ECON 2100 (Summer 2014 Sections 08 & 09) Exam #1A

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1 ECON 21 (Summer 214 Sections 8 & 9) Exam #1A Multiple Choice Questions: (3 points each) 1. I am taking of the exam. A. Version A 2. In regards to a Production Possibilities Frontier, which of the following statements is true? A. A combination of goods is characterized by Productive Inefficiency if it is not only Attainable, but further, if it is possible to increase the production of some good without having to decrease the production of any other good. B. An Attainable combination of output can never be characterized by Productive Efficiency. C. A combination of goods is Unattainable if it cannot possibly be produced with the currently available resources and technology. D. More than one (perhaps all) of the above answers is correct. 3. A positive statement A. can eventually be proven right or wrong by gathering enough data and evidence. B. aims to assess the desirability of how the world is or functions. C. is a type of statement that no reputable economist would ever make (since economists only ever make policy recommendations ). D. More than one (perhaps all) of the above answers is correct. 4. The is a guide for allocating scarce productive resources, which states that when increasing the production of a good, a society should do so by using the available productive resource with the lowest opportunity cost. A. Cost-Benefit Principle B. Incentive Principle C. Principle of Increasing Opportunity Cost D. Principle of Decreasing Opportunity Cost 5. Which of the following is NOT one of the Three Basic Economic Questions that every society must address? A. What mix of goods/services should we produce? B. How can we minimize our carbon footprint? C. Which individuals will get to consume which goods and services? D. None of the above answers are correct (since each choice is one of the Three Basic Economic Questions ). 6. Armen Alchain and Gordon Tullock A. wrote a letter to FDR in 1939, advising him to have the U.S. government assist physicists in the U.S. working on research related to the creation of a uranium bomb. B. were the first to explain why there is typically excess supply at the market equilibrium in the model of Supply and Demand. C. suggested that automobile accident rates could be decreased by installing a sharp, irremovable, foot long, iron spike to the steering wheel of every car. D. were the first economists to argue that rational people never respond to incentives.

2 7. Consider the following two statements. Statement 1: A minimum wage reduces unemployment among your and unskilled workers. Statement 2: The federal government budget should be balanced in every single year. Most economists would A. disagree with both Statement 1 and Statement 2. B. agree with Statement 1, but disagree with Statement 2. C. agree with Statement 2, but disagree with Statement 1. D. agree with both Statement 1 and Statement Hotdog Buns are a complement to Hotdogs. If the price of Hotdogs were to increase, then the A. demand for Hotdog Buns would increase. B. demand for Hotdog Buns would decrease. C. supply of Hotdog Buns would increase. D. supply of Hotdog Buns would decrease. Answer Questions 9 and 1 based upon the information conveyed in the following graph (which illustrates the Marginal Cost and Marginal Benefit of an activity for a decision maker). $ Marginal Cost Q Q 1 Q 2 Marginal Benefit 9. Total Economic Surplus is maximized when Q is equal to A. zero. B. Q1. C. Q2. D. Q3. 1. If the decision maker increased the amount which she was engaging in the activity from Q2 to Q3, then A. Total Costs and Total Benefits would both increase, but Total Economic Surplus would decrease. B. Total Costs and Total Economic Surplus would both increase, but Total Benefits would decrease. C. Total Costs, Total Benefits, and Total Economic Surplus would all increase. D. None of the above answers are correct. Q 3

3 11. Demand for Good Z increases as a result of an increase in consumer income. This observation implies that Good Z is A. a substitute good. B. a complementary good. C. a normal good. D. an inferior good. 12. The Incentive Principle states that A. a person is more likely to take an action if its benefits rises, and less likely to take an action if its cost rises. B. rational decision makers never respond to incentives, but irrational decision makers do. C. a society can produce more output when individuals focus their production on those activities for which they have a comparative advantage. D. a person should take an action if and only if the additional benefit of doing so is greater than or equal to the additional cost of doing so. For questions 13 through 15, consider a market with demand and supply as illustrated below. price 2 Supply Demand 4 quantity In this market there would be at a price of $9.. A. excess supply B. excess demand C. both excess demand and excess supply. D. neither excess demand nor excess supply. 14. In equilibrium, units would be traded each at a price of. A. 352; $12. B. 44; $1. C. 528; $8 D. 88; $. 15. Focusing on the 352 nd unit, the Buyer s Reservation Price for this unit is and the Seller s Reservation Price for this unit is. A. $2; $4. B. $12; $8. C. $1; $1. D. $2; $2.

4 16. Professional golfer Tiger Woods recently withdrew from the U.S. Open because of health issues. Around this same time 6 people were killed and 13 people were injured in a shooting spree near the campus of UC Santa Barbara. If Tiger Woods is more upset about not playing in the U.S. Open than about the shooting incident it would suggest that he is A. irrational. B. self-interested. C. purely altruistic. D. purely evil. 17. George bought a used tennis racket from Martha. Since this voluntary trade took place, we can infer that it made A. both George and Martha worse off. B. both George and Martha better off. C. Martha better off, but George worse off. D. George better off, but Martha worse off. For Questions 18 and 19, consider a society with the piecewise linear Production Possibilities Frontier (i.e., two straight-line segments) illustrated below Houses 9,445 I III VI II IV V 32,52 Cars 18. Which of the following combinations of output is Attainable and Efficient? A. Point II. B. Point III. C. Point VI. D. More than one (perhaps all) of the above answers is correct. 19. Focus on Points I, IV, and V. The value of the Opportunity Cost of Producing a Car (denoted OC_car) can be ranked as follows at these three points: A. OC_car is equal at all three points. B. OC_car at Point I is less than OC_car at Point IV, and OC_car at Point IV is less than OC_car at Point V. C. OC_car at Point I is less than OC_car at Point IV, but OC_car at Point IV is equal to OC_car at Point V. D. None of the above answers are correct (since the graph does not convey enough information to make a comparison of the Opportunity Cost of Producing a Car at these three points).

5 2. The states that people have unlimited needs/wants but a limited amount of resources, implying that people face tradeoffs (i.e., having more of one thing means getting by with less of something else). A. Incentive Principle B. Supply-Demand Principle C. Scarcity Principle D. Cost-Benefit Principle 21. Consider the following two statements: (I) The Miami Heat have reached the NBA Finals in each of the last four years. and (II) LeBron James is currently 29 years old. Statement (I) is a statement, and Statement (II) is a statement. A. Positive; Positive. B. Positive; Normative. C. Normative; Positive. D. Normative; Normative. 22. The Law of Supply states that A. an increase in supply is visually illustrated by a rightward shift of the supply curve. B. all other factors fixed, the quantity supplied of a good will be greater when its price is higher. C. firms will always choose to sell more of a good if there is a decrease in the price of a factor of production needed to produce the product. D. None of the above answers are correct. For Questions 23 through 25, consider a society consisting of only two workers, Jim and John, who spend their workdays producing either footballs or soup. The productive ability of each worker for each task is summarized in the table below (which states the number of units of each good that the worker could produce in a full day): footballs soup Jim 4 footballs per day 4 bowls of soup per day John 2 footballs per day 1 bowls of soup per day 23. has an Absolute Advantage in the production of footballs; has an Absolute Advantage in the production of soup. A. Jim; Jim. B. Jim; John. C. John; Jim. D. John; John. 24. From the given information, Jim s Opportunity Cost for producing a football is A. (4/4) = 1 bowls of soup. B. (4/1) = 4 bowls of soup. C. (4/2) = 2 bowls of soup. D. (4/4) = 1/1 th of a bowl of soup. 25. John has a Comparative Advantage in A. the production of both footballs and soup. B. the production of footballs (but not in the production of soup). C. the production of soup (but not in the production of footballs). D. the production of neither footballs nor soup.

6 26. Which markets are represented in the simple Circular Flow Diagram? A. Markets for Guns and markets for Butter. B. Markets for Imports and markets for Exports. C. Markets for Goods and Services and markets for Factors of Production. D. Markets for Education and markets for Healthcare. 27. Bob has $5 to spend and wants to buy a new pair of jeans and a carton of cigarettes. Each item costs exactly $5, so he can only purchase one of the two. This scenario directly illustrates the basic concept that A. very few people are self-interested. B. when resources are scarce, people face tradeoffs. C. society can produce more output when workers focus their productive efforts on those goods for which they have a comparative advantage. D. the market equilibrium price is the unique price at which there is neither excess demand nor excess supply. For Questions 28 through 3, consider the following information regarding Zayn s Marginal Benefits from consuming pizza (measured in dollars) in April and May (his fundamental preference that is, how much he likes pizza changed between these months): Pizzas Consumed: Marginal Benefits from Consumption, April Marginal Benefits from Consumption, May In April, Zayn would realize Total Benefits of $12 if he consumed 5 pizzas. It follows that if he increased his pizza consumption from 5 pizzas to 6 pizzas, his Total Benefits would A. increase from $12 to $132. B. increase from $12 to $136. C. increase from $12 to $156. D. decrease from $12 to $ If the price of each pizza is $14, Zayn would maximize his Total Economic Surplus in April by consuming A. 2 pizzas. B. 5 pizzas. C. 6 pizzas. D. 9 pizzas. 3. Suppose that the price of pizza remains constant at $14. As Zayn s preferences for pizza change between April and May (as summarized by the numbers in the table above), Zayn chooses to: A. consume more pizza in May than he consumed in April, consistent with what the Incentive Principle would predict. B. consume more pizza in May than he consumed in April, contradicting what the Incentive Principle would predict. C. consume less pizza in May than he consumed in April, consistent with what the Incentive Principle would predict. D. consume less pizza in May than he consumed in April, contradicting what the Incentive Principle would predict.

7 31. In a free market economy, households A. acquire consumption goods and services from firms. B. hire labor and other factors of production from firms. C. receive income from firms in the form of wages and rents. D. More than one (perhaps all) of the above answers is correct. 32. The Demand for Cigars A. refers to the number of cigars that people choose to purchase at the prevailing market price. B. refers to the entire relationship between the price of cigars and the quantity that consumers are willing and able to purchase, all other factors fixed. C. is determined only by consumer income. D. is the only thing that is relevant for determining the equilibrium price of cigars. 33. refers to the process which transforms scarce resources into useful goods and services. A. Production B. Scarcity C. Specialization D. Trade

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