PAGE 1. Econ Test 1 Fall 2003 Dr. Rupp. Multiple Choice. 1. The tradeoff between inflation and unemployment is called

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1 PAGE 1 Econ Test 1 Fall 2003 Dr. Rupp Multiple Choice 1. The tradeoff between inflation and unemployment is called a. the Laffer curve. b. the Lorenz curve. c. the Demand curve. d. the Phillips curve. 2. Inflation causes a. the value of money to fall. b. productivity to increase. c. the government to lower taxes. d. the value of money to rise. 3. Causes of market failure include a. externalities and foreign competition. b. market power and incorrect forecasts of consumer demand. c. externalities and market power. d. incorrect forecasts of consumer demand and foreign competition. 4. An externality is a. the impact of society's decisions on the well-being of society. b. the impact of a person's actions on that person's well-being. c. the impact of society's decisions on the well-being of one person. d. the impact of one person's actions on the well-being of a bystander. 5. The United States can benefit from trade a. with any nation. b. only with nations which can produce goods the U.S. cannot produce. c. with any nation not in economic competition with the U.S. d. only with less-developed nations. 6. Which of the following is the best statement about markets? a. Markets are usually a good way to organize economic activity. b. Markets are usually inferior to central planning as a way to organize economic activity. c. Markets are flawed and are therefore not an acceptable way to organize economic activity. d. Markets are a good way to organize economic activity in developed nations, but not in less-developed nations. 7. The term which means whatever must be given up to obtain an item is a. efficiency. b. externality. c. opportunity cost. d. market failure.

2 PAGE 2 8. A marginal change is a. a long-term trend. b. a large, significant adjustment. c. a change for the worse. d. a small incremental adjustment. 9. On the production possibilities frontier shown, which point or points are possible for this economy to produce? a. A, B, C, D b. A, B, C, F c. A, B, C, D, E, F d. D 10. On the production possibilities frontier shown, which point represents the maximum possible production of CDs? a. A b. B c. C d. D 11. On the production possibilities frontier shown, which point or points are NOT possible for this economy to produce? a. D b. E, F c. A, B, C d. D, E, F 12. On the production possibilities frontier shown, which point or points are efficient? a. A, B, C b. A, C, F c. E d. D

3 PAGE In the production possibilities frontier shown, the shift of the frontier from A to B was most likely caused by which of the following? a. more capital available in the economy b. more labor available in the economy c. a general technological breakthrough d. technological improvement in the production of clothing 14. For economists, positive statements are a. descriptive, making a claim about how the world is. b. optimistic, putting the best possible interpretation on things. c. affirmative, justifying existing economic policy. d. prescriptive, making a claim about how the world ought to be. 15. Normative statements are a. descriptive, making a claim about how the world is. b. statements about the normal condition of the world. c. prescriptive, making a claim about how the world ought to be. d. statements which establish production goals for the economy. Labor Hours Needed to Make 1 Pound of: Pounds produced in 20 hours: Meat Potatoes Meat Potatoes Farmer Rancher Refer to the tables shown. For the Farmer, the opportunity cost of 1 pound of meat is a. 8 hours of labor. b. 4 hours of labor. c. 2 pounds of potatoes. d. 1/2 pound of potatoes. 17. Refer to the tables shown. For the Rancher, the opportunity cost of 1 pound of potatoes is a. 4 hours of labor. b. 2 hours of labor. c. 1/4 pound of meat. d. 4 pounds of meat.

4 PAGE Refer to the tables shown. The Farmer has an absolute advantage in and the Rancher has an absolute advantage in. a. meat, potatoes b. potatoes, meat c. meat, meat d. neither good, both goods 19. Refer to the tables shown. The Rancher has a comparative advantage in and the Farmer has a comparative advantage in. a. potatoes, meat b. both goods, neither good c. meat, potatoes d. neither good, both goods These figures illustrate the production possibilities frontiers for Robinson Crusoe and Friday with 12 hours of labor. 20. Refer to the graphs given. For Robinson Crusoe the opportunity cost of 1 pound of fish is a. 2 pounds of coconuts. b. 1/2 pound of coconuts. c. 4 pounds of coconuts. d. 1/4 pound of coconuts. 21. Refer to the graphs given. For Friday the opportunity cost of 1 pound of coconuts is a. 2/3 pound of fish. b. 3 pounds of fish. c. 1 pound of fish. d. 2 pounds of fish. 22. Refer to the graphs given. Robinson Crusoe has an absolute advantage in and Friday has an absolute advantage in. a. fish, coconuts b. coconuts, fish c. neither good, both goods d. both goods, neither good

5 PAGE Trade is based on a. absolute advantage. b. comparative advantage. c. production costs. d. relative dollar prices. 24. On the graph, the movement from D to D 1 is called a. a decrease in demand. b. an increase in demand. c. a decrease in quantity demanded. d. an increase in quantity demanded. 25. What is the law of demand? a. When the price of a good or service rises, buyers respond by purchasing more. b. When income levels increase, buyers respond by purchasing more. c. When buyers' tastes for the good increase, they purchase more of the good. d. When the price of a good falls, buyers respond by purchasing more.

6 PAGE The movement from point A to point B on the graph shows a. a decrease in demand. b. an increase in demand. c. an increase in quantity demanded. d. a decrease in quantity demanded. 27. If a decrease in income increases the demand for a good, then a. the good is a substitute good. b. the good is a complement good. c. the good is a normal good. d. the good is an inferior good. 28. Holding all else constant, a higher price for ski lift tickets would be expected to a. increase the number of skiers. b. decrease ski sales. c. decrease the demand for other winter recreational activities. d. decrease the supply of ski resorts. 29. Other things equal, when the price of a good rises, the quantity supplied of the good also rises. This is a. the law of increasing costs. b. the law of diminishing returns. c. the law of supply. d. the law of demand. 30. If a good is "normal," then an increase in income will result in a. no change in the demand for the good. b. a decrease in the demand for the good. c. an increase in the demand for the good. d. a lower market price. 31. A market demand is a. a vertical summation of individual demand curves. b. a horizontal summation of individual demand curves. c. not responsive to change in tastes and preferences. d. determined solely by the number of buyers and sellers in the market.

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8 PAGE Suppose that the American Medical Association announces that men who shave their heads are less likely to die of heart failure. We could expect a. the current demand for razors to decrease. b. the current demand for combs to increase. c. the current demand for razors to increase. d. the demand for hair dye for men to increase. 33. One reason why government taxes on cigarettes imposed on sellers reduces smoking is that a. cigarette companies are successful in passing much of the tax on to consumers. b. cigarette companies do not pass much of the tax on to consumers. c. there are many good substitutes for cigarettes. d. None of the above answers is correct. 34. Suppose you make jewelry. If the price of gold falls, we would expect a. you to be willing and able to produce more jewelry than before at each possible price. b. you to be willing and able to produce less jewelry than before at each possible price. c. you will face a greater demand for your jewelry. d. you will face a weaker demand for your jewelry. 35. The movement from point A to point B on the graph is called a. a decrease in supply. b. an increase in supply. c. a decrease in the quantity supplied. d. an increase in the quantity supplied. 36. A technological advancement a. will shift the demand curve to the right. b. will shift the demand curve to the left. c. will shift the supply curve to the right. d. will shift the supply curve to the left.

9 PAGE According to the graph, at a price of $7, a. there would be a shortage of 40 units. b. there would be a surplus of 40 units. c. there would be a surplus of 20 units. d. the market would be in equilibrium. 38. According to the graph, at the equilibrium price, a. 20 units would be supplied and demanded. b. 40 units would be supplied and demanded. c. 60 units would be supplied and demanded. d. 60 units would be supplied, but only 20 would be demanded. 39. In a free market system, what is the mechanism for rationing scarce resources? a. sellers b. buyers c. prices d. the government

10 PAGE 9 Production Possibilities for Tuneland Cars Toys In the table showing the production possibilities for Tuneland, what is the opportunity cost of increasing the production of toys from 450 to 600? a. 30 cars b. 20 cars c. 10 cars d. It is impossible to tell what the opportunity cost is without knowing production costs for cars and toys. 41. Extra Credit Question (worth 2.5 points) According to a recent Wall Street Journal article: "Jobless Workers Switch Fields to Find Relief", Randolph Community College in Asheboro, NC has experienced a flood of applications to enroll in which of the following programs: 1. Accounting and Business 2. Economics and Finance 3. Criminology and Sociology 4. Manufacturing and Operations 5. Nursing and Teaching ANSWER KEY FOR TEST - NREX1 PAGE 1

11 1. d. the Phillips curve. Chapter:1 QUESTION: a. the value of money to fall. Chapter:1 QUESTION: c. externalities and market power. Chapter:1 QUESTION: d. the impact of one person's actions on the well-being of a bystander. Chapter:1 QUESTION: a. with any nation. Chapter:1 QUESTION: a. Markets are usually a good way to organize economic activity. Chapter:1 QUESTION: c. opportunity cost. Chapter:1 QUESTION: d. a small incremental adjustment. Chapter:1 QUESTION: a. A, B, C, D 10. a. A 11. b. E, F 12. a. A, B, C Chapter:2 QUESTION: 36 Chapter:2 QUESTION: 37 Chapter:2 QUESTION: 38 Chapter:2 QUESTION: d. technological improvement in the production of clothing Chapter:2 QUESTION: a. descriptive, making a claim about how the world is. Chapter:2 QUESTION: c. prescriptive, making a claim about how the world ought to be. Chapter:2 QUESTION: 59

12 PAGE c. 2 pounds of potatoes. 17. c. 1/4 pound of meat. Chapter:3 QUESTION: 8 Chapter:3 QUESTION: d. neither good, both goods Chapter:3 QUESTION: a. potatoes, meat 20. c. 4 pounds of coconuts. 21. a. 2/3 pound of fish. 22. b. coconuts, fish Chapter:3 QUESTION: 15 Chapter:3 QUESTION: 17 Chapter:3 QUESTION: 20 Chapter:3 QUESTION: b. comparative advantage. Chapter:3 QUESTION: a. a decrease in demand. Chapter:4 QUESTION: d. When the price of a good falls, buyers respond by purchasing more. Chapter:4 QUESTION: c. an increase in quantity demanded. Chapter:4 QUESTION: d. the good is an inferior good. Chapter:4 QUESTION: b. decrease ski sales. 29. c. the law of supply. Chapter:4 QUESTION: 29 Chapter:4 QUESTION: c. an increase in the demand for the good. Chapter:4 QUESTION: 21

13 31. b. a horizontal summation of individual demand curves. Chapter:4 QUESTION: c. the current demand for razors to increase. Chapter:4 QUESTION: 44 PAGE a. cigarette companies are successful in passing much of the tax on to consumers. Chapter:4 QUESTION: a. you to be willing and able to produce more jewelry than before at each possible price. Chapter:4 QUESTION: d. an increase in the quantity supplied. Chapter:4 QUESTION: c. will shift the supply curve to the right. Chapter:4 QUESTION: b. there would be a surplus of 40 units. Chapter:4 QUESTION: b. 40 units would be supplied and demanded. Chapter:4 QUESTION: c. prices Chapter:4 QUESTION: c. 10 cars Chapter:2 QUESTION: Chapter:*** QUESTION: 1