Download Midterm 1

SMC Economics 2 - Bruce Brown
Version A - Midterm 1, Fall 2003
NAME_________________________________
- This exam has 40 questions, all of equal weight. Clearly fill in the bubble on your scantron corresponding to the best
answer. No points are deducted for incorrect answers, so each question should be answered.
- Students may: i) write on the exam (it will be returned, but not the scantron).
ii) use an ordinary language dictionary (not electronic or economics dictionary).
iii) ask clarifying questions about definitions or wording of the questions. If the question regards definition
of a term from this course, it will not be answered.
I. Multiple Choice – mark the best answer on your scantron form
A
Guns
50
B
40
C
20
D
40
60 70
Butter
Use the above diagram for the following five questions:
1. The above PPF shows this economy can:
a. produce either 40 guns or 40 butter, but not 40 guns and 40 butter in the same period of time.
b. produce both 40 guns and 40 butter in the same period.
c. produce 50 guns and 70 butter in the same period, if resources are used efficiently
d. none of the above
2. What is the opportunity cost of an additional unit of butter on segment AB?
a. 40 guns
b. 4 guns
c. 1 gun
d. ¼ or .25 of a gun
e. 1/8 or .125 of a gun
3. What is the opportunity cost of an additional unit of butter on segment BC?
a. 1/8 or .125 of a gun
b. ¼ or .25 of a gun
c. 1 gun
d. 4 guns
e. 40 guns
4 What is the opportunity cost of an additional gun on segment AB?
a. 40 butter
b. 4 butter
c. 1 butter
d. ¼ or .25 of butter
e. 1/8 or .125 of butter
5. As more butter is produced (moving from A to D), the opportunity cost of an additional unit of butter:
a. increases from 20 guns; to 40 guns; to 50 guns
b. increases from .25 of a gun; to 1 gun to 2 guns
c. decreases from 50 guns; to 40 guns; to 20 guns.
d. decreases from 2 guns; to 1 gun; to .25 of a gun.
6) Which facto of production earns the largest share of the nation’s total income?
a. land
b. labor
c. capital
d. entrepreneurship.
7) The personal distribution in the U.S. shows that
a. income is equally distributed
b. the poorest 20 percent of individuals receive approximately 20 percent of total income.
c. the richest 20 percent of individuals receive approximately 50 percent of total income.
d. the poorest 60 percent of individuals receive approximately 50 percent of total income.
8) Within the circular flow model presented in Chapter 2, there are two markets. These markets are the
a. market for firms to sell goods, and the market for firms to sell services.
b. goods market and the factor (input) market.
c. market for households to buy goods and the market for households to buy services.
d. market for intermediate goods (steel that goes into cars) and final goods (the cars sold to consumers).
9) As used by economists, the term ceteris paribus can be interpreted as:
a. letting everything change
b. changing those things that should be changed
c. buyer beware
d. holding all else constant
10) The last recession in the United States occurred in:
a. 2001
b. 1991
c. 1981
d. 1971
Investment
Goods
A
B
Consumption Goods
11. Points A and B on the PPF indicate consumption and investment for two economies. Other things constant, which of the
economies is likely to grow more rapidly in the future?
a. economy B
b. economy A
c. they can be expected to grow at the same rate.
d. this is uncertain, since growth is not influenced by the factors indicated in this hypothetical example.
12. When there are unemployed resources:
a) the production possibilities frontier shifts inward.
b) the production possibilities frontier shifts outward.
c) the economy is operating at a point inside its production possibilities frontier.
d) the economy is operating at a point outside its production possibilities frontier.
13. When resources are being used wastefully (i.e., inefficiently):
a) the production possibilities frontier shifts inward.
b) the production possibilities frontier shifts outward.
c) the economy is operating at a point outside its production possibilities frontier.
d) the economy is operating at a point inside its production possibilities frontier.
14. Consider an economy with workers as the only resource (factor of production). If there are 100 workers, and each can
produce either 2 bells or 1 whistle in any hour, which of the following is true?
a) society could choose to produce 200 bells.
b) society could choose to produce 100 whistles.
c) society could choose to produce 100 bells and 50 whistles.
d) all of the above are correct
15. In the above question, if each worker got better at producing bells so that any one could produce either 3 bells or 1
whistle per hour:
a) the opportunity cost of an additional bell would rise, and an addition whistle would fall.
b) the opportunity cost of an additional whistle would rise, and an additional bell would fall.
c) the opportunity cost of an additional whistle would fall, and an additional bell would not change.
d) the opportunity cost of an additional bell would fall, and an additional whistle would not change.
16) To which type of power do economists pay most attention:
a) reciprocity
b) coercion (= command or force)
c) morality
d) persuasion
17) A standard, typical, “default assumption” made when undertaking economic analysis (unless another conflicting
assumption is explicitly introduced), is that:
a) consumers are rational and well informed about a product’s characteristics, even before purchasing and consuming it.
b) consumers are generally irrational and impulsive.
c) deceptive advertising can easily trick consumers into purchasing goods that they really do not want.
d) consumers do not know how much they will enjoy consuming a good until after they have purchased it.
18) If prices were not used to allocate a scarce good, economists suggest the second most “efficient” method is to
a) allocate the good to those willing to stand in line the longest.
b) allow those with “connections” to receive the good.
c) decide at random
d) allocate the good to the strongest individual
19) The relationship of Economics to Business is similar to the relationship of Physics to:
a. Political Science
b. Astrology
c. Chemistry
d. Engineering
20) Economics (as presented in the textbook and in lectures) is primarily the study of:
a. the allocation and use of scarce resources by society.
b. the conflict between the capitalist class and the working class
c. how to make money in the stock market.
d. how to operate a business successfully.
21) During summer months electricity usage in LA increases as many people use air conditioners. Standard economic
analysis suggests that the most efficient method to insure that people do not demand more electricity than can be produced
(which would lead to “rolling blackouts”) is to:
a) distribute records of how much electricity was used by which households, so that households that use an excessive
amount will become embarrassed.
b) raise the price of electricity, particularly when usage levels approach the maximum levels that can be produced.
c) have government officials decide who really needs electricity and deny electricity to other people
d) allow each household a fixed amount of electricity per day, and turn off the flow to anyone who attempts to use more
than this fixed amount.
22. Adam Smith was an early economist who argued that:
a. well functioning markets could lead selfish people to do things that benefit others in society.
b supply and demand determined the market price of a good/service, and this reflected true value.
c. trade based on comparative advantage (not absolute) could benefit both buyers and sellers.
d. the Great Depression was a statistical illusion, and that the U.S. economy was actually operating well during the 1930s.
23. Which of the following provides cross section evidence that the rapid increase in money supply causes inflation.
a) countries that have a rapid growth in their money supply have higher inflation.
b) countries that have a rapid growth in their money supply have lower inflation.
c) in the U.S., years in which the money supply grew rapidly were also years when inflation was high.
d) in the U.S., years in which the money supply grew rapidly were years when inflation was low.
24. Price of a plane ticket from New York to L.A. is $400 and the flight takes 5 hours. A bus ticket between the same two
cities costs $100 and the ride takes 105 hours. Assuming non-monetary considerations are equal for the two alternatives, the
opportunity cost of flying will exactly equal that of taking the bus if the individual’s time is worth.
a) $ 20 per hour
b) $ 4 per hour
c) $ 3 per hour
d) $ 1 per hour
25. Which of the following is a flow variable as defined by economists:
a. Deficit of the national government.
b. Debt of the national government
c. Wealth.
d. Retained Earnings.
26. The law of demand states that all else constant:
a. a positive or “direct” relationship exists between price and quantity demanded.
b. if price decreases, quantity demanded will decrease.
c. if price increases, quantity demanded will decrease.
d. if income increases, quantity demanded will increase.
27. Which of the following can change without shifting the demand curve for good x?
a. the income of potential buyers.
b. future prices of good x expected by buyers.
c. tastes and preferences of potential buyers for good x.
d. the prices of inputs used in making good x.
e. prices of all goods that are complements or substitutes for good x.
28. Which of the following can change without shifting the supply curve for good x?
a. prices of inputs (also called “factors of production” or “resources”) used to produce good x.
b. the technology used to produce good x.
c. future prices of good x expected by sellers.
d. the weather (if x is an agriculture good).
e. future prices of good x expected by buyers.
29. Other things constant, which of the following would most likely cause the supply curve of beef to shift rightward?
a. a decrease in the price of grain used to feed cattle/cows (beef)
b. a decrease in the price of pork (a substitute good in consumption).
c. an increase in the price of pork
d. an increase in the price of beef
30. Other things constant, if demand for good X shifts rightward as consumer incomes decrease, we would conclude that:
a) X is a substitute good.
b) X is an inferior good.
c) X is a complementary good.
d) X is a normal good.
31. Which one of the following factors would increase (shift rightward) the demand for oranges?
a. an increase in the price of grapefruit, a substitute product
b. a reduction in the price of bananas, a substitute product
c. development of a new type of orange tree that can grow more oranges per tree.
d. a decrease in consumer income if oranges are a normal good
32. In which of the following cases will the demand curve for good x shift rightward?
a. price of good x decreases and demand for x is steep
b. income of buyers decreases, and x is an inferior good
c. price of good y increases, and x and y are complements
d. price of good x decreases and demand for x is flat
33. If there is a price floor that is below the free market, unregulated, equilibrium price:
a. shortages will occur.
b. demand will shift rightward to reestablish equilibrium at the higher price.
c. surpluses will occur
d. the price will not change as the floor is “non-binding”.
34. If the unregulated free market equilibrium price of apples is 50 cents per apple and a law is passed that prohibits selling
apples for more than 40 cents per apple, then this law is a:
a. a binding price floor.
b. a non-binding price floor.
c. a binding price ceiling.
d. a non-binding price ceiling.
35) A measure of a country’s production (GDP) is its
a. gross daily production.
b. general daily product.
c. general domestic production.
d. gross domestic product.
36) GDP measures the value of all:
a. goods (and only goods) produced.
b. services (and only services) produced.
c. final goods and services produced.
d. goods and services produced.
37) Economists define investment as:
a. any financial asset only.
b. additions to inventories only.
c. financial assets and inventories only.
d. the purchase of new capital goods and additions to inventories
38) Nominal GDP is defined as GDP:
a. minus taxes and subsidies
b. corrected for price changes.
c. measured at prices that prevailed during the year GDP was measured.
d. measured by using quantities only.
39) Leisure time is ignored when calculating GDP because leisure time:
a. does not effect our standard of living.
b. has been declining over time.
c. is not an economic good.
d. does not involve a measurable market transaction.
40) The Human Development Index was proposed because:
a) people confuse nominal GDP with real GDP.
b) nominal GDP and real GDP are subjective measures.
c) of the limitations of real GDP in measuring economic well-being.
d) the GDP deflator changes if the base year is changed.