Exam 1 - Practice Questions PDF

Preview

Summary

A society that is producing its maximum combination of goods and using all available resources for production...

Description

Practice Questions 1. A society that is producing its maximum combination of goods and using all available resources for production: a. has minimized its opportunity cost. b. has maximized its opportunity cost. c. is operating on its production possibilities frontier (PPF). d. is operating outside its production possibilities frontier (PPF). e. has eliminated scarcity. 2. How are changes in opportunity cost related to decision-making behavior? a. The lower the opportunity cost of doing an activity X, the more likely activity X will be done. b. The higher the opportunity cost of doing activity X, the more likely activity X will be done. c. Changes in the opportunity cost play no role in decision-making. d. The lower the opportunity cost of doing activity Y, the more likely activity X will be done. e. The higher the opportunity cost of doing activity Y, the less likely activity X will be done.! 3. a. b. c. d. e.

An expectation of a lower price in the future will: increase current demand. decrease current demand. not change demand. cause demand to stay the same but increase the quantity demanded. cause demand to stay the same but decrease the quantity demanded.!

4. a. b. c. d.

Which of the following will cause a movement along a good’s demand curve? an increase in the price of a substitute the price of the good increases a decrease in the price of a substitute.! all of the above. !

!

! 5. a. b. c. d. e.

Something is an inferior good if the demand for the good: increases as the consumer’s income increases. increases as the consumer’s income decreases. decreases as the price of a complement increases. decreases as the price of a substitute increases. decreases as the consumer’s income decreases.

!

!

!

6. Which of the following would be expected to cause a decrease in the demand for tablet computers? a. An increase in the number of college students. b. An increase in the price of tablet computers. c. A decrease in income (and tablet computers are a normal good). d. Both B and C.

! ! ! ! ! ! ! ! ! ! ! ! ! ! !

7. a. c. e.

In the figure, point E is: an efficient point. b. unattainable with current resources. an inefficient point. d. the equilibrium. evidence that trade does not enrich society.

8. An economy that produces cars and cakes is currently operating efficiently. What happens if the economy now experiences experiences high unemployment? a. The PPF will shift outward. ! b. The PPF will shift inward. c. The economy will move from a point on the PPF to a point outside the PPF. d. The economy will move from a point on the PPF to a point inside the PPF. ! e. The economy will move along the PPF curve . The direction of movement depends on whether primarily autoworkers or cake bakers become unemployed. 9. Suppose you’ve spent $200,000 obtaining your college degree, the marginal cost to finish is $100,000 and the marginal benefit is $150,000. Then definitely you: a. should complete your degree. b. should not complete your degree since the total cost will be $300,000 and the benefit $150,000. c. should complete your degree only if the marginal cost is equal to or less than $200,000. d. obtain more information before making a decision. 10. As a discipline, economics is best described by which of the following? a. the study of how to control the effects of government actions b. the study of how to control the preferences of consumers so that there will be enough resources to produce all the goods and services that consumers want c. the study of how to use scarce resources to satisfy unlimited wants and needs d. the study of how to dispose of excess goods and services that nobody wants e. the study of how to maximize profits for firms

11. Which of the following is a macroeconomic question? a. How many textbooks should be published by a publisher? b. How much should English majors earn after college? c. How do members of a household decide whether to clean their own house or hire someone else to do it? d. What is the rate of unemployment? e. What is the price of a new 40-inch television? 12. Which following change in the coffee market would shift the demand curve to the right? a. A study finds that drinking coffee leads to lower grades. b. An increase in the price of tea, a substitute for coffee. c. The income in the economy decreases, and coffee is a normal good. d. Firms expect the price of coffee to decrease in the future.! e. An increase in the price of cream.! ! 13. The opportunity cost of any action is a. all the possible alternatives forgone. ! b. the best alternative forgone. c. the time required but not the monetary cost. ! d. the monetary cost but not the time required. 14. Marginal benefit is the benefit a. that your activity provides to someone else. b. of an activity that exceeds its cost. c. that arises from the secondary effects of an activity. ! d. that arises from a small increase in an activity. 15. When the price of an hour of tutoring increases, a. the demand for tutoring decreases. b. the demand for tutoring increases. c. the demand curve for tutoring shifts. d. the quantity demanded for tutoring increases. e. the quantity demanded for tutoring decreases. 16. Which of the following is an example of a normative statement? ! a. Household consumption is the largest component of spending. b. Government spending rose in the 1980s. c. The business sector is the primary source of jobs. ! d. Households should save more. 17. Human capital is a. all capital owned by individuals, but not by corporations or governments. b. all capital owned by individuals or corporations, but not by governments. c. machinery that meets or exceeds federal safety standards. d. the accumulated skill and knowledge of workers.

Point Production of X Production of Y ! --------------------------------------------------------------------------------a 0 40 b 4 36 c 8 28 d 12 16 e 16 0! --------------------------------------------------------------------------------18. Refer to the table above. The opportunity cost of increasing the production of Y from 16 to 36 units is a. 4 units of X. ! b. 8 units of X.! c. 10 units of X. ! d. 12 units of X. 19. The opportunity cost for Elijah of going to a water park is: a. the price of the admission pass. b. zero, if he can go with his parents who will pay. c. zero, if it is raining that day and the water park is closed. d. the price of the admission pass plus the highest valued alternative activity Elijah could have done instead. e. the highest valued alternative activity Elijah could have done instead. 20. You observe that more education is associated with more income and conclude that more income leads to more education. This would be an example of:! a. the rule of rational choice.! b. opportunity cost.! c. the fallacy of composition! d. confusing correlation with causation! e. ceteris paribus! ! 21. You have a comparative advantage in producing a good whenever:! a. you enjoy producing that good.! b. you can produce more of the good than someone else can using the same resources.! c. your opportunity cost is constant.! d. your opportunity cost of producing that good is lower than that of other producers.! e. you have specific training in the production of that good.

22. Consider the following table of productivities per hour:!

Adam Beth

Shirts Pairs of Pants 3 7 4 16

Which of the following is a correct? a. Adam has an absolute advantage in shirts. b. Adam has an absolute advantage in pants. c. Adam has a comparative advantage in shirts. d. Adam has a comparative advantage in pants.

Study Guide List! ! scarcity absolute advantage ! microeconomics vs. macroeconomics law of demand! incentives buyer’s reservation price! ceteris paribus quantity demanded vs. demand confusing correlation with causation factors that shift demand curves! fallacy of composition any videos shown in class! trade-offs/opportunity cost ! marginal thinking ! factors of production ! production possibilities curve ! specialization and gains from trade comparative advantage! ! Any topics covered in class, whether on this list or not, may appear on the exam.

Answers: Answers: 1C 2A 3B 4B 5B 6C 7B 8D 9A 10C 11D 12B 13B 14D 15E 16D 17D 18B 19D 20D 21D 22C!...