Econ 201 Exam 1

The equilibrium price and quantity in the above diagram for a good/service, under perfect competition, occur at a price of:

$150 and a quantity of 300 units.

If the real GDP of a country, for example, Malaysia, has increased from $100 Billion last year to $105 Billion this year, then this country's economic growth is:

5 percent

If buyers expect the price of baseballs to fall in the future, then right now (currently) there should be:

A decrease in the demand for baseballs.

Ceteris paribus, which of the following is most likely to cause an increase in the quantity demanded of candles?

A decrease in the price of candles.

Ceteris paribus, if the price of a digital camera rises, then we can expect:

A decrease in the quantity demanded of digital cameras (movement along the same curve).

Decreasing the level of a subsidy (a supply curve shifter!) to an industry by the government would result in:

A leftward shift of the supply curve.

Imposing a tax on an industry by the government would result in:

A leftward shift of the supply curve.

Ceteris paribus, if the price of basketballs rises, then we will see:

A movement to the left along the demand curve for basketballs.

Assuming Coca-Cola & Pepsi-Cola are substitute goods, the effect of an increase in the price of Coca-Cola would cause which of the following:

A rightward shift in the demand curve for Pepsi-Cola.

Decreasing a tax on an industry by the government would result in:

A rightward shift of the supply curve.

If a price ceiling of $100 was in effect in the above figure (chapter 4!):

A shortage of 200 units would occur

Which of the following events would cause a rightward shift in the market supply curve for automobiles?

A technological improvement which reduces the cost of production.

Leather sold to a furniture manufacturer is excluded from the calculation of GDP because:

All of the above

Suppose a hurricane hits Florida causing widespread damage to houses and businesses. The governor of Florida places a price ceiling on all building materials to keep the prices reasonable. Which of the following is the most likely result?

All of the above would probably result

Using the above Figure, suppose point "C" represents the optimal mix of output for a society. If market forces cause society to produce at point "D", then, the society may allow the government to intervene in the economy; and such a government intervention;

All of the above.

Many student government candidates at colleges and universities propose rent controls on local rental housing as a way to help students afford rental housing. Economic theory suggests that this policy would harm students as a whole despite the fact that some students who are able to find housing at the reduced price would benefit. Which of the following are some of the offsetting secondary effects of the rent controls that would work to the disadvantage of students?

All of these would be secondary effects of the rent controls

Which of the following would generally cause an increase in the demand for automobiles (outward shift in the demand curve or a shift to the right in the demand curve)?

An increase in consumers' income.

Assume Pepsi and Coke are substitutes. An increase in the price of one will result in:

An increase in the demand for the other.

Peanut butter and jelly are complements. A decrease in the price of one will result in:

An increase in the demand for the other.

Which of the following is most likely to cause an increase in the quantity supplied of candles (movement along the same curve)?

An increase in the price of candles.

Human wants

Are unlimited

Which of the following would be included in the government expenditures component "G"?

Construction costs of a new public school building.

When an individual makes repairs to her own home instead of hiring a company to make the repairs, the activity is:

Excluded from GDP because it is a nonmarket activity.

A decrease in the price of personal computers would shift the demand curve for personal computers to the right (increase in demand).

False

After a major snowstorm last winter, some college students earned extra money by clearing driveways of snow for $25. Town officials determined that $25 was too high and set a price ceiling of $15 for this service. Which of the following was the most likely result?

Fewer driveways were cleared

All final goods and services that make up the GDP of a country, for example, India, can be expressed in the form:

GDP = C + I + G + (X - M)

Assuming there is an increase in the demand for housing (the demand curve shifts to the right or outward shift). Also, assuming there is a decrease in the supply of housing (the supply curve shifts to the left or inward shift). Assume further that the shifts in both curves are not determined (which means the shift in the demand curve could be wider than the shift in the supply curve, vice versa, or both shifts could be the same). Which of the following would be a certain outcome in the housing market?

Higher equilibrium price

Which of the following would be a certain outcome of a rightward shift in the demand curve and a leftward shift in the supply of a commodity. Assume further that the shifts in both curves are not determined (which means the shift in the demand curve could be wider than the shift in the supply curve, vice versa, or both shifts could be the same). Which of the following would be a certain outcome in the market of this commodity?

Higher equilibrium price

Assuming the demand curve for orange juice shifts to the right (increase in demand), also, assuming the supply curve for orange juice shifts to the right (increase in supply). Assume further that the shifts in both curves are not determined (which means the shift in the demand curve could be wider than the shift in the supply curve, vice versa, or both shifts could be the same). Which of the following would be a certain outcome in the market for orange juice?

Higher equilibrium quantity

According to the law of demand, the quantity of a good demanded in a given time period:

Increases as its price falls, ceteris paribus.

Net exports (X-M) of a country, say, Germany:

Is equal to total exports minus total imports.

An increase in the price of a good causes a:

Movement up along the same supply curve.

On a supply-and-demand diagram, quantity demanded equals quantity supplied:

Only at the single (one) equilibrium point.

Disposable personal income equals:

Personal income minus personal income/property taxes.

If the quantity demanded of a good is greater than the quantity supplied of the good at the current price, then, in the long run (remember! without govt. intervention/interference in this market),

Price will increase until it reaches the equilibrium price.

Which of the following activities would be calculated as part of GDP accounts?

Purchasing plastic surgery.

Assume that a computer is a normal good. An increase in consumer income would:

Shift the demand curve for computers to the right.

GDP does count:

State and local government spending. & Spending for new homes. Answers a & b.

There are two universities, A and B, in Michigan. Tuition rises at University A and, as a result, the demand for attending University B rises. It follows that educational services at the two universities are:

Substitutes.

If there is a surplus at a given price, then:

That price is greater than the equilibrium price.

If there are only two airlines that fly between Dallas and New Orleans, what will happen in the market for one airline if the other one goes out of business?

The demand curve will shift to the right.

Assuming the global demand curve for gas shifts to the left (decease in demand). Also, assuming the global supply curve for gas shifts to the right (increase in supply). Assume further that the shifts in both curves are not determined (which means the shift in the demand curve could be wider than the shift in the supply curve, vice versa, or both shifts could be the same). Which of the following would be a certain outcome in the world market for gas?

The price decreases but the change in the quantity cannot be determined (which means the quantity could increase, decrease, or remain the same).

Which of the following can change without shifting either demand or supply curves,

The price of the good itself.

If corn and wheat are alternative pursuits for a farmer, a change in the supply of corn will take place when:

The price of wheat changes.

Assuming the demand curve for the U.S. automobiles shifts to the left (decease in demand). Also, assuming the supply curve for automobiles shifts to the left (decrease in supply). Assume further that the shifts in both curves are not determined (which means the shift in the demand curve could be wider than the shift in the supply curve, vice versa, or both shifts could be the same). Which of the following would be a certain outcome in the market for automobiles in the U.S.?

The quantity decreases but the change in the price cannot be determined (which means the price may increase, decrease, or remain the same).

Suppose both the demand and supply of peaches in a local/national/global market decrease (although not necessarily by the same amount). What can we conclude about changes in the price and quantity of peaches?

The quantity decreases but the change in the price cannot be determined.

Given a downward-sloping market demand curve for web design services, if the price of web design services is decreased from $12 per hour to $9 per hour, then:

The quantity demanded of web design services will increase.

Assuming the demand curve for orange juice shifts to the right (increase in demand). Also, assuming the supply curve for orange juice shifts to the right (increase in supply). Assume further that the shifts in both curves are not determined (which means the shift in the demand curve could be wider than the shift in the supply curve, vice versa, or both shifts could be the same). Which of the following would be a certain outcome in the market for orange juice?

The quantity increases but the change in the price cannot be determined (which means the price could increase, decrease, or remain the same).

Suppose both the demand and supply of crude oil, in the world oil market/industry increase (although not necessarily by the same amount...a three-diagram scenario!!). What can we conclude about changes in the price and quantity of this commodity?

The quantity increases but the change in the price cannot be determined.

Using the above diagram, at a price of $50:

The quantity supplied is 100 units.

In the above graph for a commodity, say, corn, under a perfectly competitive market structure, at a price of $250:

The quantity supplied is greater than the quantity demanded.

In most markets, the equilibrium price is achieved:

Through trial and error.

As one moves down the demand curve for carrots, the quantity demanded for carrots increases and the price of carrots decreases.

True

There are never shortages or surpluses when the price in a market is equal to the equilibrium price for the market.

True

When the number of buyers in a market changes, the market-demand curve for goods and services shifts.

True

The law of supply states that when the price of a commodity rises, the quantity supplied of that commodity rises too and vice versa, ceteris paribus, which means that:

Two variables are changing and everything else is being held constant

A decrease in quantity demanded (not shifting the demand curve) is given as a (n):

Upward movement along the demand curve.

From an economic standpoint, government intervention is justified:

When the market mechanism fails to achieve the optimal mix of output.

Which of the following will be most likely to cause the production possibilities curve for a country to shift inward?

a decrease in the stock of physical capital

Which one of the following persons in the U.S. would be considered unemployed?

a person who has left one job & is expected to be reemployed within the next two/three weeks.

A legally mandated minimum wage is an example of

a price floor.

Which of the following represents a positive economics statement?

a very higher income tax rate will reduce the amount of time that people spend working. It will also lead to a higher level of underground economy.

Which of the following is a resource or factor of production

all of the above

An indirect business tax is a(n):

all of the above.

GDP excludes:

all of the above.

The fundamental question(s) every society asks/answers are

all of the above.

When economists use the term Ceteris paribus, they are indicating that:

all other variables except the ones specified for analysis are assumed to remain unchanged.

A tractor is an example of which of the following factors of production

capital

A production possibilities curve (PPC) or production possibilities frontier (PPF) shows the various:

combinations of goods the economy has the capacity to produce.

Which of the following is the best example of a nonrenewable resource?

crude oil or natural gas

Compare two economies A and B that start out with identical production possibilities curves. Economy A chooses an efficient point with 10 consumption/consumer goods (more consumer goods as compared to economy B) and 5 capital/producer/industrial goods, while economy B also chooses an efficient point, but with 6 consumption/consumer goods and 9 capital/producer/industrial goods. In the future we can predict:

economy B will grow faster than economy A.

Disposable personal income:

excludes personal income taxes.

When the net exports (X-M) of a country, say, the U.S., are negative (deficit in international trade),

imports are greater than exports.

Statistics show that an increase in the federal minimum wage causes an increase in unemployment among teenagers:

is a positive economics statement.

Scarcity

is a problem that exists in every economy

If an economy is operating at a point inside the production possibilities curve,

its resources are not being used efficiently.

The lower portion of the simple circular flow model/diagram of a country, say, Spain, contains factor markets/resource markets in which households provide businesses/business firms with:

land, labor, entrepreneurship, and capital.

The branch of economics that focuses on decision making for the economy as a whole is called

macroeconomics

Any point on the production possibilities curve illustrates:

maximum production combinations.

In an economy, for example, Argentina, with persistent high-inflation over a longer period of time,

nominal GDP will grow faster than real GDP.

Gross domestic product (GDP) of a country, say, Mexico, includes:

only final goods and services

An economic theory claims that a rise in gasoline prices will cause gasoline purchases to fall, Ceteris paribus. The phrase "Ceteris paribus" means that:

other relevant factors like consumer incomes, population, etc. must be held constant.

Economic growth may be represented by a(n):

outward shift of a production possibilities curve.

The statement, "Violent crime (statistics show) has decreased in the last five years," is:

positive because it is testable.

The U.S. gross domestic product (GDP), during a specified period of time, is equal to the market value of all final goods and services:

produced within America by the resources owned by Americans as well as foreigners.

Based on the simple circular flow model/diagram, money (payments for final goods/services) flows from households to businesses in:

product markets.

Retained earnings of a company/corporation, for example, Sony Electronics, are the:

profits of the company reinvested (invested back) in the company.

Economic growth of a country, say, China, is measured by the annual percentage increase in a nation's level of:

real GDP.

The period of declining growth in the real GDP of a country between the peak of a business cycle and the trough is called a(n):

recessionary phase.

The period of growth in real GDP between the trough of the business cycle and the next peak is called the:

recovery or expansionary phase.

If an economy keeps increasing its capital stock/number of workers/technology/natural resources, then over time its production possibilities curve will:

shift to the right.

Which fundamental economic question requires society to choose the combination (mix) of resources (factors of productions) in order to produce goods & services?

the How to Produce question.

Which of the following is the best example of a microeconomic topic?

the analysis of Ford Motors' competitiveness in the automobile industry.

The opportunity cost of making a decision (by an individual or a society) is:

the best alternative that was sacrificed.

Which of the following would NOT be included in the government expenditures (G) category of GDP?

the payments made to Social Security recipients.

Which of the following expenditures would be included in the GDP of a country, for example, Australia, for this year?

the purchase of a new car.

The opportunity cost of an action taken by an individual/society is:

the value of the best opportunity that must be sacrificed in order to take the current action.

Net exports (X-M) of a country, for instance, Brazil

total exports minus total imports.

Payments by a government (such as unemployment compensation or social security) to individuals/ households NOT in exchange for goods and services currently produced are:

transfer payments.

A point outside the production possibilities curve represents a combination of goods that is:

unattainable