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

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1 ECON 21 (Summer 214 Sections 8 & 9) Exam #1D Multiple Choice Questions: (3 points each) 1. I am taking of the exam. D. Version D 2. Economics can be defined as the social science that studies how people make decisions in the face of scarcity. Scarcity refers to A. the recognition that privately owned businesses generally aim to maximize profit. B. a universal phenomenon that arises because resources are limited. C. the recognition that most people care more about themselves than they care about others. D. the argument for why a society would not want to realize a point below its Production Possibilities Frontier. 3. When quantity demanded increases at every possible price, we know that the demand curve has A. shifted to the right. B. shifted to the left. C. not shifted, but rather we have moved up along a fixed, unchanged demand curve. D. not shifted, but rather we have moved down along a fixed, unchanged demand curve. 4. When considering potential government policies, it is important to recognize that A. politicians are rational but voters are not. B. 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. C. the market equilibrium in the model of Supply and Demand is not a stable outcome. D. voluntary trade generally makes sellers better off and buyers worse off. 5. During the past three months there has been an increase in the price and a decrease in the quantity traded of Good X. Which of the following would have led to this observed change in the market outcome for this good? A. An increase in supply. B. A decrease in supply. C. An increase in demand. D. A decrease in demand. 6. Which of the following is one of the Three Fundamental Economic Questions that every society must address? A. How can we guarantee that everyone is able to earn a living wage? B. How can we minimize fluctuations in the unemployment rate? C. Which individuals get to consume the goods and services that we produce? D. At what age should we allow people to retire? 7. In a free market, equilibrium quantity of trade and equilibrium price are determined by A. only the sellers in the market. B. only the buyers in the market. C. the interaction of both buyers and sellers. D. neither buyers nor sellers, but completely by chance.

2 8. Eli and Peyton produce footballs and athletic shoes. Eli s opportunity cost of producing a football is greater than Peyton s opportunity cost of producing a football. The suggests that they can increase their total output of these two goods if Eli focuses his production on athletic shoes while Peyton focuses his production on footballs. A. Cost-Benefit Principle B. Incentive Principle C. Principle of Absolute Advantage D. Principle of Comparative Advantage 9. A buyer s reservation price A. refers to the maximum dollar amount a buyer is willing to pay for an item. B. refers to the minimum dollar amount a seller is willing to accept in exchange for an item. C. is visually illustrated by the vertical distance between the supply curve and demand curve. For Questions 1 through 12, consider a society facing the Production Possibilities Frontier illustrated below: wheat D B C E Which of the following combinations of output is unattainable (i.e. not feasible )? A. A (525 cars and 25 bushels of wheat). B. B (775 cars and 615 bushels of wheat). C. C (775 cars and 79 bushels of wheat). A If this society wanted to produce 8 cars, then their maximum output of wheat would be A. less than 42 bushels of wheat. B. exactly 42 bushels of wheat. C. some amount more than 42 but fewer than 615 bushels of wheat. D. exactly 615 bushels of wheat. 12. Focusing on points D and E in the graph above, the opportunity cost of producing an additional car is A. greater at point D than at point E. B. greater at point E than at point D. C. equal at these two points. D. None of the above answers are correct, since this graph does not convey enough information to make a comparison of this nature. cars

3 13. A aims to assess the desirability of how the world is or functions, perhaps with suggestions of things that could be done to improve matters. A. equilibrium statement B. normative statement C. positive statement D. negative statement 14. There is general agreement among economists with which of the following statements? A. Trade restrictions increase general economic welfare. B. The U.S. should prevent firms from outsourcing work to foreign countries. C. Cash payments increase the welfare of recipients to a greater degree than do transfersin-kind of equal cash value. 15. Which of the following could never lead to an increase in the demand for milk? A. a decrease in the price of milk. B. an increase in the price of orange juice (a substitute good). C. a decrease in the price of Strawberry Nestle Quick syrup (a complement good). D. an increase in consumer income (assuming milk is a normal good). For Questions 16 through 18, consider the following information regarding Rory s Total Benefits from playing golf in April (measured in dollars): Rounds of Golf Played Total Benefits from Playing Golf Rory s Marginal Benefit for his 5 th round of golf played would be A. $3. B. $5. C. $25. D. $ If Rory had to pay $35 for each round of golf played, he would choose to play A. 11 rounds of golf in April. B. 8 rounds of golf in April. C. 4 rounds of golf in April. D. rounds of golf in April. 18. If Rory has the choice to either pay $35 per round of golf played or to pay $2 to play unlimited golf in the month of April (i.e., as much as he chooses, for a flat rate of $2) he should choose A. to pay $2 for unlimited golf. B. to pay $35 per round. C. either option, since his maximum Economic Surplus is identical under each option. D. None of the above answers are necessarily correct (since there is not enough information provided to determine his optimal choice).

4 19. Voluntary Trade generally A. makes buyers worse off and makes sellers worse off. B. makes buyers better off and makes sellers worse off. C. makes buyers worse off and makes sellers better off. D. makes buyers better off and makes sellers better off. For questions 2 through 23 refer to the graph below, which illustrates Supply and Demand for peanuts in 214. price Supply Demand 213 1,48 2,85 3,94 quantity 2. In this market there would be at a price of $2.. A. neither excess demand nor excess supply B. excess supply C. excess demand D. both excess demand and excess supply 21. Focusing on the 1,48 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. $39.15; $. B. $23.55; $15.6. C. $23.4; $9.75. D. $7.8; $ At the equilibrium outcome: units would be traded, each at a price of. A. ; $ B. 1,48; $9.75. C. 2,85; $15.6. D. 3,94; $ Suppose that pretzels are a substitute for peanuts. If the price of pretzels were to increase, 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.

5 24. 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. 25. Amanda states that, Tickets to the Stanley Cup Finals are selling for $1,5 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. fails to recognize that many people who attend the Stanley Cup 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. B. only focuses on one particular cost and ignores the benefits of going to the Stanley Cup Finals. C. assumes that hockey fans are rational, 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. For questions 26 through 28, consider the following scenario. Noel and Liam produce two goods, cigarettes and alcohol. 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). Note, Noel s output of alcohol is not specified, but is rather given in general terms as X units. cigarettes alcohol Noel 6 cartons per day X ounces per day Liam 2 cartons per day 64 ounces per day 26. Which worker has an Absolute Advantage in the production of alcohol? A. Liam for all values of X. B. Noel for all values of X. C. Liam for small values of X, but Noel for large values of X. D. Noel for small values of X, but Liam for large values of X. 27. Liam s Opportunity Cost for producing a carton of cigarettes A. cannot be determined without knowing the value of X. B. is (6/2) = 3 ounces of alcohol. C. is (64/2) = 32 ounces of alcohol. D. is (64)(2) = 128 ounces of alcohol. 28. Suppose Noel and Liam combine (or pool) their output. Focus on the following combination of output: 8 cartons of cigarettes and 32 ounces of alcohol. This bundle is A. attainable and inefficient. B. attainable and efficient. C. unattainable. D. Without knowing the exact value of X it is not possible to determine which of the above answers is correct.

6 29. The Demand for Corn A. refers to the entire relationship between the price of corn and the quantity that consumers are willing and able to purchase, all other factors fixed. B. will increase if the price of corn decreases. C. will increase if the Supply of Corn decreases. 3. is the branch of economics which studies how individual decision-makers behave and interact with each other (very often with a focus on how individual households and/or firms behave and interact with each other in markets). A. Macroeconomics B. Microeconomics C. Marketing D. Money and Banking 31. Recall that the market equilibrium in the model of supply and demand is a stable 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. it is generally impossible for one worker to possess a Comparative Advantage in the production of every good/service (i.e., each worker will possess a Comparative Advantage in the production of a unique good/service). C. if a market is currently not at equilibrium, market forces will push us toward an equilibrium (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). D. as long as the Law of Demand and Law of Supply both hold, there is only one equilibrium outcome in a market. 32. Consider the following two statements: (I) The worst Guns N Roses album ever recorded is The Spaghetti Incident and (II) Del Taco has better food than Taco Bell. Statement (I) is a statement, and Statement (II) is a statement. A. positive; positive. B. positive; normative. C. normative; positive. D. normative; normative. 33. The Circular Flow Diagram illustrates A. how the free interaction of buyers and sellers in markets leads to a unique equilibrium price and a unique equilibrium quantity of trade. B. the general interaction between households and firms in a free market economy (in both the Markets for Finished Goods/Services and the Markets for Factors of Production). C. the different combinations of output that a society could possibly produce, given their currently available scarce resources and the currently available technology. D. None of the above answers are correct.

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