ECO 2301 Spring EXAM 1 Form 2 Friday, February 20 th. Solutions

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1 ECO 2301 Spring 2015 Sec 002 Klaus Becker EXAM 1 Form 2 Friday, February 20 th Solutions 1. The two broad fields that make up the subject of economics are: A. imports and exports. B. personal investments and business investments. C. fiscal policy and monetary policy. D. microeconomics and macroeconomics.. 2. Which of the following could be an example of a question that would be studied in microeconomics? A. Why did our economic growth rate slow down during the 2000s? B. When should Congress raise taxes in order to tackle the debt crisis? C. How did the recession end in 2009 if unemployment continued to rise? D. How will the legalization of marijuana affect the market for cigarettes? 3. Individuals, firms, and societies are limited in the amount of goods and services that they can produce. This is a direct result of: A. scarcity. B. irrational Behavior. C. waste. D. unemployment. 4. Opportunity Cost: A. only includes explicit, out of pocket expenses. B. is the value of your next best alternative. C. would not include the wages lost from working when deciding to take a vacation. D. is never provided in dollar values.

2 5. Making a decision "on the margin" involves comparing: A. sunk costs against opportunity costs. B. total benefits against total costs, which include benefits and costs from past decisions. C. All of these are true. D. additional benefits against additional costs. 6. After purchasing a coffee cup from your local gas station for $5.00, you can always refill your cup for $0.50. The marginal cost of your 10 th cup of coffee purchased at the gas station is: A. $ B. $5.50. C. $0.50. D. $ After purchasing a coffee cup from your local gas station for $5.00, you can always refill your cup for $0.50. The sunk cost of the coffee purchased at the gas station is: A. $5.00. B. $5.50. C. $ D. $ An economic model: A. should accurately predict cause and effect. B. should describe the real world accurately. C. should make clear assumptions. D. All of these are true. 9. The concepts of specialization and gains from trade explain: A. international trade. B. consumer decisions. C. both international trade and the choices individuals make. D. why globalization has expanded recently.

3 10. A production possibilities frontier is a line or curve that: A. shows the best combinations of outputs that can be produced using all available resources. B. shows what can be produced when all available resources are efficiently used. C. shows all the possible combinations of outputs that can be produced using all available resources. D. explains why societies make the choices they do. 11. The slope of a production possibilities frontier measures: A. the trade-off inherent in the production of one good versus the other. B. All of these statements are true. C. the opportunity cost of producing one good in terms of the other. D. how much of one good that must be given up in order to produce the other. 12. If we consider the reality that each worker has different skills, then the production possibilities frontier: A. would display a decreasing opportunity cost of a good as more of that good is produced. B. would display an increasing opportunity cost of a good as more of that good is produced. C. cannot be drawn, as too many variables would need to be taken into consideration. D. would display a constant opportunity cost of a good as more of that good is produced.

4 13. Choosing to produce at any point within a production possibilities frontier: A. is efficient, meaning the society would be using all its available resources, though not in their best use. B. is inefficient, meaning the society would not be using all its available resources in their best possible use. C. is unobtainable, meaning the society cannot produce that combination of goods. D. is efficient, meaning the society would be using all its available resources in their best possible use. 14. If society were to experience an increase in its available resources: A. its production possibilities frontier would not move, but society could change its production choice. B. its production possibilities frontier would become convex. C. its production possibilities frontier would shift in. D. its production possibilities frontier would shift out. 15. Hurricane Katrina destroyed much of New Orleans and other parts of the South. Which of the following statements is true? A. The hurricane caused the production possibilities to increase, since it created a lot of work to rebuild the city and surrounding areas. B. The hurricane caused the production possibilities frontier of the United States to shift out. C. The hurricane caused the production possibilities frontier of the United States to shift in. D. None of these statements is true. 16. Suppose an American worker can make 20 pairs of shoes or grow 100 apples per day. A Canadian worker, on the other hand, can produce 10 pairs of shoes or grow 20 apples per day. Which of the following statements is true? A. The United States has the absolute advantage in the production of shoes and Canada has the absolute advantage in the production of apples. B. The United States has the absolute advantage in the production of both shoes and apples. C. Canada has the absolute advantage in the production of shoes and the United States has the absolute advantage in the production of apples. D. Canada has the absolute advantage in the production of both shoes and apples.

5 17. Suppose an American worker can make 20 pairs of shoes or grow 100 apples per day. A Canadian worker, on the other hand, can produce 10 pairs of shoes or grow 20 apples per day. Which of the following statements is true? A. Comparative advantage doesn't exist in this scenario. B. Canada has a comparative advantage in the production of shoes. C. Both countries have a comparative advantage in the production of shoes. D. The United States has a comparative advantage in the production of shoes. 18. Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. Which of the following statements can be said of Country A? A. Country A does not possess the comparative advantage in either good. B. Country A has the comparative advantage in truck production only. C. Country A has the comparative advantage in car production only. D. Country A has the comparative advantage in car and truck production.

6 19. Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. Considering both country's production possibilities frontiers, we can conclude that: A. Country B will specialize in cars, and be willing to give no more than 3 cars for each truck. B. Country B will specialize in trucks, and be willing to accept no more than 3 cars for each truck. C. Country B will specialize in cars, and be willing to give no less than 3 cars for each truck. D. Country B will specialize in trucks, and be willing to accept no less than 3 cars for each truck.

7 20. The concepts of comparative advantage, specialization, and trade: A. can be useful in explaining why we allow ourselves to be interdependent on others. B. All of the statements are true. C. can be useful in explaining why individuals typically work at one job, and buy the other goods and services they need. D. can be useful in explaining why countries import and export certain goods. 21. The four important characteristics that define a competitive market are: A. standardized good, same information for buyer and seller, low transactions costs, participants are price takers. B. standardized good, full information, no transactions costs, participants are price takers. C. standardized good, full information, no transactions costs, participants are price makers. D. standardized information, finished good, no transactions costs, participants are price makers. 22. In economic terminology, a buyer or seller who cannot affect the market price is called a: A. price signaler. B. price setter. C. price maker. D. price taker. 23. The amount of a particular good that buyers in a market will purchase at a given price during a specified period is called: A. demand. B. supply. C. quantity supplied. D. quantity demanded. 24. The law of demand describes the: A. direct relationship between income and quantity demanded. B. inverse relationship between income and quantity demanded. C. inverse relationship between price and quantity demanded. D. direct relationship between price and quantity demanded.

8 25. Some nonprice determinants of demand are: A. consumer preferences, the price of the good, and incomes. B. incomes, expectations of future prices, and the number of sellers in the market. C. prices of related goods, knowledge of past prices, and the number of buyers in the market. D. consumer preferences, expectations of future prices, and the number of buyers in the market. 26. We say that goods are substitutes when they: A. change a consumer's preferences. B. are related goods that are consumed together, so that purchasing one will make a consumer more likely to purchase the other. C. serve similar-enough purposes that a consumer might purchase one in place of the other. D. can replace something consumers typically purchase at a significantly lower price. 27. After getting a raise at work, Jennie now regularly buys steak instead of hamburger. Based on this behavior, we can assume: A. steak and hamburger are complementary goods to Jennie. B. steak is an inferior good, and hamburger is a normal good for Jennie. C. We cannot make any of these assumptions about Jennie. D. steak is a normal good, and hamburger is an inferior good for Jennie. 28. An expectation of increased prices of a good in the future is likely to: A. decrease current demand. B. have no impact on current demand. C. only affect seller's decisions. D. increase current demand.

9 29. There has been a decrease in the demand for socks. This change can be shown graphically as: A. a shift in the demand curve to the right. B. a shift in the demand curve to the left. C. a movement along the demand curve to the right. D. a movement along the demand curve to the left. 30. This graph depicts the demand for a normal good. A movement from B to A in the graph shown might be caused by: A. an increase in the good's price. B. a decrease in the good's price. C. an increase in the price of a substitute. D. a decrease in the price of a substitute.