Practice Exam I

Practice Exam I

1.Say a pill existed that made people selfless. After taking it they were only interested in others not themselves. Under the coordination definition of economics:
A.no economic problem would exist.
B.there would still be an economic problem.
C.there would be a political problem but not an economic problem.
D.there would be a social problem but not an economic problem.

2.If allocating dorm rooms changes from allocation by lottery to allocation by the market:
A.it becomes an economic problem.
B.it becomes a political problem but not an economic problem.
C.it becomes a social problem but not an economic problem.
D.the allocation problem is still an economic problem.

3.To engage in economic reasoning, you must compare:
A.total cost and total benefit.
B.marginal cost, sunk cost, and total benefit.
C.sunk cost and marginal cost.
D.marginal cost and marginal benefit.

4.Alexandra has determined that studying an hour for her economics quiz will improve her grade on the quiz from 75 to 100. She also determines that this improvement is worth $20. In order to study for an hour for her economics quiz, however, she will have to work one less hour at her part-time job. Alexandra should:
A.study for the quiz as long as her hourly wage rate is less than $20.
B.study for the quiz as long as her hourly wage rate is more than $20.
C.study for the quiz only if her hourly wage rate is exactly $20.
D.not study for the quiz because earning a higher grade cannot have a dollar value.

5.Sunk costs:
A.are essential parts of economic reasoning.
B.are irrelevant to economic reasoning.
C.should be considered, but only when marginal cost is less than marginal benefit.
D.should be considered only when there is no information about marginal cost and marginal benefit.

6.The table below shows how the marginal benefit of video tape rentals varies for Carol with the number rented per month.

The price of each tape rental is reduced from $2.99 to $1.99. Assuming that the price of a rental accurately reflects the marginal cost to Carol and that she is rational she will increase the number of tapes rented per month from:
A.1 to 2.
B.2 to 3.
C.3 to 4.
D.4 to 5.

7.Marginal analysis suggests that you will engage in more of an activity if the:
A.total benefit of the activity is less than the total cost.
B.additional benefit from the activity exceeds the additional cost.
C.total benefit from the activity exceeds the total cost.
D.additional cost of the activity exceeds the additional benefit.

8.Opportunity cost:
A.includes only monetary outlays.
B.is the net benefit foregone by not undertaking the next best alternative.
C.is nonexistent for some choices.
D.is the same as sunk cost.

9.More than 10,000 visitors waited up to 2 hours in line to see the rare flower, Titan Arum, at the Cambridge Botanical Gardens. What does this situation illustrate to an economist about rationing?
A.Goods don't have to be rationed by lottery or first-come, first-served. Goods can be rationed by price.
B.When goods are not fully rationed by price, other rationing mechanisms such as waiting arise.
C.When goods are not rationed by price, other rationing mechanisms such as lottery must be introduced.
D.There is no need for rationing if anyone who waits long enough can see the flower.

10.A cultural norm is:
A.an economic force.
B.a social force.
C.a political force.
D.a market force.

11.Experimental economics is:
A.a naturally occurring event that approximates a controlled experiment.
B.not possible given that economists study real-world events.
C.a branch of economics that studies the economy through controlled lab experiments.
D.what all economists do when they develop their models.

12.A theorem is:
A.the application of models combined with judgment.
B.a policy rule that concludes that a particular course of action is preferable.
C.a proposition that is logically true based on the assumptions of a model.
D.a set of equations that define a model.

13.Which statement best summarizes the invisible hand theorem?
A.Government policies direct people's selfish desires (tempered by social and economic forces) to the common good.
B.Cultural norms direct people's selfish desires (tempered by political and economic forces) to the common good.
C.Markets direct people's selfish desires (tempered by political and social forces) to the common good.
D.Social, political, and economic forces act against people's selfish desires to promote the common good.

14.Modern behavioral economists are most likely to incorporate an assumption of:
A.Self-interest.
B.Rationality.
C.Predictable irrationality.
D.Efficiency.

15.An economist who is studying the relationship between the money supply, interest rates, and the rate of inflation is engaged in:
A.microeconomic research.
B.macroeconomic research.
C.theoretical research because there is no data on these variables.
D.empirical research because there is no economic theory related to these variables.

16.Microeconomics includes the study of:
A.inflation.
B.unemployment.
C.business cycles.
D.a firm's pricing policies.

17.The invisible hand theorem relates mostly to:
A.microeconomics.
B.macroeconomics.
C.normative economics.
D.Marshallian economics.

18.Which of the following is not an economic institution?
A.Corporations.
B.Government.
C.Cultural norms.
D.All the options are economic institutions.

19.Normative economics seeks to:
A.determine the most appropriate economic goals for a society.
B.determine how government policies affect the economy.
C.objectively explain how the economy functions.
D.objectively explain economic problems such as inflation and unemployment.

20.Identifying the effect of an increase in the money supply on prices requires the use of:
A.positive economics.
B.the art of economics.
C.normative economics.
D.subjective economics.

21.The law of demand states that consumers buy more of a good when its price declines:
A.because their income increases at the same time.
B.only if their income increases at the same time.
C.even if other demand determinants change at the same time.
D.provided all else remains constant.

22.The use of the phrase "other things constant" in supply and demand analysis indicates that:
A.an equilibrium price has been reached.
B.an equilibrium quantity has been reached.
C.we are considering changes in just one factor.
D.we are considering all the changes which might take place in actual markets.

23.Refer to the graphs above. The effect of an increase in price is best shown by which arrow?
A.A
B.B
C.C
D.D

24.When applied to labor markets, the law of supply suggests that:
A.an increase in the wages earned by nurses will cause the quantity of nurses supplied to increase.
B.a decrease in the wages earned by nurses will cause the quantity of nurses supplied to increase.
C.an increase in the wages earned by nurses will cause the quantity of nurses demanded to increase.
D.a decrease in the wages earned by nurses will cause the quantity of nurses demanded to increase.

25.The distinction between supply and the quantity supplied is best made by saying that:
A.the quantity supplied is represented graphically by a curve and supply as a point on that curve.
B.supply is represented graphically by a curve and quantity supplied as a point on that curve.
C.the quantity supplied is in a direct relation with prices, whereas supply is in an inverse relation.
D.the quantity supplied is in an inverse relation with prices, whereas supply is in a direct relation.

26.Moore's Law states that the processing power of the latest computer chips doubles about every eighteen months. Assuming the graphs demonstrate the market for the latest computer chips, which of the following diagrams describe this situation?

A.a.
B.b.
C.c.
D.d.

27.Suppose the above supply and demand tables reflect the supply and demand for milk per week. At a price of $4, there is a:
A.surplus of 1,000 gallons per week.
B.surplus of 2,000 gallons per week.
C.shortage of 1,000 gallons per week.
D.shortage of 2,000 gallons per week.

28.When the number of Alaskan fishermen increased, salmon prices fell to record lows. This could be shown graphically by a shift in:
A.the demand curve right
B.the supply curve left
C.the demand curve left
D.the supply curve right

29.Demand for healthy kidneys is high in both India and in Nepal. But it is also illegal to buy or sell organs. Despite the legal and social disapproval, there is an illegal market for organs. Assuming the legal and social disapproval does not influence buyers but discourages sellers from offering organs, the disapproval will:
A.raise price and raise quantity.
B.raise price but lower quantity.
C.lower price but raise quantity.
D.lower price and lower quantity.

30.In 2004, oil facilities in Iraq were attacked amid strong demand for oil. In response, political pressure motivated OPEC to increase the daily quota by 2 million barrels a day. Assuming demand did not change, which of the following series of prices most likely matches how the price of a barrel of oil changed from (1) before the attack, to (2) just after the attack, to (3) after OPEC increased the quota?
A.$42, $38, $40
B.$38, $40, $42
C.$42, $40, $38
D.$40, $42, $38

Practice Exam I Key

1.Say a pill existed that made people selfless. After taking it they were only interested in others not themselves. Under the coordination definition of economics:
A.no economic problem would exist.
B.there would still be an economic problem.
C.there would be a political problem but not an economic problem.
D.there would be a social problem but not an economic problem.

The coordination definition of economics focuses on the need for the coordination of activities and resources. Even if everyone were selfless, there would still be the need for coordinating the selfless actions so that those actions and resources are allocated efficiently.

AACSB: Analytic
BLOOMS TAXONOMY: Analysis
Colander - Chapter 01 #11
Difficulty: Hard
Learning Objective: 1-1
Topic: Economics

2.If allocating dorm rooms changes from allocation by lottery to allocation by the market:
A.it becomes an economic problem.
B.it becomes a political problem but not an economic problem.
C.it becomes a social problem but not an economic problem.
D.the allocation problem is still an economic problem.

The economic problem arises when limited resources must be allocated among individuals. The problem existed before any allocation mechanism was chosen.

AACSB: Analytic
BLOOMS TAXONOMY: Analysis
Colander - Chapter 01 #14
Difficulty: Hard
Learning Objective: 1-1
Topic: Economics

3.To engage in economic reasoning, you must compare:
A.total cost and total benefit.
B.marginal cost, sunk cost, and total benefit.
C.sunk cost and marginal cost.
D.marginal cost and marginal benefit.

Such a comparison makes it possible to determine whether the marginal benefit of an action exceeds the marginal cost.

AACSB: Analytic
BLOOMS TAXONOMY: Knowledge
Colander - Chapter 01 #26
Difficulty: Easy
Learning Objective: 1-2
Topic: Economic Decision Rule

4.Alexandra has determined that studying an hour for her economics quiz will improve her grade on the quiz from 75 to 100. She also determines that this improvement is worth $20. In order to study for an hour for her economics quiz, however, she will have to work one less hour at her part-time job. Alexandra should:
A.study for the quiz as long as her hourly wage rate is less than $20.
B.study for the quiz as long as her hourly wage rate is more than $20.
C.study for the quiz only if her hourly wage rate is exactly $20.
D.not study for the quiz because earning a higher grade cannot have a dollar value.

It is efficient for Alexandra to study if the marginal benefit exceeds the marginal cost. The marginal benefit is $20 and the marginal cost is equal to her hourly wage rate, so marginal benefit exceeds marginal cost as long as her hourly wage rate is less than $20.

AACSB: Reflective Thinking
BLOOMS TAXONOMY: Synthesis
Colander - Chapter 01 #29
Difficulty: Easy
Learning Objective: 1-2
Topic: Economic Decision Rule

5.Sunk costs:
A.are essential parts of economic reasoning.
B.are irrelevant to economic reasoning.
C.should be considered, but only when marginal cost is less than marginal benefit.
D.should be considered only when there is no information about marginal cost and marginal benefit.

Sunk costs are costs that have already been incurred and cannot be recaptured. They are in essence "water under the bridge" and as such, they do not influence economic decisions.

AACSB: Analytic
BLOOMS TAXONOMY: Knowledge
Colander - Chapter 01 #35
Difficulty: Medium
Learning Objective: 1-2
Topic: Sunk Cost

Colander - Chapter 01

6.The table below shows how the marginal benefit of video tape rentals varies for Carol with the number rented per month.

The price of each tape rental is reduced from $2.99 to $1.99. Assuming that the price of a rental accurately reflects the marginal cost to Carol and that she is rational she will increase the number of tapes rented per month from:
A.1 to 2.
B.2 to 3.
C.3 to 4.
D.4 to 5.

The economic decision rule is to do it if the relevant (marginal) benefits exceed the relevant (marginal) costs. It they don't, don't do it. Following the economic decision rule, Carol initially purchased 4 video tape rentals because the marginal benefit of only the first four rentals exceeded the marginal cost of $2.99. When the price dropped to $1.99, the marginal benefit of even the fifth rental exceeded its marginal cost, so Carol purchased 5 rentals.

AACSB: Analytic
BLOOMS TAXONOMY: Synthesis
Colander - Chapter 01 #39
Difficulty: Medium
Learning Objective: 1-2
Topic: Economic Decision Rule

7.Marginal analysis suggests that you will engage in more of an activity if the:
A.total benefit of the activity is less than the total cost.
B.additional benefit from the activity exceeds the additional cost.
C.total benefit from the activity exceeds the total cost.
D.additional cost of the activity exceeds the additional benefit.

The economic decision rule is to do more of something if the marginal benefit exceeds the marginal cost.

AACSB: Analytic
BLOOMS TAXONOMY: Analysis
Colander - Chapter 01 #48
Difficulty: Medium
Learning Objective: 1-2
Topic: Economic Decision Rule

8.Opportunity cost:
A.includes only monetary outlays.
B.is the net benefit foregone by not undertaking the next best alternative.
C.is nonexistent for some choices.
D.is the same as sunk cost.

Opportunity costs are the benefits foregone when an activity is undertaken, not the money paid to undertake an activity. All decisions involve opportunity costs because all decisions involve choices.

AACSB: Analytic
BLOOMS TAXONOMY: Knowledge
Colander - Chapter 01 #56
Difficulty: Medium
Learning Objective: 1-3
Topic: Opportunity Cost

9.More than 10,000 visitors waited up to 2 hours in line to see the rare flower, Titan Arum, at the Cambridge Botanical Gardens. What does this situation illustrate to an economist about rationing?
A.Goods don't have to be rationed by lottery or first-come, first-served. Goods can be rationed by price.
B.When goods are not fully rationed by price, other rationing mechanisms such as waiting arise.
C.When goods are not rationed by price, other rationing mechanisms such as lottery must be introduced.
D.There is no need for rationing if anyone who waits long enough can see the flower.

Anything scarce must be rationed. Rationing by queue is an alternative to rationing by price.

AACSB: Reflective Thinking
BLOOMS TAXONOMY: Synthesis
Colander - Chapter 01 #68
Difficulty: Medium
Learning Objective: 1-4
Topic: Economic Force

10.A cultural norm is:
A.an economic force.
B.a social force.
C.a political force.
D.a market force.

A cultural norm defines what is socially acceptable and is thus a social force.

AACSB: Analytic
BLOOMS TAXONOMY: Knowledge
Colander - Chapter 01 #79
Difficulty: Medium
Learning Objective: 1-4
Topic: Social Force

11.Experimental economics is:
A.a naturally occurring event that approximates a controlled experiment.
B.not possible given that economists study real-world events.
C.a branch of economics that studies the economy through controlled lab experiments.
D.what all economists do when they develop their models.

See definition of experimental economics in the text.

AACSB: Analytic
BLOOMS TAXONOMY: Knowledge
Colander - Chapter 01 #94
Difficulty: Easy
Learning Objective: 1-1
Topic: Experimental economics

12.A theorem is:
A.the application of models combined with judgment.
B.a policy rule that concludes that a particular course of action is preferable.
C.a proposition that is logically true based on the assumptions of a model.
D.a set of equations that define a model.

See definition of theorem in the text.

AACSB: Analytic
BLOOMS TAXONOMY: Knowledge
Colander - Chapter 01 #99
Difficulty: Easy
Learning Objective: 1-1
Topic: Economic Model

13.Which statement best summarizes the invisible hand theorem?
A.Government policies direct people's selfish desires (tempered by social and economic forces) to the common good.
B.Cultural norms direct people's selfish desires (tempered by political and economic forces) to the common good.
C.Markets direct people's selfish desires (tempered by political and social forces) to the common good.
D.Social, political, and economic forces act against people's selfish desires to promote the common good.

The invisible hand theorem states that economic forces (or the invisible hand) guide the actions of individuals to the common good. We know, however, that these forces are checked by culture (social forces) and the government (political forces).

AACSB: Analytic
BLOOMS TAXONOMY: Analysis
Colander - Chapter 01 #105
Difficulty: Easy
Learning Objective: 1-1
Topic: Invisible Hand Theorem

14.Modern behavioral economists are most likely to incorporate an assumption of:
A.Self-interest.
B.Rationality.
C.Predictable irrationality.
D.Efficiency.

See the text and its discussion of the distinction between modern traditional and modern behavioral economists.

AACSB: Analytic
BLOOMS TAXONOMY: Knowledge
Colander - Chapter 01 #108
Difficulty: Easy
Learning Objective: 1-1
Topic: Modern economics