Multiple Choice -- Questions 1-26 & 41 are relevant for our
first exam -- Fall 2011. Note that this practice exam does not include
questions from chapters 5 and 21. We skipped chapter 3 this semester (not
much there you don't already know). We will cover chapter 21 later.
Choose the
letter of the choice that best completes the statement or answers the question
from its drop-down box. Once you've completed all the questions you want
to try, click
the "Check your work" button below the last question.
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1.
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Economics can best be defined as the study of how individuals decide to use limited
resources in an attempt to satisfy unlimited wants.
A) True B) False
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2.
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Scarcity
A) exists because people have wants that are unlimited
relative to the availability of resources to satisfy those wants B) creates a need
for society to allocate goods according to some set of criteria C) means that
society and individuals must make choices D) exists in all societies
E) all of the above
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3.
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Which
of the following is an example of a positive statement?
A) Workers
with families should be paid at least the minimum wage. B) If crime rates were
reduced, the world would be a better place in which to live. C) Marginal tax rates
should be reduced for individuals in the highest tax brackets. D) An increase in the
price of gasoline will cause a reduction in the amount purchased. E) Corrupt
politicians ought to be voted out of office.
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4.
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Randy
runs a small beverage business that brews beer or distills vodka. He wants to calculate the
opportunity cost of beer in terms of vodka. What units will he use to measure this opportunity
cost?
A) kegs of beer B) liters of vodka
C) kegs of beer per liter of vodka D) liters of vodka per keg of
beer
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5.
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Suppose the marketing department in your firm tells you that the price at which you
can sell different quantities of a paper-back books is represented by the linear equation P = 10 -
2Q, where P stands for the price ($/book) and Q stands for the quantity of books you sell per day.
Which statements correctly specifies the units of the area under this demand
curve?
A) dollars B) books C) dollars
per book D) dollars per day
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6.
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Comparative advantage is
A) the
ability of an individual to specialize and produce a greater amount of some good than can another
individual B) the number of units of one good given up in order to acquire
something C) the ability of an individual to produce a good at a lower opportunity
cost than can some other individual D) an expression for the amount of capital
employed by a particular individual to produce a fixed amount of capital goods E) a
reference to an individual having the greatest opportunity cost of producing the good and produces it
with the fewest resources
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7.
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Because of specialization and comparative advantage, most
people
A) consume only what they produce themselves
B) consume the products produced by their family and friends C) consume the
products of many other specialists D) do not use money as a medium of
exchange E) share whatever they produce
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8.
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A
production possibilities frontier can shift outward for all of the following reasons except one.
Which is the exception?
A) a decrease in the unemployment rate
B) an improvement in labor skills C) an improvement in technology
D) a larger work force E) a larger capital stock
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9.
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Adam
Smith believed that people's pursuit of their own self-interests
A) tended
to promote the general welfare B) required the government's "invisible
hand" to keep the economy running smoothly C) might cause aggregate demand to
be greater than aggregate supply D) would increase the wealth of a nation, which was
the quantity of gold and silver it owned E) would decrease the wealth of a nation,
which was its ability to produce goods and services
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10.
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Which
of the following is a characteristic of pure market economy?
A) all
resources are owned communally B) economic activity is coordinated by government
decision makers C) the price system is used to guide resources to their
highest-valued uses D) centralized economic planning is used to answer the basic
economic questions E) individual choices are reflected only through collective
decisions
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11.
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The
law of demand says that as the price of a good rises,
A) buyers
recognize that price may be even higher in the future, and so they buy now B) buyers
purchase less in hopes that the price will fall in the future C) buyers purchase
less, in part because their real income has fallen D) buyers purchase more, in part
because the price of a substitute has risen E) buyers purchase more, in part because
it has higher status at a higher price
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12.
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Movements along a demand curve are called changes in
A) demand B) opportunity costs C) quantity
demanded D) the substitution effect E) preferences
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13.
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Which
of the following statements about demand is true?
A) Since
most college students want a Mercedes sports coupe, their demand for it is high.
B) If price increases, the demand curve shifts to the right. C) The demand
curve for bacon will not shift when the price of bacon changes. D) If the supply
curve shifts, thereby changing the price, the demand curve will shift as well. E) If
the demand curve shifts, the supply curve will shift as well, whether or not the price
changes.
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14.
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If
income rises and a good is inferior, then demand for that good will
decrease.
A) True B) False
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15.
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A
leftward shift in a supply curve represents a decrease in supply.
A) True B) False
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16.
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Which
of the following would shift the supply curve for a product to the right?
A) an
increase in the price of a resource used in the good's production B) the expectation
of a higher price in the near future C) an increase in the price of the
product D) an increase in the price of an alternative good E) an
improvement in the technology for producing the good
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17.
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The
equilibrium point represents the only price-quantity combination in a market
that
A) causes both buyers and sellers to agree to a price increase
B) causes both buyers and sellers to agree to a price decrease C) exactly
matches the independent plans of buyers and sellers D) allows buyers to purchase
what they want E) allows sellers to earn a profit
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18.
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An
increase in demand for chocolate chips would usually result in a(n)
A) higher
equilibrium price and a lower equilibrium quantity B) lower equilibrium price and a
lower equilibrium quantity C) lower equilibrium price and a higher equilibrium
quantity D) higher equilibrium price and a higher equilibrium quantity
E) increase in the supply of chocolate chips
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19.
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A
decrease in the supply of chocolate chips would usually result in a
A) higher
equilibrium price and a lower equilibrium quantity B) lower equilibrium price and a
lower equilibrium quantity C) lower equilibrium price and a higher equilibrium
quantity D) higher equilibrium price and a higher equilibrium quantity
E) decrease in the demand for chocolate chips
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20.
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Suppose demand decreases and supply decreases. Which of the following must
happen?
A) equilibrium price increases B) equilibrium
price decreases C) equilibrium quantity increases D) equilibrium
quantity decreases E) neither equilibrium price nor quantity changes
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21.
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Two
events occur simultaneously in the market for automobiles: (1) an improvement in assembly line
technology and (2) the economy enters a recession (which decreases consumers' income). An economist
would predict with certainty that
A) equilibrium quantity will rise
B) equilibrium quantity will fall C) equilibrium price will rise
D) equilibrium price will fall E) the equilibrium price will remain the
same
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22.
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Autarky is
A) equilibrium after trade begins between two
countries B) the gains received from trade
C) self-sufficiency D) political isolationism E) the
recognition that mutually beneficial trade is not possible between two countries
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23.
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For
each watch Denmark produces, it gives up the opportunity to make 50 pounds of cheese. Germany can
produce one watch for every 100 pounds of cheese it produces. Which of the following is true with
regard to opportunity costs in the two countries?
A) The
opportunity cost of producing watches is lower in Denmark. B) The opportunity cost
of producing cheese is lower in Denmark. C) The opportunity cost of producing
watches is identical in both countries. D) It is impossible to compare opportunity
costs because the two countries use different currencies. E) In Germany the
opportunity cost of producing one pound of cheese is one watch.
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24.
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If a
country has an absolute advantage in the production of every good, it cannot benefit from trade with
other countries.
A) True B) False
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25.
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Whenever the opportunity costs of goods are significantly different in different
countries, there are gains from specialization and trade.
A) True B) False
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26.
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A
nation's consumption possibilities frontier is
A) always
the same as its production possibilities frontier B) never the same as its
production possibilities frontier C) the same as its production possibilities
frontier only if there is advantageous trade D) the same as its production
possibilities frontier only if there is no international trade E) usually lower than
its production possibilities frontier
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27.
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Exhibit 0236 shows domestic supply and demand for baseballs in the United States. The
world price of a baseball is $3. With free trade, how many baseballs will be purchased in the United
States?
A) 4,000 B) 6,000
C) 8,000 D) 10,000 E) 12,000
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28.
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In
Exhibit 0236, the world price of a baseball is $3. With free trade, how many baseballs will the
United States import?
A) 4,000 B) 6,000
C) 8,000 D) 10,000 E) 12,000
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29.
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In
Exhibit 0236, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in
the United States, how many baseballs will be purchased in the United
States?
A) 4,000 B) 6,000
C) 8,000 D) 10,000 E) 12,000
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30.
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In
Exhibit 0236, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in
the United States, how many baseballs will the United States import?
A) 4,000 B) 6,000 C) 8,000
D) 10,000 E) 12,000
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31.
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In
Exhibit 0236, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in
the United States, which area represents the amount of tariff revenue the United States government
collects?
A) a B) b C) c
D) f E) e
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32.
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In
Exhibit 0236, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in
the United States, which area represents the United States' net loss as a result of the
tariff?
A) a + b + c + e B) b + c + e
C) b + c D) c + e E) b + f
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33.
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Which
of the following is true concerning the impact of tariffs and quotas?
A) Tariffs
raise the price of the good but quotas do not. B) Tariffs reduce consumer and
producer surplus whereas quotas reduce domestic consumer surplus and increase domestic producer
surplus. C) Both tariffs and quotas increase the quantity demanded.
D) The revenue resulting from a tariff goes to the government whereas the revenue resulting from
a quota goes to whoever is awarded the right to sell the product. E) The potential
of the welfare loss is greater with tariffs than quotas.
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34.
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If
the country in Exhibit 0239 is initially trading without restrictions at a world price of $2.00 and
an import quota of 50 units per month is enacted, the decrease in consumer surplus can be represented
by area
A) a B) c + d C) c + d +
e D) b + c + d + e E) a + b + c + d + e
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35.
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If
the country in Exhibit 0239 is initially trading without restrictions at a world price of $2.00 and
an import quota of 50 units per month is enacted, the welfare loss resulting from higher domestic
production costs is represented by area
A) a B) b C) c + d D) b +
d E) e
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36.
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If
the country in Exhibit 0239 is initially trading without restrictions at a world price of $2.00 and
an import quota of 50 units per month is enacted, the gain to those awarded the right to import the
50 units and sell it at the new domestic price is represented by area
A) a B) b C) c
D) d E) c + d
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37.
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The
GATT's most-favored nation clause means that tariff reductions granted by a member of GATT to imports
from one country
A) apply only to that country B) are only
extended to certain favored members of GATT C) are extended to all other members of
GATT D) must be matched by equivalent quota reductions E) are
extended to all other countries of the world
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38.
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Which
of the following is not a criticism of the national defense argument for trade
restrictions?
A) Both b and e. B) Stockpiling basic military
hardware could eliminate the need to protect the domestic industry. C) Nearly all
industries can make some claim to strategic importance, so such trade restrictions can get out of
hand. D) National defense considerations can outweigh concerns about
efficiency. E) Government subsidies to domestic producers may be more efficient than
trade restrictions.
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39.
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If
wages are lower in Mexico than in Germany, labor costs per unit of output can still be higher in
Mexico.
A) True B) False
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40.
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When
a country follows a development policy of import substitution, it
A) is
allowing natural market forces to determine the path of development B) encourages
domestic producers to manufacture goods that were formerly imported C) encourages
domestic producers to increase the manufacture of goods that are exported
D) increases tariffs on agricultural imports to a prohibitive level
E) increases taxes on firms which produce for the export market
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Short Answer
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41.
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Use the classical model of international trade to answer the following
questions. The table below shows the number of hours of labor necessary to produce one unit of each
good:
| | Home | Foreign* |
Soybeans (bu
S/hr) | 5 | 6 | Textiles (yd
T/hr) | 1 | 4 | Labor (worker
hr/year) | 5,000 | 12,000 | | | |
a. (5 points.) Which country has
absolute advantage in which good and why?
b. (5 points.) Which country has comparative
advantage in which good and why?
c. (10 points.) Explain the gains from
trade in the context of this numerical example.
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