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D ARTMOUTH C OLLEGE P ROFESSOR J ESSE G IUMMO E CONOMICS 1: P RICE S YSTEM M IDTERM E XAM #1 W INTER 2004 P ART I: 20 M ULTIPLE -C HOICE Q UESTIONS 1. Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 5 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis incorporates the idea of: A) opportunity costs B) marginal benefits that exceed marginal costs. C) imperfect information. D) normative economics. 2. Suppose an economist says that "Other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that: A) the quantity of bananas purchased determines the price of bananas. B) all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant. C) economists can conduct controlled laboratory experiments. D) one cannot generalize about the relationship between the price of bananas and the quantity purchased. 3. The economizing problem is one of deciding how to make the best use of: 4. The basic purpose of the "other things equal" assumption is to: 5. Assume a household would consume $100 worth of goods and services per week if its weekly income were zero and would spend an additional $80 per week for each $100 of additional income. Letting C represent consumption and Y represent income, the equation that summarizes this relationship is:
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