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Exam 1 Sample C

Terms in this set (61)

1. "Economics" is best defined as
the study of how to best use scarce resources.
2. Scarcity is a problem
A. because human wants are largely unlimited while resources are limited
3. Which of the following illustrates the concept of scarcity of resources?
C. relies on simplifying assumptions in order to explain economic behavior
4. A good economic model
...
5. An economic theory claims that a rise in gasoline prices will cause gas purchases to fall somewhat, ceteris paribus. The phrase "ceteris paribus" means that
A. other relevant factors, such as consumer incomes, are being held constant
6. Which of the following is included in the economist's definition of "land"?
A. all of the above.
7. An example of capital (as the term was defined in class) is
A. equipment that can be used to produce a car.
8. Which of the following is NOT an example of one of the four basic types of inputs, as defined by economists?
B. the money supply of a nation
9. Which of the following best describes a pure capitalist economy (ala Adam Smith)?
A. Prices allocate scarce resources, and those prices are determined in freely-operating markets.
10. In his influential book The Wealth of Nations, Adam Smith used the metaphor of the "invisible hand" to explain how
A. people acting in their own self-interest promote the interest of the society as a whole, even though that was not their direct intent
11. In a capitalist/market economy, "equity" is determined on the basis of _________, while in a Marxist economic system, "equity" is determined on the basis of _________.
A. productivity; need
12. A command/control economy is one in which
A. the government, rather than the market, allocates resources.
13. Select the answer below that today correctly ranks the listed nations from the most reliance on government to the least reliance on government to allocate scarce resources?
A. North Korea, China, Sweden, United States
14. According to Karl Marx, capitalism will destroy itself due to an escalating class struggle between the working class, whom he termed the ____________, and the capitalist factory owners, whom he termed the ____________.
A. proletariat; bourgeoisie
15. The economic concept of "opportunity cost" is best defined as
A. the value of the next-best alternative forgone when a decision is made.
16. The expression, "There's no such thing as a free lunch" implies that
B. opportunity costs are incurred whenever resources are used to produce goods or services.
17. Madison College offers students and staff a "free" late-night shuttle service from the Truax building to the distant parking lots. The opportunity cost to the school of offering this shuttle service is equal to
A. the highest valued alternative use of the resources devoted to the shuttle program.
18. An unemployed individual decides to spend the day fishing. The opportunity cost of this decision to fish is equal to
A. the cost of bait, plus any other direct monetary expenses, plus the value of the best alternative use of the individual's time.
19. You rent a copy of a new action/adventure movie. The rental is for 7 days and you watch the movie on the first day. You tell a friend about the film and your friend asks to come over and watch the movie with you before it is due back. What is your opportunity cost of watching the movie a second time?
D. The answer depends on what you would have been doing with your time instead of watching the movie the second time.
20. The Production Possibilities Frontier (PPF) represents
A. the maximum combinations of two goods that a society can produce, given the existing technology and the currently available quality and quantity of resources.
21. Which of the following economic concepts does the Production Possibilities Frontier (PPF) model illustrate?
all of the above
22. The PPF in the Figure above shows
A. an economy with increasing opportunity costs.
Which of the following would shift a country's production possibilities frontier (PPF) outward/rightward?
A. A population increase due to increased immigration into the country
24. Which of the following would NOT cause the Production Possibilities Frontier (PPF) of a nation to shift?
A. the government giving every citizen $100
25. What is the opportunity cost of increasing the production of military goods from 20 million to 34 million?
10 billion fewer civilian goods
26. Does it appear possible for this economy to produce 30 million military goods and 50 billion civilian goods?
A. No, because resources are currently too limited given the existing technology
27. Does it appear possible for this economy produce 40 million military goods and 10 billion civilian goods?
A. Yes, but that would represent a situation of unemployment/inefficiency
28. The "law of demand" states that, ceteris paribus, the quantity demanded of a good increases when
D. the price of the good falls
29. If the demand for Crabby Patties at the Krusty Crab is downward sloping, then a decrease in the price of Crabby Patties will result in a(n)
increase in the quantity demanded of Crabby Patties
30. "Fran the Fan" demands more tickets to Milwaukee Brewers baseball games as her income increases, ceteris paribus. From this, we can conclude that, for Fran,
B. Milwaukee Brewers games are a normal good
31. Suppose that consumers expect the price of Fat Squirrel® beer to decrease in the near future. The result is that
C. the current demand for Fat Squirrel® beer will decrease
32. Assume that HDTVs and home surround-sound speaker systems are complements. When the price of HDTVs decreases,
A. the demand for home surround-sound speaker systems increases (shifts right)
33. Ceteris paribus, which of the following factors would NOT cause the demand curve for Ron's Radical Rigatoni Casserole to shift from D2 to D1 ?
B. an increase in the price of Pete's Penne Pasta Casserole, a substitute for Ron's Radical Rigatoni Casserole
34. The "law of supply" states that, ceteris paribus,
A. firms will produce more of a product as the price of the product rises
35. Ceteris paribus, which of the following would cause the supply curve of Penelope's Pizza to shift left from S2 to S1 ?
A. an increase in the wages paid to the workers at Penelope's Pizza restaurant
36. Suppose the band Lady Antebellum is selling out arenas at $100 a ticket; assume that $100 is the equilibrium price. If fans around the country protest, and get ticket promoters to lower the price to $70 a ticket, the result would be
a shortage of tickets
37. If Dell computers and Hewlett-Packard computers are substitutes, then an increase in the price of Dell computers will result in:
an increase in demand for Hewlett-Packard computers (right shift of the Hewlett-Packard demand curve).
38. Ceteris paribus, a rightward shift of the market demand curve for Godiva gourmet chocolate truffles will cause the equilibrium
price to increase and quantity to increase.
39. What is the equilibrium price and quantity of milk, respectively?
A. $1.50; 12,000
40. At a price of $1.25, there would exist
a shortage of 4,000
41. If the government were to establish a price ceiling of $2.00 per half gallon, the result in this market would be
D. no economic impact, since the market equilibrium price is below the price ceiling
42. Assume bananas and apples are substitutes. When the price of bananas rises, the equilibrium quantity of apples will ______ and the equilibrium price of apples will ______.
A. rise; rise
43. Consider the market for iPods. Ceteris paribus, what will happen to the equilibrium price and quantity of iPods if production costs fall significantly due to a technological improvement?
price will fall; quantity will rise (NEXT PAGE)
44. In order to reduce America's dependence on fossil fuels, many economists have recently called for an increase in the tax on the consumption of fossil fuels, including a higher tax on gasoline to be paid by consumers at the pumps. Ceteris paribus, if such a tax were enacted, the impact on the markets for alternative fuels such as biodiesel would be
A. an increase in both the equilibrium price and the equilibrium quantity
44. At the current price, a surplus exists in the market for "Life, Love, Economics" t-shirts. In a freely-operating market, the surplus would be eliminated by a
C. government mandate requiring everyone to wear such beautiful (and truthful :>) shirts
44. Assume Spam® is an "inferior good." Ceteris paribus, if consumer income increases, we would expect _________ in the demand for Spam® and __________ in the equilibrium price of Spam®.
A. a decrease; a decrease
47. You notice that the price of gasoline at local gas stations has increased. Which of the following is NOT a possible explanation for the rise in the price of gasoline?
A. Due to growing environmental concerns about global warming, consumers choose to drive less.
48. A price ceiling is ___________ and an example is ____________.
A. a maximum legal price; rent controls
48. Suppose the market equilibrium wage for unskilled, entry-level workers is $4.00 per hour. However, the minimum wage in Wisconsin is currently at $6.50 per hour for adult employees. Ceteris paribus, if the minimum wage is raised to $7.25, we can predict
A. the surplus of workers will get larger
50. Assume the market equilibrium rent for a two-bedroom apartment in Madison is $1000. Ceteris paribus, if the Madison government were to impose a price ceiling of $800 on two-bedroom apartments
A. both A. and B. would result.
51. Demand is inelastic if
A. the percentage change in price is greater than the percentage change in quantity demanded
52. If the value of the price elasticity of demand (pEd) is 0.2, this means that a
A. 5 percent decrease in price causes a 1 percent increase in quantity demanded
53. Dusty Rags, Inc. provides janitorial services to retail stores. Dusty had been charging $10 per hour and selling 400 hours of service per week at that rate. When he raised his price to $15 per hour, his customers cut back to 300 weekly hours of service. Which of the following is true?
C. Revenue went from $4,000 per week to $4,500 per week, indicating that the demand for his services must be inelastic.
54. Which demand curve below is perfectly elastic?
B. the curve in graph b
55. If production in the calculator market increases by 5 percent when the price increases by more than 5 percent, then
A. supply is inelastic
56. Please use the graph above to answer the following: between the prices of $5 and $6, which supply curve is most elastic and which is least elastic?
B. S1 is most elastic; S3 is least elastic.
57. For which of the following goods is the value of income elasticity most likely to be negative?
A. macaroni and cheese
58. A 5 percent increase in income leads to a 10 percent decrease in demand for a service. This service is a(n) __________ good and demand is __________.
C. inferior; elastic
59. The cross-price elasticity of demand between pancakes and waffles is positive. This indicates
D. all of the above
60. The cross-price elasticity of demand between MP3 players and MP3 files is likely to be
A. negative because the goods are complements
After a cruise ship is hijacked at sea by terrorists, many fearful consumers decide to take their vacations on land. At the same time, the wages of cruise employees increase when the employees unionize. The effect of these simultaneous changes on the market for cruise vacations is:
A. an uncertain impact on the equilibrium price and a decrease in the equilibrium quantity of cruise vacations.
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