Indicate whether the statement is true or false.
____ 1. If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be irrational for the railroad to allow any passenger to ride for less than $75.
____ 2. Microeconomics is the study of how households and firms make decisions and how they interact in specific markets.
____ 3. If a person chooses self-sufficiency, then she can only consume what she produces.
____ 4. When a seller expects the price of its product to decrease in the future, the seller’s supply curve shifts left now.
____ 5. Harry is a computer company executive, earning $200 per hour managing the company and promoting its products. His daughter Quinn is a high school student, earning $6 per hour helping her grandmother on the farm. Harry’s computer is broken. He can repair it himself in one hour. Quinn can repair it in 10 hours. Harry’s opportunity cost of repairing the computer is lower than Quinn’s.
____ 6. All goods and services are sold in perfectly competitive markets.
____ 7. An outcome is said to be efficient if an economy is conserving the largest possible quantity of its scarce resources while still meeting the basic needs of society.
____ 8. An assumption of the production possibilities frontier model is that technology is fixed.
____ 9. Individual demand curves are summed horizontally to obtain the market demand curve.
____ 10. To say people respond to incentives means that people may alter their decisions when the costs and benefits of an action change.
Multiple Choice (5 points each)
Identify the choice that best completes the statement or answers the question.
____ 11. Which of the following statements about trade is false?
|a.||Trade increases competition.|
|b.||With trade, one country wins and one country loses.|
|c.||Bulgaria can benefit, potentially, from trade with any other country.|
|d.||Trade allows people to buy a greater variety of goods and services at lower cost.|
____ 12. The goal of an economist who formulates new theories is to
|a.||provide an interesting framework of analysis, whether or not the framework turns out to be of much use in understanding how the world works.|
|b.||provoke stimulating debate in scientific journals.|
|c.||contribute to an understanding of how the world works.|
|d.||demonstrate that economists, like other scientists, can formulate testable theories.|
____ 13. “Prices rise when the quantity of money rises rapidly” is an example of a
|a.||negative economic statement.|
|b.||positive economic statement.|
|c.||normative economic statement.|
|d.||statement that contradicts one of the basic principles of economics.|
|Consumer 1||Consumer 2|
____ 14. Refer to Figure 1. If these are the only two consumers in the market, then the market quantity demanded at a price of $10 is
____ 15. Trade between countries tends to
|a.||reduce both competition and specialization.|
|b.||reduce competition and increase specialization.|
|c.||increase competition and reduce specialization.|
|d.||increase both competition and specialization.|
____ 16. To increase living standards, public policy should
|a.||ensure that workers are well educated and have the necessary tools and technology.|
|b.||make unemployment benefits more generous.|
|c.||move workers into jobs directly from high school.|
|d.||ensure a greater degree of equality, taking all income-earners into account.|
____ 17. Refer to Figure 2. This economy has the ability to produce at which point(s)?
|b.||A, B, D|
|c.||A, B, C, F, G|
|d.||C, F, G|
|Maxine’s Production Possibilities Frontier||Daisy’s Production Possibilities Frontier|
____ 18. Refer to Figure 3. If the production possibilities frontier shown for Maxine is for 3 hours of work, then how long does it take Maxine to make one pie?
Peru’s Production Possibilities Frontier
____ 19. Refer to Figure 4. Suppose Peru decides to increase its production of emeralds by 2. What is the opportunity cost of this decision?
The graph below represents the various combinations of ham and cheese (in pounds) that the nation of Bonovia could produce in a given month.
____ 20. Refer to Figure 5. In the nation of Cropitia, the opportunity cost of a pound of cheese is 1.5 pounds of ham. Based on this information, if Bonovia and Cropitia want to trade, Cropitia should specialize,in the production of
|a.||ham and import cheese.|
|b.||cheese and import ham.|
|c.||both goods and import neither good.|
|d.||neither good and import both goods..|
____ 21. Holding the nonprice determinants of demand constant, a change in price would
|a.||result in either a decrease in demand or an increase in demand.|
|b.||result in a movement along a stationary demand curve.|
|c.||result in a shift of supply.|
|d.||have no effect on the quantity demanded.|
____ 22. A likely example of complementary goods for most people would be
|a.||butter and margarine.|
|b.||lawnmowers and automobiles.|
|c.||chips and salsa.|
|d.||cola and lemonade.|
____ 23. Warrensburg is a small college town in Missouri. At the end of August each year, the market demand for fast food in Warrensburg
|c.||remains constant, but we observe a movement downward and to the right along the demand curve.|
|d.||remains constant, but we observe a movement upward and to the left along the demand curve.|
|Price||Firm A’sQuantitySupplied||Firm B’sQuantitySupplied||Firm C’sQuantitySupplied||Firm D’sQuantitySupplied|
____ 24. Refer to Table 1. If these are the only four sellers in the market, then the market quantity supplied at a price of $4 is
____ 25. A improvement in production technology will shift the
|a.||supply curve to the right.|
|b.||supply curve to the left.|
|c.||demand curve to the right.|
|d.||demand curve to the left.|
____ 26. 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.||Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.|
|b.||Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.|
|c.||Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.|
|d.||Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.|
____ 27. What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?
|a.||Price would fall, and the effect on quantity would be ambiguous.|
|b.||Price would rise, and the effect on quantity would be ambiguous.|
|c.||Quantity would fall, and the effect on price would be ambiguous.|
|d.||Quantity would rise, and the effect on price would be ambiguous.|
____ 28. In a market economy, who makes the decisions that guide most economic activity?
|c.||firms and households|
____ 29. Which markets are represented in the simple circular-flow diagram?
|a.||markets for goods and services and markets for financial assets|
|b.||markets for factors of production and markets for financial assets|
|c.||markets for goods and services and markets for factors of production|
|d.||markets for goods and services and markets for imports and exports|
____ 30. John Maynard Keynes referred to economics as an easy subject,
|a.||at which very few excel.|
|b.||but not as easy as philosophy or the pure sciences.|
|c.||which very few can enjoy.|
|d.||which deals primarily with common sense.|
Relationship Between Years of Education and Annual Income
____ 31. Refer to Figure 6. Senator Smith observes the graph and concludes that people who earn higher incomes attend school for more years. Senator Jones observes the graph and concludes that people who attend school for more years earn higher incomes. Who is correct?
|a.||Senator Smith is correct.|
|b.||Senator Jones is correct.|
|c.||It is difficult to say which senator might be correct due to the reverse causality problem.|
|d.||It is difficult to say which senator might be correct due to omitted variable bias.|
____ 32. The two words economists use most often are
|a.||inflation and trade.|
|b.||supply and demand.|
|c.||competition and prices.|
|d.||markets and equilibrium.|
____ 33. If a seller in a competitive market chooses to charge more than the going price, then
|a.||the sellers’ profits must increase.|
|b.||the owners of the raw materials used in production would raise the prices for the raw materials.|
|c.||other sellers would also raise their prices.|
|d.||buyers will make purchases from other sellers.|
____ 34. The quantity supplied of a good is the amount that
|a.||buyers are willing and able to purchase.|
|b.||sellers are able to produce.|
|c.||buyers and sellers agree will be brought to market.|
|d.||sellers are willing and able to sell.|
____ 35. The supply curve for a good is a line that relates
|a.||profit and quantity supplied.|
|b.||quantity supplied and quantity demanded.|
|c.||price and quantity supplied.|
|d.||price and profit.|