H Skoko ECO110 Class Test #1 2007

Transcription

1 H Skoko ECO110 Class Test # MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) If you spend $3.50 on a hamburger A) your expenditure must be greater than the value of producing the hamburger. B) your expenditure must generate incomes greater than $3.50 so that the owner of the store earns a profit. C) your expenditure creates $3.50 in incomes to the people who have contributed to making the bur ger. D) None of the above are correct. 2) "Every time wages rise, prices rise; if people would just stop asking for higher wages inflation co uld be brought under control." This statement is an example of a possible A) positive economic statement. B) post-hoc fallacy. C) fallacy of composition. D) ceteris paribus fallacy. 3) When people compare changes in benefits with changes in costs before making a choice, we say t hat people are A) making macroeconomic decisions. B) making choices at the margin. C) making normative economic choices. D) probably not facing opportunity costs. 4) Microeconomics is concerned with A) factors that explain changes in the unemployment rate over time. B) the causes of recession. C) the determination of prices and quantities in individual product markets. D) changes in the economy's total output of goods and services over long periods of time. 5) When a farmer decides to grow sugar cane instead of radishes, he is answering the q uestion. A) what B) when C) where D) why 6) The fact that a rap artist earns $5 million a year while a drug counsellor earns much less is an exa mple of an economy answering the question. A) when B) why C) who D) how 7) A theory consists of all of the following except A) a set of assumptions that defines the limits of the theory. B) a random sample of data used to test hypotheses. C) testable predictions deduced from the set of assumptions. D) one or more hypotheses about the relationships among specified variables. 8) Joe can produce 10 pairs of shoes or 5 shirts each day. Judy can produce 9 pairs of shoes or 3 shir 1

2 ts each day. We can say that A) Joe has a comparative advantage in the production of shoes. B) Judy has an absolute advantage in the production of only shirts. C) Joe has an absolute advantage in the production of shoes and shirts. D) Judy is not operating on her PPF. 9) A production possibility frontier illustrates the maximum amount of two different goods that can be produced if A) the price of both goods is identical. B) low-skilled workers can be prevented from getting jobs. C) the price of both goods is held constant. D) society is using all its resources in the most efficient manner possible. 10) Economics has devised ways to study how economies A) efficiently use resources. B) make choices regarding unlimited wants. C) deal with scarcity. D) all of the above 11) A person goes to university to become an engineer. This is an example of A) an increase in labour. B) an increase in entrepreneurship. C) an investment in physical capital. D) an investment in human capital. 12) A country that must reduce current consumption to increase the amount of capital goods it prod uces A) must be producing along the production possibility frontier. B) must be using resources inefficiently. C) must be producing outside the production possibility frontier. D) must not have private ownership of property. 13) The "law of supply" refers to the fact that, all other things remaining constant on the supply side of the market, when the price of a commodity increases A) the supply curve will shift rightward. B) there will be a movement to the right along the supply curve. C) the supply curve will shift leftward. D) there will be a movement to the left along the supply curve. Figure 4.3 2

3 14) Referring to Figure 4.3, the Market for Oranges, which panel shows the effect of all existing orange growers increasing the size of their orange groves? A) Panel A B) Panels B and D C) Panels A and C D) Panel D 15) All shredded wheat producers have decided that your company will purchase and apply a new ingredient: the "crunch enhancer." This is a tasteful food additive which keeps cereals crisper longer in milk. What will happen to the equilibrium price and quantity of shredded wheat now that is costs more to produce but consumers like it better? A) The effect on price is uncertain, but quantity will increase. B) Price will decrease but quantity will increase. C) Price will increase, but the effect on quantity is uncertain. D) Price and quantity will both increase. Figure ) Referring to Figure 4.2, the Market for Gasoline, which panel shows the effect of raising the legal 3

4 driving age to nineteen in all states? A) Panel A B) Panel B C) Panel C D) Panel A and C 17) For Product X, the income elasticity of demand is Which of the following is therefore true? A) Product X is an inferior good. B) Product X is a necessity. C) Product X is a luxury. D) Product X is a normal good. 18) When OPEC raises the price of petrol, Australian expenditures on petrol increase because A) Australia's price elasticity of demand for petrol is greater than one. B) Australia's price elasticity of demand for petrol is less than one. C) the short-run elasticity of petrol exceeds the long-run elasticity. D) the long-run elasticity of petrol exceeds the short -run elasticity. 19) An important determinant of the price elasticity of supply is A) how well consumers like the commodity. B) the time period firms have to adjust to a new price. C) the proportion of the consumer's total budget which the commodity takes up. D) whether the good is a durable or a nondurable. 20) A store remains open from 8 am to 4 pm each weekday. The store owner is deciding whether to s tay open an extra hour each evening. His marginal benefit A) is the benefit he receives from staying open from 8 am to 5 pm. B) is equal to revenues minus operating costs. C) depends on the revenues he makes during the day. D) must be greater than or equal to his marginal cost if he decides to stay open. 21) Voluntary exchange A) allows buyers to gain at the expense of sellers. B) prevents markets from working efficiently. C) allows sellers to gain at the expense of buyers. D) allows both buyers and sellers to gain. 22) If an economy is operating at a point inside the production possibility frontier, then A) economic policy must retard further growth of the economy. B) the curve will move leftward. C) society's resources are being used to produce too many consumer goods. D) society's resources are being inefficiently utilized. 23) In the production of goods and services, trade-offs exist because A) buyers and sellers often must negotiate prices. B) society has only a limited amount of productive resources. C) human wants and needs are limited at a particular point in time. D) not all production is efficient. 24) If the Health Department announced that increased wheat consumption could cause heightened anxiety levels among children and adults, what would happen to the equilibrium price and quantity of shredded wheat? A) price and quantity both decrease B) price decreases but quantity increases C) price increases but quantity decreases D) price and quantity both increase 25) Barend increased his spending on steak from $7 to $11 per week due to a 12% salary increase so his 4

5 A) price elasticity is B) income elasticity is C) income elasticity is 3.7. D) price elasticity is ) Sue, who has a law degree, earns $200,000 a year while Chris, a high school dropout earns $8.00 a n hour. This is an example of an economy answering the question. A) why B) when C) how D) who 27) Opportunity cost is defined as A) the amount of money lost by one individual in an exchange process so that another individual mi ght gain. B) the amount of money that an individual is willing to pay to purchase a good that means a great d eal to that person. C) a situation in which one individual cannot have an absolute advantage over another individual in the production of all goods. D) the highest valued alternative that must be sacrificed whenever one is forced to choose among va rious alternatives. Figure ) Referring to Figure 4.1, The Market for Hamburgers, which panel shows the effect of an increase in the price of a complement such as hamburger buns? A) Panel B and C B) Panel B C) Panel C D) Panel D 29) The price elasticity of demand for a good is an attempt to measure A) the change in the price of a good due to a change in the cost of producing it. B) the change in the price of a good due to a shift of its entire supply curve. C) the change in the price of a good due to a shift of its entire demand curve. D) none of the above 30) Which of the following is true regarding a market economy? 5

6 I. A market is a superior way to organize an economy.. Markets are inefficient when allocating scarce resources.. Markets allow producers to become better off than consumers. A) I only B) I and II C) I and III D) III only SHORT ANSWER. Write the word or phrase that best completes each statement or answers th e question. 31) What are the five big economic questions? Give an example of each. 32) Explain the connection between scarcity and economics. 33) Explain the connection between scarcity, opportunity costs and the PPF. 34) How do property rights help organize production and trade? 35) If the market equilibrium relative price for a two -litre bottle of Coca-Cola is $1.99 today, just like it was ten years ago, can we safely say that all supply and demand conditions in the market for Coke have remained very stable all these years? 36) If addiction makes cigarettes such a necessity, is it correct to think that they are perfectly inelastic in both supply and demand. 37) What is the connection between output per person, productivity and living standards? 38) What is the difference between comparative advantage and absolute advantage? 39) If the rental price of movie videos decreases from $6.00 to $5.00, will that raise the demand for and the price of video cassette recorders (VCR's) since the two are strong complements? 40) If the owner of a local movie theater wanted to increase his total revenue from movie admissions, what should he do with his ticket prices? TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 41) Voluntary exchange makes only sellers better off. 42) As population increases, output necessarily increases, thereby creating an increase in living stand ards. 43) If an economy is operating within its PPF, it does not face opportunity costs. 44) Specialization and trade allow countries to consume beyond their PPFs. 45) If house purchases and home unit rentals are substitutes, then an increase in new house prices will cause an increase in home unit rents. 46) If a hot dog vendor on a street corner experiences an increase in her total sales revenue after lowering the price of her hot dogs, then the demand for her hot dogs must have been price elastic. 47) Keeping all but the two economic variables you are interested in constant is an example of the "p ost hoc fallacy." 6

7 48) Land is not considered a limited resource because of the availability of the oceans and space. 49) An increase in the incomes of rugby league fans in Queensland would cause a rightward movement along the demand curve for tickets to ma tches involving the Brisbane Broncos. 50) For cricket memorabilia fans, the bat with which Don Bradman hit his first test century is perfectly price inelastic in supply and in demand. 7

8 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) C 2) B 3) B 4) C 5) A 6) C 7) B 8) C 9) D 10) D 11) D 12) A 13) B 14) D 15) C 16) B 17) A 18) B 19) B 20) D 21) D 22) D 23) B 24) A 8

9 25) C 26) D 27) D 28) B 29) D 30) A SHORT ANSWER. Write the word or phrase that best completes each statement or answers th e question. 31) What, i.e., how many VCRs to be produced. How, i.e., what process should be used to make the VCRs. When, i.e., will the VCRs be produced this year or next year. Where, i.e., should producti on take place in Australia or New Zealand. Who, i.e., who should consumer the VCRs. 32) Economics is centrally concerned with the allocation of scarce resources between competing ends. If resources are not scarce, then an allocation problem does not arise. 33) Relative scarcity refers to the relationship between unlimited wants and limited resources. Oppor tunity cost represents an example of scarcity since it embraces the idea that people must make ch oices because they have limited resources. The PPF is a diagrammatic way of illustrating the conc ept of relative scarcity; the further the PPF from the origin, the less acute the degree of relative sca rcity. 34) Property rights govern the use of resources in society. Well-defined property rights mean that pe ople can produce and consume without the fear that someone else will rip them off. 35) Not necessarily. The demand curve might have shifted rightward continuously due to population growth in the U.S. and growing demand for Coke in other countries world-wide. Although that alone would have driven up the price, there could have been other factors shifting the supply curve rightward and pulling the price down. Some possibilities would be improved technology for producing and transporting Coke, or declining sugar prices due to some great sugar harvests. 36) Cigarettes might be perfectly inelastic in demand over a small range of prices. However, at high enough prices we would expect some market reduction in quantity demanded. Some consumers would try to quit, others would cut down the quantity they smoke each day, and more kids would find it too costly to get started. On the supply side, a higher market price will cause the planting of more tobacco so that as time passes a greater quantity supplied would follow, making the supply no longer perfectly inelastic. 37) If population is static and productivity is increasing, then output per person will rise. If more go ods and services are produced. This means the standard of living will increase. 38) Absolute advantage refers to how efficiently a society can make some good or service. Comparati 9

10 ve advantage considers how efficiently a society can make goods compared to other societies. 39) The demand for and price of VCR's would both increase if the drop in price for movie videos was caused by a rightward shift of their supply curve due, perhaps, to a decrease in the cost of producing them. However, if the drop in the price of movie videos was caused by a leftward shift of the demand curve for them due, perhaps, to a decline in their popularity, then there would be no subsequent increase in the demand for or price of VCR's. 40) If the demand of movie goers is price elastic, he should lower prices. If the demand is price inelastic, he should raise prices. If the demand is unit elastic, any price change will lower total revenue so he should keep prices where they are. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 41) FALSE 42) FALSE 43) FALSE 44) TRUE 45) TRUE 46) TRUE 47) FALSE 48) FALSE 49) FALSE 50) FALSE 10