price that buyers pay. Incorrect YOU WERE UNSURE AND INCORRECT Sellers who must leave the market because they can't produce at the lower price, and buyers who enter the market because they can take advantage of the lower price. Correct THE CORRECT ANSWER Buyers who must leave the market because they can't afford to pay the higher price and sellers who must leave the market because they can't produce at a lower price. Unselected Buyers who must leave the market because they can't afford the pay the higher price, and sellers who enter the market because they can take advantage of the higher price.
Buyers who must leave the market because they can't afford to pay the higher price and sellers who must leave the market because they can't produce at a lower price.
Which of the following is a feature of a good theory? A. A good theory cannot be tested with data. B. A good theory does not rely on data. C. A good theory closely predicts actual behavior. .D. A good theory is free from approximations
C. A good theory closely predicts actual behavior.
Which of the following best describes equilibrium? A. A situation where the government intervenes to allocate resources B. A situation where only one individual or firm makes an optimal decision C. A situation where no economic agent would benefit by changing his or her behavior D. A situation where economic agents do not optimize as they do not have perfect information
C. A situation where no economic agent would benefit by changing his or her behavior
Which of the following statements is true of free riding? A. Free riding is easy to detect and punish. B. Free riding does not impose a cost on society. C. Free riding is reduced with social pressure. .D. Free riding is not affected by incentives.
C. Free riding is reduced with social pressure.
Which of the following statements is true of equilibrium? A. Each economic agent can reach equilibrium irrespective of the actions of others. B. In equilibrium, the opportunity cost of the choices made by each economic agent is zero. C. In equilibrium, all economic agents are choosing the best feasible option simultaneously. D. Economic agents have an incentive to divert from equilibrium.
C. In equilibrium, all economic agents are choosing the best feasible option simultaneously.
________ is analysis that generates objective descriptions or predictions about the world that can be verified with data. A. Microeconomics .B. Negative economics C. Positive economics .D. Normative economics
C. Positive economics
Which of the following statements is true of the cross price elasticity of demand? A. The cross price elasticity of demand between substitutes is zero. B. The cross price elasticity of demand between substitutes is negative. C. The cross price elasticity of demand between complements is negative. D. The cross price elasticity of demand between complements is zero.
C. The cross price elasticity of demand between complements is negative.
A government regulation that bans the use of a certain polluting technology in the production of a good is an example of a ________ used to solve an externality. A. market based approach B. Coasian approach C. command and control approach D. social enforcement mechanism
C. command and control approach
John has to choose between a camping holiday and a holiday in Las Vegas. If he evaluates the total net benefit of both alternatives before coming to a decision, he is using the technique of ________. A. optimization using marginal analysis B. mean analysis C. optimization using total value D. marginal analysis
C. optimization using total value
The table shows the total output of bread produced by different numbers of workers in a bakery. Number of Loaves Number of Workers 0 0 12 1 26 2 40 3 50 4 58 5 60 6 59 7 Diminishing marginal returns begin to occur when ________. A. the seventh worker is hired .B. the second worker is hired C. the fourth worker is hired D. the fifth worker is hired
C. the fourth worker is hired
Scenario: Ryan wants to rent an apartment. The following table shows the monthly rent of five apartments and the number of hours per month it takes to commute to work from each apartment. Ryan's opportunity cost of time is $15 per hour. Apartment Commuting Time (hours per month) Rent ($ per month) 1 40 1,500 2 20 1,750 3 10 2,000 4 4 2,210 5 1 2,250 Refer to the scenario above. What is the opportunity cost of the commute to work per month if Ryan rents Apartment 2? A. $150 B. $200 C. $300 .D. $20
C. $300
Maria has to choose between driving and taking a train to destination A. Traveling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. Refer to the scenario above. Maria should choose to ________. A. travel by train, because it is quicker B. drive, as it will give her a real saving of $150 C. drive, as it will save her $120 D. travel by train, as it will save her $30 in travel time
C. drive, as it will save her $120
Which of the following statements correctly indicates a property of good economic questions? A. A good economic question should always be positive and not normative. .B. A good economic question should always be easy to answer. C. A good economic question must always include arithmetic calculations and graphical solutions. D. A good economic question addresses topics that are important to economic agents and/or to society.
D. A good economic question addresses topics that are important to economic agents and/or to society.
Which of the following statements is true? A. Data are not an integral part of optimization analysis. B. Empiricism refers to the testing of ideas without using data. C. Empiricism is not an integral part of optimization analysis. D. Data help establish whether theories match reality.
D. Data help establish whether theories match reality.
Which of the following is true of a market? A. A market always requires a specific physical location. B. A market must be under continuous surveillance and government control. C. Goods and services are exchanged at fixed prices in all markets. D. Price acts as a selection device for buyers and sellers in every market.
D. Price acts as a selection device for buyers and sellers in every market.
Which of the following statements is true? A. Economics is more of a theoretical subject with limited applications in the real world. B. Costminusbenefit analysis can be applied only to limited economic decisions. C. The knowledge of economics complicates decision making. D. Testing with data is essential to developing a good theory.
D. Testing with data is essential to developing a good theory.
Which of the following relationships is likely to exhibit a negative correlation? A. The relationship between the amount of precipitation in a year and the number of umbrellas sold B. The relationship between the amount saved with a bank and the interest earned C. The relationship between inflation in the United States and traffic congestion in China D. The relationship between the level of professional training and unemployment
D. The relationship between the level of professional training and unemployment
A model refers to ________. A. facts, measurements, or statistics that describe the world B. a set of facts established by observation and measurement C. a perfect replica of reality D. a simplified description, or representation, of reality
D. a simplified description, or representation, of reality
Economic reasoning allows economic agents to make decisions ________. A. by replicating the choices made by other economic agents B. by random selection C. solely on the basis of tastes and preferences for various options D. by comparing the costs and benefits of various options
D. by comparing the costs and benefits of various options
Sofia is selling homemade cakes. The demand for homemade cakes is elastic. If Sofia reduces the price of her cakes, ________. A. her revenue will not change B. her revenue will decrease .C. she will not make any revenue D. her revenue will increase
D. her revenue will increase
The Law of Diminishing Returns states that ________. A. the net benefits of a perfectly competitive firm decrease as more firms enter the market B. successive increases in product prices lead to a fall in revenue C. the demand for a good decreases as the price of the good increases, all other things remaining constant D. successive increases in inputs eventually lead to less additional output when one of the inputs is fixed
D. successive increases in inputs eventually lead to less additional output when one of the inputs is fixed
The negative value of the price elasticity of demand for a good can be attributed to ________. A. the Law of Diminishing Marginal Rate of Substitution B. the Law of Increasing Marginal Utility C. the Law of Supply .D. the Law of Demand
D. the Law of Demand
Consumer surplus is ________. A. the sum of the willingness to pay for a good and the price paid for the good B. the product of the willingness to pay for a good and the price paid for the good C. the ratio of the willingness to pay for a good to the price paid for the good D. the difference between the willingness to pay for a good and the price paid for the good
D. the difference between the willingness to pay for a good and the price paid for the good
The table displays the reservation values of eight buyers and eight sellers, who each want to buy or sell a calculator. Buyer Reservation Value of Buyer ($) Seller Reservation Value of Seller ($) 1 20 1 2 2 17 2 5 3 16 3 6 4 14 4 8 5 12 5 12 6 9 6 15 7 6 7 18 8 2 8 20 If the market is perfectly competitive, the equilibrium price of calculators is ________. A. $6 B. $2 C. $20 D. $12
D. $12
Which of the following statements about U.S. government revenues is correct? Federal revenues have ranged between 25 and 30 percent of GDP for a long time. Federal revenues exceeded federal expenditures during 2014. Federal revenues are normally within 10 percent of federal expenditures.
Federal revenues have ranged between 25 and 30 percent of GDP for a long time.
Which of these statements about the effect of taxes and transfers on income distribution is correct? The distribution of income worsens when we take transfer payments into account. The Social Security system has failed to reduce poverty among people older than sixty-five. Income after taxes is more equally distributed than income before taxes.
Income after taxes is more equally distributed than income before taxes.
Which of the following statements is correct about the U.S. tax system? Most taxes are intended to discourage behavior instead of raise money. The sales tax is the largest source of funds for public schools. Payroll taxes include Social Security and Medicare taxes.
Payroll taxes include Social Security and Medicare taxes.
Which of the following is an example of a variable cost? A. The annual rent paid for an office space t.B. The cost of installing new software on all office computers C. The cost of purchasing land for a new office space D. The cost of the electricity used in an office
The cost of the electricity used in an office
Which of the following is the marginal tax rate? The tax rate paid by the average taxpayer. The fraction of each additional dollar of income that must be paid in taxes. The total tax paid divided by total income.
The fraction of each additional dollar of income that must be paid in taxes.
If the last dollar of income earned by individuals with the highest incomes is taxed at a rate that is less than the average tax rate, which of the following is correct? The income tax is a progressive income tax. The marginal tax rate is equal to the average tax rate. The income tax is a regressive income tax.
The income tax is a regressive income tax.
Which of the following is the average tax rate? The total tax paid divided by total incomeT The fraction of each additional dollar of income that must be paid in taxes The tax rate paid by the average taxpayer
The total tax paid divided by total income
Scenario: A chemical factory is located upstream on a river. The factory dumps its liquid waste into the river. A microbrewery is located downstream on this river; it uses the river water in its production process and values the clean water. The chemical factory can filter its liquid waste before dumping it into the river, but it would be costly to the factory. The table shows the profit to these two businesses under different circumstances. Profit with Filtering Profit without Filtering Chemical factory $800 $1,000 Microbrewery $400 $100 Could this externality problem be resolved by private negotiations between the chemical factory and the microbrewery? A. No, because dumping the waste into the river is free for the chemical factory. B. No, because filtering the waste decreases the profit of the chemical factory. C. Yes, but only when the negotiations are relatively costless. D. Yes, but the chemical factory should be forced to pay a fine for polluting the river.
Yes, but only when the negotiations are relatively costless.
Iowa produces a small amount of wool but buys a large quantity of wool from Montana for use in its (Iowa's) textile industry. Iowa is ________. A. likely has a comparative advantage in producing wool compared to Montana B. a net importer of wool .C. a net exporter of wool D. an exporter of wool
a net importer of wool
If the federal government's expenditures are less than its revenue, there is a __________. bond sale budget deficit budget surplus
budget surplus
If the federal government's expenditures are less than its revenue, there is a __________. budget deficit budget surplus bond sale
budget surplus
The following table shows the supply schedule of bread for three sellers in the economy. Assume that these three sellers constitute the entire market. Price ($ per loaf) Seller 1 Quantity Supplied (loaves) Seller 2 Quantity Supplied (loaves) Seller 3 Quantity Supplied (loaves) $4 15 40 $3 12 15 $2 6 9 24 $1 2 6 11 Refer to the table above. If the market supply of bread at a price of $3 per loaf is 45 loaves, Seller 3's supply is ________ loaves. A. 24 B. 15 C. 18 D. 20
c. 18
If firms in a perfectly competitive market are realizing economic losses in the short run, ________. A. exit will occur, the market supply will shift in, and the market price will fall B. exit will occur, the market supply will shift in, and the market price will rise .C. entry will occur, the market supply curve will shift out, and the market price will rise D. entry will occur, the market supply curve will shift out, and the market price will fall
exit will occur, the market supply will shift in, and the market price will rise
When sellers in a perfectly competitive market attempt to maximize their own profits, they ________. A. earn positive economic profits even in the long run B. eventually end up minimizing the value of total production C. move scarce resources to their highest valued use .D. eventually divert resources to their lower valued uses
move scarce resources to their highest valued use
A tax is efficient if it imposes __________ . minimal burden to consumers minimal deadweight loss no deadweight loss
no deadweight loss
An outcome is Pareto efficient if ________. A. an individual can be made better off without making someone else worse off B. no individual can be made better off without making someone else worse off C. the costs of the outcome are equally shared by all participants D. the benefits of the outcome are equally distributed among all participants
no individual can be made better off without making someone else worse off
Black markets may arise if: price ceilings exist governments do not intervene in the market the equilibrium price is too low
price ceilings exist
The federal income tax in the United States is a __________. progressive tax regressive tax proportional (flat) tax
progressive tax
When the elasticity of demand for a product is __________ the elasticity of supply, consumers pay __________ of the tax on the product. smaller than, less than half larger than, more than half smaller than, more than half
smaller than, more than half
The actual division of the tax burden between buyers and sellers is known as: tax distribution tax allocation tax incidence
tax incidence
Tax incidence refers to __________. excess burden of the tax the actual division of the tax between buyers and sellers in a market deadweight loss from the tax
the actual division of the tax between buyers and sellers in a market
The local community in a town has arranged for a fireworks show in a park located in the center of town. The cost of the ticket to watch the show is $5. However, only 40 percent of the tickets are sold, as spectators can watch the show without entering the park. This is an example of ________. A. the paradox of plenty B. the paradox of thrift C. the tragedy of the commons D. the free rider problem
the free rider problem