Econ1: Test 1

Multiple ChoiceIdentify the choice that best completes the statement or answers the question.

____A 1. It usually takes less time to buy a six-pack of 7-Up, a loaf of bread, and a half-gallon of ice cream at a small convenience store (such as a 7-Eleven) than at a large, full-service grocery store. Which of the following persons is most likely to buy these items at a convenience store?a. a person with high opportunity cost of timeb. a person with low opportunity cost of timec. a person who is out of workd. There is not enough information to answer the question.

____A 2. Scarcity meansa. wants are greater than the limited resources available to satisfy these wants.b. wants are less than the limited resources available to satisfy these wants.c. resources are infinite.d. wants are limited.e. both c and d

____D 3. Most states have instituted mandatory seatbelt laws to reduce traffic fatalities. An economist may point out that an unintended effect of these laws isa. an increase in the price of automobiles, further reducing fatalities.b. an increase in driving speed, reducing the number of accidents.c. a decrease in driving speed, further reducing fatalities.d. an increase in risky driving behavior, increasing fatalities.

___D_ 4. Saying "the marginal costs are greater than the marginal benefits" is the same as sayinga. the average costs are greater than the average benefits.b. the total costs are greater than the average benefits.c. the benefits are greater than the costs.d. the additional costs are greater than the additional benefits.e. the costs minus the benefits equal the net costs.

Exhibit 1-1

Mar

gina

l Ben

efit,

Mar

gina

l Cos

t

Time Spent Studying (hours)

MC

MB

2 4 6 8

__C__ 5. Refer to Exhibit 1-1. The student whose study habits are illustrated here will maximize the net benefits of studying when she has studieda. 2 hoursb. 4 hours

c. 6 hoursd. 8 hours

__C__ 6. To an economist, utility means:a. additional.b. usefulness.c. satisfaction.d. marginal.

__B__ 7. Many people buy one newspaper per day, but rarely do they buy two of the same newpapers on the same day. What is the economic justification for this behavior?a. The marginal benefit of purchasing the second newspaper exceeds the marginal cost of

purchasing that paper.b. The marginal cost of purchasing the second newspaper exceeds the marginal benefit of

purchasing that paper.c. The marginal benefit of purchasing the second newspaper equals the marginal cost of

purchasing that paper.d. none of the above is an appropriate economic justification for this behavior.

__A__ 8. A PPF is more likely to be a downward-sloping curve that is bowed outward than a downward-sloping straight line because most resources area. better suited for the production of some goods than others.b. used efficiently.c. relatively cheap at low levels of output.d. used to produce consumption goods.

Exhibit 2-1

___A_ 9. Refer to Exhibit 2-1. The PPF illustratesa. constant opportunity costs between guns and butter.

b. that guns are more important than butter.c. increasing opportunity costs between guns and butter.d. the opportunity cost of one unit of guns is four units of butter.e. none of the above

___B_ 10. In the production possibilities framework, economic growth is depicted by the PPFa. shifting leftward (toward the origin).b. shifting rightward (away from the origin).c. becoming a straight line.d. becoming bowed outward.

__B__ 11. The PPF is bowed outward as a result ofa. constant opportunity costs.b. increasing opportunity costs.c. decreasing opportunity costs.d. scarcity.e. choice.

___D_ 12. If Sean can bake bread at a lower opportunity cost than Jason, and Jason can produce paintings at a lower opportunity cost than Sean, it follows thata. Sean has a comparative advantage in paintings and Jason has a comparative advantage in

baking bread.b. Both Sean and Jason have a comparative advantage in baking bread.c. Both Sean and Jason have a comparative disadvantage in producing paintings.d. Sean has a comparative advantage in baking bread and Jason has a comparative advantage

in producing paintings.e. There is not enough information to answer the question.

____A13. "Dumping" refers toa. the sale of goods abroad at a price below their cost and below the price charged in the

domestic market.b. unloading of foreign goods on domestic docks.c. government actions to remedy "unfair" trade practices.d. buying goods at low prices in foreign countries and selling them at high prices in the

United States.

___C_ 14. A tariff is aa. tax imposed on domestic producers of export goods.b. legal limit on the amount of a good that can be imported.c. tax imposed on imported goods.d. legal limit on the amount of a good that can be produced by foreign owners of a firm

located in a host country.

__C__ 15. A quota isa. a tax imposed on imported goods.b. a legal limit on the amount of a good that can be produced by foreign owners of a firm

located in a host country.c. a legal limit on the amount of a good that can be imported.d. an agreement between two countries in which the exporting country voluntarily agrees to

limit its exports to the importing country.

__A__ 16. The infant industry argument for trade protectionism holds thata. new industries sometimes need a protective environment in which to grow so that they can

compete with older, more established foreign competitors.b. foreign competitors are often viewed as "infants" by large U.S. firms.c. tariffs are often preferred to quotas.d. quotas raise prices more than tariffs raise prices.e. a and c

___A_ 17. During a war, governments will sometimes draft people, most of whom are presently employed, into the army. An economist, computing the real cost of the war, would be sure to include which of the following items?a. the value of the civilian goods no longer produced by the new soldiersb. the cost of feeding and clothing the new soldiersc. the dollar cost of the payrolld. the higher prices of civilian goods due to wartime shortagese. the cost of transporting the soldiers to combat

_B___ 18. People are more likely to purchase a consumer ratings magazine that reviews new automobiles before buying a new car than they are to purchase a consumer ratings magazine that reviews pens and pencils before buying a new pen or pencil. Which of the following best explains this behavior?a. Because the consumer ratings magazine must have a higher price for the issue reviewing

pens and pencils.b. Because the value of the information, in terms of avoiding a mistake on the purchase, is

much higher for an automobile than for a pen or pencil, it is more worthwhile to gather this information.

c. Because people generally do not know which products are reviewed by these consumer magazines.

d. None of the above explain this behavior.

___D_ 19. Which of the following is consistent with the implications of the economic guidepost that information is costly to acquire?a. Most people do not know the names of their legislators in the U.S. Congress, but those

same individuals are likely to know the names of all the cast members on a popular TV show.

b. In considering purchases, people are more likely to purchase a consumer ratings magazine that reviews new automobiles before buying a car, but are unlikely to purchase a consumer ratings magazine that reviews pens and pencils before buying a pen or pencil.

c. When shopping for something like a new calculator, people will generally not spend the time to do price comparisons at all of the stores in town that sell calculators.

d. All of the above are consistent with the economic way of thinking.

___C_ 20. Economic analysis is based on the premise thata. people act only out of selfish motives.b. people are always fully informed when making choices.c. changes in the personal benefits or costs of an action influence behavior in a predictable

way.d. most human behavior is unpredictable.

___A_ 21. The fact that some people love tomatoes while others dislike them illustrates thata. the value of a good is subjective.b. the value created by a good does not depend on who consumes it.c. the value of a tomato cannot be determined by the person consuming it.d. tomatoes have a value that is determined by their cost of production rather than by the

value to the consumer of the tomatoes.

___C_ 22. The statement, "Violent crime has decreased in the last five years,"a. is obviously wrong and, therefore, cannot be a positive statement.b. is normative since it can be answered by simply looking at the facts.c. is positive because it is testable.d. is not very interesting because all normative issues are of little importance.

___B_ 23. "The standard of living is too low for many individuals in the United States. The government should implement policies designed to achieve a more equal distribution of income." The preceding statements area. positive economic statements based on cause and effect.b. normative economic statements based on value judgments.c. based on the fallacy of composition argument.d. an empirically validated economic principle.

____C 24. When economists use the term ceteris paribus, they are indicating thata. the relationship between two economic variables cannot be determined.b. the analysis is true for the individual but not for the economy as a whole.c. all other variables except the ones specified are assumed to be constant.d. their conclusions are based on normative economics rather than positive economic

analysis.

__D__ 25. Which of the following best illustrates the fallacy of composition?a. If the price of a product rises, the quantity produced will decline.b. The average wage rate tends to increase at approximately the same rate as inflation; hence,

wage increases must cause inflation.c. Resources are scarce; therefore, there is no such thing as a free lunch.d. If Susan had more money she could buy more. If everyone had more money they could

buy more.

___D_ 26. Which of the following actions is consistent with the basic economic postulate (the guidepost) that incentives matter?a. Consumers buy fewer potatoes when the price of potatoes increases.b. A politician votes against a pay raise for himself because most of his constituents are

strongly opposed to it and would vote against him in the next election.c. Farmers produce less corn because corn prices have declined.d. All of the above.

____C 27. The expression "There's no such thing as a free lunch" meansa. in an exchange, if one person gains, someone else must lose. –no both win-b. each person must pay for exactly what he or she receives.c. the use of resources to meet one need means that those resources can no longer be

used to meet another need. Always opportunity cost. Nothings freed. in an exchange, if one person gains, someone else must lose and equal amount.

___B_ 28. The highest valued alternative option that must be given up in order to choose an action is called itsa. utility.B opportunity cost.c. capital.d. ceteris paribus

__A__ 29. Which of the following is implied by the economic concept of opportunity cost?a. If the National Football League (NFL) allowed college freshmen and sophomores to be

drafted and play in the NFL, the most talented football players would drop out of school to

play professional football.b. If the demand for computer programmers in the private sector was to rise, salaries for

computer science professors would likely rise as well.c. The cost of taking time off work to have children is higher for women in high-paying

managerial positions than for women in low-paying clerical jobs.d. All of the above are true.

__D__ 30. Which of the following would likely raise your opportunity cost of attending a football game this Saturday night?a. On Friday, your history professor unexpectedly announces there will be a midterm exam

on Monday morning worth half of your grade.b. You are offered double-pay if you work Saturday night at the restaurant where you are

employed.c. A friend calls and offers you free tickets to a Saturday night concert by one of your

favorite bands.d. All of the above would likely raise the opportunity cost of attending the football game.

Figure 2-1

__B__ 31. In Figure 2-1, point A isa. unattainable.b. inefficient.c. efficient.d. preferable to point B.

Figure 2-2

____C 32. Which of the following would most likely cause the production possibilities curve for breadfruit and fish to shift outward from AA to BB in Figure 2-2?a. a decrease in the labor force of the countryb. a sudden change in consumer preferences for more fish and less breadfruitc. a major technological advanced. a decrease in the capital stock

__D__ 33. Keri decided to sleep in today rather than attend her 9 a.m. economics class. According to economic analysis, her choice wasa. irrational, because economic analysis suggests you should always attend classes that you

have already paid for.b. irrational, because oversleeping is not in Keri's self-interest.c. rational if Keri has not missed any other classes.d. rational if Keri values sleep more highly than the benefit she expects to receive from

attending the class.

__B__ 34. According to the law of comparative advantage,a. each producer should strive toward self-sufficiency in order to maximize the total

production of the economy.b. each product should be produced by the lowest opportunity cost producer in order to

maximize output.c. one should never compare one's abilities with those of another.d. each product should be produced by the individual who can produce more of that product

than any other individual.

___A_ 35. A U.S. trade policy that restricts the sale of foreign goods in the U.S. market willa. reduce the demand for U.S. export goods since foreigners will be less able to buy our

goods if they cannot sell to us.b. benefit producers in industries that export goods.c. increase the nation's income since it protects domestic jobs.d. enhance economic efficiency by allocating more resources to the areas of their greatest

comparative advantage.

__D__ 36. Suppose the United States reduced the tariff on television sets, allowing foreign-produced televisions to more freely enter the U.S. market. Which of the following would most likely occur?a. The price of televisions to U.S. consumers would increase, and the demand for U.S. export

products would rise.b. The price of televisions to U.S. consumers would fall, and the demand for U.S. export

products would fall.c. The price of televisions to U.S. consumers would increase, and the demand for U.S. export

products would fall.d. The price of televisions to U.S. consumers would fall, and the demand for U.S. export

products would rise.

___D_ 37. International trade is advantageous because trade makes it possible for people in each country toa. import more than they export.b. export more than they import.c. employ more of their domestic resources producing things that are costly for them to

produce domestically.d. acquire goods from foreigners more economically than they could be produced

domestically.e. do all of the above.

_A___ 38. The following table indicates the production possibilities of food and clothing per worker day in the United States and South Korea.

Units of Output per Worker DayUnited States South Korea

Food 2 1Clothing 6 2

Which of the following is true?a. Mutual gains from trade could be realized if the United States specialized in clothing

production and South Korea in production of food. usa(2F:6C 1F:3C)b. South Korean workers are the low-cost producers of clothing.c. Mutual gains could be realized if the United States specialized in producing food and

South Korea in producing clothing.d. U.S. workers are the high-cost producers of clothing.

__A_ 39. The following table indicates the production possibilities of food and clothing per worker day in the United States and South Korea.

Units of Output per Worker DayUnited States South Korea

Food 6 2Clothing 2 1

Which of the following is true?a. Mutual gains could be realized if the United States specialized in producing food and

South Korea in producing clothing.b. Mutual gains could be realized if the United States specialized in clothing production and

South Korea in food production.c. South Korean workers are the high-cost producers of clothing.d. None of the above are true.

__B__ 40. The following table indicates the production possibilities of food and clothing per worker day in the United States and Japan.

Units of Output per Worker DayUnited States Japan

Food 2 2Clothing 5 6

Which of the following is true?a. Since U.S. workers produce more of both food and clothing than Japanese workers, no

gains from trade are possible.b. Mutual gains from trade could be realized if the United States specialized in food

production and Japan in clothing production.c. The Japanese are the low-cost producers of both food and clothing.d. Joint output would be maximized if the United States specialized in producing clothing

and Japan in producing food.

___C_ 41. The following table indicates the production possibilities of food and clothing per worker day in the United States and Japan.

Units of Output per Worker DayUnited States Japan

Food 2 2Clothing 4 3

Which of the following is true?a. Mutual gains from trade could be realized if the United States specialized in food

production and Japan in clothing production.b. Since Japanese workers produce more of both food and clothing than U.S. workers, no

gains from trade are possible.c. Joint output would be maximized if the United States specialized in producing clothing

and Japan in producing food.d. The Japanese are the low-cost producers of both food and clothing.

__B__ 42. Which of the following is the best example of a quota?a. a tax placed on all small cars sold in the domestic marketb. a limit imposed on the number of men's suits that can be imported from a foreign countryc. a subsidy from the U.S. government to domestic manufacturers of men's suits so they can

compete more effectively with foreign producers of men's suitsd. a $100-per-car fee imposed on all small imported cars

___C_ 43. A basic problem with the infant-industry argument is thata. most industries need protection when they are mature, not when they are first established.b. the amount of the tariff is unlikely to have much impact on the success of an infant

industry.c. political pressure will likely prevent the withdrawal of the tariff when the industry

matures.d. domestic consumers will continue to buy the foreign products anyway, regardless of the

tariff.

___A_ 44. Which of the following would be the most likely long-run effect if the United States increased its tariff rates and adopted stricter import quotas?A a decrease in both U.S. imports and exportsb. an increase in both U.S. imports and exportsc. a decrease in U.S. imports and an increase in U.S. exportsd. an increase in U.S. imports and a decrease in U.S. exports

___D_ 45. If Japan offered every U.S. citizen a new automobile for a price of only $1,a. the action would be considered "dumping."b. domestic automobile manufacturers and workers would likely favor imposing tariffs or

quotas to restrict this action.c. domestic citizens would benefit from this action by Japan.d. all of the above are true.

Figure 2-11

goods

goods

A B

consumer

capital

__D__ 46. Refer to Figure 2-11. Which of the following would most likely have caused the production possibilities frontier to shift outward from A to B?a. a decrease in unemploymentb. a technological advance in the consumer goods industriesc. a general technological advance – benefit both capital and consumerd. an increase in the availability of capital-producing resources

__B__ 47. A microeconomist — as opposed to a macroeconomist — might studya. the effect of borrowing by the federal government on the inflation rate.b. the effect of rising oil prices on employment in the airline industry.c. changes in the nation’s unemployment rate over short periods of time.d. alternative policies to promote higher living standards throughout the nation.

__A__ 48. Which of the following areas of study typifies microeconomics as opposed to macroeconomics?a. the impact of minimum-wage laws on employment in the fast food industryb. the effect of changes in household saving rates on the growth rate of national incomec. the impact of faster money growth on the rate of inflationd. a comparison of alternative tax policies and their respective impacts on the rate of the

nation’s economic growth

__A__ 49. Which of the following is an example of a normative, as opposed to positive, statement?a. Universal health care would be good for U.S. citizens.b. An increase in the cigarette tax would cause a decrease in the number of smokers.c. A decrease in the minimum wage would decrease unemployment.d. A law requiring the federal government to balance its budget would increase economic

growth.

__C__ 50. If the United States decides to trade with Mexico, we know that

a. Mexico will benefit, but trade with a less developed country could not benefit the United States.

b. it will not benefit Mexico because workers in the United States are more productive.c. Mexico and the United States can both benefit.d. it will not benefit either country because their cultural differences are too vast.

_C___ 51. Central planning refers to a. markets guiding economic activity. Today many countries that had this system have

abandoned it.b. markets guiding economic activity. Today many countries that did not have this system

have implemented it.c. government guiding economic activity. Today many countries that had this system have

abandoned it.d. government guiding economic activity. Today many countries that did not have this

system have implemented it.

__D__ 52. One advantage market economies have over centrally-planned economies is that market economiesa. provide an equal distribution of goods and services to households.b. establish a significant role for government in the allocation of resources.c. solve the problem of scarcity.d. are more efficient.

__D__ 53. The economy of the former Soviet Union is best described as a a. primitive economy.b. market economy.c. hybrid economy.d. centrally-planned economy.

__D__ 54. Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?a. There is no such thing as a free lunch.b. People buy more when prices are low than when prices are high.c. No matter how much people earn, they tend to spend more than they earn.d. Households and firms interacting in markets are guided by an "invisible hand" that leads

them to desirable market outcomes.

_B___ 55. The invisible hand refers to a. how central planners made economic decisions.b. how the decisions of households and firms lead to desirable market outcomes.c. the control that large firms have over the economy.d. government regulations without which the economy would be less efficient.

__C__ 56. The unintended consequences of an economic change that are not immediately identifiable but are felt only with time are known in economics asa. opportunity costs.b. marginal effects.c. secondary effects.d. scarcity constraints.

___C_ 57. According to the law of comparative advantage,a. individuals and nations gain when they specialize in producing those goods they consume.b. individuals and nations gain when they specialize in producing goods they can produce at

a high opportunity cost and can exchange for other desired goods they can produce cheaply.

c. individuals and nations gain when they specialize in producing those items for which they are the low opportunity cost producers and exchange for other desired goods they can't produce as cheaply.

d. all of the above are true.

___B_ 58. Which of the following statements about exchange is true?a. If everyone starts off with the same quantities of each good, it would be impossible to

realize gains from trade.b. Exchange tends to move each good toward those individuals who value the good more

highly.c. Exchange always results in one party being made better off and the other being made

worse off.d. For trade to occur, everyone must start off with the same value of the good that is traded.

__D__ 59. Which of the following is true of exchange?a. The value of a good is determined by the cost of the resources required to produce the

good.b. Exchange makes it possible for trading partners to produce more goods through

division of labor and adoption of mass production methods.c. Nothing new is created by exchange; if one party to an exchange gains, the other must lose

an equal amount.d. Both a and b are true.

__B_ 60. When an entrepreneur like Bill Gates makes $10 billion through creating and selling new products,a. there will be exactly $10 billion less for other individuals in the economy.b. the total size of the economic pie has been increased.c. there will be more than $10 billion in losses to other workers who lose their jobs.d. it is likely that the new products are not as good as other products that are available in the

market.

___A_ 61. "The enormous wealth made by some individuals in our country is primarily the result of the profit made at the expense of others." The person who made this statementa. has failed to comprehend that trade is mutually advantageous and that the overall size of

the economic pie is not fixed.b. has failed to comprehend the fallacy of composition.c. has failed to understand the significance of the production possibilities constraint.d. has utilized the economic way of thinking; the statement is essentially correct.

__C__ 62. Suppose you can type a paper in two hours or mow the lawn in four hours. It takes your friend Ann eight hours to type a paper of the same length and five hours to mow the same size of lawn. Which of the following is true? (inputs?)a. Ann is the high-opportunity cost producer of both typing and mowing.b. Since you can type papers and mow lawns faster than Ann, you and Ann cannot benefit

from specialization and trade.c. You and Ann could expand output and gain from trade if she specialized in mowing lawns

and you specialized in typing papers.d. You and Ann could expand output and gain from trade if she specialized in typing papers

and you specialized in mowing lawns.

Figure 2-7

____D 63. If an economy operates at point A on the production possibilities curve shown in Figure 2-7,a. to produce more food, it would have to reduce its production of clothing.b. to produce more clothing, it would have to reduce the production of food.c. it is operating efficiently.d. all of the above would be correct.

Figure 2-10

__B__ 64. Refer to Figure 2-10. If the economy moves from point C to point B, then which of the following statements is correct?a. The economy benefited from a technological advance in the production of baseballs.b. The opportunity cost of each additional baseball is 2 bananas.c. The opportunity cost of each additional banana is 2 baseballs.d. The move involves no opportunity cost; it simply reflects the desires of the economy's

citizens.

___B_ 65. "If I didn't have a date tonight, I would save $10 and spend the evening playing tennis." The opportunity cost of the date isa. the other things that could be purchased with the $10.b. the other things that could be purchased with the $10 plus the forgone value of a night of

tennis.

c. dependent upon how pleasant a time one has on the date.d. the forgone value of a night of tennis.