Eco 2314 Fall 2012 Final Review (Test 1)

Front 1

The central concern of economics is:
A. poverty.
B. scarcity.
C. wealth accumulation.
D. overconsumption.

Back 1

B. scarcity.

Front 2

The cost-benefit principle indicates that an action should be taken:
A. if the total benefits exceed the total costs.
B. if the average benefits exceed the average costs.
C. if the net benefit (benefit minus cost) is zero.
D. if the extra benefit is greater than or equal to the extra costs.

Back 2

D. if the extra benefit is greater than or equal to the extra costs.

Front 3

Dean decided to play golf rather than prepare for tomorrow's exam in economics. One can infer that:
A. Dean has made an irrational choice.
B. Dean is doing poorly in his economics class.
C. the economic surplus from playing golf exceeded the surplus from studying.
D. the cost of studying was less than the cost of golfing.

Back 3

C. the economic surplus from playing golf exceeded the surplus from studying.

Front 4

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and
did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000
per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000
per year. No Name U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values
attending NoName at $15,000 per year.

The opportunity cost of attending Elite U is:
A. $50,000
B. $10,000
C. $20,000
D. $15,000

Back 4

C. $20,000

Front 5

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and
did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000
per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000
per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values
attending NoName at $15,000 per year.
Larry maximizes his surplus by attending:
A. Elite U, because $60,000 is greater than the benefit at the other schools.
B. State College, because the difference between the benefit and cost is greatest there.
C. NoName U, because Larry has a full scholarship there.
D. Elite U, because the opportunity costs of attending Elite U are the lowest.

Back 5

B. State College, because the difference between the benefit and cost is greatest there.

Front 6

Amy is thinking about going to the movies tonight. A ticket costs $7 and she will have to cancel her dog-sitting job
that pays $30. The cost of seeing the movie is:
A. $7.
B. $30.
C. $37.
D. $37 minus the benefit of seeing the movie.

Back 6

C. $37.

Front 7

Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if he wants to
buy something with a price of $50, it is a good offer, but if he wants to buy something with a price of $500, it is not
a good offer. This is an example of:
A. inconsistent reasoning; saving $20 is saving $20.
B. the proper application of the cost-benefit principle.
C. rational choice because in the first case he saves 40% and in the second case he saves 4%.
D. marginal cost equals marginal benefit thinking.

Back 7

A. inconsistent reasoning; saving $20 is saving $20.

Front 8

Microeconomics is distinguished from macroeconomics in that microeconomics focuses on:
A. the performance of the national economy.
B. the overall price level.
C. choices made by individuals or groups in the context of individual markets.
D. how to improve the performance of the national economy.

Back 8

C. choices made by individuals or groups in the context of individual markets.

Front 9

Jenna decides to see a movie that costs $7 for the ticket and has an opportunity cost of $20. After the movie, she
says to one of her friends that the movie was not worth it. Apparently:
A. Jenna failed to apply the cost-benefit model to her decision.
B. Jenna was not rational.
C. Jenna overestimated the benefits of the movie.
D. Jenna underestimated the benefits of the movie.

Back 9

C. Jenna overestimated the benefits of the movie.

Front 10

Relative to a person who earns minimum wage, a person who earns $30 per hour has:
A. a lower opportunity cost of working longer hours.
B. a higher opportunity cost of taking a day off.
C. a lower opportunity cost of driving farther to work.
D. the same opportunity cost of spending time on leisure activities.

Back 10

B. a higher opportunity cost of taking a day off.

Front 11

If Leslie can produce two pairs of pants in an hour while Eva can make one pair an hour, then it must be the case
that:
A. Leslie has a comparative advantage.
B. Leslie has an absolute advantage.
C. Eva has a comparative advantage.
D. Leslie has both comparative and absolute advantage.

Back 11

B. Leslie has an absolute advantage.

Front 12

Having a comparative advantage in a particular task means that:
A. you are better at it than other people.
B. you give up more to accomplish that task than do others.
C. you give up less to accomplish that task than do others.
D. you have specialized in that task, while others have not.

Back 12

C. you give up less to accomplish that task than do others.

Front 13

The production possibilities curve shows:
A. the minimum production of one good for every possible production level of the other good.
B. how increasing the inputs used for one good increases the production of the other good.
C. the maximum production of one good for every possible production level of the other good.
D. how increasing the production of one good allows production of the other good to also rise.

Back 13

C. the maximum production of one good for every possible production level of the other good.

Front 14

The fundamental reason the production possibilities curve has a downward slope is:
A. workers are inefficient.
B. resources are of low quality.
C. resources are fixed and therefore tradeoffs must be made.
D. it has empirical support but why it is so is still a mystery.

Back 14

C. resources are fixed and therefore tradeoffs must be made.

Front 15

According to the principle of increasing opportunity cost, expanding production requires using resources in which
order?
A. In random order.
B. Starting with the resource with the highest opportunity cost and progressing to the lower opportunity cost
resources.
C. Starting with the resource closest to the average opportunity cost, then progressing to higher opportunity cost
resources.
D. Starting with the resource with the lowest opportunity cost and proceeding to the higher opportunity cost
resources.

Back 15

D. Starting with the resource with the lowest opportunity cost and proceeding to the higher opportunity cost
resources.

Front 16

"Holding all other relevant factors constant, consumers will purchase more of a good as the price falls." This
statement reflects the behavior underlying:
A. the demand curve.
B. an increase in demand.
C. the supply curve.
D. a decrease in the demand curve.

Back 16

A. the demand curve.

Front 17

Shelly purchases a leather purse for $400. One can infer that:
A. she paid too much.
B. her reservation price was at least $400.
C. her reservation price was exactly $400.
D. her reservation price was less than $400.

Back 17

B. her reservation price was at least $400.

Front 18

As the price of a good rises:
A. firms earn larger profits.
B. more firms can cover their opportunity costs of producing the good.
C. firms find they can raise price by even more.
D. government regulation becomes more justified.

Back 18

B. more firms can cover their opportunity costs of producing the good.

Front 19

A shortage occurs when:
A. demand is greater than supply.
B. the equilibrium price is too high.
C. quantity demanded exceeds quantity supplied.
D. quantity supplied exceeds quantity demanded.

Back 19

C. quantity demanded exceeds quantity supplied.

Front 20

If the market for sport utility vehicles has excess supply, then one can say that:
A. supply is greater than demand.
B. quantity supplied is greater than quantity demanded.
C. demand is greater than supply.
D. quantity demanded is greater than quantity supplied.

Back 20

B. quantity supplied is greater than quantity demanded.

Front 21

When the price of a good is below its equilibrium value:
A. consumers will bid the price up.
B. excess supply will occur.
C. it will tend to stay below the equilibrium value.
D. suppliers will notice their inventories are growing.

Back 21

A. consumers will bid the price up.

Front 22

A movement along a demand curve from one price-quantity combination to another is called:
A. a change in quantity demanded.
B. a shift in the demand curve.
C. a change in demand.
D. a change in quantity supplied.

Back 22

A. a change in quantity demanded.

Front 23

What might cause a demand function to shift to the right?
A. An increase in the price of a substitute.
B. An increase in the product's own price.
C. An increase in the price of a complement.
D. A decrease in the price of a substitute.

Back 23

A. An increase in the price of a substitute.

Front 24

If the price of computers increases and the demand for monitors decreases as a result, then:
A. computers and monitors are complements.
B. computers are a normal good and monitors are inferior.
C. computers and monitors are substitutes.
D. computers are an inferior good and monitors are normal.

Back 24

A. computers and monitors are complements.

Front 25

If the demand for computers shifts to the right as consumers' incomes rise, computers are
A. inferior goods.
B. complement goods.
C. normal goods.
D. substitute goods.

Back 25

C. normal goods.

Front 26

A decrease in the demand for bananas with no concurrent change in the supply of bananas will result in a
________ equilibrium price and a(n) ________ equilibrium quantity.
A. higher; lower
B. lower; lower
C. higher; unchanged
D. higher; higher

Back 26

B. lower; lower

Front 27

In general, when the supply curve shifts to the left and demand is constant then:
A. the market cannot reestablish an equilibrium.
B. the equilibrium price will fall.
C. the equilibrium quantity will rise.
D. the equilibrium price will rise.

Back 27

D. the equilibrium price will rise.

Front 28

If a market is in equilibrium and demand increases while supply decreases, the change in the equilibrium price is
________ and the change in the equilibrium quantity is _________.
A. positive; positive
B. positive; negative
C. positive; indeterminate
D. indeterminate; positive

Back 28

C. positive; indeterminate

Front 29

The percentage change in quantity demanded that results from the percentage change in price is known as
the:
A. price elasticity of supply.
B. price elasticity of demand.
C. income elasticity of demand.
D. cross-price elasticity of demand.

Back 29

B. price elasticity of demand.

Front 30

Price elasticity of demand is often expressed as a positive number because:
A. using the formula yields a positive number.
B. demand has a positive slope.
C. it's convenient to use absolute values even though the formula yields non-positive numbers.
D. both the numerator and the denominator in the formula are negative.

Back 30

C. it's convenient to use absolute values even though the formula yields non-positive numbers.

Front 31

If the price elasticity of demand for pineapple is 0.75, a 4% increase in the price of pineapple will lead to a:
A. 3% decrease in the quantity demanded of pineapple.
B. 3% increase in the quantity demanded of pineapple.
C. 4% decrease in the quantity demanded of pineapple.
D. 0.1875% increase in the quantity demanded of pineapple

Back 31

A. 3% decrease in the quantity demanded of pineapple.

Front 32

The demand for a good is inelastic with respect to price, if the price elasticity of demand is:
A. equals one.
B. is greater than one.
C. is less than one.
D. equals negative one.

Back 32

C. is less than one.

Front 33

If the demand for a good is elastic, that good is likely to have:
A. many close complements.
B. few close complements.
C. many close substitutes.
D. few close substitutes.

Back 33

C. many close substitutes.

Front 34

If the consumers cannot switch to a close substitute when the price of a good increases, the demand for that good
is likely to be:
A. elastic.
B. inelastic.
C. unitary elastic.
D. perfectly elastic.

Back 34

B. inelastic.

Front 35

Jeans in general have fewer close substitutes than any specific brand of jeans. Therefore, the demand for jeans in
general would be _______ than the demand for a specific brand of jeans.
A. more elastic
B. more inelastic
C. more unitary elastic
D. less inelastic

Back 35

B. more inelastic

Front 36

Big-ticket items such as refrigerators have a(n) _____ price elasticity of demand compared to low budget items
such as paper towels.
A. higher
B. lower
C. very low
D. equal

Back 36

A. higher

Front 37

If the slope of the demand curve is -1.4, price is $5 and quantity demanded is 13 units, the price elasticity of
demand is:
A. 0.27.
B. 0.38.
C. 1.4.
D. 1.8.

Back 37

A. 0.27.

Front 38

If the slope of the demand curve is equal to infinity, the price elasticity of demand will be:
A. zero.
B. infinite.
C. one.
D. equal to the price of the good.

Back 38

A. zero.