Multiple Choice -- All of these questions are relevant for our first exam -- Fall 2012. Warning: this practice exam does not include any questions from chapter 5 and only one from chapter 21.
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.
1.
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
2.
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
3.
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.
4.
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
5.
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
6.
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
7.
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
8.
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
9.
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
10.
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
11.
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
12.
Movements along a demand curve are called changes in
A) demand B) opportunity costs C) quantity demanded D) the substitution effect E) preferences
13.
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.
14.
If income rises and a good is inferior, then demand for that good will decrease.
A) True B) False
15.
A leftward shift in a supply curve represents a decrease in supply.
A) True B) False
16.
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
17.
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
18.
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
19.
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
20.
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
21.
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
22.
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
23.
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.
24.
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
25.
Whenever the opportunity costs of goods are significantly different in different countries, there are gains from specialization and trade.
A) True B) False
26.
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
27.
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
28.
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
29.
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
30.
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
31.
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
32.
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
33.
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.
34.
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
35.
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
36.
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
37.
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
38.
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.
39.
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
40.
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
Short Answer
41.
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.