Final Exam

 

 

 

1) Economics is best defined as the study of:

 

A) financial decision-making.

 

B) how consumers make purchasing decisions.

 

C) choices made by people faced with scarcity.

 

D) inflation, unemployment, and economic growth.

 

 

 

2) Printing presses, forklifts and assembly plants are examples of which factor of production?

 

A) physical capital

 

B) human capital

 

C) entrepreneurship

 

D) labor

 

 

 

3) If each extra driver on the road makes every other drivers commute last one minute longer and there are 600 drivers on the road, then one extra driver costs society

 

A) 1 hour extra in commuting time.

 

B) 10 hours extra in commuting time.

 

C) 100 hours extra in commuting time.

 

D) 10 extra minutes in commuting time.

 

 

 

4) The opportunity cost of something is:

 

A) the cost of the labor used to produce it.

 

B) what you sacrifice to get it.

 

C) the price charged for it.

 

D) the search cost required to find it.

 

 

 

5) Suppose a ticket to a concert costs $39, and parking costs $5. Further, in order to watch the concert, you must miss 2 hours of work where your hourly wage is $15 per hour. The total opportunity cost of watching a concert is:

 

A) $74.

 

B) $44.

 

C) $39.

 

D) $30.        

 

 

 

6) If you remove resources from factory production, the quantity of factory goods will:

 

A) increase.

 

B) decrease.

 

C) remain the same but their price will decrease.

 

D) be diverted to other production.

 

 

 

7) The ability of one person or nation to produce a good at a lower opportunity cost than another is called a(n):

 

A) market advantage.

 

B) comparative advantage.

 

C) absolute advantage.

 

D) specialization advantage.

 

 

 

 

Table 3.2

 

8) Consider two individuals, Rose and Sharon, who produce fish and coconuts. Rose and Sharon’s hourly productivity are shown in Table 3.2. Sharon’s opportunity cost of producing 1 coconut is:

 

A) 3/4 fish.

 

B) 1 1/3 fish.

 

C) 3 fish.

 

D) 4 fish.

 

 

 

9) Consider two individuals, Rose and Sharon, who produce fish and coconuts. Rose and Sharon’s hourly productivity are shown in Table 3.2. Sharon’s opportunity cost of producing 1 coconut is:

 

A) 3/4 fish.

 

B) 1 1/3 fish.

 

C) 3 fish.

 

D) 4 fish.

 

 

 

10) A perfectly competitive market is a market that has:

 

A) many buyers.

 

B) many sellers.

 

C) no single buyer or seller who can affect the price.

 

D) all of the above are correct.

 

 

 

11) When there is a change in the quantity demanded it means that the:

 

A) hours the customer can buy products each day have increased.

 

B) number of products in inventory have increased.

 

C) quantity a consumer is willing to buy changes when the price changes.

 

D) selling price of the products has not changed.

 

 

 

12) At a price of $1000, Dell Computer Co. is willing 20 laptops and Compaq is willing to sell 40 laptops. IBM will only sell laptops if the price is $1300 or higher. From the point of view of IBM, $1300 is the:

 

A) minimum supply price.

 

B) minimum cost.

 

C) the equilibrium price.

 

D) minimum loss price.

 

 

 

13) The concept of elasticity applies to:

 

A) supply only.

 

B) demand only.

 

C) neither supply nor demand.

 

D) both supply and demand.

 

 

 

14) Grand TV Manufacturer wants to increase the quantity of TVs it sells by 8%. If the price elasticity of demand is 4 the manufacturer must:

 

A) increase price by 2.0%.

 

B) decrease price by 2.0%.

 

C) increase price by 1.5%.

 

D) decrease price by 1.5%.

 

 

 

15) At a price of $1, Greedy Inc. sold 100 gallons of gasoline per week. When the price rose to $2, only 80 gallons were sold per week. Using the initial-value method, the price elasticity of demand for gasoline at Greedy Inc. Gas Station is:

 

A) 0.2.

 

B) 0.15.

 

C) 1.5.

 

D) 2.

 

 

 

16) The difference between the maximum amount a person is willing to pay for a good and its current market price is known as:

 

A) the paradox of value.

 

B) profits.

 

C) revealed preferences.

 

D) consumer surplus.

 

 

 

17) You would be willing to pay a maximum of $1000 for an airplane ticket to London, UK during the summer, and you can buy an airplane ticket for $890. Your consumer surplus is:

 

A) $90.

 

B) $190.

 

C) $110.

 

D) $100.

 

 

 

 

 

 

18) Refer to Figure 6.3. If the price of one hour of tutoring is $20, then producer surplus is:

 

A) $40.

 

B) $30.

 

C) $20.

 

D) $10.

 

 

 

19) The satisfaction experienced from consuming a good or service is referred to as:

 

A) utility.

 

B) marginal utility.

 

C) the law of diminishing marginal utility.

 

D) all of the above

 

 

 

 

20) Refer to Figure 7.2. The marginal utility of the first video game rental is:

 

A) 10.

 

B) 8.

 

C) 25.

 

D) 40.

 

 

 

21) Refer to Figure 7.2. The marginal utility of the third video game rental is:

 

A) 1.

 

B) 3.

 

C) 4.

 

D) 22.

 

 

 

22) The period of time when a firm is able to change all of inputs, or factors of production, is called the:

 

A) economic term.

 

B) short run.

 

C) accounting term.

 

D) long run.

 

 

 

23) Robert is an entrepreneur who invests in residential real estate. He has a money market account with $100,000 that earns 3% APY. Robert wants to buy a house that will give him a monthly cash inflow of $300. What will opportunity cost of investing in the house be?

 

A) 3000

 

B) 3100

 

C) 3600

 

D) 3500

 

 

 

24) Mario has a company that produces plastic freezer bags. His company objective is to maximize:

 

A) his company’s revenues.

 

B) his company’s total out-of-pocket costs.

 

C) his company’s opportunity costs of each factor of production.

 

D) his company’s economic profits, the difference between total revenue and total cost.

 

 

 

25) In a perfectly competitive market:

 

A) the government imposes price ceilings on the products produced and buyers and sellers are price takers.

 

B) buyers set the price and sellers take the price.

 

C) both buyers and sellers are price takers.

 

D) the market demand for products produced is perfectly elastic.

 

 

 

26) The best example of a monopolistically competitive industry is:

 

A) music stores.

 

B) grocery stores.

 

C) mobile phone service.

 

D) A and B are correct.

 

 

 

27) In the form of market organization called “perfect competition,” the firms tend to be ________ and the product they sell is ________.

 

A) large; identical

 

B) small; different

 

C) large; different

 

D) small; identical

 

 

 

28) Which type of barrier to entry allows the electric company to maintain a monopoly over the production of electricity?

 

A) a patent

 

B) economies of scale

 

C) diseconomies of scale

 

D) ownership of a scarce factor of production

 

 

 

29) Which type of barrier to entry allows the electric company to maintain a monopoly over the production of electricity?

 

A) a patent

 

B) economies of scale

 

C) diseconomies of scale

 

D) ownership of a scarce factor of production

 

 

 

30) Dollar Data Software has a monopoly on the sale of database programs. If it sells 12 of these programs its total revenue is $8000, and if it sells 13 programs its total revenue is $8900. The marginal revenue of the thirteenth program sold is:

 

A) $800.

 

B) $13.

 

C) $850.

 

D) $900.

 

 

 

31) When prices do not change very much, the income-expenditure model can be used to understand economic fluctuation in the

 

A) long run.

 

B) short run.

 

C) fiscal year.

 

D) federal budget allocation.

 

 

 

32) If an economy is producing a level of output which is lower than the equilibrium level, planned expenditures ________ total output and ________ goods and services are being produced than are being demanded.

 

A) exceed; more

 

B) exceed; fewer

 

C) are less than; more

 

D) are less than; fewer

 

 

 

33) If the consumption function is C = 90 + 0.75y, then the marginal propensity to consume is

 

A) 0.2.5.

 

B) 0.75.

 

C) 67.5.

 

D) 90.

 

 

 

34) Which of the following is an example of an investment?

 

A) A firm builds a new plant.

 

B) A student attends college.

 

C) The government builds a dam to have a source of hydroelectric power.

 

D) all of the above

 

 

 

35) If firms receive an economic forecast predicting future decreases in the growth of real GDP, they are likely to respond by

 

A) decreasing their level of investment spending to decrease future production capacity.

 

B) increasing their level of investment spending to increase current production capacity.

 

C) increasing their level of investment spending to increase future production capacity.

 

D) decreasing their level of investment spending to decrease current production capacity.

 

 

 

36) Optimistic investors tend to ________ their investment spending.

 

A) reduce

 

B) increase

 

C) defer

 

D) not change

 

 

 

37) The supply of money in the U.S. economy is determined primarily by

 

A) decisions made by the Federal Reserve and the U.S. Treasury.

 

B) the actions of the Federal Reserve and the banking system.

 

C) consumers and the banking system.

 

D) the demand for money in the economy.

 

 

 

38) Money solves the dilemma of a double coincidence of wants by serving as a

 

A) medium of exchange.

 

B) store of value.

 

C) symbol of value.

 

D) unit of account.

 

 

 

39) As inflation rates increase, money becomes less useful as a

 

A) unit of account.

 

B) store of value.

 

C) medium of exchange.

 

D) double coincidence of wants.

 

 

 

40) In the short run when prices don’t have enough time to change, the Federal Reserve

 

A) can influence the level of interest rates in the economy.

 

B) cannot influence the level of interest rates in the economy.

 

C) can influence the level of interest rates in the economy but generally will not because it would be destabilizing.

 

D) can only affect the amount of money in the economy.

 

 

 

41) At higher interest rates the

 

A) money supply is higher.

 

B) money supply is indeterminate.

 

C) quantity of money demanded is higher.

 

D) quantity of money demanded is lower.

 

 

 

42) The demand for money that arises so that individuals or firms can make purchases on quick notice is called the

 

A) real demand for money.

 

B) transaction demand for money.

 

C) liquidity demand for money.

 

D) speculative demand for money.

 

 

 

43) In the long run

 

A) prices are sticky.

 

B) the economy operates at full employment.

 

C) increases in government spending do not effect other uses of output.

 

D) increases in the money supply increase the level of output.

 

 

 

44) Suppose GDP ________ the level of potential output. We would expect to see ________ unemployment, rising wages, and rising prices.

 

A) exceeds; high

 

B) exceeds; low

 

C) is below; high

 

D) is below; low

 

 

 

45) Suppose that an economy has been experiencing 4 percent annual inflation. If output exceeds potential output, prices generally will rise at

 

A) a rate of 4 percent.

 

B) a rate greater than 4 percent.

 

C) a rate less than 4 percent.

 

D) a rate of 0 percent.

 

 

 

46) Compared to other countries, inflation in the United States has been

 

A) generally less severe.

 

B) generally more severe.

 

C) always worse.

 

D) about the same.

 

 

 

47) Suppose the inflation rate is 6 percent this year. If nominal wages increase by 6 percent, real wages will

 

A) increase by 6 percent.

 

B) increase by 9 percent.

 

C) decrease by 12 percent.

 

D) not change.

 

 

 

48) If nominal wages increase by 5 percent while real wages fall by 1 percent, the inflation rate must be

 

A) 1 percent.

 

B) 4 percent.

 

C) 5 percent.

 

D) 6 percent.

 

 

 

49) A deficit is defined as

 

A) the excess of total expenditures over total revenues.

 

B) the excess of total revenues over total expenditures.

 

C) government spending plus transfer payments.

 

D) the sum of all past borrowing by the government.

 

 

 

50) If government spending is $900 billion while government revenue is $600 billion, the government is said to have a

 

A) $300 billion budget surplus.

 

B) $300 billion budget deficit.

 

C) $1,500 billion budget deficit.

 

D) $600 billion budget deficit.

 

 

 

51) Suppose the government’s initial debt is $350 billion and that during the next two years the government runs deficits of $90 and $40 billion. If during the third year the government has a $70 billion surplus, the government’s total debt at the end of the three years will be

 

A) $60 billion.

 

B) $200 billion.

 

C) $410 billion.

 

D) $550 billion.

 

 

 

52) The opportunity cost of something is

 

A) a measure of the scarcity of the good.

 

B) what you sacrifice to get the good.

 

C) the price you pay for the good.

 

D) what you are willing to pay for the good.

 

 

 

53) The slope of the production possibilities curve is

 

A) positive.

 

B) positive and increasing.

 

C) positive and decreasing.

 

D) the opportunity cost of one good in terms of the other.

 

 

 

54) The relative amounts of the goods that will be exchanged for each other in trade refers to the nations’

 

A) absolute advantages.

 

B) terms of trade.

 

C) production possibilities.

 

D) autarky status.

 

 

 

55) The rate at which one currency can be traded for another is called the

 

A) terms of trade.

 

B) transfer rate.

 

C) exchange rate.

 

D) coupon rate.

 

 

 

56) If the dollar to euro exchange rate moves from 1.1 to 0.9 dollars per euro, then the dollar has ________ and the euro has ________.

 

A) depreciated; depreciated

 

B) depreciated; appreciated

 

C) appreciated; depreciated

 

D) appreciated; appreciated

 

 

 

57) If the dollar depreciates against the yen, U.S. goods sold in ________ would become less expensive and Japanese goods sold in ________ would become more expensive.

 

A) the United States; the United States

 

B) the United States; Japan

 

C) Japan; Japan

 

D) Japan; the United States