Through war, many of the factories in country 1 are destroyed, and many of its people are killed. As a result, the country’s: (Points : 2) production possibilities curve after the war is probably farther away from the origin than its PPC before the war. PPC after the war is probably closer to the origin than its PPC before the war. PPC after the war is probably the same PPC as before the war. ability to produce goods and services has increased. 2. Refer to the graph below. Given the resources and technology available to this economy, it can produce at points: (Points : 2) A, B, and C. A, B, and D. A, C, and D. B, C, and D. 3. Under Soviet-style socialism: (Points : 2) markets are relied upon to coordinate most activities, but government intervenes when necessary. individuals tell government their goals and the government decides how best to meet them. government planning boards set goals but rely on markets to achieve them. government planning boards set goals and then give individuals directives as to how to achieve those goals. 4. The benefit forgone by not undertaking the next-best activity is called: (Points : 2) the total cost. the sunk cost. the opportunity cost. the marginal cost. 5. Over the last few years, oil prices have been rising dramatically, thereby increasing the costs of transportation. Oil is an input in transportation, and shipping services (like UPS or FedEx) are in the business of transportation. What happens to the supply of shipping services given higher oil prices? (Points : 2) A decrease in the quantity demanded shipping services A decrease in the demand for shipping services An increase in the quantity supplied of shipping services A decrease in the supply of shipping services 6. The marginal benefit of owning another hardback book this month to Shelby is $20. If the $22 price of hardback books reflects their marginal cost to Shelby and she is rational, then: (Points : 2) Shelby will sell the hardback books she has to others who are willing to pay less. Shelby can gain by buying more . Shelby will buy more hardback books this month. Shelby will not buy any more hardback books this month. 7. The invisible hand refers to: (Points : 2) the role of government in a market economy. the price mechanism that guides economic actions. political forces. social forces. 8. Consider the table below, where each production choice represents a point on a production possibility curve. The table shows that the opportunity cost of producing an additional 10 units of rye is: (Points : 2) 2 eggs. 4 eggs. 10 eggs. decreasing. 9. Some of our farm fields are being left unused. Does this have any implications for the economy’s PPC diagram? (Points : 2) No implications, because the PPC deals only with resources in use. The PPC cannot be drawn if some resources are idle. With unemployed resources, we are at a point inside the PPC. The PPC would be upward sloping. 10. It is known that part-time college professors are paid a flat fee per class taught. This creates a price ceiling on the wages of certain professors, those teaching in the math and sciences. Given what you know about price ceilings, what do you expect to see in the market for organic chemistry (science) professors? (Points : 2) A shortage of organic chemistry professors A surplus of organic chemistry professors An equilibrium quantity of professors demanded and supplied An excess supply of organic chemistry professors 11. Assume the graph below reflects demand in the automobile market. Which arrow best captures the impact of increased consumer income on the automobile market? (Points : 2) A B C D 12. An effective price ceiling is best defined as: (Points : 2) a government-imposed limit on how high a price can be charged. a government-imposed limit on how low a price can be charged. a legislated price higher than equilibrium price. a price lower than any supplier is willing to sell. 13. Which of the following questions cannot be answered using a production possibility table? (Points : 2) What combination of outputs can be produced? How much less of one output can be produced if more of another output is produced? What combination of outputs is best? How much output can be produced from a given level of inputs? 14. The use of the phrase “other things equal” in supply and demand analysis indicates that: (Points : 2) an equilibrium price has been reached. an equilibrium quantity has been reached. factors other than the one under consideration are kept constant. we are considering all the changes which might take place in actual markets. 15. The Independent reported in 2004 that “Online music stores such as Apple’s iTunes were seen as a revolution in music sales, with customers turning their backs on CDs to shop online” Based on this report, you can conclude that the introduction of online music stores has shifted: (Points : 2) the supply curve of CDs to the right. the supply curve of CDs to the left. the demand curve of CDs to the right. the demand curve of CDs to the left. 16. The existence of a market surplus implies that price is: (Points : 2) above equilibrium and must fall to restore equilibrium. above equilibrium and must rise to restore equilibrium. below equilibrium and must fall to restore equilibrium. below equilibrium and must rise to restore equilibrium. 17. Which of the following would help alleviate the impending Social Security problem? (Points : 2) Reducing payroll taxes Raising the age at which one is eligible to receive payments Eliminating means testing Dismantling the Social Security Trust Fund 18. In the evolution of economic systems: (Points : 2) socialism preceded capitalism. capitalism preceded mercantilism. mercantilism preceded feudalism. feudalism preceded capitalism. 19. Refer to the graph below. Free market equilibrium occurs at: (Points : 2) 700 labor hours demanded, 700 labor hours supplied, and a wage rate of $9.20 per hour. 400 labor hours demanded, 800 labor hours supplied, and a wage rate of $10.30 per hour. 1100 labor hours demanded, 600 labor hours supplied, and a wage rate of $7.00 per hour. 400 labor hours demanded, 400 labor hours supplied, and a wage rate of $3.50 per hour. 20. If people begin to favor science fiction novels to a greater degree than previously, the demand curve for science fiction novels: (Points : 2) shifts rightward. shifts leftward. stays constant. can shift either rightward or leftward. 21. Refer to the graph below. A government-imposed price floor of $2 will result in: (Points : 2) neither excess supply nor excess demand since it is binding. neither excess supply nor excess demand since it is not binding. an excess demand of 2. an excess supply of 2. 22. An increase in the quantity of resources: (Points : 2) shifts the PPC inward. shifts the PPC outward. moves the economy to a point higher up on a given PPC. moves the economy to a point further down a given PPC. 23. An improvement in technology will: (Points : 2) imply that the law of increasing costs no longer applies. shift the production possibilities curve inward. shift the production possibilities curve outward. have no effect on the production possibilities curve. 24. When the wage rate paid to labor is below equilibrium: (Points : 2) the supply of labor increases. the demand for labor decreases. the number of workers seeking jobs exceeds the number of jobs available. the number of jobs available exceeds the number of workers seeking jobs. 25. Suppose that the table below shows the demand and supply schedules for pork bellies. There is a shortage of 15,000 pounds at a price of: (Points : 2) $0.25. $0.50. $0.75. $0.95. 26. In late 2003, news reports hit the airways stating that scientists had found evidence of BSE, or “Mad Cow Disease”, in U.S. cattle. At the same time, many cattle ranchers had to leave the market because their contaminated cattle had to be put to death. What happens to the demand and supply for red meat? (Points : 2) Demand decreases and supply increases Demand increases and supply increases Demand decreases and supply decreases Demand increases and supply decreases 27. In the production possibilities framework, economic growth is depicted by: (Points : 2) a shift inward of the PPC. a shift outward of the PPC. the PPC becoming a straight line. the PPC becoming bowed outward. 28. A government can finance its budget deficit by doing all of the following except: (Points : 2) buying bonds. borrowing from its central bank. selling bonds. printing money. 29. Price floors: (Points : 2) cause surpluses when they are effective. are effective when they are above the equilibrium price. cause fewer exchanges to be made. All of the above 30. If countries trade on the basis of comparative advantage: (Points : 2) the production and consumption of each good in each country rises. the production and consumption of each good in each country falls. global production and consumption of each good increases. global production and consumption of each good decreases. 31. Refer to the graph below. Laura’s production possibility curve for math and economics problems in one night is shown in the graph. Her opportunity cost of finishing 6 economics problems instead of 4 economics problems is: (Points : 2) 1 math problem. 2 math problems. 3 math problems. 4 math problems. 32. A resource is said to have a comparative advantage if: (Points : 2) it is more effective in the production of one good than another. it is equally effective to the production of all goods. its effectiveness in the production of a good increases as more of that good is produced. its effectiveness in the production of a good does not change as more of that good is produced. 33. Refer to the graphs below. A recent report indicates that the device known as the right heart catheter used to diagnose heart conditions poses more risks than previously thought. The effect of the report on the market for right heart catheters is best shown by which of the graphs? (Points : 2) I II III IV 34. When tax revenues exceed government expenditures, the government budget is: (Points : 2) in deficit. balanced. in surplus. not in equilibrium. 35. One reason government debt is different from individual debt is: (Points : 2) the government can print money to alleviate its debt, but individuals can’t. the government owes much of its debt to others, while individuals carry credit and that is debt to them. the government can refinance its debt, but individuals can only do it when interest rates fall. Individual debt is very similar to government debt, because the government is one entity just larger. 36. A tax that is levied on a specific good is called: (Points : 2) a progressive tax. an excise tax. an income tax. an employment tax. 37. According to the text, the introduction of e-commerce is likely to do all of the following except: (Points : 2) decrease competition. reduce overhead by creating virtual office-space. reduce the importance of conventional retailing. increase the amount of information available to buyers and sellers. 38. An increase in the price of good B caused an increase in the demand for good C. This indicates that: (Points : 2) B and C are complements. B and C are substitutes. B and C are neither substitutes nor complements. B and C are normal goods. 39. Bond holders: (Points : 2) lose when actual inflation is less than was expected. lose when actual inflation is more than was expected. lose when the expected inflation built into the nominal interest rate is correct. do not lose when the expected inflation built into the nominal interest rate is lower than actual inflation. 40. Which of the following topics would you most likely encounter in a macroeconomics course? (Points : 2) The choices made by an individual consumer. The output decision of a firm. The effect of a tax on the price charged by a firm. The effect that a change in the money supply has on interest rates. 41. One advantage of a corporation over a sole proprietorship is: (Points : 2) greater accountability. avoidance of double taxation. limited liability. ease of formation. 42. Bill and Sam both attend the same college and have the same expenses for tuition, books, and supplies. However, Bill is a famous athlete who could earn $1 million per year if he were not attending college while Sam could earn $15,000 a year serving hamburgers if he were not attending college. It follows that (Points : 2) the opportunity cost of attending college is the same for both Bill and Sam. the opportunity cost of attending college is greater for Bill than for Sam. the opportunity cost of attending college is greater for Sam than for Bill. the opportunity costs of attending college for Bill and Sam cannot be compared. 43. If a price ceiling below the equilibrium price is imposed on corn, the likely result will be: (Points : 2) a lower equilibrium price for corn as the supply curve shifts out. a higher equilibrium price for corn as the demand curve shifts out. a shortage of corn as the price ceiling keeps the market from reaching equilibrium. a surplus of corn as the price ceiling keeps the market from reaching equilibrium. 44. The reason we distinguish between a structural and passive deficit is because: (Points : 2) we want to know what part of the budget can be eliminated through growth (in income) and which will remain we want to know the effect of policy actions (to grow or restrict growth) on the deficit we want to know the effect of a recession on the deficit All of the above 45. At a price for which quantity demanded exceeds quantity supplied, a __________ is experienced, which pushes the price __________ toward its equilibrium value. (Points : 2) surplus; downward surplus; upward shortage; downward shortage; upward 46. Refer to the graph below. Which of the following could be responsible for the shift of the supply curve for snow skis from S1 to S2? (Points : 2) An increase in the price of the fiberglass used in ski production. A decrease in the price of snow skis. An increase in the number of firms involved in ski production. An increase in the price of snow skis. 47. Suppose that the table below shows the demand and supply schedules for pork bellies. Which of the following statements is true? (Points : 2) There would be a surplus of pork bellies if the price were 50 cents per pound. There would be a shortage of pork bellies if the price were 50 cents per pound. There would be a shortage of pork bellies if the price were 25 cents per pound. There would be a surplus of pork bellies if the price were 25 cents per pound. 48. Socialism is in theory characterized by: (Points : 2) private property. self-interest. distribution according to need. free markets. 49. The opportunity cost of obtaining more of a good is: (Points : 2) always zero. always less than zero. always greater than zero. measured by its price. 50. The marginal benefit from consuming another unit of a good: (Points : 2) must equal the marginal cost or the unit will not be consumed. must exceed the sunk cost or the unit will not be consumed. is the additional benefit above what you have already derived. equals the total benefit obtained from the consumption of all prior units.
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