2301-Exam ECON 2
1. Which of the following would most likely increase the price of chicken, a normal good?
A) a reduction in the price of grains used to produce chicken feed
B) a reduction in the price of beef, a substitute for chicken
C) unusually hot weather that kills millions of chickens before they are ready for market
D) a decrease in consumer income
2. Which of the following is the correct way to describe equilibrium in a market?
A) At equilibrium, demand equals supply.
B) At equilibrium, quantity demanded equals quantity supplied.
C) At equilibrium, market forces no longer apply.
D) Equilibrium is a tendency for price to change, a state of perpetual motion.
E) At equilibrium, the "fairest" price for output is achieved.
3. A price ____ set ____ the equilibrium price will lead to a shortage.
A) ceiling; above
B) ceiling; below
C) floor; above
D) floor; below
4. Table 5-1
PRICE per large pepperoni pizza
$10
9
8
7
6
5
4
3
2
1
QUANTITY DEMANDED of large
pepperoni pizzas
1,000 units
2,000 units
3,000 units
4,000 units
5,000 units
6,000 units
7,000 units
8,000 units
9,000 units
10,000 units
Refer to Table 5-1. At a price of $4, there is a ____ of ____ pizzas.
A) shortage; 4,500
B) surplus; 4,500
C) shortage; 6,500
D) surplus; 6,500
E) shortage; 9,500
5. Figure 5-1
The diagram below represents the market for butter.
QUANTITY SUPPLIED of large
pepperoni pizzas
5,500 units
5,000 units
4,500 units
4,000 units
3,500 units
3,000 units
2,500 units
2,000 units
1,500 units
1,000 units
Refer to Figure 5-1. If a price ceiling of $2 is imposed, ____ units of butter will be sold.
A) 8,000
B) 5,000
C) 4,000
D) 3,000
E) 2,000
6. Which of the following is true about demand and quantity demanded?
A) A change in quantity demanded is caused by a change in current price while a change in demand is caused by a change in
some other factor.
B) A change in demand is caused by a change in current price while a change in quantity demanded is caused by a change in some
other factor.
C) Both a change in quantity demanded and a change in demand are caused by a change in a factor other than the current price.
D) Both a change in quantity demanded and a change in demand are caused by a change in the current price.
E) None of the above.
7. Medical authorities announced in the late 1980s that an acne medicine named Retin-A also had previously unknown wrinklereducing properties. An economist would expect to find that, after this announcement, the price of Retin-A ____ and the quantity sold
____.
A) rose; fell
B) rose; rose
C) fell; fell
D) fell; rose
8. If both the supply and demand curves shift to the left, then we can conclude that there will be a(n):
A) increase in the equilibrium quantity sold.
B) decrease in the equilibrium quantity sold.
C) increase in the equilibrium price.
D) decrease in the equilibrium price.
E) a change in quantity that is indeterminate.
9. There is an increase in demand for personal computers at the same time their input costs fall. We would expect that:
A) price will fall, but the effect on quantity sold is uncertain.
B) the quantity sold will decline, but the effect on price is uncertain.
C) the quantity sold will increase, but the effect on price is uncertain.
D) price will rise, but the effect on quantity sold is uncertain.
10. If market demand decreases and market supply increases, then equilibrium quantity will (be) ____ and equilibrium price will (be)
____.
A) indeterminate; decrease
B) indeterminate; increase
C) decrease; indeterminate
D) increase; indeterminate
11. Table 5-4
Price per gallon
$4.50
$4.25
$4.00
$3.75
$3.50
$3.25
$3.00
$2.75
$2.50
Quantity Demanded (thousands of
gallons)
600
700
800
950
1,200
1,500
1,800
2,100
2,400
Quantity Supplied of gasoline (thousands
of gallons)
2,000
1,900
1,800
1,700
1,600
1,500
1,400
1,300
1,200
Refer to Table 5-4. If the government imposes a $2.50 price ceiling:
A) a 1,200,000 gallon surplus will result.
B) a 2,400,00 gallon surplus will result.
C) a 1,200,000 gallon shortage will result.
D) a 2,400,000 gallon shortage will result.
E) quantity demanded will equal quantity supplied.
12. A surplus currently exists in the market for apples. Which of the following statements is correct?
A) The quantity of apples supplied exceeds the quantity demanded and the market price is below the equilibrium price.
B) The quantity of apples supplied exceeds the quantity demanded and the market price is above the equilibrium price.
C) The quantity of apples supplied exceeds the quantity demanded and the market price equals the equilibrium price.
D) The quantity of apples demanded exceeds the quantity supplied and the market price is below the equilibrium price.
E) The quantity of apples demanded exceeds the quantity supplied and the market price is above the equilibrium price.
13. Figure 5-5
Refer to Figure 5-5. The graph portrays the market for gasoline for which a ____ has been imposed, and, as a result, a ____ of
gasoline occurs.
A) price floor; surplus
B) price ceiling; shortage
C) price ceiling; surplus
D) price floor; shortage
14. For quantity exchanged to decrease, but the price to rise, there must have been a(n)
A) increase in demand.
B) decrease in demand.
C) increase in supply
D) decrease in supply.
15. Total welfare gains from trade to the economy can be measured:
A) as the sum of consumer and producer surpluses.
B) as the difference between producer surplus and consumer surplus.
C) as the sum of consumer and producer surpluses minus taxes
D) as the net gain in consumer surplus that results from an action that alters a market equilibrium.
16. The area between the market price and the demand curve provides a measure of:
A) consumer surplus.
B) producer surplus.
C) consumer surplus plus producer surplus.
D) marginal utility.
E) the deadweight loss arising from free trade.
17. The difference between the amount a consumer is willing to pay and the amount they actually must pay for a good is called the:
A) price elasticity of demand.
B) substitution effect.
C) consumer surplus.
D) income elasticity of demand.
E) marginal utility.
18. Based on the table below, what is the consumer surplus of the 2nd unit consumed assuming this market reaches equilibrium?
Price
Quantity Demanded
Quantity Supplied
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
7
6
5
4
3
2
1
1
2
3
4
5
6
7
A) $1.00
B) $2.00
C) $3.00
D) $7.00
E) $10.00
19. Figure 7-1
Refer to Figure 7-1. If the market price equals P2, consumer surplus can be identified in the diagram as area:
A) A + B + E.
B) B + E.
C) A.
D) C + D + F.
E) C + F.
20. Figure 7-1
Refer to Figure 7-1. If the market is in equilibrium and then the government imposes a price ceiling equal to P3, society suffers a
deadweight loss equal to area:
A) C + D + F.
B) A + B + E.
C) E + F.
D) E only.
E) B + C + E + F.
21. Which of the following is true about producer surplus?
A) Producer surplus is how much more it costs sellers than they are paid.
B) Producer surplus is shown graphically as the area under the demand curve but above the supply curve.
C) An increase in the market price due to an increase in demand will increase producer surplus.
D) All of the above are true about producer surplus.
22. Figure 7-2
Refer to Figure 7-2. When the price rises from P1 to P2, consumer surplus
A) increases by area D + E
B) increases by area B + C
C) decreases by area B + C
D) decreases by area C
23. Figure 7-3
Refer to Figure 7-3. When the price falls from P2 to P1, producer surplus:
A) increases by area B
B) increases area by A + B
C) decreases by area A
D) decreases by area A + B
24. Figure 7-4
Refer to Figure 7-4. The deadweight loss of a tax is area:
A) - (a + b + c)
B) - (d + e + f)
C) - (c + e)
D) - (a + b + d + f)
25. Figure 7-4
Refer to Figure 7-4. The amount of tax revenue after the tax is area:
A) a + b + d + f
B) b + d
C) c + e
D) d + e + f
26. Figure 7-6
Refer to Figure 7-6. The consumer surplus after the price ceiling is area
A) a + b + d
B) a + b + c
C) a + b + d + f
D) a
27. The unemployment rate is the number of people officially unemployed divided by
A) The civilian labor force.
B) The number of people in institutions.
C) The total population.
D) The number of people employed.
E) None of the above.
28. The labor force consists of
A) Discouraged workers, employed workers, and those actively seeking work, with the exception of full-time students.
B) All persons over the age of 16 who are working or actively seeking work, with the exception of full-time students.
C) All persons over the age of 16 who are able to work, with the exception of full-time students.
D) All persons over the age of 16 who are working, plus those not working, with the exception of full-time students.
E) Discouraged workers, part-time workers, and full-time workers, with the exception of full-time students.
29. Discouraged workers
A) Are considered unemployed.
B) Are considered as not in the labor force.
C) Are considered as in the labor force.
D) Are considered as both unemployed and in the labor force.
E) Are considered as unemployed but not in the labor force.
30.
The unemployment rate may understate the true extent of unemployment if
A) Employees increase the number of hours they work overtime.
B) Many people become discouraged and cease looking for work.
C) A large number of people are working in the underground economy.
D) Marginal workers are included as unemployed.
31. The official unemployment rate may overstate the extent of unemployment because
A) It excludes discouraged workers.
B) It counts part-time workers as fully employed.
C) It includes those who claim to be looking for work as unemployed, even if they are just going through the motions in order to get
government benefits.
32. Unemployment caused by a contraction in the economy is called
A) Frictional unemployment.
B) Cyclical unemployment.
C) Structural unemployment.
33. A federal program aimed at retraining the unemployed workers of the declining auto and steel industries is designed to reduce
which type of unemployment?
A) Frictional unemployment.
B) Cyclical unemployment.
C) Structural unemployment.
34. Frictional unemployment is
A) Unemployment that is due to the fact that it just takes time to find the right job/employee.
B) Unemployment caused by automation in the workplace.
C) Unemployment caused by lack of training and education.
D) Unemployment that is due to competing ideological systems.
35.
When an economy is operating at full employment,
A) The unemployment rate will equal zero.
B) Frictional unemployment will equal zero.
C) Cyclical unemployment will equal zero.
D) Structural unemployment will equal zero.
36. The stages of the business cycle in order are
A) Expansion, peak, contraction, and trough.
B) Expansion, trough, contraction, and peak.
C) Contraction, recession, expansion, and boom.
D) Trough, expansion, contraction, and peak.
37. In the contraction phase of the business cycle,
A) Output is rising.
B) Unemployment is falling.
C) Unemployment is rising.
D) Investment is rising.
38. Inflation is
A) A rise in all prices.
B) A rise in some prices and a fall in others.
C) A rise in the average level of prices.
D) A decrease in the average level of prices.
39. In periods of inflation, the purchasing power of the dollar
A) Rises.
B) Falls.
C) Stays the same.
D) Can either rise or fall.
40. The CPI is a measure of
A) the overall cost of goods and services produced in the economy.
B) the overall cost of inputs purchased by a typical producer.
C) the overall cost of goods and services bought by a typical consumer.
D) the overall cost of stocks on the New York Stock Exchange.
41. If the consumer price index was 100 in the base year and 110 the following year, the inflation rate was
A) 110 percent.
B) 100 percent.
C) 11 percent.
D) 10 percent.
42. In order to find out which phase of the business cycle the country is currently experiencing, economists typically look at
A) the real GDP.
B) the historic average monthly output for the month being examined.
C) the historic typcial annual real GDP.
D) global trade.
43. An economic indicator is
A) any economic statistic, such as the unemployment rate, GDP, or the inflation rate, which indicates how well the economy is doing
and how well the economy has done in the past.
B) any economic statistic, such as the unemployment rate, GDP, or the inflation rate, which indicates how well the economy is
doing and how well the economy is going to do in the future.
C) any economic statistic, other than the unemployment rate or the inflation rate, which indicates how well the economy is doing and
how well the economy is going to do in the future.
D) any economic statistic, other than the unemployment rate or the inflation rate, which indicates how well the economy is doing and
how well the economy has done in the past.
44. A progressive tax:
A) is designed to take a larger percentage of higher incomes as compared to lower incomes.
B) takes a greater proportion of the income of lower-income groups than of higher-income groups.
C) is designed so that everybody would be charged the same percentage of their income.
D) is designed to take a smaller percentage of higher incomes as compared to lower incomes.
45. Which of the following accounts for the largest percentage of federal taxes?
A) gift taxes
B) social security tax
C) personal income taxes
D) corporate income taxes
46. Which of the following is an example of a progressive tax?
A) Social Security tax
B) federal income tax
C) excise tax
D) payroll tax
47. Which of the following is generally considered the most regressive type of tax?
A) gift tax
B) federal income tax
C) excise tax
D) payroll tax
48. A regressive tax:
A) is designed to take a larger percentage of higher incomes as compared to lower incomes.
B) is designed in such a way that as a person's income rises, the amount of tax as a proportion of income rises.
C) takes a greater proportion of the income of lower-income groups than of higher-income groups.
D) is considered to be the most equitable type of tax.
49. A flat tax:
A) is designed to take a larger percentage of higher incomes as compared to lower incomes.
B) is designed in such a way that as a person's income rises, the tax rate falls.
C) is designed so that everybody would be charged the same percentage of their income.
D) is designed to take a smaller percentage of higher incomes as compared to lower incomes.
50. The benefits received principle suggests that:
A) traditional exemptions should be removed since they benefit people with ability to pay more taxes.
B) people with different levels of income should be treated in the same manner.
C) individuals receiving the benefits are those who pay for them.
D) those with the greatest ability to pay taxes should pay more than those with the least ability to pay taxes.
51. The benefits received principle would not work well in which of the following cases?
A) gasoline tax
B) national defense
C) taxing those people who use a private good
D) admission fees to a national park