(TCO 1. 1) Opportunity cost is best defined as (Points : 4)
m arginal cost minus marginal benefit.
t he time spent on an economic activity.
------- the value of the best forgone alternative.
t he money cost of an economic decision.
2. (TCO1) Which of the following is considered to be an entrepreneur? (Points : 4)
-------- Self-employed person
M BA graduate hired by a fi rm to be its CEO
P roduction-line worker
Customer of a fi rm
3. (TCO1) A point on the production possibili ties curve is (Points : 4)
a ttainable and resources are fully employed.
------- attainable, but resources are unemployed.
u nattainable, but resources are unemployed.
u nattainable and resources are fully employed.
4. (TCO1) A basic characteristic of a command system is that (Points : 4)
wages paid to labor are higher.
---------- government owns most economic resources.
f ree markets are never permit ted in a command economy.
government planners play a limited role in deciding what goods will be produced.
5. (TCO 2) The demand curve is a representation of the relationship between the quantity of
a p roduct demanded and (Points : 4)
supply.
wealth.
------- price.
i ncome.
6. (TCO 2) A decrease in supply and a decrease in demand will (Points : 4)
i ncrease price and affect the equilibrium quantity in an indeterminate way.
decrease the equilibrium quantity and decrease price.
i ncrease the equilibrium quantity and affect price in an indeterminate way.
--------- decrease the equilibrium quantity and affect price in an indeterminate way.
7. (TCO 2) Chuck Grim has a price elasticity of demand for beer of 1.2. Suppose that the
p rice of beer is increased by 10 percent. What will happen to the total amount Chuck
spends on beer? (Points : 4)
I t will not change.
----- I t will decrease.
I t will increase.
I t is impossible to tell.
8. (TCO 2) Which of the following factors will make the demand for a product relatively
elastic? (Points : 4)
--------There are few substitutes.
T he time interval considered is long.
T he good is considered a necessity.
Purchases of the good require a small portion of consumers' budgets.
9. (TCO 2) A purely competitive fi rm's output is such that its marginal cost is $4 and
m arginal revenue is $5. Assuming profit maximization, the fi rm should (Points : 4)
cut its price and raise its output.
r aise its price and cut output.
leave price unchanged and raise output.
-------- leave price unchanged and cut output.
10. (TCO 2) Which case below best represents a case of price discrimination? (Points : 4)
A n insurance company offers discounts to safe drivers.
--------A major airline sells t ickets to senior citizens at lower prices than to other
passengers.
A p rofessional baseball team pays two players with identical batting averages different
salaries.
A u tility company charges less for electricity used during "off-peak" hours, when it does
not have to operate i ts less-efficient generating plants.
11. (TCO 3) A major reason that fi rms form a cartel is to (Points : 4)
r educe the elasticity of demand for the product.
enlarge market the share for each producer.
m inimize the costs of production.
-------- maximize joint profits.
12. (TCO 3) In the short run, output (Points : 4)
------------ is absolutely fixed.
can vary as the result of using a fixed amount of plant and equipment more or less
i ntensively.
may be altered by varying the size of plant and equipment which now exist in the
i ndustry.
can vary as the result of changing the size of existing plants and by new fi rms entering
or leaving the industry.
13.
( TCO 4) Refer to the diagram. The phases of the business cycle from points A to D are,
r espectively:
G raph Description
(Points : 4)
Peak, recession, expansion, t rough
T rough, recovery, expansion, peak
E xpansion, recession, t rough, peak
------------- Peak, recession, t rough, expansion
14. (TCO 4) Official unemployment rate statistics may (Points : 4)
overstate the amount of unemployment by including part-time workers in the
calculations.
u nderstate the amount of unemployment by excluding part-t ime workers in the
calculations.
overstate the amount of unemployment because of the presence of "discouraged"
workers who are not actively seeking employment.
--------- understate the amount of unemployment because of the presence of
"discouraged" workers who are not actively seeking employment.
15. (TCO 4) To avoid multiple counting in national income accounts (Points : 4)
--------- only final goods and services should be counted.
i ntermediate goods and services should be counted.
both final and intermediate goods and services should be counted.
p rimary, intermediate, and final goods and services should be counted.
16. (TCO 4) Nominal GDP differs from real GDP because (Points : 4)
nominal GDP is based on constant prices.
r eal GDP is based on current prices.
r eal GDP results from adjusting for changes in the price level.
-------- nominal GDP results from adjusting for changes in the price level.
17. (TCO 6) Fiscal policy is enacted through changes in (Points : 4)
i nterest rates and the price level.
t he supply of money and foreign exchange.
u nemployment and inflation.
------- taxation and government spending.
18. (TCO 6) Refer to the figure. The economy is at equilibrium at Point B. What would
expansionary fiscal policy do?
G raph Description
(Points : 4)
------- Shift aggregate demand from AD2 to AD1
Shift aggregate demand from AD2 to AD3
Move the economy from Point B downward along AD2
Move the economy from Point B upward along AD2
19. (TCO 6) The American Recovery and Reinvestment Act of 2009 is a clear example of
(Points : 4)
nondiscretionary expansionary fiscal policy.
nondiscretionary contractionary fiscal policy.
d iscretionary contractionary fiscal policy.
------discretionary expansionary fiscal policy.
20. (TCO 6) If people expected that a tax cut was temporary, then this fiscal policy's effect
on the economy will tend to be (Points : 4)
s tronger.
weaker.
------ the exact opposite of what was intended.
as the mult iplier effect would predict.
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