ECON 111- TEST 1 REVIEW
As the manager at the local Save-a-lot, you are thinking of adding one more cashier that would increase sales revenues by $400 per week. What is the most you can pay this new cashier and why?
$400 per week, because that is the marginal benefit of hiring the new cashier.
Micah has spent $30 for a taxi ride to attend a Colts game. When he arrives at the stadium, he discovers that he left his ticket at home. He doesn't have time to return home to get it. He paid $60 for his ticket, but can buy another one for $80. In deciding whether he should buy another ticket Micah should compare the value he places on attending the game to
$80
In the short run, which of the following rates of growth in the money supply is likely to lead to the highest level of unemployment in the economy?
1 percent per year
Refer to Figure 4-8. At the equilibrium price,
400 units would be supplied and demanded.
Figure 2-9 Panel (a) Panel (b) Refer to Figure 2-9, Panel (a). In order to gain 2 radios by moving from point S to point T, society must sacrifice
6 televisions.
Refer to Figure 2-1. Julio buys a new pair of shoes at a shoe store. To which of the arrows does this transaction directly contribute?
A and B
Figure 4-4 Panel (a) Panel (b) Refer to Figure 4-4. The graphs show the demand for cigarettes. In Panel (a), the arrows are consistent with which of the following events?
A tax was placed on cigarettes.
Which of the following examples does not correctly describe the movement of $10 through a circular flow diagram?
An individual buys one share of stock for $10. The firm that sold the stock uses the $10 to pay back interest on a loan from the U.S. government's Small Business Administration (SBA). The SBA uses the $10 to pay one of its employees.
Figure 2-1 Refer to Figure 2-1. Enid completes her first week of employment working as a hairdresser at a salon. On Friday of that week, she receives her first paycheck. To which of the arrows does this transaction directly contribute?
C and D
Figure 2-1 Refer to Figure 2-1. Which arrow represents the flow of income payments?
D
Figure 4-12 The diagram below pertains to the demand for turkey in the United States. Refer to Figure 4-12. All else equal, the approach of Thanksgiving would cause a move
DB to DA
Which of the following is not an incentive effect of higher gasoline prices?
Exxon-Mobile drills fewer oil wells.
T or F A circular flow diagram shows how dollars flow through financial markets among households and firms.
False
T or F A society faces many decisions, but a household does not.
False
T or F Countries specialize in the production of the good they can produce at the highest opportunity cost.
False
T or F If a country has an absolute advantage in producing a good, than it must also have a comparative advantage in producing that good.
False
T or F Positive statements are prescriptive and cannot be confirmed or refuted by examining the evidence.
False
T or F Public policies aimed at increasing the size of the economic pie also lead to a higher degree of equality.
False
T or F The business cycle refers to regular and predictable fluctuations in economic activity.
False
Suppose that France has a comparative advantage in the production of Camembert cheese and that Spain has a comparative advantage in the production of oranges. If the two countries do not trade with any countries but then agree to trade with each other, which of the following will be true concerning French and Spanish consumption possibilities?
France and Spain can each consume more cheese and more oranges.
In a circular flow diagram, decisions are made by
Households and firms. Firms are sellers in the markets for goods and services; households are buyers in the markets for goods and services.
Which of the following is an example of a positive statement?
Increasing the minimum wage results in more unemployment.
Which of the following statements best characterizes a basic difference between market economies and centrally-planned economies?
None of the above are correct.
Suppose the state of Iowa passes a law that increases the price of cigarettes by $1 per pack. As a result, residents in Iowa start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate?
People respond to incentives
One way to characterize the difference between positive statements and normative statements is as follows:
Positive statements offer descriptions of the way things are, whereas normative statements offer opinions on how things ought to be.
Which of the following illustrates a positive statement followed by a normative statement?
The Earned Income Tax Credit benefits the working poor. The government should expand the Earned Income Tax Credit.
Figure 2-10 Refer to Figure 2-10. Which of the following events would explain the shift of the production possibilities frontier from A to B?
The economy experienced a technological advance in the production of batteries.
T or F Exhaust from a factory that increases health risks for people living near the factory is an example of an externality.
True
T or F If a country has comparative advantage in producing a good, then the other country has comparative advantage in producing the other good.
True
T or F In 2008 and 2009, the U.S. economy experienced a deep economic downturn. If there is a short-run trade-off between inflation and unemployment, to combat the high unemployment, President Obama should have pursued an inflationary policy such as a stimulus package of reduced taxes and increased government spending.
True
T or F International trade can make some individuals worse off, even as it makes the country as a whole better off.
True
Refer to Figure 2-11. Which of the following would most likely have caused the production possibilities frontier to shift outward from A to B?
a general technological advance
When society requires that firms reduce pollution, there is
a tradeoff because of reduced incomes to the firms' owners and workers.
"Laws that limit the resale of tickets for entertainment and sports events make potential audience members for those events worse off on average."
agree
"Some Americans who work in the production of competing goods, such as clothing and furniture, are made worse off by trade with China."
agree
"Trade with China makes most Americans better off because, among other advantages, they can buy goods that are made or assembled more cheaply in China."
agree
In a competitive market, the quantity of a product produced and the price of the product are determined by
all buyers and all sellers.
Figure 2-9 Panel (a) Panel (b) Refer to Figure 2-9, Panel (a) and Panel (b). A shift of the economy's production possibilities frontier from Panel (a) to Panel (b) could be caused by
an improvement in radio production technology.
High inflation is
associated with high money supply growth rates. An increase in inflation temporarily reduces unemployment.
Senator Smart, who understands economic principles, is trying to convince workers in her district that trade with other countries is beneficial. Senator Smart should argue that trade can be beneficial
because it allows specialization, which increases total output.
For which of the following problems can well-designed public policy enhance economic efficiency?
both externalities and market power
The average cost per seat on the 50-passenger Floating-On-Air Bus company's trip from Kansas City to St. Louis, on which no refreshments are served, is $45. In advance of a particular trip, three seats remain unsold. The bus company could increase its profit only if it
charged any ticket price above $0 for the three remaining seats.
On a production possibilities frontier showing military goods and consumer goods, which of the following is most likely to cause an inward shift of the PPF?
destruction of economic resources because of war
Which of the following concepts cannot be illustrated by the production possibilities frontier?
equality
When the government implements programs such as progressive income tax rates, which of the following is likely to occur?
equality is increased and efficiency is decreased.
The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that
equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources.
Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce
externalities.
T or F Economics is best defined as the study of how to run a business most profitably.
false
Figure 4-12 The diagram below pertains to the demand for turkey in the United States. Refer to Figure 4-12. All else equal, an increase in the income of buyers who consider turkey to be an inferior good would cause a move
from DA to DB.
When a production possibilities frontier is bowed outward, the opportunity cost of producing an additional unit of a good
increases as more of the good is produced
When a production possibilities frontier is bowed outward, the opportunity cost of producing an additional unit of a good
increases as more of the good is produced.
As we move to the right on a bowed outward production possibilities frontier, we see:
increasing opportunity costs
Which of the following would a permanent increase in the growth rate of the money supply change permanently?
inflation
A rational decision maker takes an action only if the
marginal benefit is greater than the marginal cost.
The equilibrium of supply and demand in a market
maximizes the total benefits received by buyers and sellers.
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
people face trade-offs
The adage, "There is no such thing as a free lunch," is used to illustrate the principle that
people face trade-offs
Figure 2-9 Panel (a) Panel (b) Refer to Figure 2-9, Panel (a). Production is
possible at points Q, R, S, and T, but efficient only at points Q, S, and T.
Which of the following is the primary determinant of the standard of living?
productivity
Trade between countries tends to
raise specialization and make everyone better off.
The phenomenon of scarcity stems from the fact that
resources are limited.
You can stay home and study to do well on your exam or you can go to the movies with your friends, but not both. This example illustrates
scarcity and tradeoffs
Which of the following topics falls within the study of macroeconomics?
the effects of borrowing by the federal government
In an economy in which decisions are guided by prices and individual self-interest, there is
the potential to achieve efficiency in production.
Your opportunity cost of going to a Maroon 5 concert during your Spring Break is:
the price of the concert ticket, plus the cost of any beverages you buy at the concert, and the value of your time.
When computing the opportunity cost of attending a concert you should include
the price you pay for the ticket and the value of your time.
Efficiency is illustrated by
the production possibilities frontier only.
Adam Smith would have loved Uber, the company providing an app for smartphones that connects passengers and drivers, because:
the service increases consumer well-being.
Suppose a typical worker in France can produce 32 units of product in an eight-hour day, while a typical worker in Germany can produce 30 units of product in a 10-hour day. We can conclude that
the standard of living will likely be higher in France than in Germany.
Certain employees are eligible for unemployment compensation if they lose their jobs through no fault of their own. If Jim, a factory worker, will receive compensation of half his regular pay for 52 weeks while he looks for a job, then:
the unemployment compensation most likely lowers Jim's incentive to save while he is working. Unemployment compensation most likely decreases Jim's efforts to find a new job.
Figure 4-8 Refer to Figure 4-8. At a price of $20,
there would be an excess demand and the law of supply and demand predicts that the price will rise from $20 to a higher price.
T or F A production possibilities frontier that illustrates the production of cars and computers shows the opportunity cost of computers measured in terms of cars.
true
Figure 2-9 Panel (a) Panel (b) Refer to Figure 2-9, Panel (a). The movement from point S to point R could be caused by
unemployment
