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

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1 ECON 2100 (Summer 2015 Sections 07 and 08) Exam #1B Multiple Choice Questions: (3 points each) 1. I am taking of the exam. B. Version B 2. A Self-Interested person A. cares about their own well-being more than the well-being of others. B. cares about the well-being of others more than their own well-being. C. cares only about their own well-being (and does not care at all about others). D. does not care about the well-being of anyone (including themselves). 3. Amanda states that, Tickets to the NBA Finals are selling for $2,500 per game on StubHub. No rational person would pay such a high price for these tickets. The primary problem with this claim is that it: A. only focuses on one particular cost and ignores the benefits of going to the NBA Finals. B. fails to recognize that many people who attend the NBA Finals are die-hard fans of one of the teams playing, and would therefore be willing to pay any price in order to attend the game. C. implicitly assumes that people behave rationally when making consumption decisions, which is clearly not true. D. None of the above answers are correct, since the claim does provide a reasonable explanation for why a rational person would never purchase the tickets at such a high price. 4. Which of the following statements is a Positive Statement? A. Food from Del Taco tastes better than food from Taco Bell. B. Wladimir Klitschko is the best professional boxer of all-time. C. Both A and B are Positive Statements. D. Neither A nor B is a Positive Statement. 5. When considering potential government policies, it is important to recognize that A. most firms are not rational decision makers (and thus will not respond to incentives). B. all economists agree that governments can increase total social welfare by restricting trade. C. if a policy alters the costs and/or benefits for a decision maker, then the decision-maker might change his behavior as a result of the policy. D. when government provides a good/service it is often a free-lunch for consumers, since the good/service is being provided using resources that would otherwise be squandered. 6. Suppose that Good Z is an inferior good. If the economy goes into a recession and incomes decline, what will happen to the equilibrium price and quantity in the market for Good Z? A. both equilibrium price and equilibrium quantity will decrease. B. both equilibrium price and equilibrium quantity will increase. C. equilibrium price will increase and equilibrium quantity will decrease. D. equilibrium price will decrease and equilibrium quantity will increase.

2 7. 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. Scarcity Principle B. Cost-Benefit Principle C. Incentive Principle D. Principle of Absolute Advantage For Questions 8 through 10, consider a society with the piecewise linear Production Possibilities Frontier (i.e., three straight-line segments) illustrated below. The slope between points A and B is 8. The slope between points B and E is 15. The slope between points E and F is 50. Shoes 14,000 12,000 A B 8,000 6,000 C D E F 770 Jets 8. Which of the following combinations of output is unattainable? A. 0 Jets and 14,000 Shoes (Point A ). B. 250 Jets and 12,000 Shoes (Point B ). C. 380 Jets and 8,000 Shoes (Point C ). D. None of the above answers is correct (since each combination of output is attainable ). 9. If this society wanted to produce 380 Jets, then its maximum output of Shoes could be. A. 12,000 B. 10,050 C. 8,000 D. 6, If this society were at Point D, the Opportunity Cost of producing another Jet would be A. 8 shoes. B. 15 shoes. C. 50 shoes. D. None of the above answers are correct (since the graph does not convey enough information to determine the exact value of the Opportunity Cost of producing another Jet at Point D ).

3 11. Output refers to A. the scarce resources which can be used to directly or indirectly satisfy human wants. B. finished, usable products which result from the production process. C. a combination of goods that cannot be produced with current resources and technology. D. the process by which scarce resources are transformed into finished goods/services. 12. Economics is A. the social science that studies decision making in the face of scarcity, and the implications of such decisions on individuals and societies. B. the social science that studies human mental functions and behavior, with a focus on phenomena such as perception, cognition, personality, and interpersonal relationships. C. the art of communicating financial information about a business entity to stakeholders, such as employees, managers, shareholders, and customers. D. the social science that studies the allocation and transfer of power in decision-making, systems of governance, and the effects of public policy in a society. Answer Questions 13 and 14 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 0 Q Marginal Benefit Total Economic Surplus is maximized when Q is equal to. A. 100 B. 152 C. 218 D If the decision maker increased the amount which he was engaging in the activity from 445 up to 460, then A. Total Costs, Total Benefits, and Total Economic Surplus would all increase. B. Total Costs, Total Benefits, and Total Economic Surplus would all decrease. C. Total Costs and Total Benefits would both increase, but Total Economic Surplus would decrease. D. Total Costs and Total Economic Surplus would both increase, but Total Benefits would decrease.

4 15. Consider the following two statements. Statement 1: Local and State Governments should eliminate subsidies to professional sports franchises. Statement 2: Trade Restrictions reduce general economic welfare. Most economists would A. agree with both Statement 1 and Statement 2. B. disagree with both Statement 1 and Statement 2. C. agree with Statement 1, but disagree with Statement 2. D. agree with Statement 2, but disagree with Statement A Production Possibilities Frontier A. should be negatively sloped, illustrating the fact that a society with scarce resources faces tradeoffs with respect to levels of production of different goods/services. B. essentially presents a society with a menu of available combinations of output from which it must choose. C. should be outward bending, as a direct result of applying the Low-Hanging-Fruit Principle. D. More than one (perhaps all) of the above answers is correct. For Questions 17 through 19, consider the following scenario. Albert and Brenda spend their workdays producing corn and dresses. The table below provides a summary of the number of units of each good that each worker produce in a full workday. Answer the following questions based upon these values. corn dresses Albert Brenda has an Absolute Advantage in the production of corn, and has an Absolute Advantage in the production of dresses. A. Brenda; Brenda. B. Brenda; Albert. C. Albert; Brenda. D. Albert; Albert. 18. Brenda s Opportunity Cost for producing a dress is A. (20/25) = 0.8 units of corn. B. (25/20) = 1.25 units of corn. C. (40/20) = 2 units of corn. D. (40)(20) = 800 units of corn. 19. Suppose that Albert and Brenda have decided to maximize their joint output through specialization in production. Further, they want to produce a total of 16 dresses each day. It follows that A. Albert should make all 16 of the dresses. B. Brenda should make all 16 of the dresses. C. Albert and Brenda should each make 8 dresses. D. None of the above answers are correct (since the table does not provide enough information to be able to determine which worker can produce dresses at lower cost).

5 20. Consider a society consisting of only three people: Maude, Bea, and Arthur. Bea and Arthur spend all day producing clothing and food. At the end of each day Maude decides how much of their output each person in society gets to consume. Which of the following fundamental economic questions is Maude answering for this society? A. What to produce? B. How to produce it? C. How to allocate it? D. Where to keep it? For questions 21 through 24 refer to the graph below, which illustrates Supply and Demand for peanuts in price Supply Demand ,850 2,575 quantity 21. In this market there would be at a price of $3.75. A. excess supply B. excess demand C. both excess demand and excess supply D. neither excess demand nor excess supply 22. Focusing on the 940 th unit of peanuts, the buyer of this unit has a reservation price of and the seller of this unit has a reservation price of. A. $2.60; $2.10. B. $4.45; $4.45. C. $7.05; $2.35. D. $11.10; $ At the equilibrium outcome: units would be traded, each at a price of. A. 2,575; $7.05. B. 1,850; $4.45. C. 940; $4.70. D. 0; $ Suppose that pretzels are a substitute for peanuts. If the price of pretzels were to decrease, then (after this change in the price of pretzels) in the market for peanuts A. equilibrium quantity would increase, while equilibrium price would decrease. B. equilibrium quantity would decrease, while equilibrium price would increase. C. equilibrium quantity and equilibrium price would both increase. D. equilibrium quantity and equilibrium price would both decrease.

6 25. Someone with well-defined goals who takes actions to fulfill those goals as best as possible was defined as A. an entrepreneur. B. an economist. C. a self-interested person. D. a rational decision-maker. 26. A Marginal Change is one that A. never alters an outcome for a decision maker. B. minimizes economic surplus. C. incrementally alters an existing plan. D. is not important for public policy. 27. The Demand for Milk refers to the A. amount of milk that dairy farmers are willing to produce. B. quantity of milk that people purchase at the prevailing market price. C. entire relationship between the price of milk and the quantity that consumers are willing and able to purchase, all other factors fixed. D. maximum dollar amount that anyone is willing to pay for milk. 28. If Mike s Opportunity Cost of producing soap is lower than Henry s, then Mike possesses in the production of soap. A. an Economic Advantage B. an Absolute Advantage C. a Competitive Advantage D. a Comparative Advantage 29. An increase in demand is visually illustrated by a shift of the demand curve; an increase in supply is visually illustrated by a shift of the supply curve. A. leftward; leftward. B. rightward; rightward. C. rightward; leftward. D. leftward; rightward. 30. The Circular Flow Diagram A. illustrates the general interaction between households and firms in both the Markets for Finished Goods/Services and the Markets for Factors of Production. B. directly illustrates why the free interaction of buyers and sellers in markets will lead to a unique equilibrium price and a unique equilibrium quantity of trade. C. shows how inputs flow through the entire production process, from raw materials and natural resources, to intermediate goods/services, and ultimately to consumers/households as finished consumption goods/services. D. explains how poor countries are always exploited if they trade with rich countries. 31. Katie bought a used MP3 player from Luke. Since this voluntary trade took place, we can infer that it made A. Katie better off, but Luke worse off. B. Luke better off, but Katie worse off. C. both Katie and Luke worse off. D. both Katie and Luke better off.

7 32. In a box of Froot Loops Edward received a code which could be redeemed for one free MP3 download on Amazon.com. Based upon a search of the Amazon.com website, he narrowed his choices to two songs: See You Again by Wiz Khalifa (featuring Charlie Puth) and Shut Up and Dance by Walk the Moon. After deliberation he chose to use his code to download See You Again. The Opportunity Cost of downloading this song A. is zero, since he received the code for free. B. is equal to the maximum amount of money he would have been willing to pay to download See You Again if he had to instead pay out of pocket to download the song (i.e., if he did not have the code for one free download ). C. is equal to the value he places on the MP3 file of Shut Up and Dance. D. is equal to the amount of money which he had to pay for the box of Froot Loops. 33. After the price of donuts increased, Homer purchased fewer donuts. This observed behavior A. illustrates the Incentive Principle. B. illustrates the Law of Supply. C. suggests that Homer is not Self-Interested. D. suggests that Homer is not a Rational decision-maker.

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