Final Exam Study Check for Understanding

  1. The resources used to make all goods and services are the

a. / production possibilities. / c. / production trade-offs.
b. / factors of production. / d. / opportunity costs.
  1. Why are all goods and services scarce?

a. / Some goods cost more than others.
b. / All resources are scarce.
c. / Some things are needs and others are wants.
d. / Some people want to have more goods than others.
  1. What is the opportunity cost of a decision?

a. / the series of alternative decisions that could have been made
b. / the best possible way the question could have been decided
c. / the different ways that a different person might have made the decision
d. / the most desirable alternative given up for the decision
  1. The physical capital used by a woodworker to make furniture would include

a. / saws and drills. / c. / hard work and time.
b. / wood and glue. / d. / a workshop and money.
  1. What could cause a production possibilities curve to move down and to the left?

a. / A nation loses land after being defeated in a war.
b. / A baby boom 20 years ago resulted in a large number of young adults in the population today.
c. / An increase in the use of computer technology speeds up production.
d. / Thousands of investors from overseas invest money in a nation’s economy.
  1. Human capital includes

a. / the salary paid to an accountant.
b. / a taxi driver’s knowledge of the city streets.
c. / the machinery used to weave cloth.
d. / the equipment used by a doctor to cure a patient.
  1. What incentive motivates a manufacturer to sell a product?

a. / making profits on sales / c. / pleasing the consumer
b. / putting others out of business / d. / popularity of the product
  1. You are an entrepreneur with an innovative idea for a new business. In which kind of economy would you have the most opportunity to try to achieve success?

a. / market economy / c. / traditional economy
b. / command economy / d. / socialist economy
  1. What is a positive externality?

a. / a way to generate trade that will benefit people who are from other countries
b. / an economic side effect that generates unexpected benefits
c. / a cash flow that will benefit both the government and the businesses who interact with it
d. / an extra payment to welfare recipients
  1. Which of the following is NOT an example of a public good?

a. / shopping malls / c. / highways
b. / national parks / d. / municipal libraries
  1. What is the term for the total value of all goods and services produced in a particular economy?

a. / net worth / c. / gross domestic product
b. / open market value / d. / standard of living
  1. You read an article in a news magazine that explains how the economy expanded for several years, then went into a period of contraction. What was the subject of this article?

a. / the gross domestic product / c. / the business cycle
b. / microeconomics / d. / voluntary exchange
  1. What determines the price and the quantity produced of most goods?

a. / the consumer’s perception of necessity
b. / the interaction of supply and demand
c. / the availability of substitutes for the goods
d. / the quality of the goods that are produced
  1. What is a basic principle of the law of demand?

a. / The higher the price, the more people will want the good.
b. / Everyone has a limited income that they will spend.
c. / When a good’s price is lower, people will buy more of it.
d. / Services are of interest in the same way that goods are.
  1. When prices rise, which of the following happens to income?

a. / It goes down. / c. / It rises to meet prices.
b. / It buys less. / d. / It is used to buy different things.
  1. Which of the following is a fixed cost for a store?

a. / short-term workers / c. / advertising
b. / rent / d. / inventory
  1. Which of the following events could cause the demand curve for sports magazines to shift to the right?

a. / The publisher cuts the price of an issue from $3.95 to $2.50.
b. / The price of an issue of a popular computer game magazine rises from $2.95 to $3.95.
c. / Consumer incomes have increased.
d. / Consumer incomes, especially those of sports fans, have decreased.
  1. What does it mean when the demand for a product is inelastic?

a. / People will not buy any of the product when the price goes up.
b. / A price increase does not have a significant impact on buying habits.
c. / Customers are sensitive to the price of the product.
d. / There are very few satisfactory substitutes for the product.
  1. If the supply of a good is inelastic,

a. / producers will not change their quantity supplied by much if the market price doubles.
b. / a small increase in price will lead producers to sharply increase their quantity supplied.
c. / producers have diminishing marginal returns of labor.
d. / producers will increase their quantity supplied in response to sharp drops in the market price.
  1. When buyers will purchase exactly as much as sellers are willing to sell, what is the condition that has been reached?

a. / supply and demand / c. / equilibrium
b. / excess demand / d. / price floor

  1. According to Figure 6.2, in this market, a price of $1.00 would be

a. / the equilibrium price. / c. / a price ceiling.
b. / a price floor. / d. / a subsidy.
  1. If the government set a price of $2.00 a slice, how many slices of pizza will be sold each day, according to Figure 6.2?

a. / none / c. / 200
b. / 150 / d. / 250
  1. The price of a slice of pizza is $2.50. At the end of the day, how many unsold slices of pizza will be left, according to Figure 6.2?

a. / none / c. / 100
b. / 50 / d. / 200
  1. On which kinds of goods do governments generally place price ceilings?

a. / those that are cheap but could become more expensive without the ceiling
b. / those that are not necessary but have become customary
c. / those that are essential and cheap
d. / those that are essential but too expensive for some consumers
  1. Rent control is a type of

a. / price ceiling. / c. / rationing.
b. / price floor. / d. / surplus.
  1. How do economists define profits?

a. / The ability of a company to get subsidies. / c. / The ability to generate revenues
b. / The financial gain made in transactions / d. / Surpluses produced by efficient firms.
  1. When government expenditures exceed revenues,

a. / the government should raise interest rates to fight inflation.
b. / the government is forced to borrow money to finance the deficit.
c. / the government needs to increase imports to finance the surplus.
d. / the government should do nothing.
  1. In response to rising car traffic, demand for bicycles has increased. The new equilibrium point will show

a. / more bicycles sold, but at a higher price.
b. / fewer bicycles sold, but at a higher price.
c. / more bicycles sold, but at a lower price.
d. / fewer bicycles sold, but at a higher price.
  1. What is monopolistic competition?

a. / one company selling the identical product under different names
b. / one company selling several different products under different names
c. / a very few companies selling identical products
d. / many companies selling similar but not identical products
  1. What is the definition of an oligopoly?

a. / one firm producing 95 percent of the output
b. / two to four firms producing 70 percent to 80 percent of the output
c. / eight to ten firms producing 60 percent to 70 percent of the output
d. / eight to ten firms producing 90 percent of the output
  1. What is the definition of a monopoly?

a. / A market structure dominated by 2-4 major firms.
b. / A market structure dominated by one large seller.
c. / A market structure where no firm controls price or market size.
d. / A market structure where the government supplies all buyers with the product.
  1. If a general partnership fails, who is responsible for the debts?

a. / anyone who works for the partnership
b. / all of the partners
c. / only the most senior general partner
d. / no one
  1. What is a fringe benefit?

a. / a cash payment for casual work
b. / a business other than sales or marketing
c. / a payment other than wages or salaries
d. / an accounting term meaning profits
  1. What are the money and other valuables that belong to a corporation or partnership called?

a. / liabilities / c. / ownership
b. / assets / d. / liens
  1. Your running shoes were designed in the United States but assembled in Asia by a company called RunnerPro. RunnerPro is probably a

a. / general partnership. / c. / multinational corporation.
b. / trade association. / d. / producer cooperative.
  1. What is collective bargaining?

a. / union and company representatives meeting to negotiate a new labor contract
b. / an organization of workers representing several different occupations
c. / an agreement to allow everyone to be part of the labor negotiating process
d. / a situation in which the rights of labor have been set aside
  1. Why is improving worker productivity important?

a. / the standard of living would improve
b. / American imports would increase
c. / collective bargaining would no longer be necessary
d. / budget deficits would fall
  1. How are wages for a particular job determined?

a. / By advertisements in the newspaper or on line.
b. / By the equilibrium between the supply and demand for workers for that job.
c. / By the amount of inflation in the economy.
d. / By the Federal Wage and Hour Department.
  1. The equilibrium wage for doctors is high because the

a. / demand for doctors equals the supply.
b. / supply of doctors is relatively low and the demand is relatively high.
c. / demand for doctors tends to be lower relative to supply.
d. / supply of doctors is relatively high and the demand is relatively low.
  1. The label in your jeans says that they were made in a Latin American country. This is probably because the jeans manufacturing company wanted to locate its plant

a. / closer to raw materials.
b. / where labor was plentiful and therefore cheaper.
c. / in a warmer climate.
d. / in a region with less technology.
  1. Which of the following is an example of a barter system?

a. / Instead of paying cash for a computer, you use a credit card.
b. / Instead of paying the full amount for a car, you pay 10 percent in cash and pay for the rest in monthly installments.
c. / Instead of paying rent, you clean the house for the owner.
d. / Instead of paying for a purchase in Mexico in pesos, you use dollars from the United States.
  1. What is the purpose of the Federal Deposit Insurance Corporation (FDIC)?

a. / to make sure that banks do not fail
b. / to make sure that customers do not lose money if a bank fails
c. / to make sure that banks charge a fair amount of interest on loans
d. / to make sure that the government has enough gold to cover its expenses
  1. When you invest in a mutual fund,

a. / your money is invested in a variety of insurance policies.
b. / you have easier access to your money than in a savings account.
c. / your money is invested in a variety of stocks and bonds.
d. / you are guaranteed a fixed return on your investment.
  1. A stock that reinvests its earnings in the business instead of paying regular dividends is called

a. / an income stock. / c. / preferred stock.
b. / common stock. / d. / a growth stock.
  1. An example of a durable good would be

a. / a car. / c. / a box of cereal.
b. / a paperback book. / d. / a pack of baseball cards.
  1. The lowest point in an economic contraction is called

a. / a peak. / c. / a recession.
b. / a trough. / d. / a depression.
  1. GDP expressed in constant, or unchanging, prices is called

a. / real GDP. / c. / nominal GDP.
b. / price level. / d. / net national product.
  1. In a typical business cycle, what stage immediately follows a peak?

a. / contraction / c. / trough
b. / expansion / d. / growth
  1. When Alison, a college math professor, leaves her job at a small rural college and starts looking for a job at large urban university, she is

a. / frictionally unemployed. / c. / cyclically unemployed.
b. / structurally unemployed. / d. / a discouraged worker.
  1. Which of the following is most likely to be worried about high inflation?

a. / A unionized factory worker / c. / a doctor with a suburban practice
b. / a shopkeeper / d. / a retired couple on a fixed income
  1. If Bob loses his job at the GM plant because car manufacturing is slow due to a downturn in the economy, you can conclude that he is

a. / cyclically unemployed. / c. / structurally unemployed.
b. / seasonally unemployed. / d. / frictionally unemployed.
  1. Your store receipt says that you paid a 7.5% sales tax on sports equipment. This sales tax is an example of a

a. / proportional tax. / c. / regressive tax.
b. / progressive tax. / d. / income tax.
  1. Your pay stub deducts money for FICA. What does this mean?

a. / Money is being withheld to fund Social Security and Medicare.
b. / Money is being withheld for federal, state, and city taxes.
c. / Money is being withheld for personal exemptions and deductions.
d. / Money is being withheld for excise and estate taxes.
  1. What happens to the money that your employer withholds from your paycheck?

a. / Your employer holds it until you leave your job and then returns it to you.
b. / Your employer returns to you at the end of the year so that you can pay your federal taxes.
c. / Your employer holds it in case you damage his property.
d. / Your employer sends it to the federal government to help pay your income tax bill.
  1. An example of expansionary fiscal policy would be

a. / cutting taxes.
b. / cutting government spending.
c. / cutting production of consumer goods.
d. / cutting prices of consumer goods.
  1. An example of contractionary fiscal policy would be

a. / cutting taxes.
b. / decreasing government spending.
c. / increasing production of consumer goods.
d. / expanding the government’s role in regulating private industry.
  1. The purpose of expansionary fiscal policy is to

a. / increase output.
b. / prevent hyperinflation.
c. / slow the growth of the GDP.
d. / increase the separation between government and private industry.
  1. What is the cost of money?

a. / the smoothing out of fluctuations in the market
b. / the economy’s use of open market operations
c. / the price of the interest rate
d. / the bank’s use of money creation
  1. What does the Consumer Price Index measure?

a. / the willingness and ability of consumers to purchase goods and services
b. / the economy’s total output (GDP)
c. / the price of money, or the interest rate
d. / the rate of inflation
  1. How could the Federal Reserve encourage banks to lend out more of their reserves?

a. / reduce the discount rate / c. / increase the prime rate
b. / raise the required amount of reserve / d. / reduce the money supply
  1. What type of policy does the Federal Reserve use to counteract an expansion that is causing inflation and high interest rates?

a. / fiscal policy / c. / easy money policy
b. / tight money policy / d. / policy lags
  1. What type of policy does the Fed use to counteract a contraction?

a. / fiscal policy / c. / easy money policy
b. / tight money policy / d. / policy lags
  1. What is one possible short-term effect of an easy money policy?

a. / decreasing inflation / c. / a contracting money supply
b. / higher interest rates / d. / increased investment spending
  1. Which of these situations is most likely to cause the Fed to introduce a tight money supply?

a. / A recession has reduced aggregate demand and increased unemployment.
b. / The federal government passes a new budget with a large deficit.
c. / The economy is prosperous with relatively low inflation and low unemployment.
d. / The economy is expanding quickly and inflation is a concern.
  1. Which of the following instruments is NOT used by the Federal Reserve to change the money supply?

a. / the discount rate / c. / the federal tax code
b. / the required reserve ratio / d. / open market operations
  1. When a nation imports more than it exports, economists say it has which of the following?

a. / a trade surplus / c. / a trade deficit
b. / a balance of trade / d. / a national difference
  1. What happens when a nation’s currency depreciates?

a. / Its products become more expensive to other nations.
b. / Its trade increases.
c. / Its products become cheaper to other nations.
d. / Its trade decreases.
  1. Ecuador has a comparative advantage in the production of bananas over the United States. Which of the following statements is true?

a. / Ecuador also has an absolute advantage in the production of bananas.
b. / The United States has an absolute advantage in the production of bananas.
c. / Ecuador can produce bananas at a lower opportunity cost than the United States.
d. / The United States cannot produce bananas.
  1. The United States placed a limit on the number of cars that can be brought into the country for sale. This is an example of

a. / an import quota. / c. / a customs duty.
b. / a tariff. / d. / a voluntary export restraint.
  1. Brain drain is

a. / the tendency of workers in less developed countries to reject new technologies.
b. / the tendency of educated people to leave less developed countries build careers in developed countries.
c. / the impact of poverty on the productivity of workers in less developed countries.
d. / the impact of malnutrition on education and productivity in less developed countries.