ECON 2100 (Summer 2015 Sections 07 and 08) Exam #1C

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1 ECON 2100 (Summer 2015 Sections 07 and 08) Exam #1C Multiple Choice Questions: (3 points each) 1. I am taking of the exam. C. Version C 2. refers to the process which transforms scarce resources into useful goods and services. A. Voluntary Trade B. Market Equilibrium C. Perfect Competition D. Production 3. Last week professional golfer Rory McIlory missed the cut at the Irish Open. During this same week severe floods in Oklahoma and Texas led to the deaths of 29 people. If Rory is more upset about his poor play in the Irish Open than about the loss of life due to the floods, it would suggest that he A. masochistic. B. irrational. C. a horrible person. D. self-interested. 4. Gerard and James spend each workday assembling bicycles and fixing computers. Gerard can assemble 8 bicycles in a single day, while James can assemble 12 bicycles in a single day. Based upon this information, we know that A. James possesses an Absolute Advantage in assembling bicycles. B. James possesses a Comparative Advantage in assembling bicycles. C. Gerard possesses an Absolute Advantage in assembling bicycles. 5. Last week John went to an Atlanta Braves game at Turner Field. His Opportunity Cost for attending this game was equal to A. zero, as long as he does not regret his decision to go to the game. B. the price of the ticket to the game. C. the total amount of money he spent in order to go to the game plus the value of his time. D. the price of a ticket to go to the movies (i.e., the activity that he would have engaged in if he hadn t gone to the game). 6. 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. Which individuals in society will get to consume (and therefore derive benefits from consuming) the goods and services that we produce? C. How can we impose regulations in order to minimize the damage to the environment from economic activity? D. None of the above answers are correct (since each choice is one of the Three Basic Economic Questions ).

2 7. With which of the following statements is there general agreement among most economists? A. A minimum wage decreases unemployment, especially among the young and unskilled. B. Cash payments increase the welfare of recipients to a greater degree than do transfersin-kind of equal cash value. C. Most economists would agree with both A and B. D. Most economists would disagree with both A and B. 8. An increase in will result in a movement up along a fixed supply curve, which can be described as a change in. A. demand; quantity supplied. B. demand; supply. C. supply; quantity demanded. D. supply; demand. For Questions 9 through 11, consider a society facing the Production Possibilities Curve illustrated below (which becomes more negatively sloped as Car production is increased): 750 Apples B C E D 200 A 0 Cars ,375 1, Which of the following combinations of output is attainable but inefficient? A. A (970 Cars and 200 bushels of Apples). B. C (1,375 Cars and 440 bushels of Apples). C. E (1,375 Cars and 575 bushels of Apples). 10. If this society wanted to produce 350 Apples, then its maximum output of Cars would be A. less than 1,375 Cars. B. exactly 1,375 Cars. C. greater than 1,375 Cars but less than 1,975 Cars. D. exactly 1,975 Cars. 11. Focusing on points B, C, and D, the Opportunity Cost of producing one additional Car is A. largest at point B and smallest at point D. B. largest at point D and smallest at point B. C. exactly equal at points B, C, and D. D. None of the above answers are correct (since the graph does not convey enough information to make a comparison of the value of Opportunity Cost at these two points).

3 12. Tyler has $40 and wants to purchase either a new pair of jeans or a ticket to a concert. Each item costs exactly $40, so he can only purchase one of the two. This situation illustrates that A. most consumers are irrational. B. a worker must always possess an Absolute Advantage in the production of some good. C. in a free market, price is determined only by buyers willingness to pay for goods. D. people face tradeoffs. 13. Positive Statements A. are fact based statements which provide predictions about outcomes without any judging of their desirability. B. attempt to describe how the world should be or how the world could be improved upon. C. are never made by any reputable economist. 14. A.C. and Zack produce surfboards and hair gel. A.C. s opportunity cost of producing a surfboard is lower than Zack s opportunity cost of producing a surfboard. The suggests that they can increase their total output of these two goods if A.C. focuses his production on surfboards while Zack focuses his production on hair gel. A. concept of Market Equilibrium B. Incentive Principle C. Principle of Comparative Advantage D. Cost-Benefit Principle For questions 15 and 16, consider the market for Good Y with supply as illustrated below. Suppose that the initial equilibrium price for Good Y is $7.15. price Supply quantity Focusing on the 325 th unit, the Seller s Reservation Price for the seller of this unit is. A. $2.10 B. $5.05 C. $7.15 D. None of the above answers are correct, since the graph does not convey enough information to determine the value of Seller s Reservation Price for any unit. 16. Suppose Good W is a substitute for Good Y. If the price of Good W were to increase, then the new equilibrium quantity of Good Y would be. (Recall, the initial equilibrium price for Good Y is $7.15.) A. greater than $7.15 B. less than 430 C. exactly equal to 430 D. greater than 430

4 17. When two individuals produce efficiently and then make a mutually beneficial trade based on comparative advantage, A. they each realize consumption exactly on their individual production possibilities frontier. B. they each realize consumption inside (i.e., below) their individual production possibilities frontier. C. they each realize consumption outside (i.e., beyond) their individual production possibilities frontier. D. only the individual with a comparative advantage in the production of every good realizes consumption outside (i.e., beyond) his individual production possibilities frontier. 18. The Demand for Calculators A. refers to the number of calculators that firms choose to sell at the prevailing market price. B. refers to the number of calculators that people choose to purchase at the prevailing market price. C. refers to the entire relationship between the price of calculators and the quantity that firms are willing and able to sell, all other factors fixed. D. refers to the entire relationship between the price of calculators and the quantity that consumers are willing and able to purchase, all other factors fixed. 19. In a free market economy, households A. hire labor and other factors of production from firms. B. receive income from firms in the form of wages and rents. C. acquire consumption goods and services from firms. 20. A Rational Decision Maker should A. engage in an activity up to the point where Total Benefits are equal to Total Costs. B. take an action if and only if the Marginal Benefit of the action is at least as great as the Marginal Cost of the action. C. take every action for which there is a positive Marginal Benefit. D. not take any action for which there is a positive Marginal Cost. 21. Ty spends his workday producing cheese and shirts. If he spends an entire workday making cheese, he could produce 40 pounds of cheese. If he spends an entire workday making shirts, he could produce 5 shirts. It follows that his Opportunity Cost of a shirt is A. 1/8 (i.e., one eighth) of a pound of cheese. B. 5 pounds of cheese. C. 8 pounds of cheese. D. 200 pounds of cheese. 22. Recall that the market equilibrium in the model of supply and demand is a Unique outcome. This characteristic can be described by noting that A. if a market is currently at its equilibrium, it will stay there (unless outside forces change). B. if a market is currently not at its equilibrium, market forces will push price toward the equilibrium price (since there is downward pressure on price at prices above the equilibrium price, and there is upward pressure on price at prices below the equilibrium price). C. as long as the Law of Demand and Law of Supply both hold, there is only one equilibrium outcome for the market. D. None of the above answers is correct.

5 23. Armen Alchain and Gordon Tullock A. explained why the Circular Flow Diagram does not provide any useful insights for understanding how a market economy functions. B. suggested that automobile accident rates could be decreased by installing a sharp, irremovable, foot long, iron spike to the steering wheel of every car. C. were the two co-authors of The Theory of Moral Sentiments. D. 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. 24. Consider a market in which there is excess demand at a price of $7.50. It follows that A. there must also be excess demand at a price of $8.25. B. equilibrium price must be greater than $7.50. C. there must be excess supply at a price of $ One of the expected properties of a society s Production Possibilities Frontier is that the curve should become steeper as one moves down the curve. This feature is a direct consequence of the A. Cost-Benefit Principle. B. Principle of Increasing Opportunity Cost or Low Hanging Fruit Principle. C. careful distinction between the different notions of Demand and Quantity Demanded. D. Scarcity Principle or No Free Lunch Principle. 26. The simple Circular Flow Diagram illustrates the markets for A. Factors of Production and Goods and Services. B. Imports and Exports. C. Government Services and Common Resources. D. Luxuries and Necessities. 27. is the branch of economics which studies how individual decisionmakers behave and interact with each other. A. Psychology B. Macroeconomics C. Microeconomics D. Quantum Economics 28. The Law of Demand A. stipulates that as consumer income increases, demand will always increase. B. implies that visually, demand curves must be upward sloping. C. states that all other factors fixed, the quantity demanded of a good will be greater when its price is lower. D. suggests that there will often be excess demand at relatively high prices and excess supply at relatively low prices. 29. LeBron James chose to skip college and enter the NBA draft in 2003 straight out of high school. The fact that he made this choice suggests that he A. is very shortsighted, since he most certainly would have been a better professional basketball player if he had a college education. B. probably could not have gotten accepted into any college. C. is irrational, since the marginal benefits of attending college always outweigh the marginal costs of doing so. D. properly understood that his opportunity cost of attending college was very high.

6 30. A Voluntary Trade generally makes A. both the buyer and seller better off. B. both the buyer and seller worse off. C. the seller better off, but the buyer worse off. D. the buyer better off, but the seller worse off. 31. For a market to be perfectly competitive, the following two conditions must be met: A. (i) the goods offered for sale by different sellers are drastically different for one another and (ii) there are many sellers and many buyers. B. (i) the goods offered for sale by different sellers are drastically different for one another and (ii) there are many sellers but only one buyer. C. (i) the goods offered for sale by different sellers are identical to one another and (ii) there are many sellers but no buyers. D. (i) the goods offered for sale by different sellers are identical to one another and (ii) there are many sellers and many buyers. 32. Consider the market for academic regalia. Which of the following would lead to an increase in supply in this market? A. A decrease in the price of velvet (an important input in producing academic regalia). B. An increase in the number of people graduating from colleges and universities (the ultimate consumers of academic regalia). C. An increase in the market wage rate of seamsters and seamstresses (i.e., the workers who help to produce the academic regalia). D. An increase in consumer income (assuming academic regalia is a normal good). 33. Which of the following is a normative statement? A. The Tampa Bay Lighting advanced to the Stanley Cup by beating the New York Rangers by a score of 2 to 0 in Game 7 of the Eastern Conference Finals last Friday night. B. The United States will be a better country in the future if Rand Paul gets elected President next year. C. Both A and B are normative statements. D. Neither A nor B is a normative statement.

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