A)Versatility and Flexibility

Sample Exam #1

1. For economists, the word "utility" means:

A)versatility and flexibility.

B)rationality.

C)pleasure and satisfaction.

D)purposefulness.

1. The economic perspective refers to:

A)macroeconomic phenomena, but not microeconomic phenomena.

B)microeconomic phenomena, but not macroeconomic phenomena.

C)the making of purposeful decisions in a context of marginal costs and marginal benefits.

D)unlimited resources in a context of limited economic wants.

1. Economic theories:

A)are useless because they are not based on laboratory experimentation.

B)that are true for individual economic units are never true for the economy as a whole.

C)are generalizations based on a careful observation of facts.

D)are abstractions and therefore of no application to real situations.

1. Which of the following is a microeconomic statement?

A)The real domestic output increased by 2.5 percent last year.

B)Unemployment was 6.8 percent of the labor force last year.

C)The price of personal computers declined last year.

D)The general price level increased by 4 percent last year.

1. A positive statement is concerned with:

A)some goal that is desirable to society.

B)what should be.

C)what is.

D)the formulation of economic policy.

Use the following to answer the next question:

1. Refer to the budget line shown in the diagram above. If the consumer's money income is $20, the:

A)prices of C and D cannot be determined.

B)price of C is $2 and the price of D is $4.

C)consumer can obtain a combination of 5 units of both C and D.

D)price of C is $4 and the price of D is $2.

Use the following to answer the next question:

1. The shift of the budget line from cd to ab in the above figure is consistent with:

A)decreases in the prices of both M and N .

B)an increase in the price of M and a decrease in the price of N .

C)a decrease in money income.

D)an increase in money income.

1. Which of the following lists includes only capital resources (and therefore no labor or land resources)?

A)an ice arena; a professional hockey player; hockey uniforms.

B)the owner of a new startup firm; a chemistry lab; a researcher.

C)a hydroelectric dam; water behind the dam; power lines.

D)autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental customers to and from the airport.

1. Unemployment:

A)causes the production possibilities curve to shift outward.

B)can exist at any point on a production possibilities curve.

C)is illustrated by a point outside the production possibilities curve.

D)is illustrated by a point inside the production possibilities curve.

Answer the next question on the basis of the data given in the following production possibilities table:

1. Refer to the above table. If the economy is producing at production alternative C, the opportunity cost of the tenth unit of consumer goods will be:

A)4 units of capital goods.

B)2 units of capital goods.

C)3 units of capital goods.

D)1/3 of a unit of capital goods.

1. In drawing the production possibilities curve we assume that:

A)technology is fixed.

B)unemployment exists.

C)economic resources are unlimited.

D)wants are limited.

1. Which of the following is not correct? A typical production possibilities curve:

A)indicates how much of two products a society can produce.

B)reveals how much each additional unit of one product will cost in terms of the other product.

C)specifies how much of each product society should produce.

D)indicates that to produce more of one product society must forgo larger and larger amounts of the other product.

1. Refer to the above production possibilities curve. At the onset of the Second World War the Soviet Union was already at full employment. Its economic adjustment from peacetime to wartime can best be described by the movement from point:

A)c to point b.

B)b to point c.

C)ato point b.

D)c to point d.

1. Refer to the above diagram. As it relates to production possibilities analysis, the law of increasing opportunity cost is reflected in curve:

A)A

B)B

C)C

D)D

1. The marginal benefit curve is:

A)upsloping because of increasing marginal opportunity costs.

B)upsloping because successive units of a specific product yield less and less extra benefit.

C)downsloping because of increasing marginal opportunity costs.

D)downsloping because successive units of a specific product yield less and less extra benefit.

Use the following to answer the next question:

1. Technological advance in producing both capital goods and consumer goods is shown by the shift of the production possibilities curve from AB to:

A)CD.

B)EB.

C)AF.

D)GH.

Use the following to answer the next question:

1. Refer to the above diagram. Which of the following positions relative to PP1 would be the most likely to result in a future production possibilities curve of PP3, rather than PP2 ?

A)A.

B)B.

C)C.

D)D.

1. Free products offered by firms:

A)may or may not be free to society, but are never free to individuals.

B)may or may not be free to individuals, but are never free to society.

C)are produced and distributed at no cost to society.

D)usually are items nobody wants.

1. "The government deregulated the electricity industry in California and a shortage of electricity soon occurred. It is clear that the deregulation caused the shortage." This statement needs careful analysis because it may reflect the:

A)the fallacy of composition.

B)post hoc, ergo propter hoc fallacy.

C)use of loaded terminology.

D)the law of averages.

1. Examples of command economies are:

A)theUnited States and Japan.

B)Sweden and Norway.

C)Mexico and Brazil.

D)Cuba and North Korea.

1. Which of the following is not a characteristic of the market system?

A)private property.

B)freedom of enterprise.

C)government ownership of the major industries.

D)competition in product and resource markets.

1. The division of labor means that:

A)labor markets are geographically segmented.

B)unskilled workers outnumber skilled workers.

C)workers specialize in various production tasks.

D)each worker performs a large number of tasks.

1. Which of the following is not an economic cost?

A)wages.

B)rents.

C)economic profits.

D)normal profits.

1. An increase in consumer desire for strawberries is most likely to:

A)increase the number of strawberry pickers needed by farmers

. B)reduce the supply of strawberries.

C)reduce the number of people willing to pick strawberries.

D)reduce the need for strawberry pickers.

Answer the next question using the following data which show all available techniques for producing 20 units of a particular commodity:

1. Refer to the above data. In view of the indicated resource prices, the economically most efficient production technique(s) is (are) technique(s):

A)#1.

B)#2 and #4.

C)#3.

D)#1 and #3.

1. The market system's answer to the fundamental question "Who will get the goods and services?" is essentially:

A)"Those willing and able to pay for them."

B)"Those who physically produced them."

C)"Those who most need them."

D)"Those who get utility from them."

1. Which of the following best describes the invisible-hand concept?

A)The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.

B)The nonsubstitutability of resources creates a conflict between private and public interests and calls for government intervention.

C)The market system is the best system for overcoming the scarce resources-unlimited wants problem.

D)Central direction by the government will improve resource allocation in a capitalistic economy.

1. "Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the:

A)incentive problem under central planning.

B)coordination problem under central planning.

C)self-sufficiency dilemma under communism.

D)resourceovercommitment problem under communism.

1. The simple circular flow model shows that:

A)households are on the buying side of both product and resource markets.

B)businesses are on the selling side of both product and resource markets.

C)households are on the selling side of the resource market and on the buying side of the product market.

D)businesses are on the buying side of the product market and on the selling side of the resource market.

1. In 1996 McDonald's introduced its Arch Deluxe hamburger, which failed to catch on with the public and was subsequently dropped from the menu. This failure illustrates the idea of:

A)consumer sovereignty.

B)technological change.

C)downsloping demand.

D)specialization.

1. A market:

A)reflectsupsloping demand and downsloping supply curves.

B)entails the exchange of goods, but not services.

C)is an institution that brings together buyers and sellers.

D)always requires face-to-face contact between buyer and seller.

1. If the price of K declines, the demand curve for the complementary product J will:

A)shift to the left.

B)shift to the right.

C)decrease.

D)remain unchanged.

1. Suppose an excise tax is imposed on product X. We would expect this tax to:

A)increase the demand for complementary good Y and decrease the demand for substitute product Z.

B)decrease the demand for complementary good Y and increase the demand for substitute product Z.

C)increase the demands for both complementary good Y and substitute product Z.

D)decrease the demands for both complementary good Y and substitute product Z.

Use the following to answer the next question:

1. Refer to the above diagram. A decrease in supply is depicted by a:

A)move from point x to point y.

B)shift from S1 to S2.

C)shift from S2 to S1.

D)move from point y to point x.

1. Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread and that potatoes are a consumer substitute for bread, we would expect the price of wheat to:

A)rise, the supply of bread to increase, and the demand for potatoes to increase.

B)rise, the supply of bread to decrease, and the demand for potatoes to increase.

C)rise, the supply of bread to decrease, and the demand for potatoes to decrease.

D)fall, the supply of bread to increase, and the demand for potatoes to increase.

Answer the next question on the basis of the given supply and demand data for wheat:

1. Refer to the above data. Equilibrium price will be:

A)$4.

B)$3.

C)$2.

D)$1.

1. A competitive market will:

A)achieve an equilibrium price.

B)produce shortages.

C)produce surpluses.

D)create disorder.

Use the following to answer the next question:

1. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. A shift in the demand curve from D0 to D1 might be caused by a(n):

A)decrease in income if X is an inferior good.

B)increase in the price of complementary good Y.

C)increase in money incomes if X is a normal good.

D)increase in the price of substitute product Y.

Use the following to answer the next question:

1. Which of the above diagrams illustrate(s) the effect of an increase in the price of Budweiser beer on the market for Coors beer?

A)A and C.

B)A only.

C)B only.

D)C only.

1. Price ceilings and price floors:

A)cause surpluses and shortages respectively.

B)make the rationing function of free markets more efficient.

C)interfere with the rationing function of prices.

D)shift demand and supply curves and therefore have no effect on the rationing function of prices.

1. The personal distribution of income refers to the:

A)division of income between personal taxes, consumption expenditures, and saving.

B)division of income on the basis of industry sources, for example, agriculture, transportation, and mining.

C)distribution of income to basic resource classes, that is, wages, rents, interest, and profits.

D)way income is distributed among specific households or spending units.

1. The division of U.S. businesses into the categories of proprietorships, partnerships, and corporations is based on:

A)generally accepted accounting principles.

B)legal considerations.

C)the judgment of the American Economic Association.

D)an executive order of the President.

1. Negative externalities arise:

A)when firms pay more than the opportunity cost of resources.

B)when the demand curve for a product is located too far to the left.

C)when firms "use" resources without being compelled to pay for their full costs.

D)only in capitalistic societies.

1. Nonrivalry and nonexcludability are the main characteristics of:

A)capital goods.

B)private goods.

C)public goods.

D)consumption goods.

1. In performing its stabilization function, it may be appropriate for the nation's central bank (the Federal Reserve in the United States) to take actions to:

A)increase taxes to reduce inflation.

B)increase interest rates to reduce inflation.

C)reduce government spending to reduce inflation.

D)increase subsidies to businesses to reduce unemployment.

1. A progressive tax is such that:

A)tax rates are higher the greater one's income.

B)the same tax rate applies to all income receivers, so that the rich pay absolutely more taxes than the poor.

C)entrepreneurial income is exempt from taxation.

D)the revenues it yields are spent on transfer payments.

1. The Social Security program in the United States faces a long-term funding crisis because:

A)the Social Security trust fund was exhausted in 2002.

B)the number of retirees receiving benefits is rising more rapidly than the number of workers paying payroll taxes.

C)recent tax cuts have reduced payroll tax revenues.

D)the war on terrorism has drained funds away from Social Security.

1. The physical export of motorcycles from the United States to Mexico best illustrates a:

A)trade flow.

B)resource flow.

C)financial flow.

D)technology flow.

1. Multinational corporations:

A)mainly are headquartered in Switzerland.

B)are so named because of their heavy export volume.

C)are illegal under the U.S. antitrust laws.

D)are so named because of their sizable foreign production and distribution assets.

1. Refer to the above domestic production possibilities curve for Karalex. The gain to Karalex from specialization and international trade is represented by a move from:

A)A to B.

B)C to A.

C)C to D.

D)B to E.

1. The Reciprocal Trade Agreements Act:

A)exempted American exporters from the Sherman Antitrust Act.

B)provided technological assistance to developing countries.

C)brought about considerable reductions in American trade barriers.

D)eliminated American subsidies to agricultural exports.

1. Critics of the North American Free Trade Agreement (NAFTA) falsely feared that it would:

A)increase the flow of illegal Mexican immigrants to the United States.

B)cause the European Union and Japan to raise trade barriers against U.S. goods.

C)cause a massive loss of U.S. jobs to Mexico.

D)increase foreign ownership of assets in the United States.

1. The price elasticity of demand coefficient measures:

A)buyer responsiveness to price changes.

B)the extent to which a demand curve shifts as incomes change.

C)the slope of the demand curve.

D)how far business executives can stretch their fixed costs.

1. When the percentage change in price is greater than the resulting percentage change in quantity demanded:

A)a decrease in price will increase total revenue.

B)demand may be either elastic or inelastic.

C)an increase in price will increase total revenue.

D)demand is elastic.

1. Which of the following statements about elasticity is correct?

A)Supply is more elastic in the short run than in the long run.

B)Demand is more elastic in the short run than in the long run.

C)Demand is more elastic when a large number of substitute goods are available.

D)Supply is more elastic when there are a small number of producers in the industry.

1. A supply curve that is a vertical straight line indicates that:

A)production costs for this product cannot be calculated.

B)the relationship between price and quantity supplied is inverse.

C)a change in price will have no effect on the quantity supplied.

D)an unlimited amount of the product will be supplied at a constant price.

Use the following to answer the next question:

1. Refer to the above diagrams. In which case would the coefficient of income elasticity be positive?

A)A

B)B

C)C

D)D

1. Microsoft charges a substantially lower price for a software upgrade than for the initial purchase of the software. This implies that Microsoft views the demand curve for the software upgrade to be:

A)more elastic than the demand for the original software.

B)upsloping rather than downsloping.

C)less elastic than the demand for the original software.

D)of less value than the original software.

1. Economic cost can best be defined as:

A)any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers.

B)any contractual obligation to labor or material suppliers.

C)compensations that must be received by resource owners to insure their continued supply.

D)all costs exclusive of payments to fixed factors of production.

Answer the next question on the basis of the following output data for a firm. Assume that the amounts of all non-labor resources are fixed.

1. Refer to the above data. Diminishing marginal returns become evident with the addition of the:

A)sixth worker.

B)fourth worker.

C)third worker.

D)second worker.

Answer the next question(s) on the basis of the following cost data:

1. Refer to the above data. The total variable cost of producing 5 units is:

A)$61.

B)$48.

C)$37.

D)$24.

1. Refer to the above data. The marginal cost of producing the sixth unit of output is:

A)$24.

B)$12.

C)$16.

D)$8.

1. In comparing the changes in TC and TVC associated with an additional unit of output, we find that:

A)the change in TVC is equal to MC, while the change in TC is equal to TFC.

B)the change in TC exceeds the change in TVC.

C)the change in TVC exceeds the change in TC.

D)both are equal to MC.

Use the following to answer the next question:

1. The above diagram shows the short-run average total cost curves for five different plant sizes of a firm. The shape of each individual curve reflects:

A)increasing returns, followed by diminishing returns.

B)economies of scale, followed by diseconomies of scale.