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Test 1 Chapter 1-4
Name___________________________________
You may not discuss this test in any way shape or form with anyone before 1500 Thursday, February 3, 2011.
MULTIPLE CHOICE. Circle the one alternative that best completes the statement or answers the question.
1) Scarcity exists because
A) some individuals have low income.
B) people take too much leisure time.
C) human wants exceed the resources available to satisfy them.
D) the costs of production are high.
E) some people make bad economic decisions.
Topic: Scarcity
2) Economics is best defined as
A) the study of choice.
B) a physical science.
C) the study of money.
D) the study of international businesses and the decisions they make.
E) the study of the stock market.
Topic: Definition of economics
3) Whether a company produces fishing rods mostly by hand or using high-tech machinery is a question of
A) what goods will be produced.
B) for whom will goods be produced.
C) why will the goods be produced.
D) when will the goods be produced.
E) how will the goods be produced.
Topic: Economic questions, how
4) An opportunity cost is
A) another term for all the sunk costs.
B) anything the decision maker believes costs to be.
C) the benefits of the highest-valued alternative forgone.
D) the dollar amount that is paid.
E) whatever is paid out and cannot be reduced or reversed.
Topic: Opportunity cost
5) Huey has eaten two hamburgers and is considering a third. The marginal benefit in his decision is the
pleasure from consuming
A) just the second hamburger.
B) the two previous hamburgers.
C) just the third hamburger.
D) all three hamburgers.
E) the third hamburger minus the pleasure from consuming zero hamburgers.
Topic: Marginal benefit
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6) To make a rational choice, a person
A) takes account of all benefits and all opportunity costs, including both marginal costs and sunk costs.
B) compares the extra benefits of one more unit to the extra costs of one more unit.
C) adds the total benefits to determine if the total is large enough.
D) adds the total costs to determine if the total is small enough.
Topic: Making rational choices
7) Macroeconomics is the study of
A) national or global economies.
B) the actions of individual businesses.
C) the government.
D) how ceteris paribus affects causation.
E) the actions of individual consumers.
Topic: Macroeconomics
8) Positive statements are statements about
A) what ought to be.
B) what is.
C) how scarcity can be whipped.
D) profits.
E) political controversies.
Topic: Positive statement
9) The difference between consumption and capital goods is that
A) capital goods are provided by the government.
B) capital goods are used to produce additional goods while consumption goods are not.
C) it is illegal to export capital goods.
D) consumption goods can be enjoyed by many people at the same time.
Topic: Consumption and capital goods
10) ________ paid for the use of land; ________ paid for the services of labor; and ________ paid for the use of
capital.
A) Rent is; interest is; wages are
B) Mortgages are; interest is; wages are
C) Rent is; wages are; interest is
D) Rent is; wages are; profit is
E) Interest is; wages are; profit is
Topic: Resource payments
11) Which factor of production earns the largest share of income?
A) capital
B) entrepreneurship
C) labor
D) land
E) financial capital
Topic: Functional distribution of income
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12) When the total U.S. production of goods and services is divided into consumption goods and services,
capital goods, government goods and services, and export goods and services, the largest component is
A) export goods and services.
B) consumption goods and services.
C) capital goods and government goods and services tie for the largest component.
D) capital goods.
E) government goods and services.
Topic: What we produce
13) ________ the owners of the factors of production, while ________ what amounts of those factors to hire.
A) Households are; the government determines
B) Firms are; the government determines
C) Firms are; households determine
D) The government is; firms determine
E) Households are; firms determine
Topic: Households vs. firms
14) Of the following, the largest amount of the federal government's expenditure is for
A) interest payments on the national debt.
B) transfers to state and local governments.
C) national defense.
D) Medicare/Social Security.
E) corporate income taxes.
Topic: Federal government
15) A market is defined as
A) a place where money is exchanged for goods.
B) the physical place where goods are sold.
C) the physical place where goods and services are sold.
D) any arrangement that brings buyers and sellers together.
E) another name for a store such as a grocery store.
Topic: Markets
16) Compared to the developing economies, the advanced economies have ________ human capital and
________ physical capital.
A) less; less
B) the same; the same
C) less; more
D) more; less
E) more; more
Topic: Advanced economies
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17) Which point in the figure above is an attainable combination that would have unemployed resources?
A) point A
B) point B
C) point C
D) point D
E) point A and point B
Topic: Attainable points, unemployment
18) On a production possibilities frontier, 500 pounds of apples and 1,200 pounds of bananas can be produced
while at another point on the same frontier, 300 pounds of apples and 1,300 pounds of bananas can be
produced. Between these points, what is the opportunity cost of producing a pound of bananas?
A) 2 pounds of bananas
B) 0.5 a pound of apples
C) 2 pounds of apples
D) 12/5 = 2.4 pounds of apples
E) 200 pounds of apples
Topic: Opportunity cost
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Bread
Books
Possibility (number) (number)
A
0
1,000
B
100
900
C
200
700
D
300
400
E
400
0
19) The table above shows the production possibilities for an economy. Drawing a PPF with books on the
vertical axis and bread on the horizontal axis, a movement from possibility B to possibility C to possibility D
shows the opportunity cost of ________ moving down along the PPF.
A) bread decreasing
B) bread increases
C) books and bread are both increasing
D) books is constant
E) books decreasing
Topic: Increasing opportunity cost
20) The opportunity cost of economic growth is
A) the decrease in the current production of productive factors.
B) a slower accumulation of human capital.
C) the increase in the nation's capital stock and/or its technology.
D) the decrease in the current production of consumption goods.
E) 0, because it means an expansion of production possibilities.
Topic: Economic growth, opportunity cost
21) John can make pizza at a lower opportunity cost than Allen, but Allen can make more pizzas per day than
John. Therefore,
A) John cannot benefit from trade with Allen.
B) John has an absolute advantage in pizza.
C) John has a comparative advantage in pizza.
D) Allen cannot benefit from trade with John.
E) Allen has a comparative advantage in pizza.
Topic: Comparative advantage
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You may not discuss this test in any way shape or form with anyone before 1500 Thursday, February 3, 2011.
22) Deb and Pete have volunteered to help their favorite charity mail out fundraiser information. The figure
above shows their production possibilities frontiers for assembling packets and stuffing envelopes. Which of
the following statements is correct?
A) Pete has an absolute advantage in both assembling packets and stuffing envelopes.
B) Deb has a comparative advantage in both assembling packets and stuffing envelopes.
C) Deb has an absolute advantage in both assembling packets and stuffing envelopes.
D) Deb has a comparative advantage in stuffing envelopes.
E) Deb has a comparative advantage in assembling packets.
Topic: Comparative advantage
Suppose the United States has 100 million hours of labor available to produce music CDs and textiles, and India has 300
million hours available. In the United States, it takes 2 hours of labor to produce a square yard of textiles and 4 hours to
produce a music CD. In India, it takes 3 hours to produce a square yard of textiles and 15 hours to produce a music CD.
23) In the scenario above, the U.S. has a comparative advantage in
A) textiles, because it takes less time to produce a square yard of textiles than to produce a music CD in
the U.S.
B) music CDs, because the opportunity cost of a music CD in the U.S. is lower than in India.
C) neither music CDs nor textiles, because India has more labor than the U.S. to produce both these
goods.
D) both music CDs and textiles, because the U.S. is more productive than India in producing both these
goods.
E) neither music CDs nor textiles, because it is cheaper to produce both these goods in India than in the
U.S.
Topic: Achieving the gains from trade
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24) Which of the following events will increase the quantity demanded of bottled water?
A) a rise in the price of bottled water
B) an increase in the number of buyers of bottled water
C) a rise in the price of a fitness club membership
D) a fall in the price of bottled water
E) a fall in the price of soda
Topic: Change in Quantity demanded
25) Which of the following increases the demand for a good?
A) the expectation that future income will be higher
B) a decrease in the number of buyers
C) a rise in the price of a complement
D) a fall in the price of a substitute
Topic: Changes in demand, expectations
26) Consumers eat salsa with taco chips. The price of salsa rises. How does the increase in the price of salsa
affect the demand for taco chips?
A) It has no effect on the demand for taco chips.
B) It increases the demand for taco chips.
C) It decreases the demand for taco chips.
Topic: Changes in demand, price of a complement
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You may not discuss this test in any way shape or form with anyone before 1500 Thursday, February 3, 2011.
27) The graph illustrates the supply of sweaters. Which of the following events will increase the supply of
sweaters?
A) a rise in the expected future price of a sweater
B) an increase in the number of sellers of sweaters
C) a rise in the wage rate paid to the workers who make sweaters
D) a rise in the price of a sweater
Topic: Changes in supply, number of sellers
Price
Quantity
(dollars per
demanded
cellular phone) (thousands)
100
50
80
55
50
60
20
100
Quantity
supplied
(thousands)
100
80
60
40
28) Using the data in the table above, the equilibrium quantity and equilibrium price for a cellular telephone is
A) 50,000 and $100.
B) 80,000 and $80.
C) 40,000 and $20.
D) 100,000 and $20.
E) 60,000 and $50.
Topic: Market equilibrium
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You may not discuss this test in any way shape or form with anyone before 1500 Thursday, February 3, 2011.
Price
Quantity demanded
Quantity supplied
(dollars
(thousands of staplers (thousands of staplers
per stapler)
per week)
per week)
8
10
90
7
40
80
6
70
70
5
100
60
29) Using the data in the table above, if the price of a stapler is $5, then there is a ________ of staplers and the
quantity of staplers demanded ________ the quantity of staplers supplied.
A) surplus; is greater than
B) neither a surplus nor a shortage; equals
C) shortage; is less than
D) surplus; is less than
E) shortage; is greater than
Topic: Shortage
30) If a market begins in equilibrium and then the demand curve shifts leftward, a
A) surplus is created, which is eliminated by a rise in price.
B) shortage is created, which is eliminated by a fall in price.
C) surplus is created, which is eliminated by the supply curve shifting leftward.
D) shortage is created, which is eliminated by a rise in price.
E) surplus is created, which is eliminated by a fall in price.
Topic: Effects of a decrease in demand
31) For consumers, taco chips and salsa are complements. If the price of salsa rises, what is the effect on the
equilibrium price and quantity of taco chips?
A) There is no change in the equilibrium price of taco chips and the equilibrium quantity increases.
B) The equilibrium price of taco chips falls and the equilibrium quantity decreases.
C) The equilibrium price of taco chips rises and the equilibrium quantity increases.
D) The equilibrium price of taco chips rises and the equilibrium quantity decreases.
E) The equilibrium price of taco chips could rise, fall, or stay the same and the equilibrium quantity
increases.
Topic: Effects of a decrease in demand
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You may not discuss this test in any way shape or form with anyone before 1500 Thursday, February 3, 2011.
32) The graph illustrates the market for bottled water. If the producers of bottled water switch to using
improved technology, then the
A) quantity demanded of bottled water increases.
B) price of bottled water rises.
C) supply curve shifts leftward.
D) supply of bottled water decreases.
E) quantity demanded of bottled water does not change.
Topic: Effects of an increase in supply
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You may not discuss this test in any way shape or form with anyone before 1500 Thursday, February 3, 2011.
33) The graph illustrates the market for computers. If the number of buyers of computers increases and
technology advances, you predict that the
A) equilibrium quantity of computers will increase.
B) equilibrium quantity of computers will decrease.
C) equilibrium price of a computer will fall.
D) equilibrium quantity of computers might increase, decrease, or not change.
E) equilibrium price of a computer will rise.
Topic: Effects of an increase in demand and an increase in supply
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Answer Key
Testname: SPRING2011TEST1
1) C
2) A
3) E
4) C
5) C
6) B
7) A
8) B
9) B
10) C
11) C
12) B
13) E
14) D
15) D
16) E
17) C
18) C
19) B
20) D
21) C
22) D
23) B
24) D
25) A
26) C
27) B
28) E
29) E
30) E
31) B
32) A
33) A
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