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ECONOMICS 10-8 ECON 10-8: FIRST HOUR EXAM 1. 2. 3. 4. 5. 6. 7. 9/14/00 PROF. WILDE A nation’s production possibility frontier will usually be _______ because________ . a) a straight line; its citizens have straight PPFs b) bowed out; trade makes countries better off c) bowed in; scarcity only applies to individuals d) bowed out; its workers have different capabilities e) a straight line; mass production leads to lower costs Opportunity cost can be defined as: a) the monetary cost of a good or service b) the interest on money borrowed to buy a good or service c) the amount of time spent producing a good or service d) the sum of all of the other possible options that the decision-maker could have chosen e) the value of the next best alternative that a decision forces one to give up Individuals have an incentive to participate in voluntary exchange of goods and services with other people: a) so that they can preserve their own stock of natural resources b) only when one person’s PPF lies completely outside the PPF of the other c) only if one person is unable to produce a good that is desired d) so as to expand consumption opportunities beyond mere self-sufficiency e) so that their production possibilities become their consumption possibilities Consider the production possibility frontiers for Joan and Sam in Figure A. The person with the lower opportunity cost of oranges (in terms of apples) is _________ . It is also true that ______ has a comparative advantage in oranges. a) Joan; Sam b) Sam; Joan c) Joan; Joan d) Sam; Sam e) Joan; neither Consider the production possibility frontiers for Joan and Sam in Figure A. If Joan and Sam voluntarily trade goods, at what trade ratio would the two goods be exchanged for mutual benefit? a) 1 apple = 1 orange b) 2 apples = 1 orange c) 1 apple = 2 oranges d) 5 apples = 1 orange e) 4 apples = 1 orange A normal production possibility frontier curve indicates: a) the maximum prices that can be charged for each of two goods b) the higher the output, the lower the price is likely to be c) that if all resources of an economy are being used efficiently, more of one good can be produced only if there is less production of another good d) all the equilibrium points that a person or an economy will try to achieve e) that a person or an economy should try to get as far outside its production possibility frontier as it possibly can When a consumer is trying to decide on the best combination of purchases within a certain income constraint, a fall in the price of one product prompts: a) an income effect which views that product as less desirable than it used to be b) a substitution effect which views that product as a “better buy” c) an elasticity effect which evaluates whether income can be stretched further d) a PPF effect which “bows out” the demand curve e) a scarcity effect which calls for less purchases so that the product will become “dearer” 8. Which of the following is best described by the statement: As the price of a product rises, consumers’ purchasing power falls, causing them to purchase less of the product ? a) the law of price b) the law of quantity c) the income effect d) the substitution effect e) both a and b 9. Imagine that the price of compact disks has risen dramatically. Which of the following is likely to result? a) the demand curve for cassette tapes will shift to the right b) the demand curve for cassette players will shift to the right c) the demand curve of cassette tapes will shift to the left d) the demand curve for cassette players will shift to the left e) both a and b 10. Assume that compact disks and compact disk players are complementary goods. When the price of compact disks increases, we should expect: a) the demand curve for compact disk players to shift to the right b) the demand curve for compact disk players to shift to the left c) the supply curve for compact disk players to shift up d) the supply curve for compact disk players to shift down e) both a and d 11. Suppose that a new study shows that consumption of oat bran reduces cholesterol. The result is likely to be: a) a shift to the right in the oat bran supply curve b) a shift to the left in the oat bran supply curve c) a shift to the right in the oat bran demand curve d) a shift to the left in the oat bran demand curve e) both a and c 12. Which of the following does NOT cause a shift in the demand curve for cars? a) a change in the price of cars b) a change in the price of gasoline c) a change in consumer income d) a change in the cost of producing cars e) both a and d 13. An individual firm’s supply curve can be expected to have an upward slope when: a) higher prices make the owners greedier b) the marginal costs of producing greater output are rising c) the marginal revenues from producing greater output are falling d) higher input prices bring about greater output e) suppliers merely want to satisfy demanders’ wishes 14. At each point along the supply curve of a producer in a perfectly competitive market, that producer is assumed to: a) maximize total revenue b) maximize total profit c) maximize total revenue minus total cost d) all of the above e) only b and c above 15. Bicycles manufactured at the Durham Bike Center are made of steel. If the price of steel rises, we can expect : a) the demand curve for these bikes to shift to the right b) the demand curve for these bikes to shift to the left c) the supply curve of DBC to shift up d) the supply curve of DBC to shift down e) DBC to slide down its original supply curve 16. A market which is experiencing a surplus can expect to see____________ and ____________ as it moves toward equilibrium. a) an increase in quantity demanded; an increase in quantity supplied b) an increase in quantity demanded; a decrease in quantity supplied c) a decrease in quantity demanded; no change in quantity supplied d) a decrease in quantity demanded; a decrease in quantity supplied e) a decrease in quantity demanded; an increase in quantity supplied 17. A technological improvement in the apple production process which lowers costs will almost always: a) result in a lower price and a higher quantity in the apple market b) result in a lower price and a lower quantity in the apple market c) result in no change in the apple market d) result in a higher price and a higher quantity in the apple market e) result in a higher price and an unchanged quantity in the apple market 18. The quantity of newspapers actually sold will decline if: a) the printing process becomes more expensive b) the wages of newspaper workers decrease c) magazine prices rise d) technology increases the productivity of newspaper workers e) all of the above 19. If the market in Figure C found itself with a price of $20, it would be experiencing a : a) shortage of 30 units b) surplus of 90 units c) surplus of 8 units d) shortage of 60 units e) surplus of 30 units 20. Starting from the disequilibrium price of $20 in Figure C, the movement toward equilibrium will involve a ________ change in price if the demand curve were ________ elastic. a) larger; more b) smaller; more c) larger; less d) smaller; less e) both b and c 21. In production processes, increasing marginal returns to labor are usually the result of: a) an additional worker increasing the production total b) increasing the number of workers in the production process c) losses in efficiency from the work place becoming too crowded d) some workers being hired who are less capable than previous ones e) gains in efficiency from specialization in production TABLE II No. of workers Bushels of Apples 1 10 2 22 3 35 4 45 5 53 6 60 7 58 22. In Table II, the marginal physical product of the sixth worker is: a) 60 b) 10 c) 7 d) 2 e) 0 23. In Table II we observe diminishing marginal returns to labor beginning with the ____ worker. a) third b) fourth c) fifth d) sixth e) seventh 24. Which of the following are true? a) ATC=AVC+AFC b) AFC=TFC/Q c) MC = Δ total costs/ Δ output d) all of the above e) only a and b 25. Total variable costs are defined as costs which vary when : a) the price of the product changes b) the price of an input changes c) the level of output changes d) the amount of capital changes e) the prices of all inputs change 26. Increasing marginal costs of production imply that : a) the marginal physical product of labor is increasing b) the marginal physical product of labor is decreasing c) the number of workers is increasing d) the number of workers is decreasing e) there are no fixed inputs in production 27. When a perfectly competitive firm faces a horizontal demand curve, it is true that: a) price equals marginal cost at every output level b) price equals average total cost at every output level c) price equals average fixed cost at every output level d) price equals marginal revenue at every output level e) all of the above 28. When a firm in a perfectly competitive market acts as a “price-taker”: a) it takes the opportunity to set its price above its competitors so that it can earn more profits than they do b) it takes the opportunity to pick the highest price along the market demand curve so that it can earn the highest profits possible c) it chooses to set its price equal to the prices of its competitors d) its sets a price below its competitors so that it will have a bigger share of the market e) it takes the opportunity to set different prices for different customers 29. Suppose that a perfectly competitive firm finds that at a price of $10 and an output of 30, its average total costs are $6. Its total profits in this situation would be: a) (positive) $4 b) (negative) $4 c) (positive) $294 d) (positive) $120 e) (negative) $120 30. Unless a firm has decided to shut down, it will usually profit-maximize at an output at which: a) P=ATC b) P=MR c) MR=MC d) MC=ATC e) ATC=AVC 31. If a perfectly competitive firm finds that at its present output level, MR>MC: a) it should logically move to an output level where MC is lower b) it should reduce output so as to improve profits c) it should raise its price in order to improve profits d) it should reduce output in order to raise MR e) it should increase output in order to exploit profit opportunities 32. Faced with the situation in Figure E and a market price of $12, a profit-maximizing perfect competitor will choose an output of: a) 0 b) 5 c) 21 d) 33 e) 37 33. In Figure E the firm ________ in a short run situation because___________ . a) is not; there is not enough time to determine the demand curve b) is; there are positive fixed costs c) is not; the ATC curve is U-shaped d) is; the MC curve goes through the bottom of the ATC curve e) both a and c