FINAL - ECONOMICS 2023 AUGUST 4, Name S.S.#

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1 FINAL - ECONOMICS 2023 AUGUST 4, 2000 Name S.S.# This exam contains 30 multiple choice questions, each worth 2.5 points (100 point total). All questions on this exam should be answered. You have 75 minutes to complete this exam; GOOD LUCK!

2 1 PART 1: MULTIPLE CHOICE POINTS Choose the single best answer for the following 40 questions. PLEASE PLACE YOUR ANSWER ON THE FRONT OF THE ATTACHED SCANNER SHEET STARTING WITH NUMBER 1. Circle your answer on this sheet for your own information. 1. Economics is primarily the study of a. why people like to make money. b. the management of a business. c. the choices people make as the result of scarcity. d. how to make money in the stock market. 2. The statement "Violent crime has decreased in the last five years" a. is obviously wrong and, therefore, cannot be a positive statement. b. is normative since it can be answered by simply looking at the facts. c. is positive because it is testable. d. is not very interesting because all normative issues are of little importance. 3. Ms. Liebowitz has a choice of driving or flying from Tallahassee, Florida to Atlanta for a one-day business trip. If she travels by air, she will be able to work five more hours while in Atlanta. Her expected income from each hour of work in Atlanta is $20. Ms. Liebowitz also expects to gain $10 worth of nonpecuniary (nonmonetary) benefits if she travels by air. If Ms. Liebowitz is a rational decision maker, she will drive if the price differential (air cost minus driving cost) exceeds a. $20. b. $70. c. $90. d. $ Which of the following will be most likely to cause an inward shift in the production possibilities curve? a. an increase in the labor force b. an increase in unemployment c. development of an improved technological method of production d. a decrease in the stock of physical capital 5. Suppose you can type a paper in two hours or mow the lawn in four hours, while it takes your friend Ann eight hours to type a paper or two hours to mow the lawn. Which of the following is true? a. You have a comparative advantage in typing. b. You have a comparative advantage in mowing the lawn. c. You and Ann could save time if you mowed her lawn while she typed your paper. d. You and Ann cannot gain from specialization and trade. 6. Other things constant, an increase in the real income of households will a. shift the demand curve for automobiles to the left. b. shift the demand curve for automobiles to the right. c. cause a movement along the demand curve for automobiles. d. lead to a reduction in the supply of automobiles.

3 2 7. If an increase in the price of good X causes the demand for good Y to decrease, this indicates that a. X and Y are complements. b. X and Y are substitutes. c. X and Y are inferior goods. d. the demand for X is elastic, but the demand for Y is inelastic. 8. A technological improvement in producing good A will shift a. the supply curve for A to the right. b. the supply curve for A to the left. c. the demand curve for A to the right. d. the demand curve for A to the left. 9. In the figure shown, suppose D1 and S1 indicate initial conditions in the market for ice cream. Which of the following changes would tend to cause a shift from S1 to S2 in the market for ice cream? a. an increase in the price of ice cream b. a decrease in the price of ice cream c. an increase in consumer income d. a decrease in the price of sugar, an ingredient used to produce ice cream 10. An excise tax of $.50 per gallon is levied on gasoline. Which of the following is most likely to occur? a. Consumers of gasoline will pay a higher price and buy a larger quantity. b. Consumers of gasoline will pay a higher price, which will increase the profits of gasoline sellers, inducing them to sell a larger quantity. c. Consumers of gasoline will buy a smaller quantity and pay a higher price. d. Suppliers of gasoline will increase their quantity supplied to offset the taxes paid to the government. 11. An income tax is progressive if the a. tax rate decreases as income increases. b. percentage of income paid in taxes increases as income increases. c. percentage of income paid in taxes stays the same regardless of the size of income. d. absolute amount paid in taxes varies directly with income.

4 3 12. (I) The political process will reject unproductive projects when a program provides substantial benefits to a small proportion of voters and the costs are widespread among voters. (II) The political process will accept productive projects when both the benefits and costs are widespread among voters. a. I is true; II is false. b. I is false; II is true. c. Both I and II are true. d. Both I and II are false. 13. Government decisions tend to be biased against actions that have a. costs and future benefits that are readily observable. b. future costs that are difficult to identify and benefits that are readily observable. c. future costs and future benefits that are difficult to identify. d. costs that are readily observable and benefits that are difficult to identify. 14. A recent increase in the supply of oranges caused the price to drop from $5 to $3.00 per bushel and quantity demanded to rise from 10,000 bushels to 25,000 bushels. This indicates that the price elasticity of demand for oranges in this price range is a b c. -1. d If the board of regents of the State of Florida university system plans to raise tuition in order to increase revenues, the regents must believe student demand is a. elastic. b. inelastic. c. of unitary elasticity. d. perfectly elastic. 16. Which of the following is most likely to be true of economic and accounting profits? a. Economic profits are less than accounting profits. b. Accounting profits are less than economic profits. c. Economic profits plus accounting profits equal zero. d. Accounting profits minus economic profits equal zero. 17. Which of the following must be true if average total costs are declining? a. Marginal cost is less than average total cost. b. Marginal cost is less than average variable cost. c. Marginal cost is greater than average total cost. d. Marginal cost equals average total cost. 18. If marginal revenue exceeds marginal cost, a price-taker firm should a. expand output. b. reduce output. c. lower its price. d. do both a and c.

5 4 19. Use the table below to answer the following question. Units of Total Fixed Total Variable Output Cost (dollars) Cost (dollars) 1 1,000 1, ,000 2, ,000 3, ,000 5, ,000 6,600 What is the average total cost at an output level of four units? a. $1,200 b. $1,400 c. $1,500 d. $2, Suppose sharply lower coffee prices lead to a decrease in demand for tea. As tea prices decrease, tea producers experience short-run economic losses. If the tea industry is a price-taker industry and if sufficient time is allowed for the market to adjust fully to the decrease in demand for tea, one would expect the tea industry's output to a. increase and economic losses to increase as well. b. increase and economic losses to disappear. c. decline and economic losses to increase. d. decline and economic losses to disappear. 21. In a competitive price-searcher market, the marginal revenue of the firm will always be a. a horizontal line. b. greater than price. c. less than price. d. equal to price. 22. Which of the following is true for firms that produce in markets where there are no barriers to entry? a. The firms will always make positive economic profits in the long run. b. The firms will always make positive economic profits in the short run. c. The firms will always make zero economic profits in the short run. d. The firms will always make zero economic profits in the long run. 23. A perfectly elastic, long-run market supply curve is most likely to be achieved in a(n) a. price-taker industry. b. constant cost industry. c. increasing cost industry. d. price searcher industry. 24. In a price-taker market, the short-run market supply curve is the a. vertical sum of the marginal cost curves of all firms in the market. b. vertical sum of the average variable cost curves of all firms. c. horizontal sum of the marginal cost curves of all firms so long as price exceeds average variable cost. d. horizontal sum of the average total cost curves of all the firms in the market so long as average total cost exceeds the market price.

6 5 25. Which of the following is not a factor that serves as an entry barrier into a market? a. economies of scale b. private property rights c. patents d. control over an essential resource 26. Use the following table to answer this question. Price Units of Output Total Cost (dollars) (quantity demanded) (dollars) , , , , ,100 The demand and total cost schedules of a monopolist are presented in the table above. What price should a profit-maximizing monopolist charge? a. $10 b. $ 9 c. $ 8 d. $ Assuming that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency? a. The output of the monopolist will be too large and the price too high. b. The output of the monopolist will be too small and the price too low. c. The output of the monopolist will be too small and the price too high. d. The price will be too high, but the impact of monopoly on the output is indeterminate. 28. Cartel agreements are difficult to maintain because individual members a. can gain by raising their price above the price that is best for the cartel. b. are often unable to police the price and output policies of other members. c. can gain by lowering their price below the price that is best for the cartel. d. are both b and c. 29. Which of the following is the best example of an investment in human capital? a. an increase in the number of hours worked per week by a worker in an unskilled laboring job b. the purchase of company stock by a worker c. a summer internship at a law firm for someone going to law school d. payments into a retirement pension plan by a skilled laborer 30. When the price of a resource goes up and firms seek to substitute other resources, this is called the a. substitution in production effect. b. substitution in demand effect. c. elasticity effect. d. inelasticity effect.

7 6 Use the information in the accompanying chart to answer the following question. The firm hires labor competitively and sells its product in a competitive price-taker market. Units of Labor Total Output Product (per day) (units) Price If the market wage rate is $35 per day, how many workers should the firm employ if it wants to maximize profits? a. three b. four c. five d. six 32. Which of the following is most likely to increase the money wages that will be required to attract a given number of workers? a. The job is widely viewed as prestigious. b. The employer provides quality child care on the premises. c. The employer does not discriminate. d. The work is widely viewed as being stressful and dangerous. 33. If a firm refuses to hire any minorities due to a personal prejudice, its profits a. will increase markedly. b. will decrease. c. will not be affected. d. will increase slightly. 34. Benefits mandated by the government are most likely paid for by a. the government through direct subsidies. b. the employer in the form of lower profits. c. the worker through reductions in other components of the wage package. d. material suppliers in the forms of lower resource prices. 35. Which of the following best explains why the Social Security system is expected to face financial difficulties in the near future? a. Too much Social Security revenue was invested in the private sector rather than in government bonds. b. The federal government does not pay interest on the money it borrows from the Social Security system. c. The funds in the Social Security trust fund were invested in high-risk ventures that failed to pay off. d. The number of workers paying into the system is expected to decline relative to the number of retirees collecting benefits.

8 7 36. The Social Security system is currently generating tax revenues that exceed the benefits paid to recipients. This surplus is a. being invested in foreign bonds, which will provide Americans with a source of income when the baby boom generation retires. b. separated from other government revenue so politicians will not spend the money during the current period. c. being channeled into earmarked private savings accounts. d. being invested in government bonds, which will require an increase in general tax revenues when the bonds come due (when the baby boom generation retires). 37. Buying stocks tends to be less risky when a. stock of many corporations are purchased. b. all stocks bought are in the same industry. c. the stock may have to be sold within a few weeks. d. none of the above. 38. A substantial rise in the interest rate will a. lower stock values. b. not change stock values. c. modestly raise stock values. d. substantially raise stock values. 39. Which of the following most accurately indicates changes in the size of the union sector in the United States? a. As a share of the labor force, union membership grew substantially during 1935 through 1955 but has declined substantially since the mid-1950s. b. As a share of the labor force, union membership declined substantially during 1935 through 1955 but has grown substantially since the mid-1950s. c. As a share of the labor force, union membership has steadily grown from less than 10 percent in 1935 to more than 40 percent today. d. Union membership has composed approximately 20 percent of the labor force during the last five decades. 40. Which of the following will tend to increase the ability of a union to increase the wages of its members? a. decreased supply of nonunion labor b. threat of a strike c. increased demand for union labor d. all of the above

9 Answers 1. C 2. C 3. D 4. D 5. A 6. B 7. A 8. A 9. D 10. C 11. B 12. B 13. D 14. D 15. B 16. A 17. A 18. A 19. C 20. D 21. C 22. D 23. B 24. C 25. B 26. B 27. C 28. D 29. C 30. A 31. C 32. D 33. B 34. C 35. D 36. D 37. A 38. A 39. A 40. D 8

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