Download Econ 101, section 4, S07

Econ 101, section 4, S07
Schroeter
Exam #1, Red
Choose the single best answer for each question.
1. In most economies today, resources are allocated
a. by a single central planner.
b. by a large number of governmental agencies.
c. as a result of decisions made by the largest corporations in the economy.
*. as a result of the combined actions of millions of households and firms.
2. Which of the following is an example of an externality?
a. Bad weather reduces the income of farmers.
*. Air pollution from a factory has a detrimental effect on the health of people in the area.
c. I buy a large pepperoni pizza, eat the whole thing myself, and get a stomach ache.
d. All of the above.
3. In a "zero-sum game" involving two players,
a. each player will break-even every time the game is played.
b. both players will come out ahead over the long run.
*. the winner's gains are exactly offset by the loser's losses.
d. the net gains of the two players combined must be negative.
4. A positive statement is a statement that
a. puts the most favorable construction on the facts.
*. makes a claim about how the world is.
c. involves a value judgment.
d. advocates a particular change in current policy.
5. The quality of an economic theory is judged by
a. the number of the theory's assumptions: The more assumptions the better.
b. the realism of the theory's assumptions: The more realistic the better.
*. the theory's predictive power.
d. whether the theory can be experimentally tested.
6. The typical "bowed-outward" shape of a production possibility frontier reflects the fact
that
a. the economy's production opportunities are increasing with advances in technology.
b. it is always possible to reorganize production so as to increase output of both goods
simultaneously.
*. the opportunity cost of a good increases as more of the good is produced.
d. the economy's productive resources are currently underutilized.
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Questions 7 through 11 are based on the following information. Two small countries,
Appanoose and Audubon, use their labor resources to produce goods of two types:
manufactured goods and agricultural goods. The table below gives the number of hours
of labor needed to produce one unit of each type of good in each country.
Appanoose
Audubon
Hours needed to produce one unit of
manufactured goods
agricultural goods
0.5
2.0
0.3
3.0
7. The resource cost of 1 unit of manufactured goods in Audubon is
a. 0.5 hours per unit of manufactured goods.
*. 0.3 hours per unit of manufactured goods.
c. 0.1 hours per unit of manufactured goods.
d. none of the above.
8. The opportunity cost of 1 unit of agricultural goods in Audubon is
a. 0.1 units of manufactured goods per unit of agricultural goods.
b. 3 units of manufactured goods per unit of agricultural goods.
c. 4 units of manufactured goods per unit of agricultural goods.
*. 10 units of manufactured goods per unit of agricultural goods.
9. Which of the following is true?
a. Appanoose has the absolute advantage in the production of manufactured goods.
*. Audubon has the comparative advantage in the production of manufactured goods.
c. Audubon has the absolute advantage in the production of both goods.
d. None of the above is true.
10. If Audubon were to trade with another country (not necessarily Appanoose), what is
the greatest number of units of manufactured goods it would be willing to spend to buy
one unit of agricultural goods?
a. 6 units of manufactured goods.
b. 8 units of manufactured goods.
*. 10 units of manufactured goods.
d. 12 units of manufactured goods.
11. Appanoose and Audubon would be able to engage in a mutually beneficial trade with
each other as long as the trade price of one unit of manufactured goods was between
a. 0.3 and 0.5 units of agricultural goods.
b. 2 and 3 units of agricultural goods.
c. 0.5 and 2 units of agricultural goods.
*. 0.1 and 0.25 units of agricultural goods.
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12. Microeconomics is best described as the study of
a. economy-wide aggregates like inflation and the unemployment rate.
*. how households and firms make decisions and how they interact in markets.
c. the circular flow of dollars among households, firms, and the national government.
d. the economic well-being of the disadvantaged members of society.
13. A government policy reduces the overall size of the economic "pie" but results in
more equal "slices" for each member of society. Such a policy
a. increases efficiency and increases equity.
b. increases efficiency and decreases equity.
*. decreases efficiency and increases equity.
d. decreases efficiency and decreases equity.
14. Which of the following statements is false?
a. In international trade, countries tend to export the goods in which they have a
comparative advantage over their trading partners.
b. Trade can make it possible for a country to consume outside of its production
possibilities frontier.
*. A country cannot benefit from trade if it possesses the absolute advantage over all
other countries, in all goods.
d. The observed pattern of trade suggests that Japan has the comparative advantage over
the U.S. in the production of automobiles and consumer electronics.
15. A farmer can use his resources to produce corn, or soybeans, or a combination of the
two. If he devotes all of his resources to producing corn, he can produce 240,000 bushels
per season. His opportunity cost of corn is constant and equal to 0.6 bushels of soybeans
per bushel of corn. Which of the following output combinations lies on his production
possibility frontier?
*. 200,000 bushels of corn and 24,000 bushels of soybeans.
b. 140,000 bushels of corn and 84,000 bushels of soybeans.
c. 100,000 bushels of corn and 60,000 bushels of soybeans.
d. 0 bushels of corn and 400,000 bushels of soybeans.
16. A competitive market is one in which
a. an auctioneer helps set prices and arrange sales.
b. sellers use aggressive marketing tactics in an effort to drive their rivals out of business.
c. sellers get together and collectively decide what price to charge.
*. no individual buyer or seller has any significant impact on market price.
17. Which of the following is not a determinant of the quantity supplied for a particular
good?
a. the price of the good itself.
b. the prices of inputs used to produce the good.
c. the technology that determines how inputs are converted into output of the good.
*. the average household income of consumers of the good.
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Questions 18, 19, 20, and 21 refer to the following graph of supply and demand curves in
a competitive market.
($/unit)
Supply
p2
p1
Demand
Q1
Q2
Q3
(units/day)
18. At a price of p1 $/unit, the quantity demanded is
a. Q1 units/day.
*. greater than the quantity supplied.
c. Q2 units/day.
d. equal to the equilibrium quantity.
19. At a price of p1 $/unit, there is
a. excess supply in the amount of Q3 - Q1 units/day.
b. excess supply in the amount of Q3 - Q2 units/day.
*. excess demand in the amount of Q3 - Q1 units/day.
d. excess demand in the amount of Q3 - Q2 units/day.
20. A change in equilibrium to price p1 and quantity Q1 would require
a. a decrease in supply.
b. an increase in supply.
*. a decrease in demand.
d. an increase in demand.
21. A change in equilibrium to price p2 and quantity Q2 would require
a. increases in both supply and demand.
b. decreases in both supply and demand.
c. an increase in supply and a decrease in demand.
*. an increase in demand and a decrease in supply.
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22. If a decrease in the price of good X causes a decrease in the quantity demanded of
good Y, we say that X and Y are
*. substitute goods.
b. complement goods.
c. normal goods.
d. inferior goods.
23. Which of the following would cause a rightward shift in the demand for a good?
a. a decrease in income (assuming the good is a normal good).
b. a decrease in the good's own price.
*. an increase in the price of a substitute good.
d. either b or c.
24. Which of the following would cause a leftward shift in the supply of a good?
a. a decrease in the good's own price.
b. a technological innovation that results in lower production costs for the good.
c. a decrease in the price of a raw material used to produce the good.
*. none of the above.
25. If a shortage exists in a competitive market, we know that
a. the quantity supplied exceeds the quantity demanded.
b. price is above the equilibrium level.
c. market forces will tend to decrease price over time.
*. none of the above.
26. Today, the government announced a new tax on home heating oil that will take effect
next month causing price to increase. The effect of today's announcement on the market
for home heating oil this month will be
*. a rightward shift in demand.
b. a leftward shift in demand.
c. no shift in demand, but a movement along the demand curve to a higher price.
d. no shift in demand, but a movement along the demand curve to a lower price.
27. If medical scientists were to announce previously unknown beneficial health effects
of drinking cranberry juice, the impact on the competitive market for cranberry juice
would be
*. an increase in equilibrium price and an increase in equilibrium quantity.
b. an increase in equilibrium price and a decrease in equilibrium quantity.
c. a decrease in equilibrium price and an increase in equilibrium quantity.
d. a decrease in equilibrium price and a decrease in equilibrium quantity.
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28. What would happen in the competitive market for peanut butter if the price of peanuts
increased and the price of grape jelly (a complementary good) decreased? The
equilibrium price of peanut butter will
*. increase and the equilibrium quantity will either increase, decrease, or stay the same.
b. decrease and the equilibrium quantity will either increase, decrease, or stay the same.
c. either increase, decrease, or stay the same, and the equilibrium quantity will increase.
d. either increase, decrease, or stay the same, and the equilibrium quantity will decrease.
29. What would happen in the competitive market for new houses if carpenters' wages
increased and the price of existing houses decreased? The equilibrium price of new
houses will
a. increase and the equilibrium quantity will either increase, decrease, or stay the same.
b. decrease and the equilibrium quantity will either increase, decrease, or stay the same.
c. either increase, decrease, or stay the same, and the equilibrium quantity will increase.
*. either increase, decrease, or stay the same, and the equilibrium quantity will decrease.
30. Widgets are sold in a competitive market. You observe that the equilibrium price of
widgets has decreased, and the equilibrium quantity of widgets has increased over time.
Which of the following could account for this observation?
*. The technology of manufacturing widgets has improved.
b. The wages paid to skilled widget craftsmen have increased.
c. Consumer income has increased and widgets are a normal good.
d. None of the above.