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Econ 201 Exam 393 Questions with Verified Answers
Historical evidence suggests that: - CORRECT ANSWER free economies perform better than command economies in the long run. Understanding the impact of carbon taxes on the energy usage of individual households and firms is studied under: - CORRECT ANSWER microeconomics. Which of the following is an example of a topic studied by macroeconomists? - CORRECT ANSWER Total output of an economy An outcome is Pareto efficient if: - CORRECT ANSWER no individual can be made better off without making someone else worse off. The scientific method refers to the process by which economists and other scientists: - CORRECT ANSWER develop models of the world and test those models with data. Which of the following is a key property of models? All models are consistent and do not make incorrect predictions. All economic models begin with assumptions. All models can be used for a limited time period only. Empiricism is not essential for testing models. - CORRECT ANSWER All economic models begin with assumptions. Which of the following statements is true? Normative economics describes what people actually do. Normative economics is free from value judgments, tastes, and preferences of economic agents. Positive economics generates objective descriptions that can be verified with data. Positive economics describes what people ought to do. - CORRECT ANSWER Positive economics generates objective descriptions that can be verified with data.
Which of the following statements identifies a difference between correlation and causation - CORRECT ANSWER Correlation implies a mutual relationship between two things, whereas causation occurs when one thing directly affects another. An omitted variable is a variable that: - CORRECT ANSWER has been left out, and if included, would explain why the variables considered in a study are correlated. If the total cost incurred in hiring five workers for an hour is $45, and the total cost incurred when the sixth worker is hired is $60, the marginal cost of hiring the sixth worker is: - CORRECT ANSWER $15. Optimization in differences analyzes: - CORRECT ANSWER the change in the net benefits resulting from a shift from one alternative to another. ________ uses the concept of marginal analysis to determine the optimum choice. - CORRECT ANSWER Optimization in differences Which of the following statements identifies a similarity between optimization in levels and optimization in differences? - CORRECT ANSWER Both techniques require the conversion of all costs and benefits into a common unit of measurement Which of the following statements is true of economic reasoning? - CORRECT ANSWER Economic reasoning helps people make the best use of scarce resources. The net benefit of a particular alternative equals: - CORRECT ANSWER the benefits received from the alternative minus the costs incurred in choosing the alternative. If a particular choice that an individual faces gives him a benefit of $20 but costs $30, the net benefit from making this choice equals: - CORRECT ANSWER -$10. Among a set of alternatives with the same total costs, an individual is said to optimize if she chooses an alternative that has the: - CORRECT ANSWER highest total benefit.
Making choices by selecting the best feasible option, given the available information is referred to as: - CORRECT ANSWER optimization Which of the following is a step involved in optimization in levels? - CORRECT ANSWER Calculating the total net benefit of each alternative Converting all costs and benefits into a common value of measurement Choosing the alternative with the highest net benefit If an alternative provides a benefit of $8 to an individual at a cost of $6, the net benefits of the alternative equal: - CORRECT ANSWER $ If the total cost incurred in hiring five workers for an hour is $45, and the total cost incurred when the sixth worker is hired is $60, the marginal cost of hiring the sixth worker is: - CORRECT ANSWER $ Which of the following statements is true? - CORRECT ANSWER Data help establish whether theories match reality If the opportunity cost of time is $20 per hour, and an individual spends 20 hours in commuting every month, his opportunity cost of commute is: - CORRECT ANSWER $400 per month. When the market for a commodity is in equilibrium: - CORRECT ANSWER no economic agent will want to change his or her behavior A student has two options: she can either surf the web, or work part-time. Working part-time pays her $20 per hour. What is the student's opportunity cost of surfing the web for 5 hours? - CORRECT ANSWER $ Among a set of alternatives with the same total benefits, an individual is said to optimize if she chooses an alternative that: - CORRECT ANSWER has the lowest total cost. If quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to: - CORRECT ANSWER pivot leftward along the vertical axis
Assume that a consumer can spend $20 on two goods-pens and pencils. If the price of one pen is $5 and the price of one pencil is $2, which of the following combinations of the two goods represents a point on the consumers budget constraint? - CORRECT ANSWER 2 pens and 5 pencils A change in the slope of a budget constraint indicates: - CORRECT ANSWER a change in the price of one of the goods that causes a change in the opportunity cost. Which of the following statements is true? - CORRECT ANSWER Tastes and preferences of a consumer determine the satisfaction she receives from consumption. ________ in economics is a measure of satisfaction or happiness that comes from consuming a good or service. - CORRECT ANSWER Utility Which of the following examples best describes the Law of Demand? - CORRECT ANSWER When the price of bread doubles, John's consumption of bread halves. Which of the following factors is likely to lead to an increase in the quantity demanded of pens? - CORRECT ANSWER A fall in the price of pens An increase in the demand for a good is represented by: - CORRECT ANSWER a right shift to a new demand curve. The Law of Diminishing Marginal Benefit states that: - CORRECT ANSWER the willingness to pay for an additional unit declines as more of a good is consumed. The willingness to pay for a commodity: - CORRECT ANSWER decreases as consumption of the commodity increases. The market demand is the ________ of the individual demand of all the potential buyers. - CORRECT ANSWER sum Negative values of the price elasticity of demand of a good can be attributed to: - CORRECT ANSWER the Law of Demand
The relationship between the quantity of inputs and the quantity of outputs is called: - CORRECT ANSWER a production function. Which of the following statements identifies the difference between variable costs and fixed costs? - CORRECT ANSWER Variable costs of a firm are zero after it shut downs, whereas it continues to incur the fixed costs of production in the short run. Total cost of production refers to the: - CORRECT ANSWER sum of variable costs and fixed costs. Marginal revenue: - CORRECT ANSWER is the change in total revenue associated with producing one more unit of output. The process by which inputs are transformed to outputs is referred to as: - CORRECT ANSWER production. Which of the following is true? - CORRECT ANSWER Economic profits = Accounting profits - Implicit costs A firm will maximize profit at the level of output where: - CORRECT ANSWER its marginal revenue equals marginal cost. A supply schedule is a table that reports: - CORRECT ANSWER the different quantities of a good that producers are willing to sell at different prices. Which of the following is likely to lead to a right shift in the supply curve of cotton? - CORRECT ANSWER Which of the following is true? - CORRECT ANSWER Economic profits = Accounting profits - Implicit costs A firm will maximize profit at the level of output where: - CORRECT ANSWER Which of the following is likely to lead to a right shift in the supply curve of cotton? - CORRECT ANSWER An increase in labor productivity due to training programs
A surplus occurs in a market when: - CORRECT ANSWER price is higher than the equilibrium price. At a price of $1 per table, the quantity supplied of tables is 100 units whereas the quantity demanded is 70 units. Given this information, which of the following statements is true? - CORRECT ANSWER At $1 per table, there is a surplus in the market. If the demand and supply curves for a commodity shift to the right and the shift in demand is greater than the shift in supply, then in comparison to the initial equilibrium, the new equilibrium will be characterized by: - CORRECT ANSWER a higher price and quantity. Consider a market that is in equilibrium. If it experiences an increase in demand, what will happen? - CORRECT ANSWER The demand curve will shift to the right, and the equilibrium price and quantity will rise. In economic terminology, a buyer or seller who cannot affect the market price is called a: - CORRECT ANSWER price taker. The term equilibrium refers to the point where: - CORRECT ANSWER quantity supplied equals quantity demanded. buyers and sellers "agree" on the quantity of a good they are willing to exchange at a given price. the supply curve and demand curve intersect. The advancement of computers has increased the productivity of a paper mill. How will this likely affect the supply of paper? - CORRECT ANSWER It will cause a rightward shift in the supply of paper. How have the recent increases in the price of gasoline affected the market for hybrid cars? - CORRECT ANSWER The demand has increased, increasing the equilibrium price and quantity of hybrid cars. Graphically, producer surplus is the: - CORRECT ANSWER difference between the supply curve and the price a consumer pays.
________ is the measure of the sensitivity of one variable to a change in another.
- CORRECT ANSWER Elasticity Economists assume the central goal of any business is to: - CORRECT ANSWER maximize profit. Positive economic profits in a perfectly competitive market imply that: - CORRECT ANSWER producers are earning more than their opportunity cost. The relationship between the quantity of inputs and the quantity of outputs is called: - CORRECT ANSWER a production function. Which of the following statements is true of the long run? - CORRECT ANSWER There are no fixed inputs in the long run. Ray's company just announced that everyone will be getting their pay cut by 5% in order to avoid having to close down. Ray's demand for coffee, a normal good, will likely: - CORRECT ANSWER decrease, and his demand curve will shift to the left. If the price of a good increases, ________. - CORRECT ANSWER the consumer surplus decreases Taste - CORRECT ANSWER T in Tinear Demand - CORRECT ANSWER Taste affects Supply or Demand? Income - CORRECT ANSWER I in Tinear Demand - CORRECT ANSWER Income effects Supply or Demand? Number of buyers - CORRECT ANSWER N in Tinear Demand - CORRECT ANSWER Number of Buyers effects supply or demand? Expected future price - CORRECT ANSWER E in Tinear Advertising - CORRECT ANSWER A in Tinear
Demand - CORRECT ANSWER Advertising effects Supply or Demand? Related Goods Prices - CORRECT ANSWER R in Tinear Demand - CORRECT ANSWER Related goods prices effects supply or Demand? Cost - CORRECT ANSWER C in CTE GNP Supply - CORRECT ANSWER Cost effects Supply or Demand? Technology - CORRECT ANSWER T in CTE GNP Supply - CORRECT ANSWER Technology effects Supply or Demand? Expected future price - CORRECT ANSWER E in CTE GNP Government - CORRECT ANSWER G in CTE GNP Supply - CORRECT ANSWER Government effects Supply or Demand? Number of sellers - CORRECT ANSWER N in CTE GNP supply - CORRECT ANSWER number of sellers effects Supply or Demand? Physical - CORRECT ANSWER P in CTE GNP Supply - CORRECT ANSWER Physical effects Supply or Demand? Economics is best defined as the study of - CORRECT ANSWER How society manages its scarce resources Your opportunity cost of going to a movie is - CORRECT ANSWER The total cash expenditure needed to go to the movie plus the value of your time A marginal change is one that - CORRECT ANSWER Incrementally alters an existing plan
In an hour, David can wash 2 cars or mow 1 lawn, while Ron can wash 3 cars or mow 1 lawn. Who has the comparative advantage? - CORRECT ANSWER Ron in washing, David in mowing When two individuals produce efficiently and then make a mutually beneficial trade based on comparative advantage - CORRECT ANSWER they both obtain consumption outside their production possibilities frontier Which goods will a nation typically import - CORRECT ANSWER Those goods in which other nations have a comparative advantage Suppose that in the United States, producing an aircraft takes 10,000 hours of labor and production a shirt takes 2 hours of labor. In china, an aircraft takes 40,000 hours while producing a shirt takes 4 hours of labor. What will these nations trade? - CORRECT ANSWER China will export shirts, while the United States will export aircraft. Mark can cook dinner in 30 minutes and wash the laundry in 20 minutes. his roommate takes half as long to do each task. How should the roommates allocate the work? - CORRECT ANSWER There are no gains from trade in this situation. Emilio buys pizza for $10 and soda for $2. He has income of $100. His budget constraint will experience a parallel outward shift if which of the following events occurs? - CORRECT ANSWER The price of pizza rises to $20, the price of soda rises to $4, and his income rises to $ At any point of an indifference curve, the slope of the curve measures the consumers - CORRECT ANSWER willingness to trade on good for the other Matthew and Susan are both optimizing consumers in the markets or shirts and hats, where they pay $100 for a shirt and $50 for a hat. Matthew buys 4 shirts and 16 hats, while Susan buys 6 shirts and 12 hats. From this information, we can infer that Matthew's marginal rate of substitution is ____ hats per shirt, while Susan's is ______ - CORRECT ANSWER 2,
Charlie only buys milk and cereal. Milk is a normal good, while cereal is an inferior good. When the price of milk rises, Charlie buys - CORRECT ANSWER Less milk and more cereal If the price of pasta increases and a consumer buys more pasta, we can infer that
- CORRECT ANSWER Pasta is an inferior good, and the income effect is greater than the substitution effect The labor supply curve slopes upward if - CORRECT ANSWER The substitution effect on leisure is greater than the income effect Raj opens up a lemonade stand for two hours. He spends $10 for ingredients and sells $60 worth of lemonade. In the same two hours, he could have mowed his neighbor's lawn for $40. Raj has an accounting profit of _____ and an economic profit of _____ - CORRECT ANSWER $50, $ Diminishing marginal product explains why, as a firm's output increases - CORRECT ANSWER The production function gets flatter, while the total cost curve gets steeper. A firm is producing 1,000 units at a total cost of $5,000. If it were to increase production to 1,001 unites, total cost would rise to $5,008. What does this info tell you about the firm? - CORRECT ANSWER Marginal cost is $8, and average total cost is $ A firm is producing 20 units with an average total cost of $25 and marginal cost of $15. If the firm were to increase production to 21 units, which of the following must occur? - CORRECT ANSWER Average total cost would decrease The government imposes a $1,000 per year license fee on all pizza restaurants. Which cost curves shift as a result? - CORRECT ANSWER Average total cost and average fixed cost If a higher level of production allows workers to specialize in particular tasks, a firm will likely exhibit _____ of scale and ______ average total cost. - CORRECT ANSWER Economies, falling
If the economy goes in a recession and incomes fall, what happens in the markets for inferior goods? - CORRECT ANSWER Prices and quantities both rise Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold? - CORRECT ANSWER An increase in the price of grapes, an input to jelly. A life-saving medicine without any close substitutes will tend to have - CORRECT ANSWER A small elasticity of demand The price of a good rises from $8 to $12, and the quantity demanded falls from 110 to 90 units. Calculate with the midpoint method, the elasticity is - CORRECT ANSWER 1/ A linear, downward-sloping demand curve is - CORRECT ANSWER inelastic at some points and elastic at others The ability of firms to enter and exit a market over time means that, in the long run - CORRECT ANSWER the supply curve is more elastic An increase in the supply of a good will decrease the total revenue producers receive if: - CORRECT ANSWER the demand curve is inelastic WHO COULD POSSIBLY BE RIGHT?? - CORRECT ANSWER Tom, Harry, and Mary When the government imposes a binding price floor, it causes - CORRECT ANSWER a surplus of the good to develop In the market with a binding price ceiling, an increase in the ceiling will ______ the quantity supplied, ______ the quantity demanded, and reduce the ______ - CORRECT ANSWER Increase, decrease, shortage A $1 per unit tax levied on consumers of a good is equivalent to: - CORRECT ANSWER A $1 per unit tax levied on producers of the good
Which of the following would increase quantity supplied, decrease quantity demanded, and increase the price that consumers pay? - CORRECT ANSWER The imposition of a binding price floor Which of the following would increase quantity supplied, increase quantity demanded, and decrease the price that consumers pay? - CORRECT ANSWER The repeal of a tax levied on producers When a good is taxed, the burden of the tax falls mainly on consumers if: - CORRECT ANSWER Supply elastic, and demand is inelastic. Jen values her time at $60 an hour. She spends 2 hours giving Colleen a massage. Colleen was willing to pay as much as $300 for the massage, but they negotiate a price $200. In this transaction - CORRECT ANSWER Consumer surplus is $20 larger than producer surplus The demand curve for cookies is downward sloping. When the price of cookies is $2, the quantity demanded is 100. If the price rises to $3, what happens to consumer surplus? - CORRECT ANSWER It falls by less than $ John has been working as a tutor for $300 a semester. When the university raises the price it pays tutors to $400, Emily enters the market and beings tutoring as well. how much does producer surplus rise as a result of this price increase? - CORRECT ANSWER Between $100 and $ An efficient allocation of resources maximizes - CORRECT ANSWER consumer surplus plus producer surplus When a market is in equilibrium, the buyers are those with the _______ willingness to pay, and the sellers are those with the ______ costs. - CORRECT ANSWER Highest, lowest Producing a quantity larger than the equilibrium of supply and demand is inefficient because the marginal buyer's willingness to pay is: - CORRECT ANSWER Positive but less than the marginal seller's cost
Which of the following statements about corrective taxes is NOT true? - CORRECT ANSWER They cause deadweight losses The government auctions off 500 units of pollution rights. They sell for $50 per unit, raising total revenue of $25,000. This policy is equivalent to a corrective tax of ______ per unit of pollution. - CORRECT ANSWER $ The Coase theorem does NOT apply if - CORRECT ANSWER transaction costs make negotiating difficult If a nation that does not allow international trade in steel has a domestic price of steel lower than the world price, then: - CORRECT ANSWER the nation has a comparative advantage in producing steel and would become a steel exporter if it opened up trade When the nation of Ectenia opens itself to world trade in coffee beans, the domestic price of coffee beans falls. Which of the following describes the situation? - CORRECT ANSWER Domestic production of coffee falls, and Ectenia becomes a coffee importer When a nation opens itself a trade in a good and becomes an importer, - CORRECT ANSWER producer surplus decreases, but consumer surplus and total surplus both increase If a nation that imports a good imposes a tariff, it will increase - CORRECT ANSWER the domestic quantity supplied which of the following trade policies would benefit producers, hurt consumers, and increase the amount of of trade? - CORRECT ANSWER Starting to allow trade when the world price is greater than the domestic price The main difference between imposing a tariff and handing out licenses under an import quota is that a tariff increases - CORRECT ANSWER Government Revenue Approximately what percentage of US national income is paid to workers, as opposed to owners of capital and land? - CORRECT ANSWER 70%
If firms are competitive and profit maximizing, the demand curve for labor is determined by: - CORRECT ANSWER The value of the marginal product of labor A bakery operating in competitive markets sells it output for $20 per cake and his labor at $10 per hour. To maximize profits, it should hire labor until the marginal product of labor - CORRECT ANSWER 1/2 cake per hour A technological advance that increases the marginal product of labor shifts the labor _______ curve to the _______ - CORRECT ANSWER Demand, right Around 1973, the US economy experienced a significant _______ in productivity growth, coupled with a ________ in the growth of real wages - CORRECT ANSWER Slowdown, slowdown A storm destroys several factories, thereby reducing the stock of capital. Which effect does this event have on factor markets? - CORRECT ANSWER Wages fall, and the rental price of capital rises A firm is a natural monopoly if it exhibits the following as its output increases: - CORRECT ANSWER Decreasing average total cost For a profit-maximizing monopoly that charges the same price to all consumers, what is the relationship between price P, marginal revenue MR, and marginal cost MC? - CORRECT ANSWER P>MR and MR=MC If a monopoly's fixed costs increase, its price will ______, and its profit will_______ - CORRECT ANSWER Stay the same, decrease Compared to the social optimum, a monopoly firm chooses: - CORRECT ANSWER A quantity that is too low and a price that is too high The deadweight loss from monopoly arises because: - CORRECT ANSWER Some potential consumers who forgo buying the good value it more than its marginal cost When a monopolist switches from charging a single price to perfect price discrimination, it reduces: - CORRECT ANSWER Consumer surplus
