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Questions Review for exam 1 eco 2301 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) How are the fundamental economic decisions determined in Cuba? A) The government decides because Cuba is a centrally planned economy. 2) If a commercial dairy farm wants to raise funds to purchase feeding troughs, it does so in the B) factor market. 3) Several studies have shown promising links between green tea consumption and cancer prevention. How does this affect the market for green tea? A) The green tea demand curve shifts to the right because of a change in tastes in favor of green tea. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 4) Scarcity is a problem that will eventually disappear as technology advances. F MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Table 2-3 One Digital Camera Wheat (per pound) China 100 hours 4 hours South Korea 60 hours 3 hours Table 2-3 shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea. 5) Refer to Table 2-3. What is South Korea's opportunity cost of producing one digital camera? A) 20 pounds of wheat 6) Refer to Table 2-3. South Korea has a comparative advantage in A) digital camera production. 7) Refer to Table 2-3. Does either China or South Korea have an absolute advantage and if so, in what product? A) South Korea has an absolute advantage in both products. 8) Refer to Table 2-3. China has a comparative advantage in D) wheat production. 9) Which of the following statements is false about an entrepreneur? B) sells his entrepreneurial services in the output market 10) Economists assume that rational people do all of the following except B) undertake activities that benefit others and hurt themselves. 11) Suppose that when the price of hamburgers increases, the Ruiz family increases their purchases of hot dogs. To the Ruiz family, A) hamburgers and hot dogs are substitutes. Table 3-1 Loose leaf Tea Price per lb. (dollars) Sunil's Quantity Demanded (lbs) Mia's Quantity Demanded (lbs) Rest of Market Quantity Demanded (lbs) Market Quantity demanded (lbs) $8 4 0 30 6 7 2 40 5 9 3 51 4 12 5 64 3 15 8 90 12) Refer to Table 3-1. The table above shows the demand schedules for loose-leaf tea of two individuals (Sunil and Mia) and the rest of the market. At a price of $5, the quantity demanded in the market would be B) 63 lbs 13) Refer to Table 3-1. The table above shows the demand schedules for loose-leaf tee of two individuals (Sunil and Mia) and the rest of the market. If the price of loose-tea raises from $3 to $4 the market quantity demanded would B) decrease by 32 pounds. 14) Ted quits his $60,000-a-year job to be a stay -at-home dad. What is the opportunity cost of his decision? B) at least $60,000 Figure 2-3 15) Refer to Figure 2-3. Carlos Vanya grows tomatoes and strawberries on his land. His land is equally suited for growing either fruit. Which of the graphs in Figure 2-3 represent his production possibilities frontier? A) Graph A 16) In July, market analysts predict that the price of gold will rise in August. What happens in the gold market in July, holding everything else constant? C) The supply curve shifts to the left. 17) Without an increase in the supplies of factors of production, how can a nation achieve economic growth? D) through technological advancement which enables more output with the same quantity of resources 18) If the price of automobiles were to increase, then A) the demand for gasoline would decrease. 19) Which of the following statements is false? D) Tradeoffs do not apply when the consumers purchase a product for which there is excess supply, such as a stock clearance sale. Figure 2-6 German auto producer, BMW currently produces two types of automobiles sports utility vehicles (SUVs) and coupes in its US plant. Since it opened in 1994, the company had made and continues to make several strategic production decisions. Figure 2-6 shows changes to its production possibilities frontier in response to some of these production strategies. 20) Refer to Figure 2-6. Between 1995 and 2003, worker productivity increased so that the total number of vehicles produced increased as the company added more machinery, workers and changed the layout of the factory. This is best represented by the D) movement from G to H in Graph B. 21) Refer to Figure 2-6. In response to changing consumer demands, BMW has cut back on the production of coupes and increased its production of SUVs. This strategy is best represented by A) movement from J to H in Graph B. 22) The circular flow model demonstrates D) the roles played by households and firms in the market system. 23) Technological advances have resulted in lower prices for digital cameras. What is the impact of this on the market for traditional (non-digital) cameras? C) The demand curve for traditional cameras shifts to the left. 23) 24) Marginal analysis involves undertaking an activity A) until its marginal benefits equal marginal costs. 25) The income effect of a price change refers to the impact of a change in B) the price of a good on a consumer's purchasing power. 26) Which of the following statements is true about scarcity? A) Scarcity refers to the situation in which unlimited wants exceed limited resources. 27) The revenue received from the sale of an additional unit of a product D) is a marginal benefit to the firm. 28) The phrase "demand has increased" means that. C) a demand curve has shifted to the right. 29) What does the term "marginal" mean in economics? C) an additional or extra 30) Voluntary exchange increases economic efficiency C) because neither the buyer nor the seller would agree to a trade unless they both benefit. 31) The phrase "demand has increased" means that A) a demand curve has shifted to the right. 32) By definition, economics is the study of C) the choices people make to attain their goals, given their scarce resources. 33) Economics promote which of the following as the way to make the best decision? C) Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost. Figure 2-2 Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables. 34) Refer to Figure 2-2. What is the opportunity cost of one pound of meat? D) 1 pounds of vegetables 35) Refer to Figure 2-2. Suppose Mendonca is currently producing 60 pounds of vegetables per period. How much meat is it also producing, assuming that resources are fully utilized? B) 75 pounds of meat 36) Which of the following is a microeconomics question? C) What factors determine the price of carrots? 37) The branch of economics which studies the behavior of entire economies and policies that affect the economy as a whole is called A) macroeconomics. 38) Christopher Tang has argued that supermarkets should not necessarily remove goods from their shelves even if they are not selling well. Which of the following explains Tang's reasoning? A) If a slow-selling product is a complement of another product, removing the slow-seller would reduce sales of both products. 39) Productive efficiency is achieved when B) firms produce goods and services at the lowest cost. 40) Bella can produce either a combination of 60 silk roses and 80 silk leaves or a combination of 70 silk roses and 55 silk leaves. If she now produces 60 silk roses and 80 silk leaves, what is the opportunity cost of producing an additional 10 silk roses? D) 25 silk leaves 41) Although it is a popular product, Apple makes little profit from each song downloaded through iTunes. Why does Apple charge only $0.99 to download a song? D) The low price makes it more likely that consumers will buy iPods, which are relatively expensive. 42) The branch of economics which studies how households and firms make choices, interact in markets and how government attempts to influence their choices is called A) microeconomics 43) A worker is hired in a B) factor market. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 44) The term "market" refers only to trading arrangements that have been approved by the government. False. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 45) The production possibilities frontier model assumes all of the following except C) any level of the two products that the economy produces is currently possible. 46) Which of the following would cause a decrease in the supply of milk? A) An increase the price of a product that producers sell instead of milk. 47) Which of the following is a positive economic statement? A) Scarcity necessitates that people make trade-offs. 48) The supply curve for watches A) shows the relationship between the price of watches and the quantity supplied of watches. 49) In January, buyers of gold expect that the price of gold will fall in February. What happens in the gold market in January, holding everything else constant? C) The demand curve shifts to the left. 50) Which of the following is a normative economic statement? C) Fashion designers should be allowed to copyright designs to promote innovation. 51) Farmers can plant either corn or soybeans in their fields. Which of the following would cause the supply of soybeans to increase? A) A decrease in the price of corn. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 52) If a country is producing efficiently and is on the production possibilities frontier, the only way to produce more of one good is to produce less of the other. True. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 53) The term "market" in economics refers to A) a group of buyers and sellers of a product and the arrangement by which they together come to trade. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 54) The sales revenue a seller receives from the sale of an additional unit of goods is called the marginal benefit. True MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 55) In October 2005, the U.S. Fish and Wildlife Service banned the importation of beluga caviar, the most prized of caviars, from the Caspian Sea. What happened in the market for caviar in the U. S.? D) The supply curve shifted to the left. 56) Holding everything else constant, an increase in the price of MP3 players will result in C) a decrease in the quantity of MP3 players demanded. 57) Which of the following is not an example of an efficiency-equity tradeoff faced by economic agents? D) Concerned about the falling birth rate, the French government has pledged more money for families with three children, in an effort to encourage working women to have more babies. Figure 2-7 Figure 2-7 shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods, cotton and cashews. 58) Refer to Figure 2-7. What is the opportunity cost of producing 1 pound of cashews in Pakistan? B) 1 3/5 bolts of cotton 59) Refer to Figure 2-7. What is the opportunity cost of producing 1 bolt of cloth in Pakistan? B) 5/8 pounds of cashews 60) Refer to Figure 2-7. Which country has a comparative advantage in the production of cotton? A) Indonesia 61) Refer to Figure 2-7. What is the opportunity cost of producing 1 bolt of cloth in Indonesia? C) 3/8 pounds of cashews 62) Which of the following would shift the supply curve for MP3 players to the right? C) A decrease in the price of an input used to produce MP3 players. 63) Which of the following correctly describes the relationship between economic efficiency and economic equity? C) There is often a trade-off between the two. 64) If a firm expects that the price of its product to be higher in the future than it is today C) the firm has an incentive to decrease supply now and increase supply in the future. 65) If in the market for oranges the supply has increased then D) the supply curve for oranges has shifted to the right. 66) Last month, the Tecumseh Corporation supplied 400 units of three-ring binders at $6 per unit. This month, the company supplied the same quantity of binders at $4 per unit. Based on this evidence, Tecumseh has experienced B) an increase in supply. 67) Which of the following is correct about the economic decisions consumers, firms, and the government have to make? A) Each faces the problem of scarcity which necessitates tradeoffs in making economic decisions. Figure 2-4 Figure 2-4 shows various points on three different production possibilities frontiers for a nation. 68) Refer to Figure 2-4. Consider the following events: a. an increase in the unemployment rate b. a decrease in a nation's money supply c. a war that kills a significant portion of a nation's population Which of the events listed above could cause a movement from Y to W ? D) c only 69) Refer to Figure 2-4. A movement from Y to Z C) is the result of advancements in plastic production technology. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 70) "The distribution of income should be left to the market" is an example of a positive economic statement. False. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 71) The economic analysis of minimum wage involves both normative and positive analysis. Consider the following consequences of a minimum wage: a. The minimum wage law causes unemployment. b. A minimum wage law benefits some groups and hurts others. c. In some cities such as San Francisco and New York, it would be impossible for lowskilled workers to live in the city without minimum wage laws. d. The gains to winners of a minimum wage law should be valued more highly than the losses to losers because the latter primarily comprises businesses. Which of the consequences above are positive statements and which are normative statements? B) A and b are positive statements, c and d are normative statement. 72) One would speak of a movement along a supply curve for a good, rather than a change in supply, if B) the price of the good changes TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 73) "A decrease in the price of digital cameras will decrease the demand for camera film." This statement is an example of a positive economic statement. True. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 74) If in the market for apples the supply has decreased then A) the supply curve for apples has shifted to the left. 75) The substitution effect of a price change refers to B) the change in quantity demanded that results from a change in price making a good more or less expensive relative to other goods that are substitutes. 76) If a decrease in income leads to an increase in the demand for macaroni, then macaroni is A) an inferior good. 77) In economics, the term "equity" means B) economic benefits are distributed fairly. 78) Which of the following best describes an assumption economists make about human behavior? A) They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time. 79) Increasing marginal opportunity cost implies that D) the more resources already devoted to any activity, the payoff from allocating yet more resources to that activity increases by progressively smaller amounts. 80) George Gnat subscribes to a monthly pest control service for his home. Last week the owner of the service informed George that he will have to raise his monthly service fee because of increases in the price of gasoline used by his workers on their service trips. How is the market for pest control services affected by this? A) There is a decrease in the supply of pest control services. 81) A production possibilities frontier with a bowed outward shape indicates A) increasing opportunity costs as more and more of one good is produced. 82) How are the fundamental economic questions answered in a market economy? B) Households and firms interact in markets to decide the answers to these questions. 83) Which of the following is motivated by an equity concern? B) Some US colleges have cut back on merit scholarships since these programs siphon money from need-based programs, thus harming lower-income students with greater financial need. 84) Which of the following is a macroeconomics question? C) What determines the inflation rate? 85) The basic economic problem of scarcity C) has always existed and will continue to exist. 86) A demand curve shows the relationship between C) the price of a product and the quantity of the product demanded. 87) The unattainable points in a production possibilities diagram are C) the points outside the production possibilities frontier. 88) What is an economic model? B) It is a simplified version of some aspect of economic life used to analyze an economic issue. 89) According to a recent study, "Stricter college alcohol policies, such as raising the price of alcohol, or banning alcohol on campus, decrease the number of students who use marijuana." On the basis of this information, how would you describe alcohol and marijuana? A) The two goods are complements in consumption. 90) The production possibilities frontier model shows that B) if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good. 91) An outward shift of a nation's production possibilities frontier can occur due to A) an increase in the labor force. 92) The income effect of a price change results in a A) movement along the demand curve due to a change in purchasing power brought about by the price change. 93) How does a market system prevent people from getting as many goods and services as they wish? A) The market system allocates goods and services to those who are able to pay for those products and therefore income is a limiting factor. 94) If the price of grapefruit rises, the substitution effect due to the price change will cause C) a decrease in the quantity demanded of grapefruit. 95) Increasing opportunity cost along a bowed out production possibilities frontier occurs because B) some factors of production are not equally suited to producing both goods or services. 96) Which of the following statements is false about positive economic analysis? D) There is much more disagreement among economists over positive economic analysis than over normative economic analysis. 97) The popularity of digital cameras has enticed large discount stores like Wal-Mart and Costco to offer digital photo printing services. How does this affect the digital photo printing market? C) The supply curve for digital photo printing services shifts to the right. 98) If, in response to an increase in the price of chocolate, the quantity demanded of chocolate decreases economists would describe this as C) a decrease in quantity demanded. 99) The Internet has created a new category in the book selling market, namely, the "barely used" book. How does the availability of barely used books affect the market for new books? C) the demand curve for new books shifts to the left. 100) Technological advancements have led to lower prices and an increase in the sale of digital cameras. How does this affect the digital photo printing paper market? C) The demand curve for digital photo printing paper shifts to the right. 17 Figure 2-8 101) Refer to Figure 2-8. The segment of the circular flow diagram in the Figure shows the flow of wages and salaries from market K to economic agents M. What is market K and who are economic agents M? B) K = factor markets; M = households

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