Final Review

Final Review 1. Suppose Combo is an inferior good. Which of the following would cause both the equilibrium price and the equilibrium quantity of Combo to increase? (1) an increase in consumer income. (2) a decrease in consumer income. (3) An increase in the price of the okra used in the production of Combo. (4) A decrease in the price of Jambalaya, a substitute. 2. Which of the following is true about Production Possibilities Frontiers (curves)? (1) They show the combinations of output that the economy can possibly produce given the available factors of production and the available production technology. (2) They are usually bowed outward because of increasing opportunity cost. (3) They may be a straight line. That happens when resources can be moved from one sector of production to another at a constant cost. (4) All of the above. 3. Consider the following graph: What is the correct designation of point B? (1) (2, 0) (2) (0, 3) (3) (2, 3) (4) (3, 2) 4. Consider the graph in the previous question. Which of the following is more likely to be true for most people?1 (1) X = hours you spent partying last weekend and Y = your score on this test. (2) X = hours you spent studying last weekend and Y = your score on this test. (3) Y = hours you spent partying last weekend and X = your score on this test. (4) Y = hours you spent studying last weekend and X = your score on this test. 5. Which of the following is least elastic? (1) the demand for mustard

(2) the demand for brown mustard (3) the demand for spicy brown mustard (4) the demand for spicy brown mustard at Gerbes 6. Economists are (1) scientists in the sense that they are trying to explain the world and policy advisers in the sense that they are trying to help improve it. (2) scientists in the sense that they are trying to help improve the world and policy advisers in the sense that they are trying to explain it. (3) scientists because they make normative statements (4) both (1) and (3) are correct. 7. According to the law of demand (1) an increase in the price of a good would cause the demand for that good to shift to the right. (2) an increase in the price of a good would cause the demand for that good to shift to the left. (3) an increase in the price of a good would cause the supply of a substitute to shift to the right. (4) none of the above. 8. Microeconomics is the study of (1) the behavior of consumers. (2) how governments allocate welfare payments. (3) how the economy as a whole works. (4) how individual households and firms make decisions and how they interact in markets. 9. What is the following figure? (1) (2) (3) (4)

a production Possibilities Frontier. an input-output matrix. a market. none of the above.

10. Look at the previous picture. Suppose households work 2000 hours per year and the annual rate of return on their capital is 5%. Then households’ annual income is

(1) (2) (3) (4)

$2,500 $25,000 $5,200 $52,000

11. Look at the same picture. Suppose firms sell 100,000 bushels of wheat and 15, 000 computers per year. What is their annual total revenue? (1) $71,000,000 (2) $12,000,000 (3) $17,000,000 (4) $21,000,000 12. Consider the following figure What is the price elasticity of demand between A and B? (1) -13/15 (2) -31/15 (3) -15/13 (4) -15/31 13. The following figure shows how many sheep and camels David and Goliath can “produce” in one day of work Who has an absolute advantage in the production of sheep? (1) Neither, because absolute advantage doesn’t matter. (2) Goliath because he can “produce” more sheep per day than David. Look at that 30! (3) David because he is being more efficient. Look at that 20 – 20! (4) We can’t tell. We need more information. 14. Based on the theory of comparative advantage and according to the previous picture, (1) David should give up and buy both sheep and camels from Goliath who is simply more productive in everything. The guy is just big. (2) David should specialize in sheep and trade with Goliath to get camels. (3) Goliath should refuse to trade with David. There is no point. The guy is bad at everything. (4) Goliath should specialize in sheep and trade with David to get

camels. 15. An increase in the price of a good would (1) increases the supply of that good. (2) increases the amount that buyers are willing and able to buy. (3) gives producers of that good an incentive to produce more. (4) decreases the supply of that good. 16. Consider the market for tattoos. Suppose there is a significant increase in the number of tattoo shops and, at the same time, a team of researchers from the University of Minnesota just discovered that tattoos are closely related to a serious condition that causes severe, prolonged, and sometimes irreversible depression. We would expect the equilibrium price of tattoos to (1) fall and the equilibrium quantity to fall. (2) fall and the change in equilibrium quantity to be ambiguous. (3) rise and the change in equilibrium quantity to be ambiguous. (4) rise and the equilibrium quantity to fall. 17. To calculate price elasticity of demand, we divide (1) change in quantity demanded by change in price. (2) percentage change in price by percentage change in quantity demanded. (3) percentage change in quantity demanded by percentage change in quantity supplied. (4) none of the above. 18. What is the most credible story behind the following picture? (1) An economic advance in the computer industry shifts the production possibilities frontier outward, increasing the number of cars and computers the economy can produce. (2) An economic advance in the car industry shifts the production possibilities frontier outward, increasing the number of cars and computers the economy can produce. (3) An economic advance in both the computer and the car industry shifts the

production possibilities frontier outward, increasing the number of cars and computers the economy can produce. (4) Sorry, no story can explain that picture. It just doesn’t make sense. 6 19. Look at the picture below How many bad movies DVDs are sold when the price is 8 dollars? (1) 72 (2) 100 (3) 125 (4) 53 20. Still look at the same picture. How many bad movies DVDs are bought when the price is 8 dollars? (1) 72 (2) 100 (3) 125 (4) Forget it. No DVDs is bought since there is no equilibrium. 21. An inverse relationship between two variables (1) can be illustrated by a downward sloping curve. (2) cannot be represented graphically. (3) means that a decrease in the independent variable causes the dependent variable to fall. (4) means that an increase in the independent variable causes the dependent variable to rise. 7 22. Here is another picture Which of the following statements is false about the market for stuffed crabs? (1) If the price is 5 dollars, the quantity that sellers want to sell is exactly the same as the quantity that buyers want to buy. Everybody will go home happy. The market for stuffed crabs will stay like this until an external shock disturbs that equilibrium. (2) If the price is 3 dollars, there will be a surplus of 50 stuffed crabs.

By virtue of the law of demand and supply, there will be upward pressures on the price of stuffed crabs until the price reaches 5 dollars. (3) If the price is 3 dollars, there will be a shortage of 50 stuffed crabs. By virtue of the law of demand and supply, there will be upward pressures on the price of stuffed crabs until the price reaches 5 dollars. (4) If the price is 5 dollars, sellers as a group will have total revenue of 500 dollars. 23. If an economist develops a theory about international trade based on the assumption that there are two countries and two goods in the world, (1) the theory can be useful only in situations involving two countries and two goods. (2) it is a total waste of time, since the actual world has many countries trading many goods. (3) the theory can be useful in helping economists understand the complex world of international trade involving many countries and many goods. (4) the theory can be useful in the classroom, but has no use in the real world.

24. In the following figure the demand curve shifts from D0 to D1 because of an increase in income from 120 dollars to 200 dollars (it’s a normal good). What is the income elasticity of demand? (1) (2) (3) (4)

11.7 1.71 17.1 7.17

25. Robinson Crusoe can gather 30 coconuts or catch 2 fish per hour. His friend Friday can gather 10 coconuts or catch 1 fish per hour. Who should specialize in catching fish? (1) Friday, because he has a comparative advantage in catching fish. (2) Robinson Crusoe, because he has an absolute advantage in

catching fish. (3) Both of them, because everyone is better off when they specialize in everything. (4) None of them, because at the end of the day being independent is what really counts. 26. It is summer. You go home and start selling baby sitting services. When the kids go to bed, you get bored and try to keep yourself busy by calculating the price elasticity of the demand for your service. You find it to be equal to -0.25. Assuming your calculation is correct, you decide to finally turn that nightmarish econ class into something good: you decide to increase your revenue by (1) raising your price since the demand for your service is elastic. (2) lowering your price since your product is a good substitute for real parenting. (3) raising your price since the demand for your service is inelastic. (4) lowering your price since your service is a complement to what moms and dads do. 9 27. Warrensburg, MO, is a small college town in the state of Missouri. What would you expect to happen in the market for fast food in Warrensburg at the end of August each year (when classes resume)? (1) Equilibrium price falls and equilibrium quantity rises. (2) Equilibrium price rises and equilibrium quantity falls. (3) Both equilibrium price and quantity rise. (4) Both equilibrium price and quantity fall. 28. Which of the following supply curves is the most elastic? (1) (2) (3) (4)

S0 S1 S2 S3

29. The price of tea increases and, as a result, the demand for coffee shifts to the left. Therefore tea and coffee are (1) normal goods.

(2) complements. (3) substitutes. (4) inferior goods. 10 33. Consider the following figures that show the Production possibilities Frontier for two countries, Acadia (A) and Britanica (B), producing two goods, Yogurt (Y) and Xerox machines (X): Which of the following statements is true? (1) In Acadia the opportunity cost of producing a Xerox machine is equal to 4.666 Yogurts. (2) In Britanica the opportunity cost of producing a Xerox machine is equal to 3.75 Yogurts. (3) According to the theory of comparative advantage Acadia should specialize in the production of Yogurts and Britanica should specialize in the production of Xerox machines. (4) All of the above.

1. ____________ questions have to do with explanations and predictions, ____________ questions have to do with what ought to be. (1) Positive; negative (2) Negative; positive (3) Affirmative; positive (4) Positive; normative 2. Consider the following figure showing the production possibility frontier of Joylandia. What is the opportunity cost of producing one car in Joylandia? (1) (2) (3) (4)

100 cars 4 computers 1⁄4 car None of the above

3. In making what of the following statements is an economist acting more like a scientist, as opposed to a policy adviser? (1) Affirmative action in public universities should be illegal (2) The Enron’s collapse is a sign that Corporate America is corrupted and should be the object of more public scrutiny (3) Spending more public money in private schools would indeed raise students’ scores on all standardized tests (4) Creating a Department of Homeland Security is a political move that has nothing to do with the war on terrorism 4. Economics models are (1) useless if they are simple (2) built with assumptions (3) created to duplicate reality (4) always right when predicting the future 5. Consider the graph in question 2. What is the opportunity cost of producing a computer in Joylandia? (1) 25 computers (2) 4 cars (3) 1⁄4 car (4) 124.666 cars 6. Suppose an economy is operating on its production possibility frontier, then (1) the scarcity problem is solved (2) wants are no longer unlimited (3) some resources are left unused (4) None of the above 7. A simple circular flow diagram does not include (1) the fact that businesses sell to each other (2) a flow of money (3) transactions between workers and employers (4) a flow of goods and services 8. Consider the following figure showing the production possibility frontier in Sadlandia. What is the opportunity cost of producing a car in Sadlandia?

(1) (2) (3) (4)

0.34 3.40 4.30 0.43

computer computers computers computer

9. What would happen to the equilibrium price and quantity of peanut butter if the price of peanut went up? (1) Price would all and quantity would rise (2) Price would rise and quantity would fall (3) Both price and quantity would fall (4) Both price and quantity would rise 10. In the circular-flow diagram, (1) income from factors of production flows from firms to households (2) goods and services flow from households to firms (3) factors of production flow from firms to households (4) spending on goods and services flows from firms to households 11. Robinson Crusoe can gather 10 coconuts or catch 1 fish per hour. His friend Friday can gather 30 coconuts or catch 2 fish per hour. Who should specialize in catching fish? (1) Robinson Crusoe, because he has a comparative advantage in catching fish (2) Friday, because he has an absolute advantage in catching fish (3) Both of them, because everyone is better off when they specialize in everything (4) None of them, because autarky is better than specialization and trade 12. What would happen to the equilibrium price and quantity of corn flakes if the price of corn went down? (1) Price would fall and quantity would rise (2) Price would rise and quantity would fall (3) Both price and quantity would rise (4) Both price and quantity would fall 13. Absolute advantage refers to the comparison among producers of a good according to their (1) opportunity cost (2) market power

(3) location (4) productivity 14. If a shortage exists in a market, we know that the actual price is (1) above equilibrium price and quantity demanded is greater than quantity supplied (2) below equilibrium price and quantity demanded is greater than quantity supplied (3) below equilibrium price and quantity supplied is greater than quantity demanded (4) above equilibrium price and quantity supplied is greater than quantity demanded 15. Which of the following concepts is not illustrated by the PPF? (1) Efficiency (2) Opportunity Cost (3) Equity (4) Tradeoffs 16. Frosted Flakes and Raisin Brand are substitutes. Therefore, we know that an increase in the price of Frosted Flakes will lead to (1) a decrease in the demand for Frosted Flakes (2) an increase in the demand for Raisin Brand (3) a decrease in the demand for Raisin Brand (4) an increase in the demand for Frosted Flakes 17. The supply of a good is negatively related to the (1) price of inputs used to make the good (2) demand for the good by consumers (3) price of the good itself (4) amount of profit a firm can expect to receive from sale of the good 18. To calculate price elasticity of demand we divide (1) Percentage change in price by percentage in quantity demanded (2) percentage change in quantity demanded by change in price (3) change in quantity demanded by percentage change in price (4) percentage change in quantity demanded by percentage change in price 19. What will happen to the equilibrium price and quantity of new textbooks if paper becomes cheaper and more students attend college? (1) Price will fall and the effect on quantity will be ambiguous (2) Quantity will rise and the effect on price will be ambiguous (3) Price will rise and the effect on quantity will be ambiguous

(4) Quantity will fall and the effect on price will be ambiguous 20. Peanut butter and jelly are complements. Therefore, as the price of peanut butter increases one would expect (1) the demand for peanut butter to shift to the left (2) the demand for peanut butter to shift to the right (3) the demand for jelly to shift to the left (4) the demand for jelly to shift to the right 21. When the going price is higher than the equilibrium price, (1) a shortage will occur (2) buyers will want to purchase more than is produced (3) quantity demanded will be equal to quantity supplied (4) sellers will want to produce and sell more than buyers wish to purchase 22. Consider the graphs in questions 2 and 8. Which of the following statements is true? (1) Joylandia has an absolute advantage in cars and Sadlandia has an absolute advantage in computers (2) Joylandia has an absolute advantage in computers and Sadlandia has an absolute advantage in cars (3) Joylandia has an absolute advantage in both cars and computers (4) Sadlandia has an absolute advantage in both cars and computers 23. Suppose you are a wheat farmer. If you know that the demand for wheat is inelastic, what should you do to increase your total revenue? (1) plant more wheat so that you would be able to sell more each year (2) spend more on fertilizer in order to produce more on the acres you farm (3) reduce the number of acres you plant in wheat (4) use better machinery 24. You lose your job and as a result you buy more Potatoes chips. This shows that you consider Potatoes chips to be a / an (1) Normal good (2) Inferior good (3) Luxury good (4) Complementary good

25. A car manufacturer is expected higher prices for cars in the near future. We would expect (1) the car manufacturer to supply more cars now (2) the car manufacturer to supply fewer cars now (3) the demand for this manufacturer’s cars to fall (4) no changes in the car manufacturer’s current supply 26. The income elasticity of demand for Brussels sprouts is equal to 5.5. From this, we know that Brussels sprouts are (1) normal goods (2) inferior goods (3) complimentary goods (4) substitutes 27. Comparative advantage refers to the comparison among producers of a good according to their (1) opportunity cost (2) market power (3) location (4) productivity 28. Suppose Charley, Ivan, Frances, and Jeanne (these are hurricanes) have destroyed most of the tomatoes fields in Florida and, as a result, the total revenue of tomatoes producers increases. From this we know that the demand for tomatoes is (1) elastic (2) inelastic (3) unit elastic (4) perfectly elastic 29. Consider the graphs in questions 2 and 8. Which of the following statements is true? (1) Joylandia has a comparative advantage in cars and Sadlandia has a comparative advantage in computers (2) Joylandia has a comparative advantage in computers and Sadlandia has a comparative advantage in cars (3) Joylandia has a comparative advantage in both cars and computers (4) Sadlandia has a comparative advantage in both cars and

computers 30. The following table provides information about Esmeralda and Quasimodo’s productivity in writing lyrics and novels. According to the principle of comparative advantage, who should specialize in writing novels? Lyrics in 0ne year Novels in one year Esmeralda 25 3 Quasimodo 5 1 (1) (2) (3) (4)

Esmeralda Quasimodo Both We cannot tell. We need more information

31. Trade can __________ everyone in society because it allows people to specialize in activities in which they have ____________ advantage. (1) hurt; comparative (2) benefit; an absolute (3) hurt; an absolute (4) benefit; a comparative 32. According to the law of demand (1) price and quantity demanded are positively related (2) price and demand are negatively related (3) Quantity demanded and demand are negatively related (4) None of the above 1. Suppose Combo is an inferior good. Which of the following would cause both the equilibrium price and the equilibrium quantity of Combo to increase? (1) an increase in consumer income. (2) a decrease in consumer income. (3) An increase in the price of the okra used in the production of Combo. (4) A decrease in the price of Jambalaya, a substitute. 2. Which of the following is true about Production Possibilities Frontiers (curves)? (1) They show the combinations of output that the economy can possibly produce given the available factors of production and the available production technology. (2) They are usually bowed outward because of increasing opportunity

cost. (3) They may be a straight line. That happens when resources can be moved from one sector of production to another at a constant cost. (4) All of the above. 3. Consider the following graph: What is the correct designation of point B? (1) (2, 0) (2) (0, 3) (3) (2, 3) (4) (3, 2) 4. Consider the graph in the previous question. Which of the following is more likely to be true for most people?1 (1) X = hours you spent partying last weekend and Y = your score on this test. (2) X = hours you spent studying last weekend and Y = your score on this test. (3) Y = hours you spent partying last weekend and X = your score on this test. (4) Y = hours you spent studying last weekend and X = your score on this test. 5. Which of the following is least elastic? (1) the demand for mustard (2) the demand for brown mustard (3) the demand for spicy brown mustard (4) the demand for spicy brown mustard at Gerbes 6. Economists are (1) scientists in the sense that they are trying to explain the world and policy advisers in the sense that they are trying to help improve it. (2) scientists in the sense that they are trying to help improve the world and policy advisers in the sense that they are trying to explain it. (3) scientists because they make normative statements (4) both (1) and (3) are correct. 7. According to the law of demand (1) an increase in the price of a good would cause the demand for that good to shift to the right.

(2) an increase in the price of a good would cause the demand for that good to shift to the left. (3) an increase in the price of a good would cause the supply of a substitute to shift to the right. (4) none of the above. 8. Microeconomics is the study of (1) the behavior of consumers. (2) how governments allocate welfare payments. (3) how the economy as a whole works. (4) how individual households and firms make decisions and how they interact in markets. 9. What is the following figure? (1) (2) (3) (4)

a production Possibilities Frontier. an input-output matrix. a market. none of the above.

10. Look at the previous picture. Suppose households work 2000 hours per year and the annual rate of return on their capital is 5%. Then households’ annual income is (1) $2,500 (2) $25,000 (3) $5,200 (4) $52,000 11. Look at the same picture. Suppose firms sell 100,000 bushels of wheat and 15, 000 computers per year. What is their annual total revenue? (1) $71,000,000 (2) $12,000,000 (3) $17,000,000 (4) $21,000,000 12. Consider the following figure What is the price elasticity of demand between A and B? (1) -13/15 (2) -31/15

(3) -15/13 (4) -15/31 13. The following figure shows how many sheep and camels David and Goliath can “produce” in one day of work Who has an absolute advantage in the production of sheep? (1) Neither, because absolute advantage doesn’t matter. (2) Goliath because he can “produce” more sheep per day than David. Look at that 30! (3) David because he is being more efficient. Look at that 20 – 20! (4) We can’t tell. We need more information. 14. Based on the theory of comparative advantage and according to the previous picture, (1) David should give up and buy both sheep and camels from Goliath who is simply more productive in everything. The guy is just big. (2) David should specialize in sheep and trade with Goliath to get camels. (3) Goliath should refuse to trade with David. There is no point. The guy is bad at everything. (4) Goliath should specialize in sheep and trade with David to get camels. 15. An increase in the price of a good would (1) increases the supply of that good. (2) increases the amount that buyers are willing and able to buy. (3) gives producers of that good an incentive to produce more. (4) decreases the supply of that good. 16. Consider the market for tattoos. Suppose there is a significant increase in the number of tattoo shops and, at the same time, a team of researchers from the University of Minnesota just discovered that tattoos are closely related to a serious condition that causes severe, prolonged, and sometimes irreversible depression. We would expect the equilibrium price of tattoos to (1) fall and the equilibrium quantity to fall.

(2) fall and the change in equilibrium quantity to be ambiguous. (3) rise and the change in equilibrium quantity to be ambiguous. (4) rise and the equilibrium quantity to fall. 17. To calculate price elasticity of demand, we divide (1) change in quantity demanded by change in price. (2) percentage change in price by percentage change in quantity demanded. (3) percentage change in quantity demanded by percentage change in quantity supplied. (4) none of the above. 18. What is the most credible story behind the following picture? (1) An economic advance in the computer industry shifts the production possibilities frontier outward, increasing the number of cars and computers the economy can produce. (2) An economic advance in the car industry shifts the production possibilities frontier outward, increasing the number of cars and computers the economy can produce. (3) An economic advance in both the computer and the car industry shifts the production possibilities frontier outward, increasing the number of cars and computers the economy can produce. (4) Sorry, no story can explain that picture. It just doesn’t make sense. 6 19. Look at the picture below How many bad movies DVDs are sold when the price is 8 dollars? (1) 72 (2) 100 (3) 125 (4) 53 20. Still look at the same picture. How many bad movies DVDs are bought when the price is 8 dollars?

(1) (2) (3) (4)

72 100 125 Forget it. No DVDs is bought since there is no equilibrium.

21. An inverse relationship between two variables (1) can be illustrated by a downward sloping curve. (2) cannot be represented graphically. (3) means that a decrease in the independent variable causes the dependent variable to fall. (4) means that an increase in the independent variable causes the dependent variable to rise. 7 22. Here is another picture Which of the following statements is false about the market for stuffed crabs? (1) If the price is 5 dollars, the quantity that sellers want to sell is exactly the same as the quantity that buyers want to buy. Everybody will go home happy. The market for stuffed crabs will stay like this until an external shock disturbs that equilibrium. (2) If the price is 3 dollars, there will be a surplus of 50 stuffed crabs. By virtue of the law of demand and supply, there will be upward pressures on the price of stuffed crabs until the price reaches 5 dollars. (3) If the price is 3 dollars, there will be a shortage of 50 stuffed crabs. By virtue of the law of demand and supply, there will be upward pressures on the price of stuffed crabs until the price reaches 5 dollars. (4) If the price is 5 dollars, sellers as a group will have total revenue of 500 dollars. 23. If an economist develops a theory about international trade based on the assumption that there are two countries and two goods in the world, (1) the theory can be useful only in situations involving two countries and two goods. (2) it is a total waste of time, since the actual world has many

countries trading many goods. (3) the theory can be useful in helping economists understand the complex world of international trade involving many countries and many goods. (4) the theory can be useful in the classroom, but has no use in the real world.

24. In the following figure the demand curve shifts from D0 to D1 because of an increase in income from 120 dollars to 200 dollars (it’s a normal good). What is the income elasticity of demand? (1) (2) (3) (4)

11.7 1.71 17.1 7.17

25. Robinson Crusoe can gather 30 coconuts or catch 2 fish per hour. His friend Friday can gather 10 coconuts or catch 1 fish per hour. Who should specialize in catching fish? (1) Friday, because he has a comparative advantage in catching fish. (2) Robinson Crusoe, because he has an absolute advantage in catching fish. (3) Both of them, because everyone is better off when they specialize in everything. (4) None of them, because at the end of the day being independent is what really counts. 26. It is summer. You go home and start selling baby sitting services. When the kids go to bed, you get bored and try to keep yourself busy by calculating the price elasticity of the demand for your service. You find it to be equal to -0.25. Assuming your calculation is correct, you decide to finally turn that nightmarish econ class into something good: you decide to increase your revenue by (1) raising your price since the demand for your service is elastic. (2) lowering your price since your product is a good substitute for real

parenting. (3) raising your price since the demand for your service is inelastic. (4) lowering your price since your service is a complement to what moms and dads do. 9 27. Warrensburg, MO, is a small college town in the state of Missouri. What would you expect to happen in the market for fast food in Warrensburg at the end of August each year (when classes resume)? (1) Equilibrium price falls and equilibrium quantity rises. (2) Equilibrium price rises and equilibrium quantity falls. (3) Both equilibrium price and quantity rise. (4) Both equilibrium price and quantity fall. 28. Which of the following supply curves is the most elastic? (1) (2) (3) (4)

S0 S1 S2 S3

29. The price of tea increases and, as a result, the demand for coffee shifts to the left. Therefore tea and coffee are (1) normal goods. (2) complements. (3) substitutes. (4) inferior goods. 10 33. Consider the following figures that show the Production possibilities Frontier for two countries, Acadia (A) and Britanica (B), producing two goods, Yogurt (Y) and Xerox machines (X): Which of the following statements is true? (1) In Acadia the opportunity cost of producing a Xerox machine is equal to 4.666 Yogurts. (2) In Britanica the opportunity cost of producing a Xerox machine is equal to 3.75

Yogurts. (3) According to the theory of comparative advantage Acadia should specialize in the production of Yogurts and Britanica should specialize in the production of Xerox machines. (4) All of the above.

Econ Final Review 1. What primarily motivates a body of knowledge like exonomics is how a. Society creates wealth b. How household and firms have different objectives c. Society deals with scarcity d. All of the above 2. For most students the largest costs of going to college is a. The money they spend on tuition and books b. The money they spend on room and board c. The wages they give up to attend college d. Measured by the difficulty level of the introductory courses 3. Economics assumes that rational people a. Systematically and purposefully do the best they can to achieve their objectives b. Pursue no objectives as long as they act logically c. Will achieve their objectives even if they act erratically d. Constitute an ideal catefory that facilitate the understanding of economuc theories, but they do not exist in real life. 4. Refer to graph 5. Refer to graph 6. If labor in Mexico is less productive than labor in the US in all areas of production a. Neither nation can benefit from trade b. Mexico can benefit from trade but the US cannot c. The US will have a comparative advantage relative to Mexico in the prduction of all goods d. Both mexico and the US can still benefit from trade 7. Refer to graph 8. Refer to graph 9. The negative relationship between price and quantity demanded a. Applies to most foods in the economy b. Is represented by a downward-sloping demand curve c. Is referred to as the law of demand

d. All of the above 10. Ford Motor Compant announces that it will offer $3,00 rebates on new Mustangs starting next month. As a result of this information, today’s demand curve for Mustangs, a. Shifts to the right b. Shifts to the left c. Shifts either to the right or to the left but we cannot determine the direction of the shift from the given information d. Will not shift; rather the demand curve for Mustangs will shift to the right next month 11. Which of the following events could shift the demand curve for gasoline to the left a. Income of gasoline buyers rises, and gasoline is a normal good b. Income of gasoline buyers falls and gasoline is an inferior good c. Public service announcements are on television, encouraging people to walk or ride bikes instead of driving cars d. The price of gasoline rises 12. Refer to graph 13. Refer to graph 14. If a surplus exists in a market we now that the actual price is a. Above the equilibrium price and quantity supplied is greater than quantity demanded b. Above equilibrium price and quantity demanded is greater than quantity supplied c. Below equilibrium price and quantity demanded is greater than quantity supplied d. Below equilibrium price and quantity supplied is greater than quantity demanded 15. Which of the following events will definitely cause equilibrium quantity to fall? a. Demand increases and supply decreases b. Demand and supply both decrease c. Demand decreases and supply increases d. Demand and supply both increase 16. Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market? a. The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous b. The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous c. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous d. Both equilibrium price and quantity would increase 17. Suppose buyers of computers and printers regard those two goods as complements. Then an increase in the price of computers will cause

a. A decrease in the demand for printers and a decrease in the quantity supplied of printers b. A decrease in the supply of printers and a decrease in the quantity demanded of printers c. A decrease in the equilibrium price of printers and an increase in the equilibrium quantity of printers d. An increase in the equilibrium price of printers and a decrease in the equilibrium quantity of printers 18. What will happen to the equilibrium price of new textbooks if more students attend college, paper becomes cheaper, textbook authors accept lower royalties and fewer used textbooks were sold? a. Price will rise b. Price will fall c. Price will stay same d. The price change will be ambiguous 19. Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market? a. The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous b. The equilibrium price would drecrease but the impact on the amount sold in the market would be ambiguous c. Both equilibrium price and equlibirum quantity would increase d. Equilibrium quantity would increase, but the impact on the equilibrium price would be ambiguous 20. If, for two goods, the cross-price elasticity of demand is 1.25, then a. The 2 goods are luxuries b. The 2 goods are substitutes c. One of the goods is normal and the other food is inferior d. The demand or one of the goods conforms to the law of demand and the demand for the other good violates the law of demand 21. Holding all other factors constant and using the midpoint method, idf a pencil manufacturer increases production by 20 percent when the market price of pencils increases from $.50 to $.60, then supply is a. Inelastic, since the price elasticity of supply is equal to .91 b. Inelastic, since the price elasticity of supply is equal to 1.1 c. Elastic, since the price elasticity of supply is equal to .91 d. Elastic, since the price elasticity of supply is equal to 1.1 22. Refer to graph 23. A minimum wage that is set below a market’s equilibrium wage will result in a. An excess demand for labor – unemployment b. An excess demand for labor – shortage of workers c. An excess supply of labor – unemployment d. None of the above

24. Which of the following would be the least likely result of a price ceiling imposed in the market for rental cars a. An accumulation of dirt in the interior of rental cars b. Poor engine maintenance in rental cars c. Free gasoline given to people as an incentive to rent a car d. Slow replacement of old rental cars with new ones 25. Refer to graph 26. If a tax is imposed on a market with inelastic demand and elastic supply, a. Buyers will bear most of the burden of the tax b. Sellers will bear most of the burden of the tax c. The burden of the tax will be shared equally between buyers and sellers d. It is impossible to determine how the burden of the tax will be shared 27. Refer to graph 28. Refer to graph 29. Noah drinks Dr. Pepper. He can buy as many Dr. Peppers as he wishes at a price of $.50 per can. On a particular day, he is willing to pay $.95 for the first can, $.80 for the second can, $.60 for the third can and $.40 for the fourth can. Assume Noah is rational in deciding how many cans to buy. His consumer surplus is a. $.50 b. $.85 c. $1.05 d. $1.20 30. Efficiency in a market is achieved when a. A social planner intervenes and sets the quantity of output after evaluating buyers’ willingness to pay and sellers costs b. The sum of producer surplus and consumer surplus is maximized c. All firms are producing the good at the same low cost per unit d. No buyer is willing to pay more than the equilibrium price for any unit of the good. 31. Refer to graph 32. Total surplus in a market is the total area a. Below the demand curve and above the price b. Below price and up to the point of equilibrium c. Below the demand curve and above the supply curve, up to the equilibrium quantity d. Below the demand curve and above the horizontal axis, up to the equilibrium quantity 33. Refer to graph 34. The distinction between efficiency and equity can be describe as follows a. Efficiency refers to maximizing the number of trades among buyers and seller; equity refers to maximizing the gains from trade among buyers and sellers b. Efficiency refers to minimizing the price paid by buyers; equity refers to maximizing the fains from trade among buyers and sellers c. Efficiency refers to maximizing the size of the pie; equity refers to producing a pie of a given size at the least possible cost.

d. Efficiency refers to maximizing the size of the pie; equity refers to distributing the pie fairly among members of society 35. Which of the following is true about tax on a good and resulting deadweight loss? a. The greater are the price elasticities of supply and demand, the greater is the deadweight loss b. The greater is the price elasticities of supply and the smaller is the price elasticity of demand, the greater the deadweight loss c. The smaller are the decreases in quantity demanded and quantity supplied, the greater the deadweight loss d. The smaller is the wedge between the effective price to sellers and the effective price to buyers, the greater is the deadweight loss 36. The Laffer curve relates a. The tax rate to tax revenue raised by tax b. The tax rate to the deadweight loss of the tax c. The price elasticity of supply to the deadweight loss of the tax d. Government welfare payments to the birth rate 37. Refer to graph 38. Refer to graph 39. Refer to graph 40. Refer to graph 41. Refer to graph 42. John owns a shoeshine business. His accountant most likely includes which of the following costs on his financial statements a. Wages john could earn washing windows b. Dividends john’s money was earning in the stock market before john sold his stock and bought a shoe-shine booth c. The cost of the shoe polish d. Both b and c are correct 43. On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product? a. The farmer is able to produce 5600 bushels of wheat when he hired 4 workers b. The farmer is able to produce 5800 bushels of wheat when he hired 4 workers c. The farmer is able to produce 6000 bushels of wheat when he hired 4 workers d. All of the above 44. Refer to graph 45. Suppose a firm in a competitive market received 1000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold? a. $5 and 50 b. $5 and 100 c. $10 and 50

d. $10 and 100 46. refer to graph 47. if marginal cost exceeds marginal revenue, the firm a. is most likely to be a profit-maximizing level of output b. should decrease the level of production to maximize its profit c. should increase the level of production to maximize its profit d. not enough information available to make any conclusions