Econ 2113 – Test #1A Name________________________________ Dr. Rupp – Spring 2011 Pledge: “I have neither given or received aid on this exam” Signature_____________________________________ Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Suppose your management professor has been offered a corporate job with a 30 percent pay increase. He has decided to take the job. For him, the marginal a. cost of leaving was greater than the marginal benefit. b. benefit of leaving was greater than the marginal cost. c. benefit of teaching was greater than the marginal cost. d. All of the above are correct. ____ 2. A company that formerly produced software went out of business because too many potential customers bought illegally-produced copies of the software instead of buying the product directly from the company. This instance serves as an example of a. market power. b. market failure. c. inadequate enforcement of property rights. d. the invisible hand at work. ____ 3. Market failure can be caused by a. low consumer demand. b. government intervention and price controls. c. externalities and market power. d. high prices and foreign competition. ____ 4. An example of an externality is the impact of a. John’s actions on Jane’s well-being. b. John’s actions on John’s own well-being. c. society's decisions on society’s well-being. d. society's decisions on John’s well-being. ____ 5. Market economies are distinguished from other types of economies largely on the basis of a. the political affiliations of government officials. b. the process by which government officials are elected or appointed. c. the ways in which scarce resources are allocated. d. the number of retail outlets available to consumers. ____ 6. If education produces external benefits for society, which of the following might NOT be an appropriate policy for society to adopt regarding education? a. tax incentives for schooling b. mandatory minimum levels of education c. programs which promote the hiring of high school dropouts d. public subsidies of education ____ 7. Market power refers to the a. power of a single person or small group to influence market prices. b. ability of a person or small group to successfully market new products. c. power of the government to regulate a market. d. importance of a certain market in relation to the overall economy. ____ 8. Large or persistent inflation is almost always caused by a. excessive government spending. b. excessive growth in the quantity of money. c. foreign competition. d. higher-than-normal levels of productivity. ____ 9. Which of the following is the most correct statement about the relationship between inflation and unemployment in the short run? a. falling inflation is associated with falling unemployment. b. falling inflation is associated with rising unemployment. c. there is no relationship between inflation and unemployment. Figure 2-6 ____ 10. Refer to Figure 2-6. What is the opportunity cost to society of the movement from point A to point C? a. 50 baseballs b. 100 baseballs c. 100 bananas d. 300 bananas Figure 2-7 ____ 11. Refer to Figure 2-7. The shift of the production possibilities frontier from A to B can best be described as a. a downturn in the economy. b. economic growth. c. an enhancement of equity. d. an improvement in the allocation of resources. Table 2-1. Production Possibilities for Toyland Dolls 400 300 200 100 0 Fire Trucks 0 200 350 450 500 ____ 12. Refer to Table 2-1. Which of the following statements accurately describes the production possibilities for Toyland? a. The opportunity cost of an additional 100 dolls is 50 fire trucks. b. The opportunity cost of an additional 100 dolls is 100 fire trucks. c. Toyland’s production possibilities frontier is a straight, downward-sloping line. d. The opportunity cost of an additional 100 dolls increases as more dolls are produced. Figure 2-8 ____ 13. Refer to Figure 2-8. Which of the following combinations can this economy not produce? a. 30 barrels and 6 bathtubs b. 25 barrels and 12 bathtubs c. 20 barrels and 8 bathtubs d. 10 barrels and 14 bathtubs ____ 14. Refer to Figure 2-8. If this economy moved from point C to point E, a. it still would not be producing efficiently. b. there would be no gain in either bathtubs or barrels. c. it would be producing more barrels and more bathtubs than at point C. d. It is not possible for this economy to move from point C to point E without additional resources. ____ 15. The country of Econoland produces two goods, textbooks and widgets. Last year it produced 200 textbooks and 500 widgets. This year it produced 250 textbooks and 600 widgets. Given no other information, which of the following events could not explain this change? a. Econoland experienced a reduction in unemployment. b. Econoland experienced an improvement in widget-making technology. c. Econoland acquired more resources. d. Any of these events could, in fact, explain the change. ____ 16. Which of the following areas of study typifies microeconomics as opposed to macroeconomics? a. the impact of minimum-wage laws on employment at McDonald’s b. the effect of changes in household saving rates on the growth rate of national income c. the impact of faster money growth on the rate of inflation d. a comparison of alternative tax policies and their respective impacts on the rate of the nation’s economic growth ____ 17. Normative conclusions a. are derived directly from positive analysis. b. are based on ignorance of positive analysis. c. involve value judgments. d. reflect the economist’s role as scientist. ____ 18. A survey which sought the opinion of academic, business, and government economists on ten propositions about economic policy found that a. the respondents were almost equally divided on the propositions. b. the respondents favored the propositions by a slight margin. c. the respondents disagreed with the propositions by a slight margin. d. there was overwhelming endorsement of the propositions among the respondents. ____ 19. Which of the following statements is not correct? a. Trade allows for specialization. b. Trade has the potential to benefit all nations. c. Trade allows nations to consume outside of their production possibilities curves. d. Absolute advantage is the driving force of specialization. ____ 20. If labor in Mexico is less productive than labor in the United States in all areas of production, a. neither nation can benefit from trade. b. Mexico can benefit from trade but the United States cannot. c. the United States will have a comparative advantage relative to Mexico in the production of all goods. d. both Mexico and the United States still can benefit from trade. These figures illustrate the production possibilities available to Barney and Betty with 8 hours of labor in their bakery. Figure 3-4 ____ 21. Refer to Figure 3-4. The opportunity cost of 1 loaf of bread for Barney is a. 1/4 pie. b. 1/2 pie. c. 1 pie. d. 2 pies. ____ 22. Refer to Figure 3-4. Barney has an absolute advantage in a. both goods and Betty has an absolute advantage in neither good. b. loaves of bread and Betty has an absolute advantage in pies. c. pies and Betty has an absolute advantage in loaves of bread. d. neither good and Betty has an absolute advantage in both goods. ____ 23. Refer to Figure 3-4. Barney has a comparative advantage in a. both goods and Betty has a comparative advantage in neither good. b. loaves of bread and Betty has a comparative advantage in pies. c. neither good and Betty has a comparative advantage in both goods. d. pies and Betty has a comparative advantage in loaves of bread. Table 3-5 Japan U.S. Hours needed to make one: Car Airplane 30 150 50 200 Amount produced in 2400 hours: Cars Airplanes 80 16 48 12 ____ 24. Refer to Table 3-5. The opportunity cost of 1 car for Japan is a. 5 airplanes. b. 4 airplanes. c. 1/4 airplane. d. 1/5 airplane. ____ 25. Refer to Table 3-5. The opportunity cost of 1 car for the United States is a. 4 airplanes. b. 3 airplanes. c. 1/3 airplane. d. 1/4 airplane. ____ 26. Refer to Table 3-5. Japan has a comparative advantage in a. both airplanes and cars b. airplanes c. cars d. neither airplanes nor cars Figure 3-5 The graph below represents the various combinations of cars and corn that Country A could produce in a given month. (On the vertical axis, corn is measured in bushels.) ____ 27. Refer to Figure 3-5. The graph that is shown is called a a. supply line. b. opportunity line. c. production possibilities frontier. d. consumption possibilities frontier. ____ 28. Refer to Figure 3-5. The fact that the line slopes downward reflects the fact that a. for Country A, it is more costly to produce a car than it is to produce a bushel of corn. b. Country A will produce more cars and fewer bushels of corn as time goes by. c. Country A faces a tradeoff between producing cars and producing corn. d. Country A should specialize in producing corn. ____ 29. Which of the following is not a characteristic of a perfectly competitive market? a. Sellers possess market power. b. There are many sellers. c. There are many buyers. d. The goods sold are identical. ____ 30. The negative relationship between price and quantity demanded a. applies to most goods in the economy. b. is represented by a downward-sloping demand curve. c. is referred to as the law of demand. d. All of the above are correct. ____ 31. Each of the following is a determinant of demand except a. preferences. b. production technology. c. income. d. the prices of substitute goods. ____ 32. If Francis experiences a decrease in his income, we would expect that, as a result, Francis’s demand for a. each good he purchases will remain unchanged. b. normal goods will decrease. c. luxury goods will increase. d. inferior goods will decrease. ____ 33. Two goods are complements if a decrease in the price of one good a. decreases the quantity demanded of the other good. b. decreases the demand for the other good. c. increases the quantity demanded of the other good. d. increases the demand for the other good. Figure 4-1 ____ 34. Refer to Figure 4-1. The movement from point A to point B on the graph would be caused by a. an increase in price. b. a decrease in price. c. a decrease in the price of a substitute good. d. an increase in income. ____ 35. Refer to Figure 4-1. It is apparent from the figure that a. the good is inferior. b. the demand for the good decreases as income increases. c. the demand for the good conforms to the law of demand. d. All of the above are correct. ____ 36. Today's demand curve for gasoline could shift in response to a. a change in today's price of gasoline. b. a change in the expected future price of gasoline. c. a change in the number of sellers of gasoline. d. All of the above are correct. Figure 4-2 ____ 37. Refer to Figure 4-2. The shift from D to D1 is called a. an increase in demand. b. a decrease in demand. c. a decrease in quantity demanded. d. an increase in quantity demanded. ____ 38. The positive relationship between price and quantity supplied is called a. profit. b. a change in supply. c. a shift of the supply curve. d. the law of supply. ____ 39. An advance in production technology will a. increase a firm's costs. b. allow firms to raise the price of their product. c. shift the supply curve to the right, but the demand curve will be unaffected. d. shift the supply curve to the right and shift the demand curve to the right. True/False Indicate whether the statement is true or false. ____ 40. Equity refers to how the pie is divided, and efficiency refers to the size of the economic pie. a. True b. False Extra Credit Question: To be eligible to answer this extra credit question, you must satisfy both criteria below: • Your cell phone has not rung in class • You are taking this test in class at the regularly scheduled time: (Thursday, January 27th) ____ 41. Productivity is the primary determinant of a country's living standards. a. True b. False Rupp 2113 test 1A spring 2011 Answer Section MULTIPLE CHOICE 1. ANS: TOP: 2. ANS: TOP: 3. ANS: TOP: 4. ANS: TOP: 5. ANS: TOP: 6. ANS: TOP: 7. ANS: TOP: 8. ANS: TOP: 9. ANS: TOP: 10. ANS: TOP: 11. ANS: TOP: 12. ANS: TOP: 13. ANS: TOP: 14. ANS: TOP: 15. ANS: TOP: 16. ANS: TOP: 17. ANS: TOP: 18. ANS: TOP: 19. ANS: TOP: 20. ANS: TOP: 21. ANS: TOP: 22. ANS: TOP: 23. ANS: TOP: 24. ANS: TOP: 25. ANS: TOP: 26. ANS: TOP: 27. ANS: TOP: 28. ANS: TOP: 29. ANS: TOP: 30. ANS: TOP: 31. ANS: TOP: 32. ANS: TOP: B PTS: 1 DIF: 2 Marginal changes MSC: Interpretive C PTS: 1 DIF: 2 Property rights MSC: Interpretive C PTS: 1 DIF: 2 Market failure MSC: Interpretive A PTS: 1 DIF: 1 Externalities MSC: Definitional C PTS: 1 DIF: 2 Market economy MSC: Interpretive C PTS: 1 DIF: 2 Externalities MSC: Applicative A PTS: 1 DIF: 1 Market power MSC: Definitional B PTS: 1 DIF: 2 Inflation MSC: Interpretive B PTS: 1 DIF: 2 Inflation | Unemployment | Tradeoffs B PTS: 1 DIF: 2 Production possibilities frontier | Opportunity cost B PTS: 1 DIF: 2 Production possibilities frontier MSC: Interpretive D PTS: 1 DIF: 2 Opportunity cost | Production possibilities frontier B PTS: 1 DIF: 2 Production possibilities frontier MSC: Interpretive A PTS: 1 DIF: 2 Production possibilities frontier MSC: Interpretive D PTS: 1 DIF: 2 Production possibilities frontier MSC: Applicative A PTS: 1 DIF: 2 Microeconomics | Macroeconomics C PTS: 1 DIF: 2 Positive statements | Normative statements D PTS: 1 DIF: 1 Economists MSC: Interpretive D PTS: 1 DIF: 2 Specialization | Trade MSC: Interpretive D PTS: 1 DIF: 2 Comparative advantage | Trade MSC: Interpretive D PTS: 1 DIF: 2 Opportunity cost MSC: Applicative D PTS: 1 DIF: 2 Absolute advantage MSC: Applicative D PTS: 1 DIF: 2 Comparative advantage MSC: Applicative D PTS: 1 DIF: 2 Opportunity cost MSC: Applicative D PTS: 1 DIF: 2 Opportunity cost MSC: Applicative C PTS: 1 DIF: 3 Absolute advantage | Comparative advantage C PTS: 1 DIF: 1 Production possibilities frontier MSC: Definitional C PTS: 1 DIF: 1 Production possibilities frontier MSC: Interpretive A PTS: 1 DIF: 2 Perfect competition MSC: Interpretive D PTS: 1 DIF: 1 Negative relationships | Law of demand B PTS: 1 DIF: 2 Demand MSC: Interpretive B PTS: 1 DIF: 2 Normal goodss MSC: Interpretive REF: 1-1 REF: 1-2 REF: 1-2 REF: 1-2 REF: 1-2 REF: 1-2 REF: 1-2 REF: 1-3 REF: MSC: REF: MSC: REF: 1-3 Applicative 2-1 Interpretive 2-1 REF: 2-1 MSC: Applicative REF: 2-1 REF: 2-1 REF: 2-1 REF: MSC: REF: MSC: REF: 2-1 Interpretive 2-2 Interpretive 2-3 REF: 3-2 REF: 3-2 REF: 3-2 REF: 3-2 REF: 3-2 REF: 3-3 REF: 3-3 REF: 3-3 MSC: Applicative REF: 3-3 REF: 3-3 REF: 4-1 REF: 4-2 MSC: Interpretive REF: 4-2 REF: 4-2 33. ANS: TOP: 34. ANS: TOP: 35. ANS: TOP: 36. ANS: TOP: 37. ANS: TOP: 38. ANS: TOP: 39. ANS: TOP: D PTS: 1 Complements B PTS: 1 Demand curve C PTS: 1 Demand curve | Law of demand B PTS: 1 Shifts of curves B PTS: 1 Demand MSC: Definitional D PTS: 1 Law of supply C PTS: 1 Supply | Technology DIF: MSC: DIF: MSC: DIF: MSC: DIF: MSC: DIF: 2 Definitional 1 Interpretive 2 Interpretive 2 Interpretive 1 REF: 4-2 DIF: MSC: DIF: MSC: 1 Definitional 2 Interpretive REF: 4-3 T PTS: 1 Equity | Efficiency T PTS: 1 Productivity | Standard of living DIF: MSC: DIF: MSC: 2 Definitional 2 Interpretive REF: 1-1 REF: 4-2 REF: 4-2 REF: 4-2 REF: 4-2 REF: 4-3 TRUE/FALSE 40. ANS: TOP: 41. ANS: TOP: REF: 1-3